The Economic Valuation of the Environment and Public Policy

The Economic Valuation of the Environment and Public Policy

A Hedonic Approach

New Horizons in Environmental Economics series

Noboru Hidano

The importance of the hedonic valuation approach in public policy evaluation and environmental value estimation is now widely accepted. This book is especially designed to illustrate the basic assumptions of the hedonic approach and highlight the strengths and weaknesses associated with it. Combining rigorous theoretical analysis, detailed empirical studies and an extensive history of hedonic valuation, the book is both a good introductory text to the field and a precise yet comprehensive aid for professionals and practitioners alike.

Chapter 5: Empirical Examination of the Accuracy of the Hedonic Approach

Noboru Hidano

Subjects: environment, environmental sociology, politics and public policy, public policy


5. Empirical examination of the accuracy of the hedonic measure LARGE NATIONAL PROJECT EVALUATION In the last chapter, we demonstrated that the hedonic measure can be a very good estimate of the real gross benefits of the projects in the non-marginal cases using general equilibrium analysis. But we should be wary of the results because of the nature of numerical analysis, using hypothetical values of parameters. Thus, in this chapter, in order to validate the hedonic measure, we now apply it in the evaluation of a real project in Japan. The method we use is to compare the benefits of the project in terms of equivalent variation and the hedonic prices calibrated using a general equilibrium model and to test the differences between the EV value and the hedonic measure calculated using the nationwide estimated hedonic price function. INTRODUCTION OF ACCESSIBILITY AND THE MODEL REVISED Accessibility The validity of the hedonic measure was assessed using the Hokuriku highway project, one of the main highway projects in Japan. The highway runs through five of the 47 prefectures (Japanese administrative jurisdictions), and will be the trunk road for the areas bordering the Sea of Japan. There should be spillover effects of the project because of its large impact on the Japanese economy. We modify the model to include this effect in both utility and production by the introduction of an accessibility measure (ACC ). This measure is defined as follows: ACCi ϭ Ά͚ k (DIDni ·DIDnk)/[minm (Pm...

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