A Hedonic Approach
New Horizons in Environmental Economics series
Chapter 9: Environmental Cost–Benefit Analysis Using the Hedonic Price Method
9. Environmental cost–beneﬁt analysis using the hedonic price method INTRODUCTION As discussed in previous chapters, we can utilize stable and understandable values of the environment and public projects using the hedonic price method. In this chapter we explain how to proceed with cost–beneﬁt analysis based upon the values estimated by the hedonic price method. It should be noted here that the process of cost–beneﬁt analysis is basically the same as with ordinal cases but it requires special attention in handling the values because of the nature of the hedonic method, which is not necessarily taken into account by a standard textbook of cost–beneﬁt analysis. Thus we shall explain the whole procedure of cost–beneﬁt analysis with special emphasis on the hedonic price method. BASIC PRINCIPLES OF COST–BENEFIT ANALYSIS Theoretical Considerations Measurement of beneﬁt for individuals Cost–beneﬁt analysis in this book means analysis that is used to examine the usefulness of a project or a policy-related environment or the provision of public services, from the viewpoint of society at large, rather than that of individuals, ﬁrms or organizations. It is thus different from ﬁrms’ accounting valuation or quasi-public organizational justiﬁcations of their spending. The questions are ‘what is society?’ or ‘who comprises the society?’. The former question is diﬃcult to answer but we shall discuss the social welfare func102 Environmental cost–beneﬁt analysis using the hedonic price method 103 tions. Society is composed...
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