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# The Economic Valuation of the Environment and Public Policy

## 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.

# Appendix 2: Proof of the overestimation theorem [*]

## Noboru Hidano

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

## Extract

The overestimation theorem is: Bϭ(r2 – r1) H1 ՆCϩN EVϭCϩV. Thus: (r2 – r1) H1 ϪCՆV. The hedonic measure is: Bϭ(r2 – r1) H1. (A2.3) (A2.2) (A2.1) PROOF A consumer has a utility function u(x, l, z), where x is a composite good, l is the area of land of a consumer, and z is an amenity. A consumer maximizes the utility: max x,l u(x, l, z) under the income constraint of wage w and endowment: pxϩrlϭwϩs. (A2.4) The sum of rents from the land is distributed among consumers equally. Thus the endowment is: sϭ(r1H1 ϩr2H2)/N (A2.5) where p and r are the price of a composite good and unit rent (price) of land, respectively. Expenditure function is deﬁned as follows: E( p, r, z, u)ϭ min [( pxϩrl ); u(x, l, z)Նu]. x,l 130 (A2.6) Appendix 2 From Shepard’s lemma,1 the demand for goods is obtained as follows: xϭѨE/ѨpϭѨE( p, r, z, u)/ѨpϭEp lϭѨE/ѨrϭѨE( p, r, z, u)/ѨrϭEr. 131 (A2.7) (A2.8) Now we turn to examine the equilibrium conditions without a project. In two regions, the utility should be equal because of the openness of regions: uϭu1 ϭu2. And the expenditures of the two regions are: E(1, r1, z1, u)ϭE(1, r2, z2, u)ϭwϩs. (A2.10) (A2.9) The total land demand of each region should be equal to...