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.

Appendix 3: Proof of equality conditions [*]

Noboru Hidano

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


PROOF OF THE EQUALITY CONDITIONS FOR THE SMALL DEGREE OF IMPROVEMENT CASE The small degree of improvement means that z2 Ϫz1 is small. And z2 is fixed and not changed due to the project. Thus we can assume that the benefit and cost of the project are a function of z1. From the overestimation theorem A2.29 Appendix 2, we get: B(z1)ϪC(z1)ϭN(x* ϩr2l *)ϪNE. (A3.1) And x*, l * can be expressed by the partial derivatives of the expenditure function using Shepard’s lemma. This left-hand side of the equation equals: N{Ep[1, r*(z1), z2, u*(z1)]ϩr2(z1) Er[1, r*(z1), z2, u*(z1)]ϪE [1, r2(z1), z2, u(z1)]}. (A3.2) The net benefit of the project in terms of the equivalent variation V is: V(z1)ϭN{E [1, r2(z1), z2, u*(z1)] ϪE[1, r2(z1), z2, u(z1)]}. (A3.3) We can examine the following situation in order to prove the equality condition: B(z1 ) Ϫ C(z1 ) . z1→ z2 z2 Ϫ z1 lim Since: z1→ z2 (A3.4) lim [B(z1)ϪC(z1)]ϭ0, (A3.5) then using l’Hôpital’s theorem, lim B(z1 ) Ϫ C(z1 ) BЈ(z1 ) Ϫ CЈ(z1 ) ϭ lim ϭϪ lim BЈ(z1)ϪCЈ(z1) z2 Ϫ z1 z1→ z2 Ϫ1 z1→ z2 134 (A3.6) z1→ z2 Appendix 3 V(z1 ) ϭϪ lim V Ј(z1) z1→ z2 z2 Ϫ z1 z1→ z2 lim BЈ(z1 ) Ϫ CЈ(z1 ) ϭEpr[1, r*(z1), z2, u*(z1)]r*Ј(z1) N 135 (A3.7) r*(z1), z2, u...

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