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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 5: Short-run case [*]

## Noboru Hidano

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

## Extract

OVERESTIMATION THEOREM IN THE CASE WHEN CONSUMERS IN REGION 2 CHOOSE THEIR LAND AREA OPTIMALLY When we consider the short-term case, the land area for an individual consumer cannot be chosen optimally by the consumer because the lot size of land in both regions is ﬁxed. But if the land area is chosen optimally by a consumer in Region 2 without the project, then the overestimation theorem holds. First we introduce a conditional expenditure function as follows: EC( p, r, z, u)ϭ min [( pxϩrl ); u(x, l, z)Նu]. x (A5.1) In the two regions, the utility should be equal because of the openness of the regions: u ϭu1 ϭu2. And the expenditures of both regions are: EC(1, r1, z1, u)ϭE(1, r2, z2, u)ϭwϩs sϭ(r1H1 ϩr2H2)/N (A5.3) (A5.4) (A5.2) because, in Region 2, the land area is chosen optimally by a consumer. The overestimation theorem is: Bϭ(r2 – r1) H1 ՆCϩN EVϭCϩV Thus: (r2 – r1)H1 ϪCՆV. (A5.6) (A5.5) PROOF OF OVERESTIMATION THEOREM The hedonic measure is: (r2 – r1)H1 ϭB. 141 (A5.7) 142 The economic valuation of the environment and public policy BϪCϭr2H1 ϪN [E(1, r2, z2, u )Ϫw]ϩr2H2 ϪC ϭwNϪNE(1, r2, z2, u)ϩr2(H1 ϩH2 )ϪC ϭwNϪNE(1, r2, z2, u)ϩr2HϪC BϪCϭwNϪNE(1, r2, z2, u)ϩr2(N1l1 ϩN2l2)ϪC ϭN1 wϩr2l1 Ϫ ΂ C C ϩN2 wϩr2l2 Ϫ ϪNE(1, r2, z2, u)...

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