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 6: Two-region general equilibrium model

Noboru Hidano

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


We assume that the society is composed of two regions i(iϭ1, 2), homogeneous households have the utility function u(·) whose components are a composite good, land and environmental amenity, xi, l h, zi. A household i maximizes its utility [*]: max u(xi , l ih, zi ) h xi,li under the constraints of: wi ϩsϭxi ϩr ih lih (A6.1) where wi, rih, s are wage in region i, housing land rent in region i, and endowment, respectively: sϭ␲/N (A6.2) where ␲ is total profits of firms and land owners; and N is the number of households as well as workers in the society. From the first-order condition, ul ϭѨu/Ѩl, ux ϭѨu/Ѩx ux rih ϭul wi ϩsϭxi ϩril lih, we can get following demand functions: xi ϭxi(wi ϩs, rih, zi ) lih ϭlih(wi ϩs, rih, zi ). Thus the utility is: V(wi ϩs, rih, zi )ϭ u[xi(wi ϩs, rih, zi ),lih(wi ϩs, rih, zi ),zi]. (A6.6) (A6.4) (A6.5) (A6.3) There are two types of firm in the society. Each type of firm produces the same composite good by regional specific technology using the same 144 Appendix 6 145 resources of worker, firm’s land and amenity of environment, ni, l if, zi. They produce Xi. They maximize their profit [*]: max ⌸ϭXi Ϫ(wi ni ϩri l if ) f ni,li (A6.7) under the production technological constraints: Xi ϭXi(ni,l if, zi ). Demand functions of worker and land are: ni ϭni(wi,...

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