Theory, Methods and Public Policy
New Horizons in Environmental Economics series
Edited by Gary Paul Green, Steven C. Deller and David D. Marcouiller
Chapter 5: The Supply and Demand for Natural Amenities: An Overview of Theory and Concepts
Thomas Michael Power Economists have long recognized the fact that many of the important determinants of our well being are noncommercial in character. They cannot be appropriately provided by commercial businesses coordinated by markets. That is one of the reasons economics exists as a social science separate and apart from the study of commercial business. Site-speciﬁc characteristics of a particular locale that make it a more or less attractive place to live make up one important group of such noncommercial goods and services. These site-speciﬁc qualities have come to be labeled ‘amenities’. They may include everything from local climate, levels of crime and congestion, outdoor recreation opportunities, quality of schools, air and water quality and urban density. Amenities, to economists, include all of those location-speciﬁc public good characteristics of a place that increase that place’s attractiveness as a residential or business location. Characteristics of the local market economy such as market size, job opportunities and cost of living are not treated as amenities. Economists have worked to develop the tools that allow the measurement of such noncommercial economic values so that in public policy decisions in which both commercial and noncommercial economic values are at stake, better, more fully informed decisions can be made. By studying the actual choices made by individuals in the pursuit of noncommercial economic values, economists have been able to measure those noncommercial economic values through the sacriﬁces people actually make. Analysis of travel costs, property value diﬀerentials and wage di...
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