Modern Cost–Benefit Analysis of Hydropower Conflicts

Modern Cost–Benefit Analysis of Hydropower Conflicts

Edited by Per-Olov Johansson and Bengt Kriström

This important book sheds light on the ways in which modern tools of welfare economics can be used to assess the benefits and costs of resource conflicts involving hydropower. The chapters highlight key methodological issues in this area; ranging from the intersection between cost–benefit analysis and behavioral economics, to the value of load balancing services provided by hydropower. The inclusion of insights from expert contributors from both sides of the Atlantic brings a unique and interesting range of viewpoints to the work.

Chapter 5: Estimation of WTP with Point and Self-selected Interval Responses

Bo Ranneby and Jun Yu

Subjects: economics and finance, environmental economics, environment, environmental economics, water


Bo Ranneby and Jun Yu INTRODUCTION 1 The development of methods to measure willingness-to-pay (WTP) has renewed interest in cost–benefit analysis (CBA) for the economic evaluation of health care programs and environmental issues. We may ask how much people are willing to pay for changes in environmental quality. It depends, of course, on the individuals’ preferences and their income. The preferences are summarized in a utility function u and the willingness-topay is defined as: u (y0, z) 5 u (y1, z 2 WTP) (5.1) Here y0 denotes current environmental quality, y1 improved environmental quality, z income and WTP the amount the individual is willing to pay for improving environmental quality from y0 to y1. Usually in contingent valuation (CV) studies regarding willingnessto-pay the respondents give an exact value as his/her WTP value. Unfortunately, the non-response rate has a tendency to be quite high. As an attempt to reduce that rate the respondents will have a possibility to give a self-selected interval instead of a fixed value as their WTP. The concept of self-selected intervals is closely related to intervalcensored failure time data in survival analysis. Censoring mechanisms can be quite complicated and thus necessitate special methods of treatment. Different types of interval-censored data have been studied. Gehan (1965), Turnbull (1974, 1976) and others considered ‘double-censoring’, where an observation gets censored ‘left and right’. Groeneboom and Wellner (1992), Huang (1996) and others studied the Type I intervalcensored data (also called current status data) in which all observed intervals ‘include’ either...

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