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William K. Bellinger

How much to invest is a fundamental question applying equally well to socially valued public investments as to the private sector. Benefit-cost analysis is the cornerstone of the economic analysis of public policy, and is closely aligned with basic rational choice and market concepts from microeconomics. Information and other constraints often block the direct application of marginal analysis in policy decisions, but the conceptual role of marginalism can still be useful in interpreting cost-benefit analysis. While all policy analysis texts that emphasize the economic dimensions of policy cover the basics of marginal analysis, the sources of market inefficiency, and basic decision rules for policy analysis, the connections between marginal analysis and non-marginal policy decision rules are seldom emphasized. This chapter limits its discussion of marginal analysis to the concepts of optimal quantity and optimal allocation rather than the market based concepts of surplus, equilibrium and elasticity, which are discussed in later chapters. This chapter begins by reviewing marginal and non-marginal concepts and measures for policymaking, and then discusses a set of basic policy decisions that can be informed by these concepts. Student exercises are included and answered in the appendix to the chapter.

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Edited by Scott Farrow

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Edited by Daniel McFadden and Kenneth Train

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William Desvousges, Kristy Mathews and Kenneth Train

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Kelley Myers, Doug MacNair, Ted Tomasi and Jude Schneider

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Edited by Daniel McFadden and Kenneth Train

Contingent valuation is a survey-based procedure that attempts to estimate how much households are willing to pay for specific programs that improve the environment or prevent environmental degradation. For decades, the method has been the center of debate regarding its reliability: does it really measure the value that people place on environmental changes? Bringing together leading voices in the field, this timely book tells a unified story about the interrelated features of contingent valuation and how those features affect its reliability. Through empirical analysis and review of past studies, the authors identify important deficiencies in the procedure, raising questions about the technique’s continued use.
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Edited by Daniel McFadden and Kenneth Train

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James Burrows, Rebecca Newman, Jerry Genser and Jeffrey Plewes

This chapter focuses on a key test of rational choice in CV studies: do estimates of WTP for environmental amenities derived from split-sample (external) tests in CV studies increase as the amount of the good (or the number of goods) increases (i.e., as scope increases), and, if so, are the WTP estimates “adequately” responsive to scope? For the 111 studies of environmental non-use and mixed use/non-use environmental amenities in our study, after fractional allocation of mixed results and appropriate weighting of studies based on common underlying data, more studies fail (54 percent of the total) than pass (46 percent). Contrary to expectations, the percentage of studies failing scope has increased over time: over the 1987–2001 period, 49 percent of the studies failed a scope test vs 59 percent for the 2001–2016 period. We also find that even the scope tests that “pass” often do not exhibit “adequate” scope sensitivity. For the 21 studies that lend themselves to appropriate quantitative analysis, nine have scope elasticities less than 0.10 and 12 have scope elasticities less than 0.2; only three have scope elasticities above 0.5. The high frequency of no or limited scope elasticities documented in this study suggests that warm glow is an important element of measured WTP for non-use environmental amenities.

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Harry Foster and James Burrows