The Economic Valuation of the Environment and Public Policy
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The Economic Valuation of the Environment and Public Policy

A Hedonic Approach

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.
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Appendix 1: Proof of time-series capitalization [*]

A Hedonic Approach

Noboru Hidano


The time-series measure is: (r* Ϫr1)H1 ϭR. 1 (A1.1) The sum of rents from the land is distributed among consumers equally. This is called the uniform national dividend scheme (UNDS), which is a common assumption in a general equilibrium analysis since there are only homogeneous consumers in the society. Before the project implementation, the endowment is: sϭ(r1H1 ϩr2H2)/N. (A1.2) A consumer has a utility function u(x, l, z) where x is a composite good, l is area of land used and z is a level of amenity. A consumer maximizes the utility: max u(x, x,l l, z) under the income constraint of wage w, which is given exogenously, and endowment: px ϩrlϭwϩs (A1.3) where p and r are the price of a composite good and the unit rent (price) of land, respectively. The expenditure function is defined as follows: E( p, r, z, u)ϭmin [( pxϩrl ); u(x, l, z)Նu]. x,l From Shepard’s lemma, the demand for goods is obtained as follows: xϭѨE/ѨpϭѨE( p, r, z, u)/ѨpϭEp lϭѨE/ѨrϭѨE( p, r, z, u)/ѨrϭEr. (A1.5) (A1.6) (A1.4) In the two regions, the utility should be equal because of the openness of regions: uϭu1 ϭu2. 127 (A1.7) 128 The economic valuation of the environment and public policy And the expenditures of both regions are: E(1, r1, z1, u)ϭE(1, r2, z2, u)ϭwϩs. (A1.8) The...

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