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 4: Model and proof of the overestimation theorem in the case of heterogeneous consumers [*]

A Hedonic Approach

Noboru Hidano


We assume that there are two types of consumers who are identified by superscripts 1 and 2. Consumer 2 lives in both Regions 1 and 2. The regions are identified using subscripts. Consumer 1 only lives in Region 1. Then the hedonic measure may overestimate the real gross benefit. Without an amenity improvement project: E 2(1, r1, z1, u2)ϭE 2(1, r2, z2, u2)ϭw2 ϩs2 E 1(1, r1, z1, u1)ϭw1 ϩs1 ՅE 1(1, r2, z2, u1) H1 ϭN 1E 1(1, r1, z1, u1)ϩN 2 E 2(1, r1, z1, u2) r 1 r H2 ϭN 2E 2(1, r2, z2, u2). 2 r The number of consumers i in Region j is N ji : N 2 ϩN 2 ϭN 2 1 2 N 1s1 ϩN 2s2 ϭr1H1 ϩr2H2. (A4.5) (A4.6) (A4.1) (A4.2) (A4.3) (A4.4) If we implement a project to increase the level of amenity in Region 1 from z1 to z2 at cost C: E 1(1, r*, z2, u1*)ϭw1* ϩs1* E 2(1, r*, z2, u2*)ϭw2* ϩs2* H1 ϩH2 ϭN 1E 1(1, r*, z2, u1*)ϩN 2E 2(1, r*, z2, u2*) r r N 1s1* ϩN 2s2* ϭr*(H1 ϩH2)ϪC. In this heterogeneous case, the overestimation theorem is: BϪCϪVՆDՆ0 139 (A4.11) (A4.7) (A4.8) (A4.9) (A4.10) 140 where: The economic valuation of the environment and public policy D ϭN1[E1(1, r2, z2, u1)ϪE1(1, r1, z1, u1)...

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