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 7: Two-region two type of consumer general equilibrium model

A Hedonic Approach

Noboru Hidano


We assume that there are two types of consumers who have the same utility function, that is, the same taste but different endowment. The total profits from firms and land owners are distributed to consumers R and P by the following rate ␦: 1Ϫ␦. In this appendix, i stands for region and j stands for two types of consumers. We should determine how to collect the cost of the project from these consumers. There are three methods, that is, lump-sum tax from endowment, tax proportional to land rent, and tax proportional to income. It is widely acknowledged that tax distortion exists in the last two tax systems. Since we are not interested in the bias of the tax system in general, we use tax proportional to land rent price which may directly affect the capitalization ratio. These consumers maximize their utilities [*]: max ui(xij , lij , zi ), wi ϩsj ϭxij ϩr h (1ϩTirh)l h . ij ij h xi j ,li j (A7.1) T irh is a tax rate. The endowments are: sp ϭ␦␲/NP sR ϭ(1Ϫ␦)␲/NR ␲ϭ (A7.2) (A7.3) ͚m ΂ ͚n r i i j h h f f ij ij l ij ϩri l i ΃ (A7.4) (A7.5) (A7.6) Vj [wi ϩsj, rh(1ϩT irh) zi ]ϵU [xij (⍀), r h (⍀), zi ] ij ij ⍀ϭ⍀[wi ϩsj, r h(1ϩTirh) zi ]. ij From the maximization of land owners’ profits, we can get: r h ϭr hϭrifϭri . ij i (A7.7) Firms maximize their profits [*], thus we can...

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