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Econometrics Informing Natural Resources Management

Selected Empirical Analyses

  • New Horizons in Environmental Economics series

Edited by Phoebe Koundouri

This fascinating book outlines the fundamental principles and difficulties that characterise the challenging task of using econometrics to inform natural resource management policies, and illustrates them through a number of case studies from all over the world. The book offers a comprehensive overview of the broader picture of the state-of-the-art in econometrics as applied to environmental and natural resource management.
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Chapter 14: Individual-specific welfare measures for public goods: a latent class approach to residential customers of Yorkshire Water

Riccardo Scarpa, Kenneth G. Willis and Melinda Acutt

Extract

14. Individual-specific welfare measures for public goods: a latent class approach to residential customers of Yorkshire Water Riccardo Scarpa, Kenneth G. Willis and Melinda Acutt 1. INTRODUCTION As well as the provision of water as a private good for residential and business customers, water companies are responsible for management actions that affect the provision of public goods. This is well recognized and for this, as well as social policy reasons, the market operations of such companies are publicly regulated. Water customers pay a flat rate for water provision, either on property value or measured consumption. In the process of water provision, the management of water companies has discretion on how to achieve targets of water delivery and waste water disposal to satisfy demand, subject to legal minimum standards. In doing so, they also jointly provide certain levels of ‘public goods’, such as bathing water quality, water quality in rivers, risk of flood in case of piping malfunctions etc. The supply of water delivery targets is compatible with a large variety of combinations of different levels of related public goods. Optimal supply level will depend on consumer preferences and willingness to pay for alternative levels of joint supply of the private/public good package. Such preferences cannot be derived from market transactions because customers cannot shop around for different levels of provisions of the public goods associated with water supply. An alternative way to investigate these preferences is via statements of choice. Stated preference studies have recently established...

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