Benefits
Slides [link]Lecture 1
Theory of WTP and Revealed Preference
Required
- Read KO pages 44-55
- Read Koichiro Ito’s Forbes Article on estimating WTP for clean air in China.
- Watch the following short videos CSF videos to reinforce these concepts:
- A very basic introduction to willingness to pay
- Hedonic Pricing
- (Recommended) Travel Cost Method
Response questions
- What does it mean to use “revealed preference” to value the environment? Explain your answer referencing one of the methods from the readings/ videos. (one paragraph or less)
Additional material
- Berck and Helfand Chapter on revealed preference
Lecture 2
Stated Preference and Benefit Transfer
Required
- Watch this CSF video on Contingent Valuation
- Stephen Colbert on VSL
- Read “Euthanizing the Value of a Statistical Life”, by Trudy Cameron (REEP, 2010)
Response questions
- In your own words, describe what the “value of statistical life” is. From the article, what is one reason that name is less than ideal? (one paragraph)
Additional material
- 538 on “What should the government do to save a life?”
- Portney (JEP 1994) introduces the Exxon stated preference debate.
- Kling et al (JEP 2012) provide a retrospective look at whether “some number has become better than no number”
- Tol video - valuing Stonehenge
Key Points
- How to place a value on environmental benefits? Concept is same as in micro (WTP).
- In economics, we typically use revealed preference to infer how much consumers like a particular good (for example, when computing consumer surplus). Challenge is that we don't see prices.
- Revealed preference methods try to infer what people would pay from their actions. These methods include the travel cost method, averting expenditure, and hedonic analysis. Know the basic idea behind each approach.
- Stated preference methods instead try to recover WTP from highly structured surveys. Know the pros and cons.
- Value of Statistical Life