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REM 363/ENV 399 – Week 11 INDIRECT VALUATION OF ECOSYSTEM SERVICES

REM 363/ENV 399 – Week 11 INDIRECT VALUATION OF ECOSYSTEM SERVICES. Revealed Preference: Hedonic Pricing Method (HPM). Derives values from the influence of environmental quality on market prices, especially property values

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REM 363/ENV 399 – Week 11 INDIRECT VALUATION OF ECOSYSTEM SERVICES

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  1. REM 363/ENV 399 – Week 11 INDIRECT VALUATION OF ECOSYSTEM SERVICES

  2. Revealed Preference: Hedonic Pricing Method (HPM) • Derives values from the influence of environmental quality on market prices, especially property values • Cross-sectional data on house prices and data on factors liable to influence these prices, including environmental quality (noise, air pollution, etc.) are needed • Multiple regression uses these factors to 'explain' the prices, and a measure of the impact of environmental quality can be derived.

  3. An HPM model looks as follows (PP is property price): PP = f (property variables, neighbourhood variables, accessibility variables, environmental variables) and might be specified as: lnPP = alnPROP + blnNHOOD +clnACCESS + dlnENV • a rough measure of value uses the derivative dPP/dENV • demand curve can be estimated from this & other data

  4. Revealed Preference: Travel Cost Method (TCM) • Measures how much individuals are willing to pay to visit a site, given income, distance and competing sites • Adjusting for income differences and competing sites, the relationship between distance (and therefore costs) and number of visits is estimated per visitor (V): V = f (travel cost, income, substitutes, demographics) • Site visit price is increased arbitrarily (from zero) and visits per individual are recalculated and aggregated • This provides a demand curve for visits to the site

  5. Some of the problems associated with the TCM include: • treatment of time (does it have a cost? what is it?) • multi-site trips (how to allocate trip costs?) • use of estimated rather than real costs (accurate?) • treatment of discretionary costs (e.g. lodging) • allocating durables' costs on per trip basis • endogenous distance effects (residence selection?)

  6. Production Function Approaches to Valuation • Production functions model the contribution of various inputs to outputs in a production process • Environment may be one of these inputs • Production function techniques allow the analyst to isolate the contribution to output from the environment • For example, a coastal mangrove area may support commercial fish reproduction

  7. The Comb Jelly “Mnemiopsis leidyi”

  8. Anchovy growth relationship: New recruits, pre-Mnemiopsis: New recruits, post-Mnemiopsis: R = young anchovies added to the adult (harvested) stock P = level of phosphates (pollution) in the Black Sea S = parent anchovy stock available for reproduction X = adult (harvested) stock Black Sea Anchovy-Mnemiopsis Model

  9. Profits in the Black Sea Anchovy Fishery for the Pre-Mnemiopsis and Mnemiopsis Periods (US $’000, 1990 prices) Source: Knowler and Barbier 2000

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