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Welfare Theory and Valuation

In: Handbook of Environmental Economics

Author

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  • Bockstael, Nancy E.
  • Freeman III, A. Myrick
Abstract
Public policies that lead to a reduction in the emissions of air and water pollutants or the protection of sensitive ecosystems presumably increase the well-being of many members of society. Applied welfare economists are accustomed to measuring the welfare effects of policies that invoke price changes. If it is granted that the public good attributes of most dimensions of environmental quality preclude the development of well functioning markets for these service flows, how are the monetary values of changes in environmental quality to be measured? The past twenty to thirty years have seen the rapid development of the economic theory and techniques for measuring the demands for nonmarketed goods, and in this chapter we attempt to sketch out the major results. We review the basic concept of economic welfare and derive measures of welfare change for both changes in prices of market goods and changes in quantities and qualities of nonmarket goods. We then describe the principal economic techniques for estimating the benefits of environmental quality improvements when these improvements either directly affect individuals' well-being or indirectly affect individuals through constraints they face. Perhaps the major class of measurement methods is based on the observation that changes in environmental quality may cause individuals to alter purchases of goods and services that are complements or substitutes for environmental quality in their preference orderings. These revealed preference methods are the primary focus of this chapter. A second major approach to obtaining estimates of the benefits and costs of environmental changes, stated preference methods, are addressed in detail in later chapters. Our treatment of welfare effects places special emphasis on the connection between the underlying economic theory and practical empirical models.

Suggested Citation

  • Bockstael, Nancy E. & Freeman III, A. Myrick, 2006. "Welfare Theory and Valuation," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 2, chapter 12, pages 517-570, Elsevier.
    • Handle: RePEc:eee:envchp:2-12
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    2. Vincent, Jeffrey R., 2012. "Ecosystem services and green growth," Policy Research Working Paper Series 6233, The World Bank.
    3. Pedro Herrera & Oscar Millones, 2011. "¿Cuál Es El Costo De La Contaminación Ambiental Minera Sobre Los Recursos Hídricos En El Perú?," Documentos de Trabajo / Working Papers 2011-321, Departamento de Economía - Pontificia Universidad Católica del Perú.
    4. Bujosa Bestard, Angel & Riera Font, Antoni, 2010. "Estimating the aggregate value of forest recreation in a regional context," Journal of Forest Economics, Elsevier, vol. 16(3), pages 205-216, August.
    5. Liu, Yuanyuan & Zeng, Yinchu & Yu, Xiaohua, 2009. "Consumer Willingness to Pay for Food Safety in Beijing: A Case Study of Food Additives," 2009 Conference, August 16-22, 2009, Beijing, China 51234, International Association of Agricultural Economists.
    6. Hertzler, Greg, 2008. "Dynamic Contingent Valuation and Choice Modelling for Ecosystem Services," 2008 Conference (52nd), February 5-8, 2008, Canberra, Australia 6024, Australian Agricultural and Resource Economics Society.
    7. Alfredo Dammert & Arturo Vásquez & Raúl García & Victor Zurita & Humberto Ortiz & Erix Ruiz, 2011. "¿Cuál Es El Costo De La Contaminación Ambiental Minerasobre Los Recursos Hídricos En El Perú?: Comentarios," Documentos de Trabajo / Working Papers 2011-326, Departamento de Economía - Pontificia Universidad Católica del Perú.
    8. Michael Ahlheim & Ulrike Lehr, 2008. "Equity and Aggregation in Environmental Valuation," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 295/2008, Department of Economics, University of Hohenheim, Germany.

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    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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