Existence Value and the Contingent Valuation Method

People express concern about the possible extinction of animal species which they will never see, about damage to wilderness areas they will never visit, and so on. Such concerns are often interpreted by economists in terms of 'existence' or 'passive use' values. Three views have been proposed regarding the appropriate way of dealing with existence values in benefit-cost analysis. First, the existence values and concerns about environmental preservation that are not related to use may be disregarded. Second, concerns about environmental preservation may be taken into account, but not interpreted as existence values or evaluated in monetary terms. Third, the benefit-cost analysis may be modified to incorporate monetary estimates of existence values. Advocates of the third approach have developed a range of techniques for eliciting existence values, collectively referred to as the contingent valuation method. In this paper, the concept of existence value and the techniques of contingent valuation are surveyed, with the aim or providing a basis for comparisons of the three approaches described above.     

Valuing Environmental Health Effects – An Economic Perspective

This paper provides an overview of some of the issues involved in comparing benefit-cost analysis and cost-effectiveness analysis based on quality-adjusted life-years as alternative approaches to assessing environmental policies that affect human health. It concludes that: (i) although QALYs have the advantage of reflecting policy impacts on both health status and longevity in a single scalar measure, they are not consistent with utility theory unless individuals’ preferences satisfy some restrictive conditions; (ii) they do not capture other important aspects of the valuation of changes in mortality and morbidity; (iii) cost-effectiveness analysis based on QALYs as a measure of effectiveness omits non-health related effects of environmental policy; and (iv) it leaves unanswered the important question of what level of environmental regulation is appropriate.     

Economic Evaluation of Health-care Programmes: Is CEA Better than CBA?

It has been noted earlier that during the same period that the contingent valuation (CV) method evolved and became the most commonly used method of valuing environmental projects, the development in health economics was instead been towards cost–effectiveness analysis (CEA). Recently there has been a growing interest in the use of CEA, where QALYs (quality-adjusted life-years) are used as a measure of effectiveness, as the method of evaluation for environmental projects. The purpose of this paper is to answer the question – is CEA a superior method to CBA (both theoretically and empirically) to provide information to decision makers for use in decisions on resource allocation in health. The paper deals with the following topics: the underlying theoretical foundation for CEA; is CEA free of income distribution considerations?; is QALY a superior measure to WTP?; the usefulness of incremental CE ratio (ICER) to determine resource allocation. The paper concludes that there is neither theoretical nor practical support for the claim about the superiority of CEA.     

Japanese Consumption,External Disequilibrium and their Statistical Measurement

Georgescu-Roegen's work is usually divided into two categories, his earlier work on consumer and production theory and his later concern with entropy and bioeconomics beginning with his 1966 introductory essay to his collected theoretical papers published in the volume Analytical Economics. Most economists usually praise his earlier work on pure theory and ignore his later work which is highly critical of neoclassical economics. Those economists sympathetic to his later work usually take the position that he “saw the light” and gave up neoclassical theory some time in the 1960s to turn his attention to the issues of resource scarcity and social institutions. It is argued here that there is an unbroken path running from Georgescu's work in pure theory in the 1930s, 1940s, and 1950s, through his writings on peasant economies in the 1960s, leading to his preoccupation with entropy and bioeconomics in the last 25 years of his life. That common thread is his preoccupation with “valuation.” The choices our species makes about resource use and the distribution of economic output depends upon our valuation framework. Georgescu-Roegen's work begins in the 1930s with a critical examination of the difficulties with the hedonistic valuation framework of neoclassical economics, moves in the 1960s to the conflict between social and hedonistic valuation, and culminates in the 1970s and 1980s with his examination of the conflict between individual, social, and environmental values. This paper traces the evolution of Georgescu-Roegen's thought about valuation and the environmental and social policy recommendations which arise out of his bioeconomic framework.     

Toward an experimental foundation for benefit-cost analysis

Empirical results from experimental economics and neuroscience have uncovered regularities in human behavior that may provide a base for new approaches to welfare theory and economic policy. These empirical findings do not challenge basic economic concepts but they do imply that our assumptions about “rational behavior”, “opportunity cost”, and “social welfare” should be revised using sound scientific evidence and methods. This research has the potential to make benefit-cost analysis more reflective of how people value gains and losses, and more responsive to considerations of environmental and social responsibility.     

WTP- and QALY-Based Approaches to Valuing Health for Policy: Common Ground and Disputed Territory

This paper discusses links between two approaches to the value of health: the willingness to pay approach of environmental economics and the quality-adjusted life year approach of health economics. The approaches are used in cost-benefit and cost-effectiveness analyses of health interventions. Despite fundamental differences in the decision contexts and conceptual foundations of the two approaches, in current practice they are likely to lead to similar policy decisions. The paper also shows how research on the quality-adjusted life year (QALY) can be used to fill in gaps in the willingness to pay literature. The paper sketches a simple model that shows how to ``QALY-fy the value of a statistical life;' i.e., how to combine QALY estimates with estimates of the value of a statistical life to estimate willingness to pay for morbidity risks.Presented at the workshop “Economic Valuation of Health for Environmental Policy: Assessing Alternative Approaches," March 18–19, 2002, Orlando, Florida. I thank Glenn Blomquist, Mark Dickie, John Mullahy, Gary Zarkin and two anonymous referees for useful comments. All remaining errors are my own responsibility.     

Elicitation of Expert Opinion in Benefit Transfer of Environmental Goods

Benefit transfer is a method for estimating the value of environmental goods that involves the use of past information on identical or similar goods. This paper considers the extent to which benefit transfer can be based on prior distributions elicited from expert opinion. We propose two alternative methods to elicit the parameters of a prior distribution from experts on environmental valuation. An experiment is carried out on the value of National Parks in Spain. The results from the elicited distributions are compared with the information provided by onsite samples of visitors. The results indicate that individual experts made different predictions about the potential value of the policy areas that were diverse and unable to accurately predict the value for each policy site. However, the average across the elicited distributions approaches the estimated distribution with empirical data and accurately predicts the relative values for the two policy sites considered.     

The Load Model: an alternative to QALY

Background: QALYs are widely used in health economic evaluation, but remain controversial, largely because they do not reflect how many people behave in practice. This paper presents a new conceptual model (Load Model) and illustrates it in comparison with the QALY model.

Methods: Load is the average annual weight attributed to morbidity and mortality over a defined period, using weightings based on preference judgements. Morbidity Load is attributed to states of illness, according to their perceived severity. When people are in full health, Load is zero (no morbidity). Death is treated as an event with negative consequences, incurred in the year following death. Deaths may be weighted equally, with a fixed negative weight such as ?100, or differ according to the context of death. After death, Load is zero. In a worked example, we use the standard gamble method to obtain a weighting for an illness state, for both Load and QALY models. A judge is indifferent between certainty of 1.5 years’ illness followed by death, or a 50/50 chance of 1.5 years’ full health or 1-year illness, each followed by death. The weightings calculated are applied to a hypothetical life, 72 years in full health followed by 3 years with illness then death, using both models. Three other hypothetical outcomes are also compared.

Results: For an example life, the relative size of the morbidity component compared with the mortality component is much higher in the Load model than in the QALY model. When comparing alternative outcomes, there are also substantial differences between the two models.

Conclusions: In the Load model the weight of morbidity, relative to mortality, is very different from that in the QALY model. Given the role of the QALYs in economic evaluation, the implications of an alternative, which generates very different results, warrant further exploration.     

Assessing the Employment Impacts of Environmental and Natural Resource Policy

This paper provides an introductory guide for environmental andresource economists to methods of assessing the impact of environmentaland natural resource policy on employment. It examines five basicapproaches to evaluating the effect of a policy action on employment:1) supply and demand analysis of the affected sector; 2) partialequilibrium analysis of multiple markets; 3) fixed-price, generalequilibrium simulations (input-output (I-O) and social accounting matrix (SAM) multiplier models); 4) non-linear, general equilibriumsimulations (Computable General Equilibrium (CGE) models); and 5) econometric estimation of the adjustment process, particularly timeseries analysis. The basic modeling structure and data requirementsfor each of these approaches are described. Simple examples of theirapplication to evaluation of environmental and natural resourcepolicy are developed and the relative merits and applicability of each are discussed.     

Environmental Valuation – To Use or Not to Use? A Comparative Study of the United States and Europe

Valuation methods have been used for five main purposes in environmental decision-making. Cost–benefit analysis (CBA) of projects, CBA of new regulations, natural resource damage assessment, environmental costing, and environmental accounting. The relatively lower importance attached to economic efficiency in environmental decision-making in most European countries compared to the U.S.A., both legally and in practice, might account for our general finding that there are very few valuation studies in Europe which have served as a decisive basis for environmental policy and regulations. However, with EU's goal to establish environmentally adjusted national accounts and to apply CBA to environmental policy and regulations, time seems ripe for an increased use of valuation techniques in Europe.     

Contingent Valuation: Controversies and Evidence

Contingent valuation (CV) has become one of the most widely usednon-market valuation techniques. CV's prominence is due to itsflexibility and ability to estimate total value, includingpassive use value. Its use and the inclusion of passive use valuein benefit-cost analyses and environmental litigation are thesubject of a contentious debate. This paper discusses key areasof the debate over CV and the validity of passive use value. Weconclude that many of the alleged problems with CV can beresolved by careful study design and implementation. We furtherconclude that claims that empirical CV findings are theoreticallyinconsistent are not generally supported by the literature. Thedebate over CV, however, has clarified several key issues relatedto nonmarket valuation and can provide useful guidance both to CVpractitioners and the users of CV results.     

Benefits Transfer: Current Practice and Prospects

This paper introduces a special issue devoted to the benefits transfer methods used as part of benefit costs analysis for policy analysis. Benefits transfer methods, as they are applied for environmental policy analyses, use economic concepts together with existing empirical estimates to predict the incremental benefits from a change in some feature of an environmental resource. After giving two examples of the decisions that analysts confront in performing these analyses, I discuss the interconnections between the papers in this issue and the research challenges that emerged from discussions of them.     

Research Program versus Paradigm in the Development of Economics

This paper critiques economists’ past approaches to modeling the issue of intimate parmer violence based on stylized facts about victims and batterers. These stylized facts are an important step in recognizing a broader range of issues than what has been narrowly formulated in economic studies to date. A key factor is the revolving door phenomenon of abused women leaving and returning to a violent union. The ways in which women react to abusive situations is shaped by time-varying and path-dependent, decision-making processes over several episodes of violence. This paper discusses how economists can extend far beyond their current thinking around the constructions of intimate partner violence. The stylized facts presented in the paper have important implications for policy approaches to the issue, particularly where it concerns abused women’s potential for self-sufficiency in the labor market.     

The benefits and costs of ethanol: an evaluation of the government’s analysis

Ethanol production in the United States has been steadily growing and is expected to continue growing. Many politicians see increased ethanol use as a way to promote environmental goals, such as reducing greenhouse gas emissions, and energy security goals. This paper provides a benefit-cost analysis of increasing ethanol use based on an analysis by the Environmental Protection Agency. We find that the cost of increasing ethanol production to almost ten billion gallons a year is likely to exceed the benefits by about three billion dollars annually. We also suggest that earlier attempts aimed at promoting ethanol would have likely failed a benefit-cost test, and that Congress should consider repealing ethanol incentive programs, such as the ethanol tariff and tax credit.      

财政支出及其结构的经济效应:国外研究评述

作为宏观经济调控的重要手段,财政支出及其结构的经济效应历来备受瞩目。近年来,该领域的研究文献众多,主要集中在财政支出及其结构对经济增长、居民消费、私人投资和收入分配的影响。本文回顾了从理论分析到实证研究的最新文献,发现上述四个方面的研究结论分歧甚至冲突明显,理论基础、研究方法和数据来源等方面的差异是造成结论分歧的主要原因。今后的财政支出及其结构经济效应研究应该更加关注作用机制、经济环境差异、非线性效应、微观视角和政治因素。     

Diffusion of environment-saving technological change— a petroleum refining case study

This paper attempts a theoretical model (Section I) of a dynamic relationship, brought about by environment-saving technological changes over time, between output and water pollution. The improvement in environmental quality is studied in terms of adoption of relatively environment-saving processes in petroleum refining industry. This is done (Section II) by empirically fitting the Gompertz function or the growth rates of diffusion of the processes by the use of multiple regression equations. Social desirability of substituting the relative environment-saving process is examined in terms of social benefit-cost analysis (Section III). Thereafter, (Section IV) an attempt is made to find social policy variables which could be used in order to accelerate diffusion of environment-saving processes. The analysis concludes that both “carrot” (incentives, say, in the form of accelerated depreciation allowances for purchase of environment-saving process equipment) as well as “stick” (in the form of stricter enforcement of water pollution control laws) are necessary for inducing adoption of the desired technological changes over time.     

Feminist Ecological Economics and Sustainability

Synopsis New developments in feminist ecological economics and ecofeminist economics are contributing to the search for theories and policy approaches to move economies toward sustainability. This paper summarizes work by ecofeminists and feminist ecological economists which is relevant to the sustainability challenge and its implications for the discipline of economics. Both democracy and lower material throughputs are generally seen as basic principles of economic sustainability. Feminist theorists and feminist ecological economists offer many important insights into the conundrum of how to make a democratic and equity-enhancing transition to an economy based on less material throughput. These flow from feminist research on unpaid work and caring labor, provisioning, development, valuation, social reproduction, non-monetized exchange relationships, local economies, redistribution, citizenship, equity-enhancing political institutions, and labor time, as well as creative modeling approaches and activism-based theorizing.      

Risk–risk versus standard gamble procedures for measuring health state utilities

Contingent valuation (CV) has been widely used to measure the potential benefits derived from different policy decisions. However, doubt now exists about the validity of the CV method and alternative approaches to benefit valuation have been proposed. The paper reports on the results of a study which was designed to test the viability of two of the most prominent of the alternatives: the risk–risk (RR) and standard gamble (SG) approaches. If individual preferences are consistent with the axioms of von Neumann–Morgenstern expected utility theory (EUT) then the two methods should generate the same interval scales for any given set of health states. However, the results show that SG utilities are substantially higher than RR ones, thus casting doubt on these axioms. The paper discusses alternatives to EUT which might better expalin the discrepancies found. It also considers whether the results might be explained in terms of status-quo bias and/or by the relative difficulty of RR questions. The results presented may have important implications for other areas of applied research in which there exists uncertainty about outcomes.     

WHAT CAN ECONOMIC ANALYSIS CONTRIBUTE TO THE ‘SUSTAINABILITY’ DEBATE?

Economics generally, and benefit-cost analysis in particular, are not substitutes for values. They are tools of analysis that rest on assumptions about values. The primary role for economics in normative analysis is to provide information about efficiently achieving that which is valued, not to make the decision. The major economic tool for analyzing normative issues is benefit-cost analysis. This paper considers the role of benefit-cost analysis in addressing the sustainability debate. The notion of "sustain-ability" raises concerns about values held by society. The analysis here addresses several issues within the sustainability debate: concerns about intergenerational equity including the appropriate discount rate for projects with environmental consequences; implications for burdens on future generations; and the moral basis for benefit-cost analysis. The authors argue that the correct discount rate for all such projects is the social rate of time preference, and that suggestions for using lower discount rates result from attempting to prevent inequities by adjusting prices. Additionally, the authors argue that economic analysis, especially benefit-cost analysis, can play a useful role in providing information to decision makers, who ultimately will face resource allocation issues as they seek to implement policies promoting sustainability.