On Designing Constructed Markets in Valuation Surveys

In this paper I consider some of the methodological issues involvedin designing valid contingent valuation (CV) scenarios. I identifythe several parts of these scenarios and the design issues particularto those parts. Although my principal example is the scenario I andothers used in the Exxon Valdez oil spill study of the naturalresource damages to Prince William Sound, Alaska, I generalize toother types of CV scenarios.     

Contingent Valuation and Lost Passive Use: Damages from the Exxon Valdez Oil Spill

We report on the results of a large-scale contingent valuation (CV) study conducted after the Exxon Valdez oil spill to assess the harm caused by it. Among the issues considered are the design features of the CV survey, its administration to a national sample of U.S. households, estimation of household willingness to pay to prevent another Exxon Valdez type oil spill, and issues related to reliability and validity of the estimates obtained. Events influenced by the study's release are also briefly discussed.     

An estimate of the producer cost of liability for oil spills

Governments often impose liability for environmental harms on firms when direct monitoring of operations is difficulty or costly. In the case of oil production, little is known about the private cost of liability. This article takes advantage of a natural experiment to estimate the loss in projected future profits of oil and gas production after the Oil Pollution Act of 1990, which imposed liability on some producers and was exogenously timed in response to the Exxon Valdez spill. I find no evidence of economically substantial firm costs of the Oil Pollution Act’s liability rule.     

Starting point bias and respondent uncertainty in dichotomous choice contingent valuation surveys

In this article, we develop a dichotomous choice model with follow-up questions that describes the willingness to pay being uncertain in an interval. The initial response is subject to starting point bias. Our model provides an alternative interpretation of the starting point bias in the dichotomous choice valuation surveys. Using the Exxon Valdez survey, we show that, when uncertain, individuals tend to answer “yes”.     

我国海洋生态系统服务非市场价值评估研究特征及态势

海洋生态系统服务非市场价值评估,将生态系统服务无法由市场直接体现的效用价值量化为货币价值,是实现生态资源可持续发展的重要手段,同时也为资源合理利用和补偿、环境价值核算等提供了必要的决策依据。本文基于我国现有研究,分别从生态系统类型、时空分布、评估类别、评估技术以及信度和效度检验五个方面,系统地分析了我国海洋生态系统服务非市场价值评估研究现状,识别出当前的研究特征。研究结果显示近年来我国海洋生态系统服务非市场价值评估研究增长迅速,尤其以上海、山东、辽宁等沿海区域为主要研究对象;湿地和海湾海滨生态系统的研究最为密集,其中对使用价值的研究远远超过非使用价值;条件价值法和旅行成本法是主要研究方法,两种方法都以游憩价值评估为主;评估结果的信度与效度检验是当前研究的薄弱环节,也是未来研究的重点发展方向。     

The preference reversal phenomenon: Response mode,markets and incentives

Summary This paper addresses the apparent conflict between the results of experiments on individual choice and judgement and the results of market experiments. Data are reported for experiments designed to analyze the effects of (a) economic incentives, repetition, feedback and information and (b) choice and valuation response modes on (c) subjects' decisions in paired market and nonmarket environments. Causes of divergent market and nonmarket behavior are identified in the context of the preference reversal phenomenon (PRP). Study of the PRP is extended to two types of market environments. The PRP is observed on the first repetition in a market setting (second price auction) with immediate feedback, both with and without financial incentives. However, after five repetitions of the auction, the subjects' bids are generally consistent with their choices and the asymmetry between the rates of predicted and unpredicted reversals disappears. An individual pricing task using the BDM mechanism yields similar results on the first repetition but results which differ from the second price auction on the fifth repetition. Choice tasks produce lower rates of reversals than do pricing tasks in both market and individual decision making settings.We are grateful for financial support from the National Science Foundation (grant no. SES-8820552) and the California Institute of Technology. Research facilities were provided by the Economic Science Laboratory at the University of Arizona. Valuable computer programming was provided by Sean Coates and Shawn LaMaster. We thank Professor Jeffrey Dubin for his help in setting up the software for the generalized Tobit model, and Professors Joyce Berg, Graham Loomes, and Charles R. Plott for helpful comments.     

A comparative study of environmental amenity valuations

The paper reports on a comparative study of direct and indirect approaches to valuing environmental amenities (i.e., public goods), specifically, air quality in terms of its human health effects. The application of three indirect valuation methods (via market goods) is reported here: the health production method, a consumer preferences (for nonmarket goods) model, and the cost of illness method. The first and second methods are (economic) behavior-based approaches where willingness to pay for an environmental good is derived by exploiting relationships in consumption between the public good and market good(s). The third method is based on a physical relationship—a dose-response function—between the environmental good and health. The direct valuation approach encompassed three contingent valuation elicitation formats: open-ended, modified iterative bidding game, and referenda-style binary choice. The application of all four methods was based on data from a survey of a large, stratified sample of households from the Haifa metropolitan area in northern Israel. The estimates of welfare change derived by the various methods are discussed and compared.     

Methods for Environmental and Economic Accounting for the Exploitation of Wild Fish Stocks and their Applications to the Case of Icelandic Fisheries

The paper discusses methods for estimating the value of commercially exploited fish stocks and the cost of exploiting them. Methods which are recommended in the System of National Accounting (SNA) satellite system and the System for Integrated Environmental and Economic Accounting (SEEA) and relevant for this task are discussed. The paper questions the relevance of some of these methods. It argues for the integration of economic accounting for wild fish stocks with estimation of efficient management of them. Using biological and economic data makes it possible to produce consistent estimates of the value of fish stocks and the cost of exploiting them. These estimates are useful for national accounting and for guiding management of fisheries. This method allows estimation of the cost of inefficiency of fisheries management besides estimation of the cost of depletion. The different methods are illustrated using data on commercial fisheries in Iceland and the fish stocks that they exploit. It is shown that even if all methods are based on market valuation and use only objective data they lead to very different outcomes.     

苏北海岸带水资源价值模糊评价

水资源价值的大小是确定资源水价的基础,受环境、经济等人类文明成果的制约。文章对水资源价值模糊评价模型进行了详细的介绍,以苏北海岸带的主要河流为研究区域进行了量化计算,计算出海岸带的宏观水资源价值,并对区域水资源价值与社会经济的关系进行了分析。结果表明,海岸带的水资源开发利用和环境保护等程度还不高,水资源价值尚有较大提升空间;短时间内海岸带地区不应再提高水价,且水价也应存在相应的地区间的“阶梯式水价”。     

Response to Shuklian

The Alaska Gasline Inducement Act (AGIA) was enacted by the State of Alaska in 2007 in an attempt to progress the construction of a natural gas pipeline from the Alaska North Slope to North American markets. The Act conveys monetary inducements from the state to the exclusive licensee in exchange for certain performance requirements. The financing of any pipeline requires the contractual commitment from the shippers (producers) to pay to ship the gas over an extended period of time. However, many of the performance requirements of AGIA are antithetical to the commercial interests of the shippers. A flawed financial analysis of the project by the administration overstated the economic vitality of the project, and hence understated the severity of the commercial issues. Consequently, the prospects for success in getting a pipeline constructed appear doubtful.     

Impacts from restoration strategies: Assessment through valuation workshops

Recent decades have seen a wide range of pollutant spills affecting natural, industrial, urban and rural areas (Exxon Valdez, Amoco Cadiz, Erika, Prestige, the Chernobyl nuclear power plant, and the Aznalcóllar mines in Spain, to name a few). The extent of damage covers both time and space. Therefore, in order to mitigate the effects of pollution, it is necessary to adopt integrated management of both productive and natural areas. However, to be effective it is necessary to consider not only the health or biophysical effects of the countermeasures, but also the response of individuals to these changes. The purpose of this study is to assess the potential social and environmental impacts derived from the implementation of restoration strategies resulting from spills. Our approach is based on a choice experiment applied within the context of a citizens' valuation workshop or market stall in Cumbria (UK) and Zaragoza (Spain). The results highlight the advantages of this participatory technique versus traditional surveys.     

Fewer Fish for Higher Profits? Price Response and Economic Incentives in Global Tuna Fisheries Management

This paper evaluates industry-wide economic incentives arising from changes in product prices in an industry exploiting a common renewable resource (tropical tunas) that is regulated via output limits. Changes in prices alter economic incentives by affecting revenues, profits, conservation, and nonmarket public benefits. Economic incentives in industries exploiting common resources have been examined from multiple angles. However, industry level variation in market prices arising from changes in public regulation has not been explored. We analyse the impact on economic incentives due to changes in output limits and market prices through estimation of ex-vessel price and scale flexibilities for imported skipjack and yellowfin in Thailand’s cannery market. The unitary scale flexibility, estimated from the General Synthetic Inverse Demand Systems, indicates no loss in revenue and even potential profit increases resulting from lower harvest levels that could arise from lower catch limits. However, for a revenue neutral or positive outcome to be achieved, the three inter-governmental tuna Regional Fisheries Management Organizations, which manage the majority of the yellowfin and skipjack tuna in the Pacific and Indian Oceans, would have to coordinate multilaterally to set the catch limits for both species.     

THE DECISION TO USE BENEFIT TRANSFER OR CONDUCT ORIGINAL VALUATION RESEARCH FOR BENEFIT-COST AND POLICY ANALYSIS

We develop a method for determining the economic returns to using original valuation research rather than benefit transfer to estimate nonmarket values for policy analysis purposes. We provide a method to guide policymakers in determining the project sizes for which original research can be expected to yield positive returns in terms of reduced decision errors. We then provide an empirical example of how our method can be applied to the estimation of recreation benefits and provide simple guidance to policymakers regarding the relationship between project size and expected returns to original valuation research to estimate recreation benefits. ( JEL H43, Q51, Q26)     

The dual economy in long-run development

A salient feature of developing economies is the coexistence of a modern commercial sector alongside a traditional subsistence sector—the dual economy. The apparent differences in productivity between sectors imply substantial losses in aggregate productivity. Existing theories of the dual economy rely on exogenous price distortions, and cannot explain why or if these distortions evolve over the course of development. This paper provides a model of the dual economy in which the productivity differences arise endogenously because of a non-separability between the value of market and non-market time in the traditional sector. Incorporating endogenous fertility, the model then demonstrates how a dual economy will originate, persist, and eventually disappear within a unified growth framework. An implication is that traditional sector productivity growth will exacerbate the inefficiencies of a dual economy and produce slower overall growth than will modern sector productivity improvements.     

When should regions bid for artistic resources?

Under a variety of assumptions, subsidized bidding for creative resources fails to spur economic growth. First, under many conditions, the resource would find an optimal location in any case. Second, the bid may be good for a winning city's economy, but bad for the arts more generally. The bid winner is not necessarily the most appropriate home for the resource. Third, bids based on publicly available information are unlikely to beat the market price for attracting those resources. The key to stimulating growth, and drawing successful creative resources, is to stimulate the underlying microconditions for entrepreneurship, whether in the private or public sectors. Furthermore, we should make arts subsidies less location-specific.

Valuation in the Lab

Experimental methods have proven useful to explore the power and limits to nonmarket valuation through stated preference methods. We now understand better how people learn about and react to the incentives, institutions, and information created by surveys. This paper briefly reviews topics in experimental valuation, including ex ante bias corrections, ex post bias calibration, and examining the circumstances that strengthen or weaken the economist’s presumption of rational valuation.     

Physical energy cost serves as the “invisible hand” governing economic valuation: Direct evidence from biogeochemical data and the U.S. metal market

Energy supply is mandatory for the production of economic value. Nevertheless, tradition dictates that an enigmatic “invisible hand” governs economic valuation. Physical scientists have long proposed alternative but testable energy cost theories of economic valuation, and have shown the gross correlation between energy consumption and economic output at the national level through input-output energy analysis. However, due to the difficulty of precise energy analysis and highly complicated real markets, no decisive evidence directly linking energy costs to the selling prices of individual commodities has yet been found. Over the past century, the US metal market has accumulated a huge body of price data, which for the first time ever provides us the opportunity to quantitatively examine the direct energy-value correlation. Here, by analyzing the market price data of 65 purified chemical elements (mainly metals) relative to the total energy consumption for refining them from naturally occurring geochemical conditions, we found a clear correlation between the energy cost and their market prices. The underlying physics we proposed has compatibility with conventional economic concepts such as the ratio between supply and demand or scarcity's role in economic valuation. It demonstrates how energy cost serves as the “invisible hand” governing economic valuation. Thorough understanding of this energy connection between the human economic and the Earth's biogeochemical metabolism is essential for improving the overall energy efficiency and furthermore the sustainability of the human society.     

DOES GNP EXAGGERATE GROWTH IN “ACTUAL” OUTPUT? THE CASE OF THE UNITED STATES

Measures of national product can be misleading because there is nonmarket production. There are also distortions due to transactional activities, which are expenditures to support transactions, not actual output consumed. For 1950–89, this study recalculates output for the United States, adjusting for transactional activities and nonmarket production. Due to relatively rapid growth in transactional activities, GNP overstates output growth in the 1950s; because there was slow expansion of transactional activities in the early 1970s, GNP understates actual output. Since 1974, increases in transactional activities and shifts to market production lead GNP to exaggerate improvement of "actual" output per capita.     

A review of Personalist Economics

The recent focus on sustainability as guiding principle for economic activity has generated many (often conflicting) definitions of sustainable economic development. Yet while the terminology may be new, the discussion is not. It parallels the discussion about biases of economic valuation concepts that have led to the neglect of the domestic and subsistence contributions relegated to the "informal" or household sector. This paper argues that the narrow definition of economic theory, methodology, and valuation concepts has led to the detrimental neglect of sustaining functions without which economic activity is impaired. To move toward sustainability it is imperative to regain a broader understanding of economics. Three principles are identified as essential for this conceptual expansion of economics. They are: concreteness rather than abstraction, connectedness rather than isolation, and diversity rather than homogeneity. All three are informed by feminist theory. Thus it is argued that the voices of women who have gone largely unheard in economics are essential to reconceptualizing economics as sustainable.     

Economic Valuation of Environmental Damages due to the Prestige Oil Spill in Spain

This paper presents a parametric and non-parametric analysis of data from a contingent valuation study (CVM) conducted to estimate environmental use and passive use losses due to the Prestige oil spill. This is the first CVM study conducted in Europe after a large oil spill. The CVM survey was implemented using in person interviews. Mean willingness to pay (WTP) values were computed with both, a parametric and non-parametric approach. Parametric WTP estimation indicates that respondents in the sample are willing to pay about 40.51 € per household to avoid a similar future oil spill in Spain. This implies that on average, the Spanish society places a value of the environmental losses caused by the Prestige oil spill around 574 € million. Non-parametric estimates are slightly higher at 58.08 € per household. WTP results are similar to those obtained in the Exxon Valdez study.