Deliberative monetary valuation (DMV): Issues in combining economic and political processes to value environmental change

This paper explores and contrasts the different social processes of valuation now appearing as economic means of valuing the environment. Monetary valuation via stated preference approaches has been criticised for assuming well formed and informed preferences and excluding a range of sustainability concerns such as rights, fairness and equity. Deliberative monetary valuation (DMV) in small groups is a novel hybrid of economic and political approaches which raises the prospect of a transformative and moralising experience. Critics of standard contingent valuation approaches have advocated this as offering a way forward. However there has been a lack of clarity as to the means of obtaining values, the expected outcomes and their role. Moving to group settings of deliberation raises concepts of social willingness to pay and accept which are distinct from an aggregate of individual value, although this does not seem to have been widely recognised. A new classification of values is presented appropriate to the literature trying to merge economic and political processes. Values associated with the individual may be exchange values, charitable contributions or fair prices, while social values can be speculative, expressive or arbitrated. The use of DMV is shown to result in different values due to variations in the institutional setting and process of valuation.     

Measuring Passive Use Value: Pledges, Donations and CV Responses in Connection with an Important Natural Resource

This paper examines monetary valuations of lost passive-use benefits associated with damage to a unique environmental resource – a national park, elicited through contingent valuation, and compares them with actual donations to the same end, where the latter are interpreted as a quasi-market expression of willingness to pay for non-market resource services. The relationships between the two valuation approaches were investigated in the specific context of an environmental episode which damaged a unique natural endowment, Israel's Carmel National Park. The empirical analysis is based on data from two sample surveys; one sample was drawn from the population of people who either pledged or pledged and donated during a fund-raising campaign following the episode, with the proceeds dedicated to rehabilitation or prevention of future episodes; the second sample was drawn from the general population of the country. The results cannot be interpreted as providing unqualified support for the reliability of contingent valuation as a means for obtaining passive use values.     

The evolution of socio-economic modeling in Canada

For the past 15 years the authors have been associated with a research program concerned with the development of structural economic models that had their origins in the input-output models of Leontief. This program has produced a set of conceptual tools embracing a new approach to socio-economic modeling which we term the “design approach.” This approach draws on general systems theory and control theory in application to large social systems. Also emerging from this program as its test prototype is a particular set of models designed for society wide resource analysis and a set of software tools within which design approach models can be designed, implemented, and operated. The design approach provides a new method of assessing technologies in regard to their overall socio-economic resource impact. The objective of this paper is to describe the unique institutional setting and the particular issues which provided the setting and the motivation for embarking on a large scale modeling program. The paper is organized chronologically, describing first of all the evolution of the program approach, the software tools, the Socio-Economic Resource Framework (SERF), which is the prototype set of models that have been implemented, and some results obtained from it.     

Use of damage schedules in environmental valuation: The case of urban Singapore

Increasing concerns over environmental degradation have amplified the role of environmental economics and the valuation of non-pecuniary environmental resources as tools of analysis to facilitate the design of policies. To date, however, environmental valuation methods have continued to be unreliable, misleading and contentious as a guide to resource allocations and damage compensations. In this paper, a damage schedule is developed based on the scales of relative importance translated from people's judgments about values of various environmental damages or losses. The variance stable rank method is applied to the paired comparison responses to obtain the scale values as well as the importance of rankings. Statistical tests of significance are used to determine the level of the agreement among the survey respondents and the degree of correspondence between different respondent groups. This will determine the number of relative importance scales required to adequately represent the responses from all respondents. The scales of relative importance will then be translated into damage schedules. The setting for analysis is based on urban Singapore.     

MANAGING PUBLIC AND PRIVATE LAND THROUGH PARTIAL INTERESTS

As property rights concerns grow along with budget pressures, government agencies charged with balancing resource policy objectives need to consider institutional alternatives to regulation and land purchase. This paper examines how public agencies participate in markets for partial interests in public and private land as a means of influencing resource use and conservation. The paper also reviews the application of real option theory to the valuation of conservation easements and considers potential extensions to other partial interests.     

The Effect of Protest Votes on the Estimates of WTP for Use Values of Recreational Sites

Contingent valuation studies are often characterized by a considerable number of protest responses, which may cause selectivity bias on the final estimates for WTP. Sample selection models can detect and – if necessary – correct selectivity bias. In economic applications where the relevant dependent variable is continuous, sample selection models are generally estimated using Heckman's 2-step method rather than the FIML estimator. Either method has its own drawback: computational complexity for the FIML method, susceptibility to collinearity problems for the 2-step method. Using data on valuation of forest resources for recreational use, we analyse the performance of the two estimators. In this application, given the presence of some collinearity, the FIML is preferred to the 2-step method. A procedure is outlined to deal with selectivity problems in similar settings.     

Investment under Uncertainty, Debt and Taxes

It is common practice in financial derivative valuation to use a discount factor based on the riskless debt rate. But, to what extent is this discount factor appropriate for cash flows emerging in capital budgeting? To answer this question, we introduce a framework for real asset valuation that considers both personal and corporate taxation. We first discuss broad circumstances under which personal taxes do not affect valuation. We show that the appropriate discount rate for equity‐financed flows in a risk‐neutral setting is an equity rate that differs from the riskless debt rate by a tax wedge due to the presence of personal taxation. We extend this result to the valuation of the interest tax shield for exogenous debt policy with default risk. Interest tax shields, which accrue at a net rate corresponding to the difference between the corporate tax rate and a tax rate related to the personal tax rates, can have either positive or negative values. We also provide an illustrative real options application of our valuation approach to the case of an option to delay investment in a project, showing that the application of Black and Scholes formula may be incorrect in presence of personal taxes.     

Price discrimination with a resource constraint

Introducing an aggregate resource constraint into Mussa and Rosen's [Mussa, M., Rosen, S., 1978. Monopoly and product quality. Journal of Economic Theory 18 (2), 301–317] model of monopoly price discrimination induces an upwards distortion in product quality for high valuation consumers because the standard downward distortions in product quality for other consumers relax the resource constraint.     

Bargaining with a possibly committed seller

We consider negotiations with an open time horizon where a buyer has private information about his valuation and does not know whether the seller is committed to the advertised price. This setting combines two common specifications made in the non-cooperative bargaining literature: one side is privately informed about its valuation, which is drawn from a continuum, and the other side is possibly committed to a fixed offer. We analyze the game both in discrete and in continuous time and show convergence of the two settings, which extends results from Abreu and Gul [2000. Bargaining and reputation. Econometrica 68, 85–117]. One interesting result is that as time proceeds, the non-committed seller becomes less likely to concede in a given period, i.e., it appears as if he becomes more “stubborn.” We further show that a seller may prefer to negotiate with a “worse” buyer as this enhances the value of his possible commitment.     

Board size,corporate regulations and firm valuation in an emerging market: a simultaneous equation approach

We investigate the association between board size and firm valuation for a sample of 169 firms from 2002 to 2011 in South Africa (SA). The SA corporate context is interestingly and uniquely characterised by an urgency to meet affirmative action regulations, such as black empowerment in board appointments, limited qualified and experienced directors, especially black directors, concentrated ownership, weak enforcement of corporate regulations and greater government ownership. These features make SA corporate boards perform a weaker agency (advisory, monitoring and disciplining) role than Western European and US boards, but a stronger resource dependence role, by providing access to resources, such as business contacts and contracts. This suggests that any positive impact of board size on firm valuation is likely to depend on the effective execution of the resource dependence role more than the agency role. Our results suggest that board size has a positive association with firm valuation, consistent with larger boards providing better access to resources. Overall, our results support the resource dependence role of boards more than their agency role. The results are robust across a raft of econometric models that control for different types of endogeneity, as well as different types of accounting and market-based firm valuation measures.     

Hidden costs of supply management in a small market

Canada regulates its dairy and poultry industries through supply management. The supply‐management programs use target prices, production quotas and import tariff‐rate quotas to raise domestic prices. Canadian supply‐managed producers cannot export their output to world markets as exports would be considered subsidized under World Trade Organization rules. In this paper, we show that once foregone export opportunities are accounted for, supply management may no longer be beneficial to domestic producers of the supply‐managed commodities. The extent to which foregone profits from exports dominate domestic rents depends on Canada's comparative advantage, domestic market elasticities and the extent of supply management distortion in the domestic market.     

NONMARKET VALUATION AND THE COURTS: THE CASE OF THE EXXON VALDEZ

This paper examines a natural resource damages case, the Exxon Valdez, and contrasts the use and acceptance of market and nonmarket valuation methods in two related sectors: commercial fishing and Alaska native subsistence use of fish and wildlife. Much economic literature focuses on how, in principle, one should value environmental injury. These principles and methods have been codified in the Department of Interior and National Oceanic and Atmospheric and Administration natural resource damage regulations that implement the Comprehensive Environmental Response, Compensation, and Liability Act and the Oil Pollution Act of 1990. However, these liability rules are fairly new, and thus little evidence exists on the acceptance of valuation methods by the courts and juries. In this regard, the Exxon Valdez case is of particular interest because substantial resources were at stake and much of the case went all the way through to a jury verdict. The two major plaintiff classes—commercial fishermen and Alaska natives—are market and nonmarket versions, respectively, of otherwise fairly similar economic sectors. However, the court's acceptance of the "correct in principle" valuation methods appropriate to each sector was asymmetric. The court accepted as admissible the market valuation procedures (primarily "diminution in market price") used by the commercial fish experts but rejected the nonmarket valuation procedure applied to subsistence uses (a hedonic price model).     

The wage and non-wage costs of displacement in boom times: Evidence from Russia

This paper analyzes the costs of job loss over the years of a booming economy, 2003–2008, using unique data from the Russian Longitudinal Monitoring Survey. In addition to analyzing standard labor market outcomes, such as forgone earnings, employment, hours worked and wage penalties, our unique data set allows us to investigate additional non-wage costs of displacement, in particular, fringe benefits, the propensity to have an informal employment relationship or a temporary contract. We find that displaced individuals face large foregone earnings following displacement, which are heterogeneous across education and ownership type of firm from which the worker separated. There is no evidence of wage penalties for re-employed displaced workers. However, we find an increased probability of working in informal or temporary jobs if previously displaced and a reduction in the number of benefits.     

Modeling self-censoring of polluter pays protest votes in stated preference research to support resource damage estimations in environmental liability

The identification and treatment of protest response in stated preference (SP) research such as contingent valuation is an underdeveloped area. Protest related to the polluter pays principle (PPP) is expected to pose an important hurdle to the application of SP research in environmental liability claims, for instance under the European Environmental Liability Directive. Our main objective is to test the effect of PPP induced protest votes on welfare measures for lost passive use value using different treatment procedures. We argue for a more reliable and defensible indicator of willingness to pay (WTP) in environmental liability litigation cases than current standard removal practices in cases where protest votes affect sample representativeness. Analyzing the impact of PPP-based protest response on WTP values with the help of a Full Information Maximum Likelihood sample selection model, a significant correlation is found between the decision to participate in the CV market and the WTP bids. Self-censoring biases average WTP and is correlated with factors such as respondent use of the resource and disposition towards its future protection. Simply removing protest response from the sample is indefensible and results in a biased estimation of WTP.     

Testing competing models of loss aversion: an adversarial collaboration

This paper reports an ‘adversarial collaboration’—a project carried out by two individuals or research groups who, having proposed conflicting hypotheses, seek to resolve their dispute. It describes an experiment which investigates whether, when individuals consider giving up money in exchange for goods, they construe money outlays as losses or as foregone gains. This issue bears on the explanation of the widely observed disparity between willingness-to-pay (WTP) and willingness-to-accept (WTA) valuations of costs and benefits, which has proved problematic for contingent valuation studies. The results of the experiment are broadly consistent with the hypothesis that money outlays are perceived as losses.     

Advance-purchase discounts as a price discrimination device

In an intertemporal setting in which individual uncertainty is resolved over time, advance-purchase discounts can serve to price discriminate between consumers with different expected valuations for the product. Consumers with a high expected valuation purchase the product before learning their actual valuation at the offered advance-purchase discount; consumers with a low expected valuation will wait and purchase the good at the regular price only in the event where their realized valuation is high. We characterize the profit-maximizing pricing strategy of the monopolist. Furthermore, adopting a mechanism design perspective, we provide a necessary and sufficient condition under which advance-purchase discounts implement the monopolist's optimal mechanism.     

The impact of nurse staffing on hospital costs and patient length of stay: a systematic review

Research examining the relationships between nurse staffing, hospital costs, and length of stay is varied using a range of methods and definitions. This lack of coherence in definitions and measurement tools for cost and length of stay makes it difficult to conclude with certainty the results of nurse staffing on hospital cost and length of stay. However, the evidence reflected that significant reductions in cost and length of stay may be possible with higher ratios of nursing personnel in hospital settings. Sufficient numbers of RNs may prevent patient adverse events that cause patients to stay longer than necessary. Patient costs were also reduced with greater RN staffing as RNs have higher knowledge and skill levels to provide more effective nursing care as well as reduce patient resource consumption. Hospital administrators are encouraged to use higher ratios of RNs to non-licensed personnel to achieve their objectives of quality patient outcomes and cost containment.     

Parallelism in the Lab and the Field: Testing Robustness of the Minimum‐Contributing‐Set Mechanism

Efforts to "test" public‐goods provision mechanisms in field settings encounter a fundamental obstacle: investigators cannot determine whether the aggregate valuation of the public good exceeds the cost. Experimental laboratory settings can fix the provision of the public good to be efficient. This allows investigation of the performance of the mechanism under potential field settings. This paper reports the results of a set of laboratory experiments designed to test the robustness of the minimum‐contributing‐set (MCS) mechanism to field conditions. The reported results support further use and investigation of the MCS mechanism for the provision of step‐level public goods.     

Enhancing the teaching of introductory economics with a team-based,multi-section competition

The authors describe a unique approach to enhancing student learning at the introductory economics level that utilizes a multi-section, team-based competition. The competition is structured to supplement learning throughout the entire introductory course. Student teams are presented with current economic issues, trends, or events, and use economic tools and theories to comprehensively examine the topics. Students present their analyses in their own sections with one team from each section moving on to compete in an inter-section round. Students are judged on technicality, creativity, and applicability of economic concepts. The competition has the potential to advance students' creativity, collaboration, communication, and critical and analytical thinking skills, while enhancing their ability to apply foundational economic concepts to real-world settings.     

TIME, MONEY, AND OPTIMAL CRIMINAL PENALTIES

The economic approach to optimal criminal penalties measures the welfare effects of crime and punishment in dollar terms, ignoring differences in the marginal utility of money among people. This paper alternatively proposes using time as the unit of measure in determining optimal criminal penalties, measuring the costs and benefits of crime in hours or days instead of dollars. The policy implications differ substantially from those in the existing economic literature. Equal prison terms impose similar time costs on all individuals rather than being more costly for those with higher foregone earnings. Equal fines impose the same cost on all individuals in the dollar-based economic models but in a time-denominated system are costlier to those who require more time to earn the money to pay the fines. In principle, one can use either money or time in setting penalties. However, time-based penalties are more consistent with the fundamental and widely held principles of justice on which the U.S. legal system rests.