This power point related to environmental valuation by using different quantitative mathods

1. Presentation on Quantitative Methods for
Valuing the Environment
Course Title: Environmental Economics
Course No.: DS 561
Submitted To,
Dr. Rashed Al Mahmud Titumir
Professor,
Dept. of Development Studies
University of Dhaka
Submitted By,
Farah Shamima Sultana
Student, Dept. of Development Studies
Batch: 16th
Roll: 2018-16-38
Date: 09/11/19

2. Contents
 Introduction
 Theoretical Framework
 Theory from Different School of Thought
 Application of the Theory
 Problem and Solution Issues
 References
Quantitative Methods for Valuing the Environment

3. Quantitative Methods for Valuing the Environment: Introduction
• Resources are limited
• Choices are inevitable
• Understand the relative value of different choices
• Financial
• Economic
• Social
• Cultural
• Environmental
Why value environmental goods?

4. Quantitative Methods for Valuing the Environment: Theoretical Framework
1.Stated
Preferences
Methods/Contingen
t Valuation Method
(CVM)
i.Trade-Off Game
Method
i.Costless-Choice
Method
Delphi Method
1.The Revealed
Preference
Methods
i.Travel-Cost
Method
i.The Hedonic
Price Method

5. Quantitative Methods for Valuing the Environment: Theoretical Framework
1.Contingent
Valuation Method
(CVM)
• Analytic survey techniques rely on hypothetical situations to
place a monetary value on goods or services.
• Reveals information on willingness to pay (WTP) or
willingness to accept (WTA) compensation for an increase or
decrease in some usually nonmarketed goods or services.
WTP-Willing to
Pay
WTA-Willing to
Accept

6. Quantitative Methods for Valuing the Environment: Theoretical Framework
Stage 1
• Develop survey questions that reduce an environmental outcome to
monetary payments
Stage 2 • Administer the survey by face-to-face interviews, phone, or mail
Stage 3
• Commence the analysis of the survey results by calculating average
figures for WTP and/or WTA
Stage 4
• Measures the statistical correlations of the WTP and/or WTA figures with
a set of respondent variables
• Assess the accuracy, consistency and robustness of the survey results
Stage 5
• Aggregate the WTP and/or WTA responses into some kind of total value
figure
5 Stages of Contingent Valuation Method (CVM)

7. Quantitative Methods for Valuing the Environment: Theoretical Framework
1.Contingent
Valuation Method
(CVM)
Trade-Off Game Method
This method relates to a set of contingent valuation techniques that rely on the creation of a
hypothetical market for some good or service. In a single bid game the respondents are asked to
give a single bid equal to their willingness to pay or willingness to accept compensation for the
environmental good or service described. In an iterative (repeating) bid game the respondents
are given a variety of bids to determine at what price they are indifferent between receiving (or
paying) the bid or receiving (or losing) the environmental good at issue.
The respondents are asked to choose between two different bundles of
goods. Each bundle might, for example, include a different sum of money
plus varying levels of an environmental resource. The choice indicates a
person’s willingness to trade money for an increased level of an
environmental good.

8. Quantitative Methods for Valuing the Environment: Theoretical Framework
1.Contingent
Valuation Method
(CVM)
Costless-Choice Method
• People are asked to choose between several hypothetical bundles of
goods
• Determine their implicit valuation of an environmental good or service.
• No monetary figures are involved, this approach may be more useful
in settings where barter and subsistence production are common.

9. Quantitative Methods for Valuing the Environment: Theoretical Framework
1.Contingent
Valuation Method
(CVM)
Delphi Method
• This is really a specialized survey technique designed to overcome the speculative and
isolated nature of expert opinions
• The Delphi method is a variant of the survey-based techniques wherein experts, rather than
consumers, are interviewed.
• These experts place values on a good or service through an iterative process with feedback
among the group between each iteration.
• This expert-base approach may be useful when valuing very esoteric resources.

10. Quantitative Methods for Valuing the Environment: Theoretical Framework
1.The Revealed
Preference Methods
The demand for environmental goods can be
revealed by examining the purchases of related
goods in the private market place. There may be
complementary goods or other factor inputs in the
household’s production function. There are a number
of revealed preference methods such as-
• Travel- cost method,
• Hedonic price method etc.

11. Quantitative Methods for Valuing the Environment: Theoretical Framework
1.The Revealed
Preference
Methods
Travel-Cost Method
• To value the recreational benefits of public parks and other natural areas.
• Derive a demand curve for a recreational site estimate the consumers’ surplus
or value of the site to all users.
• To determine the demand for a recreational site (i.e. number of visits per year
to a park) as a function of variables like price, visitors’ income, and
socioeconomic characteristics.
Price=Entry Fees to the Site+ Cost of Travel + Opportunity Cost of Time Spent
OP= Entry Fee Which is Fixed Per Visit
BDO = Initial Demand Curve
EO=Initial Environmental Quality Level
PC=Initial Number of Visit
AD1= Shifted Demand Curve
E1=Changed Environmental Quality Level
PK=Increased Number of Visit
The gain in consumers’ surplus
= the area PAK
The net gain in consumers’
surplus after improvement in
environmental quality of the lake
is shown as:
РАК – PBC = ABCK

12. Quantitative Methods for Valuing the Environment: Theoretical Framework
1.The Revealed
Preference
Methods
The Hedonic Price Method
Hypothesis: Prices which individuals pay for commodities reflect both environmental
and non-environmental characteristics. The implicit prices are sometimes referred to
as hedonic prices, which relate the environmental attributes of the property.
Key concern:
• Identifies how much of a property differential is
due to a particular environmental difference
between properties,
• Identifies how much people are willing to pay for
an improvement in the environmental quality that
they face and what the social value of
improvement is.
• Offers an useful way of estimating the change
in amenity benefits.
Derived Demand: Every good bundle of
characteristics or attributes.
Market goods=intermediate inputs into the
production of the more basic attributes
(Individual’s demand)
The demand for goods, can be considered as
a derived demand.

13. Quantitative Methods for Valuing the Environment: Theoretical Framework
1.The Revealed
Preference
Methods
The Hedonic Price Method
Example: Housing as Derived Demand House
Direct
(Shelter)
Indirect
(Access to Public Service
Environmental Goods)
The hedonic price function describing the house price Pi of any housing unit
Pi = f [S1i …………Ski, N1i ,…………….Nmi , Z1i ………….Zni]
• Where, S represents structural characteristics of the house i (type of
construction, house size and number of rooms)
• N represents neighborhood characteristics of house i, that is accessibility to
work, crime rate, quality of schools etc.
• It is assumed that only one environment variable affects the property value i.e. air
quality (Z).
For example, if the linear relation exists, then the equation becomes
P = [αo + α1 S1i + ….. + αk Ski + β1 N1i + ……. + βm Nmi + γa Za ]
• There is a positive relation between air
quality and property price
• The figure indicates that house price
increases with air quality improvement

14. Quantitative Methods for Valuing the Environment: Theory from Different School of Thought
Contingent Valuation Method (CVM)
Neoclassical Marxist
Key Concerns Associating value directly with relative price, neoclassical
theory uses supply and demand analysis to demonstrate
the welfare-enhancing properties of well-functioning
markets.
Neoclassical theory strives to put a ‘correct’ price on all
the social costs of economic activity that are not currently
priced.
Incorporate the grassroots anti-market values (free
market) exhibited in CV surveys.
Accurate monetary estimates of how
much environmental improvements are ‘worth’ to them.
Problem Individualized utilitarian: It is supposed to
take people’s preferences as given and then analyze market
outcomes.
Inequality problem between WTP and WTA.
Commodity fetishism takes the form class
exploitation by ‘free’ commodity exchange, and also of a
growing powerlessness
of the producers.
Impossible to overestimate the crucial role of natural
conditions and of natural science in this historical process of
‘inversion’.
Solution Market based expert survey
Subjective individual perceptions for maintaining
individual monetary endowments
Minimize the importance of anti-privatization struggles
Maintain and improve environmental regulations

15. Quantitative Methods for Valuing the Environment: Application of the Theory
Recently, the World Bank, the United States Agency for International Development and other donor
agencies have taken an interest in contingent valuation as a means of-
• Assessing the demand for sanitation services,
• Improvements in the water supply,
• The benefits of establishing national parks and
• The costs/benefits of restricting land use to reduce tropical deforestation
Because the proposed improvements in sanitation and/or water supply currently do not exist at the
location of the study, willingness to pay for improved services cannot be extrapolated from the
existing conditions or from the expenditures incurred to secure the current level of sanitation or water
supply.
Important to use "stated preference" approaches (such as contingent valuation) which ask individuals
what they would do under hypothetic l circumstances.
Based on the results of contingent valuation studies, researchers have been able to predict the
number of connections to water supply systems at improved conditions, and the resulting revenue for
the local water authority, making it possible to study the feasibility of such improvements and of various
financing schemes. Recent work by the World Bank shows that contingent valuation correctly predicted
91 percent of the actual connections to the piped water system.
Contingent
Valuation
Method (CVM)
In
developing
country

16. Quantitative Methods for Valuing the Environment: Application of the Theory
The Revealed
Preference
Methods
In
developing
country
• Used to estimate the recreational value of wildlife viewing to estimate of the total
economic value of the wildlife species.
• Estimate of the total economic value of the wildlife species.
• The annual recreational value of wildlife viewing in Lake Nakuru National Park in Kenya
was estimated though the travel cost method as the sustainable management of
wildlife resources could provide a very significant and much needed revenue source for
developing countries in the future.

17. Quantitative Methods for Valuing the Environment: Problem and Solution Issues
Method Problems Solution
Contingent Valuation Method
(CVM)
The lack of real-world consequences
for individual choices, what had
been called the hypothetical bias
that may lead to differences
between actual and hypothetical
willingness to pay
• Cheap talk about the bias
• Emphasize consequentiality of
the survey and respondents’
choices
• Variance minimization by
reduce social desirability bias,
the tendency to give answers
that the respondent considers to
be socially acceptable or what
they think the interviewer wants
to hear
The Revealed Preference Methods Wide variations may distorts
demand estimates
• Simplification of each criteria

18. Thank you