Question

Given there are many tools to estimate benefits, of the three different methods we discussed in class (CVM, TCM, hedonic pricing), indicate:

a. Which are revealed preference and which are stated preference methods?

b. Which method would you use to capture existence/intrinsic value of, for example, an endangered species or an old growth forest?

c. Which method would you use to evaluate the services provided by green spaces, recreational areas or national parks?

d. Which method would you use to obtain a value of a statistical life? Does this method focus on WTA or WTP and why?

e. In which method would you focus on comparing real estate investments subject to a change in environmental quality?

For example, a house in a city with clean air compared with the comparable house in a city with polluted air.

Answer 1

Answer a: TCM & Hedonic Pricing is Revealed preference method where is CVM is stated preference method.

Answer b: Travel Cost Method would you use to capture existence/intrinsic value of, for example, an endangered species or an old growth forest because travel cost method (TCM) seeks to determine the value of a protected area, such as recreational forest. Theoretically, the demand for a recreational site (e.g., number of visits per year to a forest area) is a function of exogenous variables like uniqueness of the area, transportation cost, income, age, educational level, and socio-economic characteristics of the users.

Answer c: The individual or zonal travel cost method (TCM) can be used to value recreational benefits of forest recreation areas, national park, marine parks, or any recreation-related activities.

Answer d: I will use CVM (Congtigent Valuation Method) to obtain a value of a statistical life. Yes, this method focus on WTA and WTP because this approach asks people to directly report their willingness to pay (WTP) to obtain a specified good, or willingness to accept (WTA) to give up a good, rather than inferring them from observed behaviours in regular market places.

Answer e: Hedonic Pricing method we would focus on comparing real estate investments subject to a change in environmental quality. because it is also known as the property value technique. The basic idea of this technique is that prices of land and properties (house) can be influenced by different characteristics of land, size, air, water quality, and other characteristics of forest or biological resources.