A brief taxonomy of valuation methods

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A brief taxonomy of valuation methods
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Once we know benefit and cost functions

• Basics of benefit cost analysis
• Discrete (yes/no)
• Continuous (how much) requires benefit and cost
  functions
• Uncertainty
• Dynamics

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Calculating benefits and costs

• Usually one side of equation is easily quantified
  (e.g. costs of retrofitting lead pipes or reduced
  fish harvest from marine reserves)
• Often, the other side of equation is and
  environmental benefit or cost, not fully
  captured in a market
• How measure?

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Measuring non-market benefits or costs

• Usually, this amounts to estimating a WTP
  (demand) curve for environmental good
• Sea otters, visits to Yellowstone, caribou,
  biodiversity, health outcomes, unobstructed view,
  etc.
• If the value is captured (or can be cleverly
  teased out) in a market, then do it
• Travel Cost Method (e.g. recreational demand)
• Hedonic Pricing Method (e.g. bridge views in
  S.F.)
• Experimental Market (e.g. risk tradeoffs)
• To extent that cannot capture in market, use CV
• Survey method, lots of bias, carefully design,
  less credible
• If low budget, or to develop priors, can use
  Benefits Transfer Approach
• Important to transfer functions (not values),
  where possible

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Once demand curve has been calculated

• Proceed with cost benefit analysis
• Make policy recommendations
• Remember the key equity implication
• Winners must gain more than losers lose
• Also called Potential Compensation Criterion
• Nothing preventing advocacy of actual
  compensation this does not contradict economic
  theory