Please read “On the economics of the end of the world as we know it” (http://www

Question

Please read “On the economics of the end of the world as we know it” (http://www.economist.com/blogs/freeexchange/2015/07/climate-change)

In The Economist and the first 5 pages of “Contingent Valuation: A Practical Alternative when Prices Aren’t Available”,

(http://econweb.ucsd.edu/~rcarson/papers/Carson_JEP12.pdf)

a paragraph of a dozen or fewer sentences 3 consider the following: The Economist article discusses challenges to valuing the cost of human extinction.

1. Discuss the merits and problems of using the value of life – estimated using hedonic valuation – to extrapolate to the cost of extinction.

2. Discuss whether contingent valuation could be an appropriate approach to estimating this cost.

3. Could any of the other valuation methods (averting behavior or travel cost) be used to estimate it?

Explanation / Answer

1. Hedonic valuing method is used to estimate economic values for ecosystem or environmental services that directly affect market prices.

It can be used to estimate economic benefits or costs associated with :

-environmental quality, including air pollution, water pollution, noise.

- environmental amenities, such as aesthetic views or proximity to recreational sites.

Merits of using value of life using hedonic method-

a) It can be used based to estimate values based on actual choices.

b) the method is versatile and can be adapted to consider several possible interactions between market goods and environmental quality.

problems are:-

a) The scope of environemental benefits that can be measured is limited to things that are related to housing prices.

b) the method is relatively complex to implement and interpret, requiring a high degree of statistical expertise.

c) large amount of data must be gathered and manipulated.

d) the time and expense to carry out an application depends on the availability and accessibility of data.

2. The contigent valuation method (CVM) is used to estimate the economic values of all kinds of ecosystem and environmental services. It can be used to estimate both use non use values and it is the most widely method for estimating non use values. The contigent valuation method is referred to as a "stated preference" method, because it asks people to directly state their values, rather than inferring values from actual choices, as the " revealed preference" methods do.

Therefore, it can not be used to value the cost of human extinction.

3. No, the averting behaviour or travel cost can not be used to estimate it.

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