David S. Brookshire

An experiment on the economic value of visibility

Abstract This paper reports on the development and application of an iterative bidding technique to examine proposed visibility reductions in the Four Corners Region of the southwest United States. The iterative bidding technique is a method to elicit honest bids for “goods” not priced in formal markets. Four issues associated with direct revelation of preferences for environmental goods are explored: (1) the establishment of linkages between the physical parameters of visibility and representation of the “good” called visibility to individuals for valuation purposes; (2) a systematic test for both observed and induced biases associated with the interative bidding technique; (3) replication of the results of previous experiments; and (4) reporting of empirical divergences between compensating and equivalent surplus measures of consumer surplus.

A Test of the Expected Utility Model : Evidence from Earthquake Risks

The purposes of this paper are twofold. The first is to demonstrate that the expected utility hypothesis is a reasonable description of behavior for consumers who face a low-probability, high-loss natural hazard event, given that they have adequate information. The second is to demonstrate that in California information on earthquake hazards was generated by a 1974 state law that created a market for safe housing that previously did not exist.

Estimating Option Prices and Existence Values for Wildlife Resources

The benefit-cost analyst has traditionally focused on the use values of natural environments. However, other values should be counted as part of the total value of a natural resource or environment. In particular, Weisbrod (1964) set forth option value for natural environments, and Krutilla (1967) has suggested that individuals may have existence values for natural environments. Although the suggestions of Weisbrod and Krutilla have prompted much discussion in the literature regarding the theoretical nature of such values, little research has been directed toward empirical estimation (see Long 1967; Cicchetti and Freeman 1971; Schmalensee 1972; Bohm 1975; and Greenley et al. 1981). Much of this literature has been summarized and reviewed in Bishop (1982). An approach to valuing nonmarketed commodities, referred to as the contingent valuation approach, has been developed which can be successfully utilized in estimating values associated with retaining the option to future use and existence of a natural environment. Regardless of the theoretical arguments that option value will be positive, negative, or zero, option price (option value plus expected consumer surplus) is the appropriate value to measure increments or decrements of a natural environment. A straightforward application of the contingent valuation approach can be used to estimate both option price and existence value. However, the existing literature from Long (1967) through Schmalensee (1972, 1975) and Bohm (1975) to Bishop (1982) is

Valuing Environmental Commodities: Some Recent Experiments

I compare the price elasticity of economic and political preferences. My central hypothesis is that willingness to pay, whether expressed verbally or through cash transactions, is more price-elastic for economic consumption goods than for public goods. I ...

The valuation of aesthetic preferences

Abstract This paper reports on a bidding game applied to estimate aesthetic damages from possible construction of the Kaiparowits power plant near Lake Powell. Three problems associated with the interpretation of bidding games are explored theoretically and empirically: (1) incentives for biased responses, (2) divergences between compensating and equivalent variation and (3) problems of interpersonal comparison in the aggregation of individual bids.

Valuing Increments and Decrements in Natural Resource Service Flows

A general model for valuation of changes in natural resource service flows, entirely consistent with Hicksian concepts of consumer surplus, is developed. It is a total value model, applicable to all classes of goods: divisible and indivisible in production, divisible and indivisible in consumption, exclusive and nonexclusive. The standard result of partial equilibrium microeconomics—price is equal to value at the margin-may be derived as a special case from this model. An empirical application involving the valuation of changes in the provision of wildlife-related amenities is presented.

Benefit transfers: Conceptual and empirical issues

The focus of this special section is the conceptual and empirical issues regarding benefit transfer applications. A benefit transfer is the application of monetary values obtained from a particular nonmarket goods analysis to an alternative or secondary policy decision setting. The papers address the ongoing development of the procedures for benefit transfers through a case study approach. This paper attempts to focus the discussion of benefit transfers and highlight the issues discussed in each of the papers.

Buying Insurance for Disaster-Type Risks: Experimental Evidence

This paper presents a series of experiments that confront subjects with low probability, high loss situations. A rich parameter set is examined and we find subjects respond to low probability, high loss risks in predictable ways. As loss events become more likely, or loss amounts get larger, or the cost of insurance falls, subjects are more likely to buy indemnifying insurance, even for the class of low probability risks that usually presents problems for standard expected utility theory. A novel application of Camerons method to estimate willingness to pay from dichotomous choice responses allows us to estimate willingness to pay for insurance. We do not observe the bimodal distribution of bids found in other studies of similar risk situations.

Direct and indirect economic losses from earthquake damage

Earthquakes generate a variety of economic impacts. To obtain a consistent measure, the actual damage state must be linked to the dollar losses of the capital stock, and then translated into direct business interruption losses and the ensuing ripple effects that occur throughout the economy. The Earthquake Loss Estimation Methodology (HAZUS) facilitates a consistent set of loss estimations. The direct loss module of HAZUS calculates loss estimates for repair and replacement of building stock (structural and nonstructural), building contents and inventory, and business interruption losses. The direct losses information provides the inputs to the indirect loss module. The indirect loss module estimates the impacts by economic sectors over time and accounts for both earthquake-induced supply shortages and demand reductions. The results of a case study are presented that focus on the economic impacts of various scenario earthquakes that might occur in the Boston metropolitan area.

Research Trends and Opportunities in Environmental and Natural Resource Economics

The research questions and topics most likely to emerge in the near term future are assessed. A common theme is that policy issues will be an important driving force, as has generally been true in the past. More specifically, future theoretical advances are expected to occur in the treatment of uncertainty, the incorporation of stock service flows into natural resource analysis, and the incorporation of institutional considerations into models of resource exploitation. Research on valuation is expected to remain vigorous, primarily in the testing of basic assumptions and reconciliation of existing inconsistencies. Opportunities in renewable resource economics center on the incorporation of richer behavioral and technological detail in the general frameworks that already exist. A better understanding of what drives technology, and how environmental agreements can be negotiated and enforced among sovereign nations, are two topics likely to shape future research on global externalities. Finally, questions related to spatial aspects of natural resource use, and matters of land use more generally, seem likely to emerge as important topics on the professions future research agenda.