7.2.3.2 Property Prices or the Hedonic Method
Property prices vary according to the many attributes associated with them.
House prices, for example, reflect size, commercial facilities, local infrastructure,
and other attributes such as environmental quality of the house location. From
statistical analyses of house prices, the contribution of environmental quality
to house price variations can be assessed, which is an estimate of how much
people are willing to pay for changes in environmental quality. This measure
represents a use value for that environmental change from which a demand function
can be estimated. The method has been used to value external effects such as
noise, air quality, and visibility. The main limitation is that to work efficiently
it requires the affected parties to be well informed about the impacts and markets,
so that decisions about location can be made freely and easily. For examples
of relevant studies see ExternE (1999), Palmquist (1991), and Zabel and Kiel
(2000).
7.2.3.3 Contingent Valuation Method
By asking people directly how much they are willing to pay for a change in
a provision of benefits from an environmental resource, a hypothetical market
can be created in which a demand curve for ecological goods and services can
be estimated. This method is the only one by which non-use values can be estimated,
since hypothetical markets can be created for them. Since it is not based on
revealed preferences, on which the other demand approaches are based, contingent
valuation may incur in various biases, from strategic answers to lack of information.
Such biases are currently well documented and techniques have been developed
to reduce them. Contingent valuation methods have been used to value the use
and non-use of sites of special significance, health effects (including changes
in the risk of death), and damages to ecosystems (Bateman and Willis, 1999).
Despite the considerable amount of work on reducing the biases that arise because
such data do not report actual transactions, this method arouses considerable
scepticism among policymakers and its results are not always accepted.
Nevertheless, although such methods of valuation have problems, there is often
no suitable alternative and they provide policymakers with important information
for decision-making purposes. As suggested above, both physical impacts and
values should be used in this process. In relation to climate change, the estimation
of external effects arises primarily in the assessment of damages that result
from such change, including those in agriculture, forests, energy use, recreation,
and health. In relation to mitigation, the applications are primarily in valuing
the impacts of O3, NOx, SOx, particulate matter,
and secondary particles. In adaptation, the valuation of external effects arises
with respect to loss of land, changes to recreational facilities, and changes
to agriculture.
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