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2.3.3. Other Benefits Methods

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Environmental Economics Research at EPA


The few papers in this category deal with computational issues that arise in the estimation of benefits. Because many outcomes of pollution may not be known with certainty at least at the level of the individual, questions of risk arise. Along with the question of risk is its frequent partner question, the matter of the appropriate discount rate. You can see the full list of reports corresponding to this section in the benefits analysis - valuation - other subview of the subject view of the Environmental Economics Report Manager (EERM) database and the corresponding full list of NSF/EPA projects in the benefits analysis - valuation - other subview of the subject view of the NSF/EPA Funding for Environmental Economics (FfEE) database. The papers considered below deal with a variety of risk and discount rate issues.

The 1987 paper Discounting Mortality Risks (EE-0119) by Carson, Horowitz and Machina addresses the problem of valuing projects that affect the size and timing of personal mortality risks. The paper covers much ground on this difficult topic. It contains a contingent value study on discount rates and another on transportation risks. There is also material on two seemingly paradoxical observations. First, individuals often appear to prefer to reduce the probability of contracting a relatively less fatal disease rather than to reduce by a similar amount the probability of contracting a more hazardous disease. Second, individuals may prefer to advance the timing of undesirable events, a finding that implies a negative discount rate.

The 1993 collection of papers Endogenous Risk and Environmental Policy (EE-0138) by Shogren, Crocker et al. considers various measures that parties subject to risk might take to ameliorate those risks. These papers are abstract and many employ game theory.

Risk-Risk Analysis (EE-0189) is a 1993 paper by W. Kip Viscusi. It addresses the problem that occasionally arises that reducing one risk increasing another. From the abstract:

Constraints on the use of benefit-cost tests have generated increased interest in risk-risk analysis as a regulatory test. The effect on individual mortality of the income losses arising from regulatory expenditures can be determined from direct empirical estimates, which this paper surveys. This paper proposes an alternative formulation based on information on the value of life and the marginal propensity to spend on health, which implies a loss of one statistical life for every $50 million in expenditures. Occupational injuries and fatalities costs caused by expenditures represent another type of risk tradeoff that could be considered within risk-risk analysis or a benefit-cost test more generally.

The NSF/EPA-funded study from 1995, “Deriving Biodiversity Option Value Within a Model of Biotechnology Research and Development” by Rausser has as its goal the development of a feasible method for computing the potential value of biodiversity in its role as a source of intellectual property. The focus is on the role of ecological and taxonomic knowledge in the process of biodiversity prospecting. We analyze a sequential-search model of biodiversity prospecting in which genetic materials are usefully differentiated by prior information. The analysis shows that, as prior information allows for the differentiation of biological habitats according to their potential as sources of new drug leads, bioprospecting values increase in some areas, while declining in others. When search procedures are optimized to take account of this information, areas of special promise may have a high value. Information creates value both by increasing the chance of making a discovery, and by lowering the average cost of conducting searches.

The NSF/EPA-funded study from 1996, “Distinguishing Values from Valuation in a Policy Relevant Manner” by Satterfield will attempt to improve methods for values elicitation. Contemporary techniques such as willingness to pay and cost benefit analysis provide a narrow economic measure of value and fail to include emotional or moral content that is at the core of any value. This research will develop and utilize three experimental techniques for eliciting values embedded in narratives and discourse, and rich in moral and emotional context. The values elicited by these techniques will be compared to the methods and findings of other researchers interested in environmental values. In the second stage, the findings will be used to measure support for environmental action decisions.


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