Environmental Economics

Valuing Ecosystem Functions: The Effects of Air Pollution, Volume IV of Methods Development in Measuring Benefits of Environmental Improvements

This report addresses methods for valuing the economic impacts of air pollution on ecosystems. In Chapter 1, it provides a theoretical model for the imputation of economic damages to ecospecies, and in Chapter 2 an empirical illustration using contingent valuation of the condition of a forest stock. Finally, in Chapter 3 it provides a methodology with illustrations addressing the value of yield response information functions economists use to predict pollution damage impacts on managed ecosystems.
The purpose of Chapter 1 is to develop a link between ecosystems and economies that will allow an economic evaluation of ecosystem structure and diversity. The authors try to broaden traditional approaches to environmental economic problems by encompassing bioenergetics, but without resorting to the use of energy as the unit of value used by humans. There are two main phases of the development. First, an ecosystem model is described using the notions equivalent to production functions, optimization, and notions equivalent to production functions, optimization, and equlibiria. Humans are absent from the phase. All energy input into the model derives from the sun. In the second phase, humans are introduced under the familiar guise of utility maximizers This leads to behavior that interferes with the ecosystem through changes in the sources and uses of energy.
Section 2 of Chapter 1 develops a model of the optimizing behavior of a single organism in an ecosystem. Section 3 extends this idea to multiple organisms and to ecosystem equilibrium. Section 4 suggest that there is empirical support for the results of Section 3. Sections 5, 6, and 7 introduce the economic problem. This is where human perspectives of the ecosystem enter. Section 8 introduces a methodology for valuing species. Section 9 deals with ecosystem diversity.
A specific example integrating economics and ecosystems is illustrated in Chapter 2. in which economic analysis is applied to the valuation of the condition of a forest stock. Basic tenets of economic theory are examined in relation to individual preferences for the aesthetic features of the forest, valued as an environmental asset. Specific to the test is the notion of transitive preferences and the symmetry of the Slutsky matrix.
Several techniques have been employed in the past to assess preferences for a large set of nonmarket environmental commodities. One basic premise from which these different methods (e.g., the travel cost, hedonic, and contingent valuation) proceed is that individual preferences are transitive. Appropriateness of the transitivity axiom, which these techniques invoke without exception, has never been scrutinized; in fact, the axiom is necessary for the uniqueness of preferences. If preferences are transitive (i.e., Slutsky matrix is symmetric), observations on usage of the good across price and income settings can be utilized to generate demand functions from which unique inferences concerning underlying preferences can be drawn.
In Chapter 2 findings in experimental economics and psychology are applied to construct a contingent valuation questionnaire. The survey is employed to gather economic data on environmental damages due to air pollution in a national forest--however, with results which cast doubt on the validity of the axiom. Specifically, the survey conducted in southern California where the problems resulting from air pollution are well recognized by local residents, elicited as truthful responses as possible.
Chapter 3 attempts to provide a methodological approach for predicting the extent to which improved yield response information will affect net benefit estimation, thereby influencing policy choices. A Bayesian approach is taken to address statistical uncertainty in the precision of biological estimates of yield responses. The basic question asked is then what are the economic consequences of varying control policies on benefits given varying degrees of statistical imprecision of yield response estimates. Actual measures are derived to demonstrate the value of more precise dose-response information for benefit cost analysis. The worth of this information is described in terms of the different estimates of benefits that result; given varying levels of precision in the information available. Biological dose response information was generated from the United States' Environmental Protection Agency's National Crop Loss Assessment Network (NCLAN). An empirical example is provided which considers estimates of the economic value of controlling ozone impacts in the U.S. for four specific crops: corn, cotton, soybeans, wheat.

This report as a whole was part of a larger research effort that included a number of projects focusing on estimating the benefits of pollution control. Other volumes in this series of reports can be quickly accessed using the series title links above. These are as follows:

    Volume I, EE-0272A, is the Executive Summary for the entire research project.
    Volume II, EE-0272B, considers experimental or contingent valuation approaches to valuing air and water quality improvements, paying particular attention to the benefits of improving visibility in national parks, improving national water quality, reducing risks of exposure to hazardous waste, and reducing ambient ozone concentrations in the South Coast Air Basin.
    Volume III, EE-0272C, updates earlier efforts to estimate the benefits of controlling acid deposition.
    This report is Volume IV of the series.
    Volumes V, VI, and VII address questions related to air pollution impacts on human health. Volume V, EE-0272E, uses National Academy of Sciences data on twins to examine the effects of elevated levels of sulfur dioxide and total suspended particulates on symptoms including chest pain, cough, and shortness of breath. Volume VI, EE-0272F, develops a new methodology for estimating the benefits of reduced human morbidity stemming from improved air pollution control and tests that methodology using data from adult residents of St. Louis, MO. Volume VII, EE-0272G, presents a collection of three papers that assess the economic benefits of controlling pollutants, such as lead, that affect the health of children.
    Finally, the original collection of studies included a non-technical discussion of recent developments in estimating the benefits of environmental improvements. A more recent version of that report is contained in the database as EE-0278A.

    1. Benefits Analysis
    1. Benefits Analysis - Quantification without Monetization
    1. Benefits Analysis - Valuation - Stated Preference
    1. Benefits Analysis - Valuation - Stated Preference - Contingent Valuation
    1. Benefits Analysis - Valuation
    1. Benefits Analysis - Valuation - Revealed Preference
    1. Benefits Analysis - Valuation - Revealed Preference - Property Value
    1. Benefits Analysis - Valuation - Revealed Preference - Travel Cost
    Environmental Media:
    a. Air
    e. Ecosystems
    a. Air - Tropospheric
    Crocker, Thomas D.
    Tschirhart, John T.
    Adams, Richard M.
    Katz, Richard W.
    EPA Project Officer/ Manager:
    Carlin, Alan
    Geographic Area:
    California, United States
    Study Purpose:
    Empirical Application, Methodology Development & Evaluation
    Report Series:
    Methods Development in Measuring Benefits of Environmental Improvements
    Inventory Record #: EE-0272D
    List of all reports in the Series:
  • Participating Organizations

    Research Organization:

    Wyoming, University of, Department of Economics and Institute for Policy ResearchAddress:
    City: Laramie State: WY ZIP: 82071
    Phone: Fax:
    Funding Organization:
    Environmental Protection Agency,
    Office of Policy, Planning and Evaluation
    City: Washington State: DC ZIP: 20460
    Phone: Fax:
  • Report Details
    Number of Pages:
    Grant/Contract #:
  • How to Obtain Report

    Download report now
    Use link(s) to download or view the report

    Date Linked: 05/28/2009