Measuring Environmental Benefits: A Comparison of Hedonic Technique and Contingent Valuation

Abstract

As it is well known there is a substantial gap between the rigorous and elegant definition of welfare change and benefits derived from theoretical welfare economics and their empirical estimate. This holds especially in the case of public goods such as, e.g., environmental improvements originating in reduced air or water pollution and noise reduction, all of them characterized by non-divisibility and non-rivalness in consumption. Consequently, there are no markets, no customers, no sales and, thus, no cheap information on the benefits of environmental improvement. However, it is important for decision makers in the public sector to have an idea about individual demand of such public goods and their related benefits. This information is necessary to undertake benefit-cost analysis, which is the major tool for evaluating and selecting those policy alternatives which contribute to more effective resource utilization.1