option value empirical evidence from a case study of recreation and water quality a procedure for measuring option value and other preservation values of water quality is developed and applied to a case study area in the south platte river basin colorado benefits from water based recreation activities are the focus of the study the results provide an empirical test and confirmation of weisbrod s proposal that option value and other preservation values represent important social benefits and should be added to the aggregate consumer surplus of recreation activities to determine the total benefit of environmental amenities to society in the absence of such an estimate insufficient resources would be allocated by society to preservation of unique environments such as pristine mountain streams where mineral and energy development may irreversibly degrade water quality

transactions costs and the optimal quantity of money this paper models a physical environment in which agents rationally choose to hold both fiat money and higher return capital this occurs because information barriers permit bona fide capital to be distinguished from bogus titles to capital and bogus ious only at a cost one implication is that the holding period for capital is greater than that for fiat money the information barriers also limit the government interventions that are feasible and in so doing overturn standard notions concerning the optimal quantity of money in this paper i model a physical environment in which agents rationally choose to hold both fiat money and a productive asset with a greater rate of return moreover the fiat money in this model circulates with a greater velocity than does the productive asset in this model agents live 3 period lives and are members of generations that overlap they receive an endowment of the model s single consumption good only in the first period of life and must therefore hold assets to provide for consumption in other periods of life when the consumption good is stored it only yields a return 2 periods after it was stored as a result storage can be used to provide for consumption in the third period of life the crucial assumptions of the model are restrictions on the infor

valuing option existence and bequest demands for wilderness to assess the relative importance of current costs and future benefits of nuclear waste storage we develop a simple model of bequest value the basic model of nonparternalistic altruism is extended to account for the uncertain nature of the externality

measuring values for environmental resources under uncertainty abstract the relationship between conventional hicksian measures of the benefits from changes in environmental amenities under certainty and corresponding measures of valuation when the conditions of access to an uncertain environmental resource are changed is considered the analysis utilizes a contingent commodity framework with the assumption of state dependent preferences the findings suggest that the valuation of these changes will depend upon the availability of fair markets for diversifying risk moreover conventional measures of compensating or equivalent surplus will not necessarily bound the individual s valuation of a change in access to an uncertain environmental resource

pareto superior time of use rate option for industrial firms abstract this paper derives a pareto superior time of use tou rate option for industrial firms served by an electric utility the option is general and free from the problem of adverse selection

comparative reliability of the dichotomous choice and open ended contingent valuation techniques abstract the comparative reliability of dichotomous choice and open ended contingent valuation methods cvm is evaluated by resurvey of the same households 9 months after their original survey test retest correlations on willingness to pay are statistically significant at the 1 level and range from 0 57 for the dichotomous choice cvm to 0 62 for the open ended cvm the test retest correlations were not statistically different between dichotomous choice and open ended cvm a likelihood ratio test for temporal stability of each method s willingness to pay functions indicates stability half of the time for both methods

supply uncertainty option price and indirect benefit estimation both the original and many of the subsequent explanations of the concept of option price have been motivated by an assumption of an uncertain supply of the commodity involved 1 consequently it is surprising to find that all of the definitions of option price compare two states of the world which each have known or certain supply conditions paying the option price does not eliminate supply uncertainty as it has been described rather it changes the individual s conditions of access to the good or service from a certainty of no access to a certainty of complete access risk enters the problem only because these analyses assume the individual does not know whether he or she will desire access at the time the payment must be made since the analysis is in terms of planned consumption the reason for this demand uncertainty is sometimes explained by the fact that the consumption must take place in the future when other factors influencing demand may have changed 2 bishop 1982 appears to have been the first to draw attention to this omission of supply uncertainty and proposed a framework without demand uncertainty to demonstrate that there are conditions when option value i e the difference between option price and the expected consumer surplus would be unambiguously positive 3 while there have been a number of theo

valuing environmental commodities some recent experiments a general model of consumer behavior is proposed to assess six recent experiments that have attempted to reveal preferences for environmental goals each experiment used a mix of both the techniques and the theory of demand for non market commodities and each was designed to estimate a non market attitude associated with the environment and to analyze potential biases in the techniques the six cases show some consistency in results the linkage within the contingent market between the environmental attribute institutional setting and the bidding instrument must be realistic and accepted by the respondent to avoid biased results possibly the most important result is the replication of results using a traditional property value study and a contingent bidding approach all evidence obtained to date suggests that hedonic studies of property values or wages travel costs and survey techniques all yield values well one order of magnitude in accuracy 41 references 2 tables

preservation or use a contingent valuation study of wilderness designation in utah evidence of strong opposition to wilderness proposals in utah suggested that the non market value of retaining those areas in multiple use management might be significant a contingent value analysis of both supporters and opponents of the two major proposals for wilderness designation in utah indicated that there existed significant non market willingness to pay on the part of opponents and that standard contingent valuation practice which does not explicitly consider these values could lead to a mis estimation of aggregate willingness to pay

effect of distance on the preservation value of water quality in the past dozen years an extensive body of literature has developed on the willingness to pay for water quality in particular its recreation use and nonuse preservation values this paper illustrates a procedure for estimating the effect of distance on the preservation value of environmental quality using the contingent valuation approach the case considered is the potential degradation of water quality due to coal mining activity in the flathead river drainage system montana the analysis supports a negative association for this particular study area the effect of distance on preservation value was considered both directly and indirectly through its effect on visits 36 references 2 tables

the new approach to wilderness preservation through benefit cost analysis over the last 15 years economists of resources for the future led by john krutilla have been developing a new approach to wilderness preservation this paper offers a concise exposition of their approach and adds a few new steps the basic ingredient of the new approach is a perception of declining net benefits of wilderness development and rising net benefits of wilderness preservation over time these alter the entire shape of the benefit cost analysis of potential development the new steps involve reversibility postponability and recognition of multiple interest rates

optional time of use prices for electricity econometric analysis of surplus and pareto impacts we estimate a model of time of use tou consumption and choice among optional tou tariffs in which the customer s choice among tariffs is based on its demand parameters which vary in the population we simulate the impact on consumption consumer surplus and profit of several optional tou rates that were offered experimentally in northern california the analysis suggests that with one possible exception the offering of these optional rates did not constitute a pareto improvement however total surplus excluding measurement costs is estimated to have risen by 1 41 to 2 55 per month per customer who chose the tou rates

the demand for money a rational expectations approach the authors derive a model of money demand for an optimizing consumer with rational expectations in a discrete time infinte hortizon framework under uncertainty mone y demand responds to unanticipated changes in income one period expe ctations of future bond and money interest rates unanticipated curre nt interest rates and past anticipations of current rates the deriv ed consumption function mirrors money demand behavior joint estimati on of the consumption and money demand equations by weighted nonlinea r least squares corroborates the predicted effects particularly inco me neutrality this money demand model substantially outperforms a co nventional specification in post sample simulation over 1975 85 copyright 1988 by mit press

dynamic inconsistency in valuing environmental goods abstract intertemporal tradeoffs continue to intrigue both academics and policy makers this paper explores patterns of dynamic inconsistency in valuing environmental goods we develop a model that predicts an individual will value extended access to an environmental good less than avoiding delayed access if time and money are complementary this value disparity results in a low marginal rate of time preference for avoiding delayed access and a high rate for acquiring extended access using the contingent valuation method we find behavior partially consistent with predictions marginal rates of time preference are highly situation and individual specific

supply uncertainty option price and option value this article develops a general model of private and public choice under temporal uncertainty the model incorporates the effects of risk preferences and the prospect of future learning into both the individual and aggregate valuations of public projects

money and credit redux do we need both money and credit in models with explicit roles for payment instruments we show the answer is no if credit is easy money is useless if credit is tight money can be essential but then credit is irrelevant and changes in debt limits are neutral real balances respond endogenously to leave total liquidity constant this is true for exogenous or endogenous policy and debt limits secured or unsecured credit and fairly general preferences and pricing mechanisms while we also show how to overturn some results the benchmark model suggests credit conditions matter less than some people think

environmental issues and economic decisions in developing countries abstract this paper explains the key role of environmental economics in incorporating environmental concerns into decision making and in facilitating the more efficient management of natural resources as a step toward sustainable development it reviews concepts and techniques for valuation of environmental impacts for use in conventional cost benefits analysis as well as key related aspects including environmental impacts of economywide policies multicriteria analysis risk and uncertainty and discount rate issues several developing country case studies are summarized which cover a range of practical valuation methods the evidence presented suggests that the valuation techniques for determining use values may be applied successfully in appropriate cases but examples involving nonuse values are rare the use of multiobjective desicion methods also needs to be explored where economic valuation is not feasible

differentiating use and nonuse values for coastal pond water quality improvements this paper measures the benefits of water quality improvements in three coastal ponds on the island of martha s vineyard massachusetts u s a use option and existence values were elicited from martha s vineyard property owners by the contingent valuation method on average more than half of the total benefits are attributed to existence value results from the heckman selection model show that the exclusion of protest as well as missing bids does not cause significant bias in estimating respondents willingness to pay socioeconomic characteristics are found to have distinctively different influences on use option and existence values different model parameters are likely to be estimated depending on which value categories are measured by a selected valuation technique these findings emphasize the importance of nonuse values from water quality improvements and of socioeconomic characteristics for measuring different categories of values

the optimal quantity of money a reconciliation abstract despite the apparent disagreement of samuelson s 1958 overlapping generations model and townsend s 1980 turnpike model on the optimal quantity of money in both i those endowed at the start with goods prefer a constant money stock and ii those endowed at the start with fiat money prefer deflation

valuing public goods a comparison of survey and hedonic approaches although the theory of public goods has progressed rapidly since paul samuelson s seminal article the empirical measurement of the value of demand for public goods only recently has received increased attention perhaps the best known and most widely accepted empirical approach has been the use of hedonic prices wherein for example it is assumed that either wages or housing values reflect spatial variation in public good characteristics of different communities this indirect approach based on theoretical work of charles tiebout kelvin lancaster sherwin rosen and others has proven quite successful among public goods or bads which have been valued using the hedonic approach are climate i hoch air pollution robert anderson and thomas crocker d harrison and d rubinfeld social infrastructure r cummings et al and other community characteristics such as noise level j nelson and ethnic composition ann schnare an alternative approach is to directly ask households or individuals to state their willingness to pay for public goods using survey techniques despite arguments that strategic bias will invalidate survey results there exists the need for an alternative to the hedonic approach as an example consider the case of a remote and unique scenic vista valuable to recreators which is threatened by air pollution from a proposed coal fired plant a typical situation in the western united states although it is possible in principle to impute the value of clean air and visibility from the relative decline in local visitation which might follow construction of a power plant information on the value of visibility at the site is needed prior to construction for socially optimal decision making on plant location and pollution control equipment the hedonic approach is unavailable both because the scarcity of local population as opposed to recreators makes use of wage or property value data impossible and because scenic vistas may themselves be unique for these reasons a randall et al first applied survey methods for valuing visibility and other environmental effects of large coal fired power plants in the four corners region of new mexico since this initial application the survey approach has been widely used to value environmental commodities where market data for hedonic analysis is difficult to acquire see for example brookshire ives and schulze rowe et al brookshire et al other early attempts to value public goods using the survey approach include r davis peter bohm and j hammack and g brown although results of using the survey approach for estimating the value of public goods appear to be internally consistent replicable and consistent with demand theory see schulze et al little work on external validation has been reported thus the purpose of this paper is to report on an experiment designed to validate the survey approach by direct comparison to a hedonic property value study the los angeles metropolitan area was chosen for the experiment because of the well defined air pollution problem and be assistant professor university of wyoming assistant professor university of missouri rolla associate professor university of wyoming and professor university of wyoming respectively the research reported here was funded under a grant methods development for assessing air pollution control benefits from the u s environmental protection agency we would like to give special thanks to alan carlin and shelby gerking for their helpful suggestions and contributions additional helpful comments were received from a myrick freeman iii john tschirhart and james murdoch all conclusions are of course our sole responsibility

using contingent valuation to value environmental improvements alternative methods available to economists for valuing non market goods are outlined contingent valuation is then used to value a ban on straw burning

adopt a hypothetical pup a count data approach to the valuation of wildlife the willingness to pay wtp for a coyote conservation program is estimated using a novel payment vehicle based on how many problem coyotes respondents would be willing to sponsor for a year this hypothetical scenario mimics an increasingly popular type of actual market data from a phone survey conducted in prince edward island are analyzed using count data models that consider different processes explaining zero responses and the level of positive responses this is particularly important in the case of coyotes often regarded as an economic bad estimates of wtp per coyote per year around 18 22 and annual wtp per contributor of about 46 57 are obtained

on the evaluation of government programs to reduce environmental risk this paper attempts to identify the correct benefit measure for a government project which might reduce the subjective probability of an environmental risk to health the evaluation of government projects whose costs or benefits are uncertain occupies a considerable literature including arrow and lind fisher and graham the value of reducing the probability of an adverse state outcome has been examined by cook and graham and more recently by gallagher and smith in the latter two papers it was assumed that the individual at risk had access to perfect insurance or contingent claims markets in such a perfect world the value of reducing the probability of an adverse state could be bounded by measures which cook and graham referred to as ransom and compensation and which gallagher and smith show to correspond to the more traditional hicksian notions of compensating and equivalent variation if the assumption of perfect contingent claims markets does not hold it is not possible to set upper and lower bounds on the value of reducing the probability of an adverse state while general forms of health insurance are available to individuals at risk from an environmental hazard specific policies do not allow for the continuous adjustment reallocation of wealth assumed to occur when the individual has access to perfect markets in the next section a more plausible model is constructed it assumes that the individual has a finite set of self protective actions which he or she may take in response to a risk to future health in addition the government may undertake a project to reduce the risk to health it is assumed that both the selfprotective action and the government project have the ability to influence the subjective personal probability of the future states continued good health or ill health there are three major conclusions which emerge from this model a the value of the government project is an option price graham which may be zero or positive if positive the benefits from the project may take the form of cost savings risk probability reduction or both b the value of the government project is dependent on the set of self protective actions and may change as new actions become available or the effectiveness of existing actions is reassessed by the individual c the method of contingent valuation in theory would appear capable of eliciting the proper option price estimates for the project s value to the individual it is even possible to distinguish between the value attributable to cost savings and risk reduction in the next section i present the model and demonstrate the above conclusions in the final section an assessment is made of the in

adaptation and the option value of uncertain environmental resources abstract just as ecology has benefited from the economic theory of optimization economics can benefit from the ecological theory of adaptation we examine the impact of short term non genetic adaptive self protection on the values individuals attach to uncertain prospective environmental resources we demonstrate that collective provision of reductions in supply uncertainty does not necessitate a positive option value given that uncertainty is influenced by the individual s ability to adapt through self protection we conclude that the total value of reducing the supply uncertainty of a natural resource is reflected in both the individual s option price payments for collective provision and in his willingness to pay for adaptation through self protection by ignoring adaptive self protection traditional benefit cost analysis has systematically underestimated the total value of environmental resources that are characterized by uncertain supplies

optional time of use pricing can be pareto superior or pareto inferior abstract many public utilities offer a choice between time of use and flat rates two points are established 1 optional tou time of use schedules exist that pareto dominate both mandatory flat and mandatory tou rates but 2 optional tou prices based on marginal costs can be welfare decreasing even pareto inferior

multivariate mixed models for open ended contingent valuation data willingness to pay for conservation of monk seals although dichotomous choice dc contingent valuation cv has been recommended by the us noaa blue ribbon panel for large scale contingent valuation studies useful information can still be obtained from smaller open ended oe studies often undertaken as a precursor to a dc survey the cv study considered here was carried out in greece and looked at willingness to pay wtp for protecting the mediterranean monk seal monachus monachus in the aegean area this is the most endangered seal in the world and the application of the cv methodology was the first such application in greece the oe data consist of two responses first a binary response detailing whether or not respondents were in principle prepared to pay for the protection of this seal secondly those respondents who answered yes to the first question were then asked to state their maximum wtp for such protection a multivariate binomial log normal mixture model is used to develop a bid function including explanatory variables such as income sex age and education such a modelling approach provides an alternative to more commonplace tobit estimation however the model is extended to include further information which was collected on

divestment of the english forestry estate an economically sound choice abstract this paper evaluates if the proposed divestment of the english forestry commission estate in 2010 was economically rational the analysis is composed of two parts first an amenity value threshold for continued public access to the estate was estimated based on a stated value of the estate i e 700 million and assuming a discount rate of 3 5 the estate should never have been considered for sale however assuming a discount rate of 5 then the associated critical amenity value was estimated to be approximately 5 million second travel cost methods were employed to value public access to the forest of dean as a proxy for the estate an on site survey was conducted that yielded estimates of consumer surplus that exceed the critical amenity value of the estate by two orders of magnitude even when we employ a discount rate above that typically used in public policy decision making therefore we conclude that the policy to divest the estate for 700 million was not a good deal and as such the resulting policy reversal was an economically sensible decision

option value a general approach this article examines a potential bias if expected consumer surplus is used to measure the benefits of a price change under uncertainty this bias which is called option value may be positive or negative a general framework is developed for analyzing the determinants of the sign of option value and this framework is applied to three types of uncertainty income uncertainty quality uncertainty and uncertainty over consumer tastes in the first two cases option value has a determinate sign however in the last case option value may be positive negative or zero in an unpredictable fashion

self interest altruism and health risk reduction an economic analysis of voting behavior while classical economic theory suggests that the demand for private goods is motivated by economic self interest a growing body of literature suggests that the demand for public goods is driven both by self interest and by altruistic motives the political arena has been a major testing ground for this hypothesis recently a number of studies have tried to empirically isolate and determine the importance of economic versus ideological factors in explaining political choices by representatives kau and rubin 1979 peltzman 1984 kalt and zupan 1984 while congressional voting records have provided a rich source of data for empirical analysis a consensus opinion on the importance of self interest versus altruism has not been reached and remains controversial altruistic motivations have also been

option value an exposition and extension this article examines the role of the discount rate in making decisions that will have significant implications for the environment the authors begin by providing a rationale for discounting in general and by describing the main factors that determine

nominal prices and interest rates in general equilibrium endowment shocks the outstanding problem of neoclassical monetary theory has been to determine the effect of changes in the money stock on nominal prices and interest rates the classic result is that in the absence of money illusion contracts fixed in nominal terms and other such impedimenta money is neutral thus a doubling of the money stock results in a doubling of the nominal price level and in no change in nominal interest rates except at most for a temporary liquidity effect while the price level is rising to its new level during the adjustment period the nominal interest rate might temporarily drop this neutrality result has conventionally been proved in a static framework in intertemporal models it is necessary to distinguish between static neutrality and dynamic neutrality if a model displays dynamic neutrality fluctuations in the money stock immediately induce a proportional change in the nominal price level and no change in nominal interest rates or any real variable this property is different from and stronger than static neutrality which in dynamic models states only that if the money stock at all dates is doubled so will be the price level at all dates the effects of exogenous shocks in the monetary growth rate on nominal prices and interest rates are analyzed a representative individual rational expectations framework is adopted and a demand for money is generated by entering money in the utility function the effects of monetary shocks on inflation and interest rates are shown to depend on the autocorrelation of the monetary growth rate for example under serial independence the inflation rate equals the monetary growth rate and the nominal interest rate is nonrandom while under positive negative autocorrelation the nominal interest rate is affected positively negatively by positive growth rate shocks i am grateful to the staff of the federal reserve bank of philadelphia to the finance groups at the university of southem california and virginia polytechnic institute and to c j lacivita dan peled john seater and jon sonstelie for valuable comments on earlier drafts

timber harvest adjacency economies hunting species protection and old growth value seeking the dynamic optimum abstract forests have the potential to provide ecosystem services timber mature growth aesthetics and wildlife and endangered species protection forest managers are faced with complex ecosystem management decisions due to competing and complementary social values and differential interactions of these social values with timber production as a result management strategies can have dramatic aggregate and intertemporal welfare implications this paper portrays the trade offs and externalities in choosing or changing the forest management objective and the resulting rankings of management policies in addition the paper analyzes the role of economies of scale in harvest area where larger harvest areas generate average cost savings in harvesting and reseeding thereby promoting more intensive harvesting at the expense of environmental benefits

expected encounters and willingness to pay for outdoor recreation there is increasing interest in the management of natural resources for recreational activities much of it concerning the effect of crowding in outdoor recreation earlier work outlined models for estimating the effect of increased visitor contacts on individual willingness to pay for wilderness experiences cicchetti and smith 1973 others have looked at how crowding affects recreational resource valuation and criteria for the optimal management of recreational resources anderson and bonsor 1974 fisher and krutilla 1972 while the present paper is also concerned with the effect of visitor contacts on willingness to pay for outdoor recreation it differs from earlier work by looking at how individual willingness to travel is influenced by pre trip expectations of interparty encounters at the site we begin the paper by reviewing the related literature concerning user contacts and outdoor recreation the next section discusses the methods employed in this study and presents the empirical results based on data from the high peaks area of the adirondack mountains in new york state the final section discusses the results and our conclusions

financial markets and inflation under imperfect information abstract this paper studies the effects of inflation on the operation of financial markets and shows how the ability of financial intermediaries to distinguish among heterogenous firms is reduced as inflation rises this point is illustrated by presenting a simple model where inflation affects firms productivity in particular productivity differentials narrow as inflation increases this effect creates incentives for risky and less productive firms to behave as high productivity firms at high rates of inflation this may result in financial intermediaries being unable to differentiate among customers