on the value of waterside residential property and _Brookshire and others (1982)_ to estimate the benefits from air quality improvement in Los Angeles.

# _Conceptual Framework_

This method consists in estimating the contributions of each relevant determinant of market goods in order to identify marginal willingness to pay for each characteristic. This technique requires collecting large amounts of data on prices and characteristics of properties or wage determinants to estimate the _hedonic price function_ . Individuals are assumed to choose the levels of each characteristic which marginal implicit price corresponds to their marginal valuation of the attribute. The partial derivative (or slope) of the hedonic price function with respect to each characteristic corresponds thus to the implicit price.

Hedonic pricing is generally used on housing and labor market to estimate the shadow price of environmental quality. While in the real estate’s market, the shadow price reflects the willingness to _pay_ to enjoy a given environmental quality; in the labor market the willingness to _accept_ is estimated through the risk premium entailed in the salary rate to compensate for health risks. Different exposures to physical and health risks can be captured by wages differential on labor markets. The premium entailed to job salaries with higher risks corresponds to the market value an individual is willing to accept for a marginal change in injury or mortality. The hedonic price method allows thus to disentangle such risk premia from other wages determinants including gender, education, etc.

# _Assumptions and Limitations_

As the non-market values are inferred from the market prices, any price distortion in markets would bias the estimated shadow price and do not represent anymore individual willingness to pay. Moreover, the risks perceived by individuals are assumed to correspond to the actual risks so that the decisions observed on labor markets reflect their true valuation of risk. For instance, wage-risks choices from workers that underestimate accident risks due to overconfidence or lack of information do not reflect the real value of risk incurred. Finally, price determinants may be highly correlated which complicates the identification of net effects from environmental hazards (multicollinearity problems). This is for instance the case for housing close to roads that suffer from both noise and higher concentration on volatile particles.

# **3.1.2 Stated Preference Methods**

As we have seen in the previous section, intangible environmental goods and services are imperfectly traded in markets, when they exist. Although they are entailed with economic value, changes in quantity and in quality can hardly be valued through the market price mechanism. The revealed preference methods presented in the previous section exploit the fact that non-market goods and services are implicitly traded so that the related economic value reflected in market prices can be unveiled. In some instances, implicit values cannot be inferred using surrogate markets. Hypothetical markets are then used to elicit individual willingness to pay (WTP) or willingness to accept (WTA) compensation for a 14