Option Value:

Option is the right to purchase an asset but no obligations are attached. (Right to use but do not use)

Existence Value:

Bring happiness provide value (appearances)

Bequest Value:

Inheritance to the future generation, for future generations due to historic / cultural importance

Non-Use Value is hard to calculate.

Direct Use Value can be active (consumptive) and passive (non-consumptive)

Direct Revealed Preferences Methods

Indirect Revealed Preferences Methods

Direct Stated Preferences Methods

Indirect Stated Preferences Methods

Methods Revealed Preferences Stated Preferences

Direct Market Price
Simulated Markets
Indirect Travel Cost
Hedonic Property Wages
Hedonic Wage Values
(Happiness)
Avoidance Expenditures (e.g.
defensive way to reduce
damage caused by pollution –
cost of buying bottled water if
tap water is unsafe to drink)
Contingent Valuation (What if
the forest disappeared?  E.g.
increase in animal escapes)
Hypothetical Methods (Price
for various future scenarios)
Attribute-based model
Choice Modelling (e.g. Causing
paradox of choice)
Life Satisfaction Approach
(include residents only living in
the area)

Subjective, biased, survey-based for most of the methods.

Market Breadth – Diverse sectors and large variety of Goods and Services

Market Depth – High Liquidity and Demand

Market Related Tools

1) Taxes
2) Subsidies

3) Trading Permits

4) Trading Caps

6) Quotas

Command and Control

1) Standards and Regulations (Half Command and Control-Half Market Based)

2) Price Control (Price Floor and Price Ceiling)

3) Product Specifications

Positive Externality: Beneficial spill overs, eg.. education with the regards to the protection of the
environment, invention of new machines that reduce pollution

Negative Externality: Beneficial Spill overs, e.g. run-offs (water pollution), air pollution, depletion of
non-renewable resources, reduces biodiversity

What factors cause water pollution? (Give at least 2 examples, stationary or mobile, point or non-
point source)

1) Factory discharge pipes (Stationary, point source)

2) Agricultural run-offs (contains eroded soil mixed with fertilisers and pesticides) / (Stationary, non-
point source)

3) Boats discharge (mobile, point source)

Market-based instruments would be tax or subsidies. Cons is how much tax or subsidies to provide
to give as the government have incomplete information. (Must be enforceable)

CAC policy would be to use limits. Cons must set up regulatory departments to catch offenders to
ensure that it is enforceable. In other words, the cost is relatively high over the long run.

Which type of valuation methods would you use for each of the scenarios given?

1) The loss of GBR due to climate change – Contingent Valuation (Direct Stated Preference)

2) Deforestation to build a casino to attract tourism – Contingent valuation (how much make from
forest and casino?) estimates given by another person with a survey is his perspective, ask that
person to compare before making decisions (e.g. make more from casino). Life satisfaction, Choice
Modelling
3) The intrusion of a mining company that destroy the beautiful scenery of Blue Mountain – Hedonic
Pricing (scenery) - assume there are houses.