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Nonmarket Values

Nonmarket Values. Property, ideas and experiences can have “value” even if not exchanged in a market. . Market Based Value. Price ($/Q). P & Q where S = D maximizes consumer and producer surplus. Supply. Consumer Surplus. P*. Producer Surplus. Demand. Q*. Quantity.

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Nonmarket Values

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  1. Nonmarket Values Property, ideas and experiences can have “value” even if not exchanged in a market.

  2. Market Based Value Price ($/Q) P & Q where S = D maximizes consumer and producer surplus Supply Consumer Surplus P* Producer Surplus Demand Q* Quantity

  3. Total Economic Value Nonuse Value Use Value Direct Use Option Existence Bequest Indirect Use Consumptive Use Nonconsumptive Use

  4. Why Are Nonmarket Values Needed • Allocation of resources • Budgeted • Regulatory • Reduced resource use • Avoidance of costs

  5. Ways to Measure • Willingness to make tradeoffs, sacrifices, or pay directly • Measure with a simulated market (stated preference) • Observe actual behavior (revealed preference)

  6. Hedonic Modeling • Statistically isolate the effect of differences in the characteristics and contexts of a category of property • Price = f (positive attributes, negative attributes) • Subject property • Urban houses • Building lots • Recreation areas

  7. Travel Cost Model • Used to value recreation areas • Based on out-of-pocket and opportunity cost to travel to a destination • Zonal • Individual • Costs that can be added • Entrance fee • Equipment • License – hunting, fishing

  8. Stated Preference • A direct measurement • Willingness to pay • Amount individual would be willing to pay to engage in a defined activity • Willingness to accept • Amount individual would accept in payment for not doing something

  9. Contingent Valuation Model • Setup a hypothetical market • Describe characteristics of the thing or opportunity for sale • Describe attributes of the market • Individual states what they would pay for the thing or opportunity • Survey techniques used • Many potential biases

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