Deck 7: Assessing Benefits for Environmental Decision Making

Question 1

Among the advantages of the hedonic price method is that data on a product's characteristics are readily available.

Answer 1

False

Question 2

Increased fish populations linked to water pollution policy would be a type of secondary environmental benefit.

Answer 2

False

Question 3

The benefit estimation method that relies on goods that are complements to environmental quality is the averting expenditure method.

Answer 3

False

Question 4

The benefit received from using or accessing an environmental good is known as user value.

Question 5

In modeling the travel cost method, the estimated benefit of improving the environmental quality of a natural resource is captured by the change in consumer surplus associated with a decrease in demand for that resource

Question 6

The averting expenditure approach is favored by researchers because it can capture both existence and user value.

Question 7

If the MSB function for some measure of environmental quality were known, the change in TSB associated with a policy initiative could be measured by the area under the MSB between the pre- and post-abatement levels.

Question 8

The approach that estimates benefits according to a technical relationship between a resource and a user of the resource is called the behavioral linkage approach.

Question 9

In theory, the concept of incremental benefits refers to the change in MSB of environmental quality from a pre-policy level to a post-policy level.

Question 10

The hedonic price method is based upon the premise that goods and services are valued for their individual attributes.

Question 11

A disadvantage of the travel cost method is that it estimates only existence value and not user value.

Question 12

The change in health, ecological, and property damages linked to environmental policy is known as incremental benefits.

Question 13

Stewardship refers to a sense of obligation to future generations to preserve the environment.

Question 14

When using a damage function, incremental benefits are measured as a vertical distance of total damages (TD) associated with a decrease in some contaminant (C).

Question 15

A known problem associated with the averting expenditure method is jointness of production, which refers to goods that provide services beyond those that improve the environment.

Question 16

If an individual enjoys swimming in the ocean, the ocean generates existence value to the individual.

Question 17

An indirect gain to society attributable to environmental policy implementation is referred to as a primary environmental benefit.

Question 18

The contingent valuation method is so called because it is contingent upon the hypothetical market that serves as the context for the survey.

Question 19

The travel cost method estimates benefits based on the substitutability of a natural resource and its recreational value.

Question 20

If an individual receives utility from enjoying the view of a mountain range, that mountain range is said to provide indirect user value to the individual.

Question 21

Incremental benefits refer to the

A) accumulated gains linked to environmental policy
B) total social benefits of avoiding ecological damage
C) reduction in environmental damages associated with an environmental policy initiative
D) none of the above

Question 22

In the averting expenditures model shown below, if environmental quality is E₁, and personal environmental quality is X₁, the area or distance that represents the individual's averting expenditures is

A) edfX₁
B) edhX₂
C) dgh
D) edfhX₂

Question 23

The averting expenditures method

A) uses spending changes on goods that act as substitutes for environmental quality
B) defines personal environmental quality as the relevant market
C) has the disadvantage of jointness of production, which biases the benefit estimate
D) all of the above

Question 24

The benefit received from the continuance of an environmental good is called

A) user value
B) stewardship
C) existence value
D) vicarious consumption

Question 25

If benefit functions for a public good could be identified accurately, incremental benefits would be measured as

A) the area under the MSB function between the pre- and post-policy abatement levels.
B) the area under the TSB function between the pre- and post-policy abatement levels.
C) a horizontal distance on the MSB model corresponding to the pre- and post-policy abatement levels
D) none of the above

Question 26

There is some debate about whether secondary benefits should be considered when assessing public policy proposals. Identify two reasons why secondary benefits might be excluded from a benefit-cost analysis of proposed environmental policy.

Question 27

A collaborative federal and state program has been proposed in response to acid rain damage in Newport Bay, Maryland. To estimate the incremental benefits of the program, you use the travel cost method based upon the following pre- and post-policy recreational demand functions:
Pre-policy: P = 62 - 0.02V₁ Post-policy: P = 80 - 0.02V₂,
where V is the number of visitors (in thousands) and P is the admission fee. Assume the admission fee is set at $20 per visitor. Use this information for any or all of Questions.

-Before the policy was put into effect, estimated consumer surplus (in thousands of dollars) was valued at

A) 2,100
B) 44,100
C) 90,000
D) 45,900

Question 28

A collaborative federal and state program has been proposed in response to acid rain damage in Newport Bay, Maryland. To estimate the incremental benefits of the program, you use the travel cost method based upon the following pre- and post-policy recreational demand functions:
Pre-policy: P = 62 - 0.02V₁ Post-policy: P = 80 - 0.02V₂,
where V is the number of visitors (in thousands) and P is the admission fee. Assume the admission fee is set at $20 per visitor. Use this information for any or all of Questions.

-The number of pre- and post-policy visitors, V₁ and V₂, (in thousands) is ____ and _____, respectively.

A) 2,100; 3000
B) 44,100; 90,000
C) 61.6; 79.6
D) none of the above

Question 29

The contingent valuation method involves

A) constructing a hypothetical market
B) designing a valid survey instrument to gather WTP data
C) evaluating the truthfulness of responses
D) all of the above
E) (a) and (c) only

Question 30

The hedonic price method

A) is a direct method of estimating benefit
B) relies on the theory that goods are valued for their attributes
C) is a physical linkage approach
D) is useful but not intuitive

Question 31

Assuming that the marginal social benefit (MSB) of environmental quality is known, then

A) the MSB represents the demand for environmental quality
B) total social benefits (TSB) of abatement, A₁, can be captured as an area under the MSB up to A₁
C) incremental benefits are measured as an area under the MSB between the pre- and post-policy abatement levels
D) all of the above
E) none of the above

Question 32

Installing an air purifier or a water filtration system is an example of a(n)

A) direct estimation method
B) ozone-reducing policy
C) physical linkage approach
D) averting action

Question 33

Vicarious consumption refers to the notion that

A) individuals have a sense of obligation to preserve the environment for future generations
B) people gain utility knowing that others receive gains from an environmental good
C) individuals gain from directly consuming the services generated by an environmental resource
D) natural resources have intrinsic value
E) none of the above

Question 34

The damage function method

A) is a behavioral linkage approach to measuring environmental benefits
B) uses a technical relationship between an environmental resource and a user of that resource to estimate benefits
C) uses the same technique as the contingent valuation approach
D) is capable of measuring all aspects of incremental benefits simultaneously

Question 35

The utility a consumer derives from knowing that others receive benefit from an environmental good is called

A) stewardship value
B) indirect user value
C) direct user value
D) vicarious consumption

Question 36

The benefit estimation method that uses surveys about hypothetical market conditions is

A) the averting expenditure method
B) the contingent valuation method
C) the travel cost approach
D) the political referendum approach

Question 37

A disadvantage of the travel cost method is

A) it cannot determine monetary values
B) it estimates only user value and not existence value
C) it focuses on recreational use making it ineffective for commercial use
D) all of the above
E) (b) and (c) only

Question 38

When researchers use the damage function method, they

A) model the relationship between the cost of the policy and the associated reduction in environmental damages
B) can directly measure the reduction in environmental damage in monetary units
C) measure the link between a policy-induced decrease in contamination and the associated reduction in environmental damage
D) can measure all aspects of incremental benefits at once

Question 39

A collaborative federal and state program has been proposed in response to acid rain damage in Newport Bay, Maryland. To estimate the incremental benefits of the program, you use the travel cost method based upon the following pre- and post-policy recreational demand functions:
Pre-policy: P = 62 - 0.02V₁ Post-policy: P = 80 - 0.02V₂,
where V is the number of visitors (in thousands) and P is the admission fee. Assume the admission fee is set at $20 per visitor. Use this information for any or all of Questions.

-The estimated incremental benefits (in thousands of dollars) associated with this new policy are

A) 2,100
B) 44,100
C) 90,000
D) 45,900

Question 40

In practice, the hedonic price method

A) is easy to use because attribute data are always readily available
B) estimates the prices of the product's characteristics
C) can be implemented with a simple empirical model
D) has never been used by empirical economists

Question 41

Suppose that the Marginal Social Benefit associated with drinking water quality is estimated to be MSB = 100 - 0.5A, where A is the percentage of mercury abated from drinking water and MSB is measured in millions of dollars. Find the total social benefit (TSB) associated with a federal policy that increases mercury abatement from 20 percent to 30 percent.