Measuring Environmental Benefits: A Comparison of Hedonic Technique and Contingent Valuation

Abstract

As it is well known there is a substantial gap between the rigorous and elegant definition of welfare change and benefits derived from theoretical welfare economics and their empirical estimate. This holds especially in the case of public goods such as, e.g., environmental improvements originating in reduced air or water pollution and noise reduction, all of them characterized by non-divisibility and non-rivalness in consumption. Consequently, there are no markets, no customers, no sales and, thus, no cheap information on the benefits of environmental improvement. However, it is important for decision makers in the public sector to have an idea about individual demand of such public goods and their related benefits. This information is necessary to undertake benefit-cost analysis, which is the major tool for evaluating and selecting those policy alternatives which contribute to more effective resource utilization.¹

The author is indebted to Willi Brammertz, Reiner Eichenberger and Thomas Steinemann for research assistance, and to Heinz Buhofer and Peter Zweifel (all University of Zurich) as well as to Kai Fürntratt and Anselm Roemer (both Free University of Berlin) for useful comments on an earlier draft. Additional helpful comments were received from the participants of meetings at Amsterdam, Geneva, Linz, Louvain, Maastricht, Madison, Munich, Neuchatel and Paris. The study also benefited from most useful suggestions of the participants of the Neresheim seminar and of two anonymous referees. They are, of course, not implicated in any remaining errors.