Hostname: page-component-cd9895bd7-jn8rn Total loading time: 0 Render date: 2024-12-23T00:08:46.276Z Has data issue: false hasContentIssue false
  • English
  • Français

Value of Improved Information about Environmental Protection Values: Toward a Benefit–Cost Analysis of Public-Good Valuation Studies

Published online by Cambridge University Press:  01 June 2020

Jon Strand  and
Sauleh Siddiqui
Jon Strand*
Affiliation:
Development Research Group, Sustainability and Infrastructure Team (DECSI), The World Bank, Washington, DC, USA, e-mail: [email protected]
Sauleh Siddiqui
Affiliation:
Department of Environmental Science, American University, Washington D.C. 20016, USA
*
*e-mail: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

What is the benefit from obtaining more precise values of environmental or other public goods through surveys or other information gathering? In the value of information (VOI) problem studied here, a buyer who wishes to preserve a resource sets a price to offer a seller without knowing precisely its protection value, B, nor its value to the seller, V. The VOI from more precise information about B is important for environmental and natural resource valuation, but is typically not quantified nor compared to valuation costs. More precise environmental values reduce the frequency of two types of mistakes (protecting the resource when it should not be; and not protecting it when it should), and increases ex ante welfare. We apply our analysis to Amazon rainforest protection, focusing on the “value of perfect information,” VOPI, which, we show through simulations, typically exceeds realistic valuation costs, justifying significant valuation expenditures. VOPI also depends on the nature of buyer–seller interactions, and takes its highest value when the buyer has full concern for the seller’s outcome. Our paper proposes and prepares the base for a new, needed, field in applied welfare economics, the “benefit–cost analysis of public-good valuation studies.”

Keywords

benefit–cost analysisenvironmental valuationpublic goodsrainforestsvalue of information.
Type
Article
Information
Journal of Benefit-Cost Analysis , Volume 11 , Issue 3 , Fall 2020 , pp. 418 - 440
Copyright
© Society for Benefit-Cost Analysis, 2020

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Ades, A. E., Lu, G., and Claxton, K. 2004. “Expected Value of Sample Information Calculations in Medical Decision Making.” Medical Decision Making, 24: 207–227.CrossRefGoogle Scholar
Allen, B. P., and Loomis, J. 2008. “The Decision to Use Benefit Transfer or Conduct Original Valuation Research for Benefit-Cost and Policy Analysis.” Contemporary Economic Policy, 22: 468–482.Google Scholar
Benthem, A. V., and Kerr, S. 2013. “Scale and Transfers in International Emissions Offset Programs.” Journal of Public Economics, 107: 31–46.CrossRefGoogle Scholar
Berger, J. O. 1985. Statistical Decision Theory and Bayesian Analysis. New York, NY: Springer.CrossRefGoogle Scholar
Bergland, O. 2005. “Bayesian Estimation of Willingness-to-Pay from Contingent Valuation Data.” Unpublished diss., Australian National University.Google Scholar
Bergland, O. 2014. “Benefit Transfer Without Apology.” Unpublished diss., Department of Economics and Business, Norwegian University of Life Sciences.Google Scholar
Bolton, P., and Dewatripont, M. 2004. Contract Theory. Cambridge, MA: MIT Press.Google Scholar
Boucher, D. 2014. How Brazil has dramatically reduced tropical deforestation. Available at http://www.resilience.org/stories/2014–07–03/how–brazil–has–dramatically–reduced–tropical–deforestation. Accessed October 10, 2018.Google Scholar
Carrasco, L. R., Nghiem, T. P. L., Sunderland, T. , and Koh, L. P. 2014. “Economic Valuation of Ecosystem Services Fails to Capture Biodiversity Value of Tropical Forests.” Biological Conservation, 178: 163–170.CrossRefGoogle Scholar
Claxton, K. 1999. “Bayesian Approaches to the Value of Information: Implications for the Regulation of New Pharmaceuticals.” Health Economics, 8: 269–274.3.0.CO;2-D>CrossRefGoogle ScholarPubMed
Claxton, K., and Posnett, J. 1996. “An Economic Approach to Clinical Trial Design and Research Priority Setting.” Health Economics, 5: 513–524.3.0.CO;2-9>CrossRefGoogle ScholarPubMed
Costello, C. J., Polasky, S., and Solow, A. 2001. “Renewable Resource Management with Environmental Prediction.” Canadian Journal of Economics, 34: 196–211.CrossRefGoogle Scholar
Crocker, T. 1975. “Benefit–Cost Analyses of Benefit–Cost Analysis.” In Cost–Benefit Analysis and Water Pollution Policy, edited by Peskin, H. M. and Seskin, E. P., 675–709. Washington, DC: The Urban Institute.Google Scholar
Dakins, M. E., Toll, J. E., and Small, M. J. 1994. Risk-based environmental remediation: Decision framework and role of uncertainty. Environmental Toxicology and Chemistry, 13: 1907–1915.CrossRefGoogle Scholar
DeGroot, M. H. 1970. Optimal Statistical Decisions. New York, NY and London, UK: McGraw–Hill.Google Scholar
Eckermann, S., and Willan, A. R. 2007. “Expected Value of Information and Decision making in HTA.” Health Economics, 16: 195–209.CrossRefGoogle ScholarPubMed
Eeckhoudt, L., Thomas, A., and Treich, N. 2011. “Correlated Risks and the Value of Information.” Journal of Economics, 102: 77–87.CrossRefGoogle Scholar
Gibbons, R. 1992. Game Theory for Applied Economists. Princeton, NJ: Princeton University Press.Google Scholar
Gold, M., Siegel, J., Russel, L., and Weinstein, M. 1996. Cost–Effectiveness in Health and Medicine. New York, NY: Oxford University Press.Google ScholarPubMed
Gollier, C. 2001. The Economics of Risk and Time. Cambridge, MA: MIT Press.CrossRefGoogle Scholar
Johnston, R. J., and Rosenberger, R. S. 2010. “Methods, Trends and Controversies in Contemporary Benefit Transfer.” Journal of Economic Surveys, 24: 479–510.Google Scholar
Jones-Lee, M. W. 1992. Paternalistic altruism and the value of statistical life. The Economic Journal, 102: 80–90.CrossRefGoogle Scholar
Keisler, J. M., Collier, Z. A., Chu, E., Sinatra, N., and Linkov, L. 2014. “Value of Information Analysis: The State of Application.” Environment Systems and Decisions, 34: 3–23.CrossRefGoogle Scholar
Kennedy, C. J., and Barbier, E. B. 2013. “Renewable Resource Management with Environmental Prediction: The Importance of Structural Specification.” Canadian Journal of Economics, 46: 1110–1122.CrossRefGoogle Scholar
Lindhjem, H., and Navrud, S. 2008. “How Reliable are Meta-Analyses for International Benefit Transfers?” Ecological Economics, 66: 425–435.CrossRefGoogle Scholar
Mason, C. F., and Plantinga, A. J. 2013. “The Additionality Problem with Offsets: Optimal Contracts for Carbon Sequestration in Forests.” Journal of Environmental Economics and Management, 66: 1–14.CrossRefGoogle Scholar
May, P., Soares-Filho, B., and Strand, J. 2013. “How much is the Amazon Worth? The State of Knowledge Concerning the Value of Preserving Amazon Rainforests.” Policy Research Working Paper 6668, Development Research Group, The World Bank.CrossRefGoogle Scholar
Mendelsohn, R. 1986. “Regulating Heterogeneous Emissions.” Journal of Environmental Economics and Management, 13: 301–312.CrossRefGoogle Scholar
Montero, J.-P. 2008. “A Simple Auction Mechanism for the Optimal Allocation of the Commons.” American Economic Review, 98: 496–518.CrossRefGoogle Scholar
Myerson, R. B. 1979. “Incentive Compatibility and the Bargaining Problem.” Econometrica, 47: 61–73.CrossRefGoogle Scholar
Myerson, R. B., and Satterthwaite, M. A., 1980. “Efficient Mechanisms for Bilateral Trading.” Journal of Economic Theory, 29: 265–281.CrossRefGoogle Scholar
Newbold, S. C., and Marten, A. L. 2014. ‘The Value of Information for Integrated Assessment Models of Climate Change.” Journal of Environmental Economics and Management, 68: 111–123.CrossRefGoogle Scholar
Peck, S., and Teisberg, T. J. 1996. “Uncertainty and the Value of Information with Stochastic Losses from Global Warming.” Risk Analysis, 16: 227–235.CrossRefGoogle Scholar
Phillips, C. V. 2001. “The Economics of ‘More Research is Needed’.” International Journal of Epidemiology, 30(4): 771–776.CrossRefGoogle ScholarPubMed
Polasky, S., and Solow, A. 2001. “The Value of Information in Reserve Site Selection.” Biodiversity and Conservation, 10: 1051–1058.CrossRefGoogle Scholar
Pratt, J. W., Raiffa, H., and Schlaifer, R. 1995. Introduction to Statistical Decision Theory. Cambridge, MA: MIT Press.Google Scholar
Richardson, L. Loomis, J.. Kroeger, J., and Casey, F. 2015. “The Role of Benefit Transfer in Ecosystem Service Valuation.” Ecological Economics, 115: 51–58.CrossRefGoogle Scholar
Robert, C. P. 2001. The Bayesian Choice: From Decision–Theoretic Foundations to Computational Implementation. New York, NY: Springer.Google Scholar
Rosendahl, K. E., and Strand, J. 2014. “Emissions Trading with Offset Markets and Free Quota Allocations.” Environmental and Resource Economics, 61: 243–271.CrossRefGoogle Scholar
Salas, P. C., and Roe, B. E. 2011. “The Role of Cooperation and Reciprocity in Structuring Carbon Sequestration Contracts in Developing Countries.” American Journal of Agricultural Economics, 94: 411–418.CrossRefGoogle Scholar
Samson, D., Wirth, A., and Rickard, J. 1980. “The Value of Information from Multiple Sources of Uncertainty in Decision–Analysis.” European Journal of Operations Research, 29: 254–260.Google Scholar
Siikamäki, J., Krupnick, A., Strand, J., and Vincent, J. 2019. “Willingness to Pay for Amazon Rainforest Protection.” Unpublished, Resources for the Future, The World Bank.Google Scholar
Strand, J. 2007. “Public–Good Valuation and Intra–Family Allocation.” Environmental and Resource Economics, 38: 527–543.CrossRefGoogle Scholar
Strand, J. 2013. “Strategic Climate Policy with Offsets and Incomplete Abatement: Carbon Taxes Versus Cap–and–Trade.” Journal of Environmental Economics and Management, 66: 202–218.CrossRefGoogle Scholar
Strand, J., Carson, R. T., Navrud, S., Ortiz–Bobea, A., and Vincent, J. 2017. “Using the Delphi Method to Value Protection of the Amazon Rainforest.” Ecological Economics, 131: 475–484.CrossRefGoogle Scholar
Strand, J., Soares-Filho, B., Costa, M. H., Oliveira, U., Ribeiro, S. C., Pires, G. F., Oliveira, A., et al. 2018. “Spatially Explicit Valuation of the Brazilian Amazon Forest’s Ecosystem Services.” Nature Sustainability, 1: 657–674.CrossRefGoogle Scholar
Tanner, M., and Wong, W. H. 1987. “The Calculation of Posterior Distributions by Data Augmentation.” Journal of the American Statistical Association, 82: 528–540.CrossRefGoogle Scholar
Yohe, G. 1996. “Exercises in Hedging Against Extreme Consequences of Global Change and the Expected Value of Information.” Global Environmental Change, 6: 87–101.CrossRefGoogle Scholar
Yokota, F., and Thompson, K. M. 2004. “Value of Information Analysis in Environmental Health Risk Management Decisions: Past, Present, and Future.” Risk Analysis, 24(3): 635–650.CrossRefGoogle ScholarPubMed
Supplementary material: File

Strand and Siddiqui supplementary material

Appendix 1

Download Strand and Siddiqui supplementary material(File)
File 76.7 KB
Supplementary material: File

Strand and Siddiqui supplementary material

Appendix 2

Download Strand and Siddiqui supplementary material(File)
File 99.1 KB