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ENVIRONMENTAL ECONOMICS – 2e Charles D. Kolstad Copyright © 2011 by Oxford University Press, Inc. C H A P T E R 8 HEDONIC PRICE METHODS.

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Presentation on theme: "ENVIRONMENTAL ECONOMICS – 2e Charles D. Kolstad Copyright © 2011 by Oxford University Press, Inc. C H A P T E R 8 HEDONIC PRICE METHODS."— Presentation transcript:

1 ENVIRONMENTAL ECONOMICS – 2e Charles D. Kolstad Copyright © 2011 by Oxford University Press, Inc. C H A P T E R 8 HEDONIC PRICE METHODS

2 ENVIRONMENTAL ECONOMICS – 2e Charles D. Kolstad Copyright © 2011 by Oxford University Press, Inc. FIGURE 8.1 A valley divided into a clean region and a dirty region.

3 ENVIRONMENTAL ECONOMICS – 2e Charles D. Kolstad Copyright © 2011 by Oxford University Press, Inc. FIGURE 8.2 Effect of pollution on land rents and wages with productive pollution. A, wage/rent at pollution = p 1 ; B, wage/rent at pollution = p 2 ; c(w,r,p) = 1, isocost lines; V(w,r,p) = k, isoutility lines. Note: p 2 > p 1.

4 ENVIRONMENTAL ECONOMICS – 2e Charles D. Kolstad Copyright © 2011 by Oxford University Press, Inc. FIGURE 8.3 Wages, rent, and discretionary income, as a function of pollution levels.

5 ENVIRONMENTAL ECONOMICS – 2e Charles D. Kolstad Copyright © 2011 by Oxford University Press, Inc. FIGURE 8.4 Representative wage-pollution indifference curves for two different individuals (higher utility associated with upward shifts in indifference curves).

6 ENVIRONMENTAL ECONOMICS – 2e Charles D. Kolstad Copyright © 2011 by Oxford University Press, Inc. FIGURE 8.5 Consumer choice. θ(y,z,U), amount of money available to bid for house with air quality z, for a person with income y, obtaining utility U; p(z), price of house with air quality level z.

7 ENVIRONMENTAL ECONOMICS – 2e Charles D. Kolstad Copyright © 2011 by Oxford University Press, Inc. FIGURE 8.6 Producer choice. φA(r,z,π), house offer price when air quality level is z, input prices r, necessary to give profit π; p(z), price of house with air quality level z.

8 ENVIRONMENTAL ECONOMICS – 2e Charles D. Kolstad Copyright © 2011 by Oxford University Press, Inc. FIGURE 8.7 Equilibrium in an hedonic market. φ i, offer function for three producers, i = 1,2,3; θ j, bid function for three consumers, j = 1,2,3; E k, equilibrium between producer k and consumer k, k = 1,2,3; p(z), price of house with air quality level z.

9 ENVIRONMENTAL ECONOMICS – 2e Charles D. Kolstad Copyright © 2011 by Oxford University Press, Inc. FIGURE 8.8 Marginal willingness to pay for z. p(z), slope of hedonic price line with respect to z (marginal value of z); MWTP i (z), marginal willingness to pay for one more unit of z, consumers i = 1,2.

10 ENVIRONMENTAL ECONOMICS – 2e Charles D. Kolstad Copyright © 2011 by Oxford University Press, Inc. FIGURE 8.9 Wage–risk relationship.


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