| Method type | Valuation | |||
| Sub-types | Non-market outcomes | Indirect outcomes | Intertemporal outcomes | Uncertain outcomes |
| Task | Assign value to outcomes of an adaptation option. | |||
| Characteristics of AS |
An actor faced with a decision. A common metric, e.g. money, can be applied across a range of outcomes and implications of a particular choice. Prices change over time; therefore it is appropriate to specify a base year for valuation, correcting for inflation. | |||
| Value of outcomes by looking at the average prices that people pay for them. | Outcomes of a choice are large scale and cause significant indirect effects. | Value placed on outcomes is a function of time. | Value placed on outcomes is a
function of how certain the
outcomes are.Estimate of utility
function. Probability density function of outcomes is known | |
| Results | A value assigned to each outcomes via common metric. | |||
| Example cases |
An example of the hedonic pricing method would be examine the
extent to which workers in higher risk jobs are paid than workers in
comparable jobs of lower risk; from this is, it is possible to impute a
value to that risk. A second example is van Bustic et al. (2011) who apply a hedonic framework to estimate the value of climate change impacts by estimating their impact on real estate prices near ski resorts in the western United States and Canada. They use data on individual home sales in four locations, combined with weather data and characteristics of nearby ski resorts, to estimate effects of snowfall changes on housing values. An example of contingent valuation (CV) would be to ask people how much they would be willing to pay, in the form of higher taxes, to protect a rare bird species; from this it is possible to impute a value to that species’ existence. Arrow et al. (1993) develop a set of guidelines to applying CV to environmental and natural resources. An example of the travel cost method would be to survey visitors to a national park about where they came from, identifying a relationship between the numbers visiting and the cost of visiting; from this it is possible to calculate the total consumer surplus of all visitors to the park, given that many visitors have to pay less in travel than they would be willing to pay. For example, Hamilton et al. (2005) apply the travel cost method to develop a model estimate the impacts of climate change on international tourism flows. | The
simplest takes an empirically derived multiplier, a number like
3. For every euro in direct benefits, the society as a whole will
experience €2 additional in indirect benefits, through the increase in consumption. Computable general equilibrium modelling (CGE): Modelling the economy as a whole, and assuming that after the ripples are done rippling, it will settle into a new equilibrium, with a different overall level of consumption. Partial or general equilibrium models allow one to estimate consumption levels, and hence total value, in the new equilibrium. For example, Willenbockel et al. (2011) run a multi-sectoral regionalised dynamic computable general equilibrium model of Ethiopia with a system of country-specific hydrology, crop, road and hydropower engineering models to simulate the economic impacts of climate change towards 2050. They find that without externally funded adaptation investments Ethiopia’s GDP in the 2040s will be up to 10 percent below the counterfactual no-climate change baseline. | Economists typically use a discounting function to decrease the importance of effects occurring further in the future. The most common functional form is exponential. Here there are debates about the appropriate discount rate to apply in that model, with most people arguing a rate somewhere between 0 and 10% being correct (see e.g. Stern 2006). | One
example of this is expected utility theory (Von Neumann
and Morgenstern 1953) describes the conditions necessary
for rationa individuals to assign expected utility to a set of outcomes. The utility assigned to uncertain outcomes depends on the riskaversion of the decision-maker. Yohe et al. (2011) address the question of valuing adaptation options to the stochastic events related to sea-level rise in the coastal zone. They find that increases in decision-makers’ aversion to risk increase the economic valu of adaptations that reduce expected damages and diminish the variance of their inter-annual variability. For engineering and other adaptations that require large upfront costs and ongoing operational cost, increases in risk aversion increase the value of adaptation and therefore make implementation of these options economically efficient at an earlier date.that reduce expected damages and diminish the variance of their inter-annual variability. For engineering and other adaptations that require large upfront costs and ongoing operational cost, increases in risk aversion increase the value of adaptation and therefore make implementation of these options economically efficient at an earlier date. |
| Issues involved |
The travel cost method is challenged by the fact that important costs of a trip may be unobservable. On the other hand, multi-purpose trips may cause the method to over value an environmental resource. Contingent valuation has been found to be highly dependent on question framing, e.g. Willingness to Accept surveys produce higher values for resources than Willingness to Pay surveys. |
Behavioural research shows that most individuals do not apply an
exponential model to their own decisions, but rather a hyperbolic
model, in which the difference in value between an event occurring now
and occurring one year in the future is much greater than the difference in value between an event occurring one year in the future and occurring two years in the future. | ||
Related decision tree of the Pathfinder
Decision tree: Valuation in section Formal decision making
Decision tree: Valuation in section Impact analysis
Access Toolbox detail pages to learn more on selected methods and tools.
| M-CACES |
