ECON490 Valuation of Nonmarket Goods Homework 1

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University of Illinois, Urbana Champaign *

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490

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Economics

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Feb 20, 2024

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pdf

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ECON490 Francesco Cenerini Valuation of Nonmarket Goods HOMEWORK #1 Questions (3-5 lines approx.) 1. What is the objective of calculating controversial measures such as the Value of a Statistical Life? 2. What are the properties of preferences? Why do we need them? 3. Give examples of WTP to avoid, WTP to obtain, Willingness To Accept, WTA to forgo. 4. What is weak complementarity? Give an example in which you would expect it to hold. 5. What are the benefits and limitations of revealed preferences? What those of stated preferences? 6. Two surveying teams are given the same budget to conduct online surveys about bison reintroduction for the state of Illinois and for the whole of North America, respectively. Is this an acceptable allocation? Why/why not? 7. Does high nonresponse rate imply high nonresponse error? Why/why not? Problem The town of Midwestville, IL, is considering the construction of a large mall in place of its Old Main Square. Proponents argue that the mall will create many opportunities for small businesses and large franchises alike. Moreover, the winter is already so cold that the square is usually empty for three months every year, and the mall would effectively create an indoor square. Opponents argue that the mall will cost a lot and bring in large chains that will crush small businesses, and even if it did create some new opportunities, the project would still be negative overall because it would destroy the well-preserved historic district, which attracts regional tourists, and depress the value of those properties. You are asked to develop a strategy to carry out a Benefit-Cost analysis for the project. Would you use a WTP or WTA measure in your study? Which groups would you survey? Are there any possible data sets that you would be able to use to have estimates of the benefits and costs? Explain your choices. Small Essay (300-500 words) Some environmentalists consider it wrong and damaging to “put a dollar value” on nature, and many in social sciences object to the use of willingness to pay and willingness to accept as valid measures, due to their inherent problems. To what extent do you agree or disagree? Provide examples of good and bad use of nonmarket good valuation.

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