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Handout for Three Day CES Lecture Series
Some Topics in Environmental Economics:
Estimation of the Value of Time, Climate Change Hedonics and Air Pollution
Hendrik Wolff -- University of Washington
Feel free to stop by for any questions or email at [email protected]
My office is in Munich is Room 103, Schackstr. 4.
Course Date & Time: 10.15-11.45am, 13, 14, and 15 September 2011
Location: CES, Schackstr. 4, 2nd floor, seminar room (207)
Course goals and course description: This short course is mainly empirical and data-driven. It aims
providing an overview of some topics within environmental economics which I have been working on.
After a brief introduction into the field of Environmental Economics, we will discuss in more detail the
topics on the estimation of the Value of Time, Climate Change Hedonics and if time permits the
Estimation and Evaluation of Air pollution policies.
The “Value of Time” (VOT) is a fundamental concept in economics and heavily used within
environmental economics in particular for the estimation of ‘values’ for non-market goods such as
recreational sites, and transportation demand models. We will summarize the literature on the estimation
of the VOT parameter and discuss advantages and disadvantageous of various methodologies.
Climate Change has been a ‘hot topics’ for more than a decade and meanwhile spans a very wide area of
research within economics (see for example the lead article in the most recent AER1). Here we will focus
on the literature that aims at estimating the ‘value’ or ‘disvalue’ of climate and weather changes drawing
from the hedonics literature.
Although air pollution improved drastically over the century, air pollution and particulate matter
(Feinstaub) is still one of the main reasons for shortened life expectancy today in both developing
countries and the modern industrial world. Most crucial emissions are from driving. If time permits, I will
present my own ongoing work on the evaluation of Low Emission Zones “Umweltzonen” in Germany
with an ecometric analysis.
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Environmental Accounting for Pollution in the United States Economy. By Nicholas Z. Muller, Robert Mendelsohn and William Nordhaus, American Economic Review. Vol. 101, Issue 5, August 2011 1 Course outline
The tentative outline of the short course is as follows:
Introduction:
What is “Environmental Economics”?
Why is it important?
Difference between Resource Economics and Environmental Economics
Quick Excursion: What is Ecological Economics?
A first simple model on the “Economy and the Environment”
Reading:
Field C. and K. Field, chapter 1 and 2, Environmental Economics: An Introduction, 5/e,
First and second law of thermodynamics
Readings:
Nick Hanley, Jason F. Shogren and Ben White: “Environmental Economics, In Theory and
Practice”, 1997, Chapter 1 (in particular Figure 1.1 and Ch.1.3)
Types of Pollutants and simple policy implications
Main Policy Interventions
1.
2.
3.
4.
Pigouvian Fee
Cap and Trade
Liability
Command and Control
Reading:
Charles Kolstad: “Environmental Economics”, Oxford University Press, 2000, chapter 7, chapter
9, chapter 10.
Martin L. Weitzman (1974): Prices vs. Quantities, The Review of Economic Studies, Vol. 41, No.
4, pp. 477-491.
Chapter 3 to 5 of Nick Hanley, Jason F. Shogren and Ben White: “Environmental Economics, In
Theory and Practice”, 1997.
Prices vs. Quantities Revisited: The Case of Climate Change, William A. Pizer, Resources for
the Future Discussion Paper 98-02. downloadable from the RFF website at
http://www.rff.org/documents/RFF-DP-98-02.pdf
2 Revealed vs. Stated preferences: Some thoughts on Contingent Valuation (unfortunately not discussed in
detail during this course):
Reading:
Michael Hanemann, Preface, in Stale Navrud (ed), Pricing the European Environment,
Scandinavian, University Press, 1992; pp 9-14.
Charles Kolstad: “Environmental Economics”, Oxford University Press, 2000. .
Estimation of the Value of Time (VOT) Parameter
There is no textbook available on this topic. I will draw from the following literature.
Becker, Gary S. 1965: “A Theory of the Allocation of Time” The Economic Journal, 75(299): 493-517.
Beesley, Michael E. 1965. “The value of time spent in travelling: some new evidence.” Economica,
32(126): 174-185.
Burger, Nicholas E., and Daniel T. Kaffine. 2009: “Gas Prices, Traffic and Freeway Speeds in Los
Angeles.” The Review of Economics and Statistics, 91(3): 652–657.
Calfee, John, Clifford Winston and Randolph Stempski. 2001. “Econometric Issues in Estimating
Consumer Preferences from Stated Preference Data: A Case Study of the Value of Automobile
Travel Time.” Review of Economics and Statistics, 83(4): 699–707.
Dahl, Carol A. 1979. “Consumer Adjustment to Gasoline Tax.” The Review of Economics and Statistics,
61(3): 427–432.
Deacon, Robert T. and Jon Sonstelie. 1985. “Rationing by Waiting and the Value of Time: Results from a
Natural Experiment.” Journal of Political Economy, Vol. 93(4): 627-647.
Small, Kenneth A., Clifford Winston and Jia Yan. 2005. “Uncovering the Distribution of Motorists’
Preferences for Travel Time and Reliability.” Econometrica, 73(4): 1367–1382
Wolff, H. (2011): Value of Time, Speeding Behavior and Gasoline Prices. Mimeo.
3 Addition related literature on the Value of Time (probably there is not enough time to cover these
issues within the short course):
Ashenfelter, Orley, and Michael Greenstone. 2004: “Using Mandated Speed Limits to Measure
the Value of a Statistical Life.” The Journal of Political Economy, 112(S1): S226-S267.
Bertrand, Marianne, Esther Duflo, and Sendhil Mullainathan. 2004. “How Much Should We
Trust Differences-In-Differences Estimates?” Quarterly Journal of Economics, 119(1): 249-275.
Blomquist, Glenn. 1984. “The 55 m.p.h. Speed Limit and Gasoline Consumption.” Resources and
Energy, 6(1): 21-39.
Climate Change and Hedonic Models
A good Background on Hedonics can be found in Chapter 6 and Chapter 7 of Bockstael & McConnell,
Bockstael, McConnell: (2007): Environmental and Resource Valuation with Revealed Preferences,
Springer.
Hedonic Models of Heterogenous Goods
Rosen Bid Function
Hedonic Price Function
Pure Willingness to pay and Approximations
Wage Hedonics and Locational Amenities
The Roback Model
Bockstael & McConnell, Bockstael, McConnell: (2007): Environmental and Resource Valuation
with Revealed Preferences, Springer. Chapter 7.4
Further Reading on Hedonics
Rosen, Sherwin: 1974, Hedonic Prices and Implicit Markets: Product Differentiation in Pure
Competition, Journal of Political Economy, vol. 82, no. 1.
Dennis Epple: Hedonic Prices and Implicit Markets: Estimating Demand and Supply Functions
for Differentiated Produ. The Journal of Political Economy, Vol. 95, No. 1 (Feb., 1987), pp. 5980.
Ekeland et al., 2004 I. Ekeland, J. Heckman and L. Nesheim, Identification and estimation of
Hedonic models, The Journal of Political Economy 112.
4 Climate Change and Health
Deschenes, Olivier and Michael Greenstone (2007): Climate Change, Mortality, and Adaptation:
Evidence from Annual Fluctuations in Weather in the US, NBER Working Paper No. 13178
Deschenes, O. and E Moretti (forthcoming): "Extreme Weather Events, Mortality and Migration". Review
of Economics and Statistics.
Hübler, Michael, Gernot Klepper and Sonja Peterson (2008): Costs of climate change: The effects of
rising temperatures on health and productivity in Germany. Ecological Economics, Volume 68, Issues 12, 1 December 2008, Pages 381-393
Deschênes, Olivier, Michael Greenstone, and Jonathan Guryan (2009): Climate Change and Birth Weight,
American Economic Review: Papers & Proceedings 2009, 99:2, 211–217
http://www.aeaweb.org/articles.php?doi=10.1257/aer.99.2.211
Agriculture: Estimating Damages of Climate Change of Abatement:
Schlenker, W. "Will U.S. Agriculture Really Benefit from Global Warming? Accounting for Irrigation in
the Hedonic Approach," American Economic Review, 95(1), March 2005, p. 395-406. (with W. Michael
Hanemann and Anthony C. Fisher).
Schlenker, W. "The Impact of Global Warming on U.S. Agriculture: An Econometric Analysis of
Optimal Growing Conditions," Review of Economics and Statistics, 88(1), February 2006, p. 113-125.
(with W. Michael Hanemann and Anthony C. Fisher).
Potential Impacts of Climate Change on Crop Yields and Land Values in U.S. Agriculture: Negative,
Significant, and Robust" (with Anthony C. Fisher, W. Michael Hanemann, and Michael J. Roberts)
Deschenes and Greenstone (2007) "The Economic Impacts of Climate Change: Evidence from
Agricultural Output and Random Fluctuations in Weather," American Economic Review, 97(1), March
2007, p. 354-385.
Amenity Values of Climate
Cragg, Michael I. and Matthew E. Kahn (1997) “New estimates of climate demand: evidence from
location choice. Journal of Urban Economics 42, pp. 261– 284.
Cragg, Michael I. and Matthew E. Kahn (1999) “Climate consumption and climate pricing from 1940 to
1990. Regional Science and Urban Economics 29, 519– 539.
“Climate Rehdanz, K. and Maddison, D. (2009), The Amenity Value of Climate to German Households,
Oxford Economic Papers, 61 150-167.
Aversion to Extreme Temperatures, Climate Change, and Quality of Life, H. Wolff, D. Albouy, W. Graf,
R. Kellogg (mimeo).
5 Econometric Estimation Problems and Solutions under Heterogeneity:
Bajari, Patrick and C. Lanier Benkard (2005) “Demand Estimation with Heterogeneous Consumers and
Unobserved Product Characteristics: A Hedonic Approach,” Journal of Political Economy 113, pp. 12391276.
Bajari, Patrick and Matthew E. Kahn (2005) “Estimating Housing Demand with an Application to
Explaining Racial Segregation in Cities,” Journal of Business and Economic Statistics 23, pp. 20-33.
Further Readings on Climate Change
Dell, Melissa, Benjamin F. Jones, Benjamin A. Olken (2009): Temperature and Income: Reconciling New
Cross-Sectional and Panel Estimates, NBER Working Paper No. 14680*, Issued in January 2009
Zivin, Joshua Graff and Matthew Neidell (2010), “Temperature and the Allocation of Time: Implications
for Climate Change,” mimeo.
Tol, Richard (2009): The Economic Effects of Climate Change. Journal of Economics Perspectives,
23(2),pp.29-51
Nordhaus, William (2007): The Review of the Stern Review on the Economics of Climate Change,
Journal of Economic Literature Vol XLV, pp.686-702.
Stern, Nicholas (2008): The Economics of Climate Change. American Economic Review, P&P, 98(2), pp.
1-37.
Air Pollution
Chay et al. JPE Does Air Quality Matter? Evidence from the Housing Market, with Michael Greenstone,
Journal of Political Economy, April 2005, 376-424. downloadable at:
http://elsa.berkeley.edu/~kenchay/ftp/binresp/publish/jpe_housing.pdf
Traffic Restrictions:
Lucas Davis: “The Effect of Driving Restrictions on Air Quality in Mexico City” Journal of Political
Economy, 2008, 116(1), 38-81.
Wolff, H. and L. Perry (2010): Trends in Clean Air Legislation in Europe: Particulate Matter and Low
Emission Zones, Review of Environmental Economics and Policy, 4(2), pp. 293-308
Wolff, H. and L. Perry (2011): “Keep Your Clunker In The Suburb: Low Emission Zones and Adoption
of Green Vehicles”, mimeo.
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