ABSTRACT
Several methods have been devised to reveal individual and aggregate willingness to pay for changes in environmental amenities. One method requires observing the travel patterns of individuals as they enjoy recreational activities at lakes, forests, or wilderness areas. As distance to the recreational area and therefore the travel cost changes, how do the number of visits change? How do people change their planned number of visits to a recreational area as its quality changes? Answers to these questions allow an indirect measure of willingness to pay to be revealed. A second method constructs what are called hedonic prices for nonmarket characteristics. The hedonic price method has commonly examined the effects of various environmental amenities on housing prices. Houses in neighborhoods with cleaner air, scenic views, and access to national forests should sell at a premium relative to similar houses in neighborhoods without those amenities. Examining the effects of environmental variables on workers’ wages-the hedonic wage method-is done similarly. Economic theory predicts that workers require a wage premium when they are exposed to greater environmental risks. Holding other determinants of wages constant, the wage premium provides a measure of the individual’s assessment of the cost of exposure to the environmental hazard. With respect to environmental amenities there is strong rational reason why Bill Gates located
and the
Microsoft in Redmond, Washington rather than Grand Forks, North Dakota: the wages required by software engineers living in Redmond are significantly less given the surrounding recreational opportunities offered by Puget Sound, the Cascades, and Coastal mountain ranges.
