ABSTRACT
This chapter develops the economist’s approach to placing values on environmental amenities. It begins with a discussion of the basic economic approach of weighing costs and benefits within the framework of a cost-benefit analysis. It then develops the challenges of applying cost-benefit analysis in situations with long time horizons. In these situations, issues of fairness enter the picture, especially when considering how, and how much, to value future outcomes. The discussion then relates the fairness issue to the notion of sustainability and provides a brief description of how economists think about the issue of sustainability. The chapter then discusses two broad approaches to valuation: the so-called revealed preference and stated preference approaches. For each approach, two specific methods are described in some detail. The two revealed preference approaches are hedonic pricing and the travel cost approach. The two stated preference approaches are contingent valuation and the choice experiment.
