Hedonics I: How can we use prices to value
EEP 101/ECON 125
April 9, 2021
James Sallee (EEP 101/ECON 125) Hedonics I April 9, 2021 1 / 24
I. The role of markets
III. Tradable permits for pollution
IV. Fairness and externalities
V. Externalities in the second best
VI. Alternatives to pricing pollution
VII. Public goods
James Sallee (EEP 101/ECON 125) Hedonics I April 9, 2021 2 / 24
If an economist wants to know how much people are willing to
pay to eat an avocado, how do they gure that out?
What exactly do you learn from observing a market price? (MB
of the last unit)
James Sallee (EEP 101/ECON 125) Hedonics I April 9, 2021 3 / 24
Many things associated with the environment don’t have an
observable market price
Examples: clean air, clean water, wildlife, access to parks/nature
But we need to understand people’s willingness to pay
(valuation) for policy purposes…how can we estimate
willingness to pay?
James Sallee (EEP 101/ECON 125) Hedonics I April 9, 2021 4 / 24
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