Existence value: The theoretical case for and against its use in cost benefit analysis

Type :

Term papers

Pages :

16 pages

Format :

.doc

Published date :

04/05/2009

Category :

Economics & finance

Sub category :

Economics

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Summary :

Introduction
An analysis of the existence value in cost-benefit
1. The current debate
Definitions and measurement of existence value
Non-observability of preferences and measuring existence value
Existence value and competing theories of ethical agency
Technical problems with views compatible with psychological egoism
Alternative explanations of existence value and their implications for cost-benefit analysis
Conclusion
Bibliography

Abstract

The concept of existence value was first raised in one of the most influential papers in environmental economics by John Krutilla (1967), where he advocated a move away from the Pigouvian approach to conservation of natural resources in terms of the optimal inter-temporal utilization of natural resource stocks to an appreciation of several unique features of such resources. These included non-renewability, the possibility of option value, and existence, or non-use, value. Krutilla was advocating nothing less than pushing back the boundaries of the discipline: economists should consider more than just the valuation of common tangibles. The controversy that this assertion caused remains today, and divides most economists into two camps. Those such as Rosenthal and Nelson suggest that existence values are not to be treated merely as another type of good, as they represent something quite different, while those such as Kopp believe that what existence value is is not as important as the fact that we can envision it as consistent with neoclassical theory, and therefore are warranted in measuring it in a total valuation framework.

To assess the validity of these competing claims, the appropriate domain of discussion requires more than just the tools of economic analysis. As Portney (1994) writes: "…the critical scrutiny directed at the contingent valuation method has led some economists to think more deeply about cognitive processes, rationality, and the nature of preferences for all goods, public or private".