ESTIMATING RESIDENTIAL FLOOD CONTROL BENEFITS USING IMPLICIT PRICE EQUATIONS1

ABSTRACT: An implicit price model relating residential lot value to price determining characteristics of land is developed to measure the benefits of a structural flood control project. Special attention is given to the selection of relevant price determining characteristics of residential lots. An implicit price equation is estimated for both the with and without project conditions. Flood damages are quantified through the use of a dummy variable indicating a flood plain location. The analysis shows that annual flood damages were reduced by $15,275.     

A combined site proximity and recreation index approach to value natural amenities: an example from a natural resource management region of Murray-Darling Basin

This paper presents a hedonic property price model of rural land in a natural resource management region of the Murray-Darling Basin in Australia. In traditional hedonic models, the marginal value of environmental amenities is estimated using distance to or size of the environmental asset. The approach applied in this study offers the potential for a richer set of information, where environmental assets are described in terms of their 'recreational attractiveness'. The level of recreational attractiveness is represented as latent variables that are based on park facilities and recreational activities offered at each site. For a property in the study area that is 1?km away from the River Murray, moving half a kilometre closer will increase the property price by $245,000, holding every other variable constant at the mean. This value is magnified by $27,000 if the house is in an area where there is high river recreational attractiveness and drops by $14,000 if river recreational attractiveness is low. By including recreational quality indices in a typical hedonic framework that is corrected for spatial dependency, the model is able to capture how individuals value environmental amenities around their homes based on the site's natural characteristics as well as recreational services.     

Multi-Destination and Multi-Purpose Trip Effects in the Analysis of the Demand for Trips to a Remote Recreational Site

One of the basic assumptions of the travel cost method for recreational demand analysis is that the travel cost is always incurred for a single purpose recreational trip. Several studies have skirted around the issue with simplifying assumptions and dropping observations considered as nonconventional holiday-makers or as nontraditional visitors from the sample. The effect of such simplifications on the benefit estimates remains conjectural. Given the remoteness of notable recreational parks, multi-destination or multi-purpose trips are not uncommon. This article examines the consequences of allocating travel costs to a recreational site when some trips were taken for purposes other than recreation and/or included visits to other recreational sites. Using a multi-purpose weighting approach on data from Gros Morne National Park, Canada, we conclude that a proper correction for multi-destination or multi-purpose trip is more of what is needed to avoid potential biases in the estimated effects of the price (travel-cost) variable and of the income variable in the trip generation equation.     

Horizontal mergers in the iron ore industry—An application of PCAIDS

The purpose of this paper is to estimate and analyse the price effects of the iron ore mergers between Rio Tinto and North Ltd in 2000, and CVRD and Caemi in 2001. The analyses are conducted using a merger simulation model that, based on the pre-merger situation, estimates the post-merger outcome. This paper applies the so-called proportionality-calibrated almost ideal demand system (PCAIDS) model, which assumes that the product is differentiated and that the strategic variable is price. The results from the merger simulations show that in the case of the merger between Rio Tinto and North Ltd, the merged firm has a combined market share of almost 20%. However, the estimated market weighted average price effect is only 2.6%. Regarding the merger between CVRD and Caemi, the merged firm's market share is about 29%, and the estimated market weighted average price effect is 4.6%. When removing Caemi's Canadian asset, which was the Commission decision in order to allow the merger, the market price effect decreases to 3.1%. Overall the results in this study support the Commission's decisions regarding both merger cases, and shows that merger simulations of price effects can be valuable tools in merger assessments.     

Factor demand flexibility in the primary aluminium industry: Evidence from stagnating and expanding regions

The purpose of the paper is to analyse and compare short-run factor demand responses to price changes in the primary aluminium industry in Western Europe and the Africa-Middle East (AME) region. We outline a Translog variable cost function model, which is estimated employing a panel data set at the individual smelter level over the time period 1990-2003. The empirical results show evidence of limited - but far from insignificant - price-induced factor demand responses in the short-run. Overall aluminium smelters in the AME-region show evidence of higher estimated short-run own- and cross-price elasticities than their competitors in Western Europe, at least when it comes to labour and electricity demand. One important reason for this result is the greater number of pot lines with slightly different technologies at each smelter as well as the more intense use of the Prebake technology in the AME-region making retrofits in existing plants less costly than in Western Europe. The results also suggest that in both regions the demand for electricity has over time become less sensitive to short-run price changes, while the labour and material demand responses to price changes have increased but only in the AME-region. The liberalisation of the Western European electricity markets in combination with the rigid labour markets in this part of the world suggest that the shift in production capacity from the western world to the AME-region as well as China may continue.     

Productivity equation for reclaiming surface mines

This article addresses the development of an agricultural productivity equation for predicting new soil (neo-sol) plant growth potential in Clay County, Minnesota, USA. Soil factors examined in the study include percent organic matter, percent slope, percent rock fragments, hydraulic conductivity, electrical conductivity, pH, topographic position, available water-holding capacity, bulk density, and percent clay. Squared terms and two-factor interaction terms were also examined as possible regressors. A best equation was selected that had a multiple coefficient of determination of 0.7399 and has five significant regressors and intercept withP.0001. The regressors are hydraulic conductivity, percent slope squared, bulk density times percent rock fragments, electrical conductivity times percent rock fragments, and electrical conductivity times percent organic matter. The regressors predict soil suitability for a general crop model. The crops included in the model are wheat, oats, barley, soybeans, sugar beets, sunflowers, and grasses/legumes.     

Dynamic metals demand model

Studies by Nutting, Jacobson and Evans and Georgentalis et al. have all concluded, using panel data sets, that a number of metals appear to share a common demand curve that is stable over time. However, these studies have a number of theoretical and econometric limitations. This paper addresses these concerns and reassesses the hypothesis that some metals share such a common demand curve with the same price elasticity of demand. This is achieved within the framework of a random coefficients model. This model was applied to a dynamic metals demand function (DLR) and various estimation techniques were used including OLS, IV, Empirical Bayes (EB) and Instrumental Variables Empirical Bayes (IV-EB). It was found that each metal had its own individual short run demand function with statistically different own price and industrial activity elasticities of demand. In the long run, each metal appeared to be equally unresponsive to price changes, but had different industrial activity elasticities. The speeds of price adjustment to periods of market disequilibrium differed substantially between metals.     

Long-term trends in the Real real prices of primary commodities: Inflation bias and the Prebisch-Singer hypothesis

Following the Boskin et al., (1996) report, it became widely recognized that price indexes in the U.S. and elsewhere overstate inflation. Svedberg and Tilton (2006) highlighted that this inflation bias may have important implications for estimated long-term trends in nonrenewable resource prices. ST construct an inflation-bias corrected CPI (and PPI) for the U.S. and use their corrected deflator(s) to define a so-called ‘real real’ price of copper. Their ‘real real’ price of copper is then used to re-estimate long-term trends in real copper prices. This paper proposes a quick method for obtaining inflation-bias-corrected estimates of long-run trends in real primary commodity prices directly from estimates in the published literature. Our approach obviates the need re-do existing empirical studies using a corrected or ‘real real’ price of nonrenewable resources. The two approaches are mathematically equivalent.     

The value of urban open space: Meta-analyses of contingent valuation and hedonic pricing results

Urban open space provides a number of valuable services to urban populations, including recreational opportunities, aesthetic enjoyment, environmental functions, and may also be associated with existence values. In separate meta-analyses of the contingent valuation (CV) and hedonic pricing (HP) literature we examine which physical, socio-economic, and study characteristics determine the value of open space. The dependent variable in the CV meta-regression is defined as the value of open space per hectare per year in 2003 US$, and in the HP model as the percentage change in house price for a 10 m decrease in distance to open space. Using a multi-level modelling approach we find in both the CV and HP analyses that there is a positive and significant relationship between the value of urban open space and population density, indicating that scarcity and crowdedness matter, and that the value of open space does not vary significantly with income. Further, urban parks are more highly valued than other types of urban open space (forests, agricultural and undeveloped land) and methodological differences in study design have a large influence on estimated values from both CV and HP. We also find important regional differences in preferences for urban open space, which suggests that the potential for transferring estimated values between regions is likely to be limited.     

USING SENSITIVITY ANALYSIS TO ASSIST PARAMETER ZONATION IN GROUND WATER FLOW MODEL1

ABSTRACT: For numerical modeling of ground water movement in a real aquifer system, the aquifer is usually divided into hydrogeologically defined zones, each with its own parameter values. The responses of the system, such as head or drawdown, are often available only in some of the zones. The estimated parameters of all the zones are based on the measured response in these limited zones. However, the estimates for some of the zones may be very uncertain, and these zones are therefore not justified by the data. In this paper, an approach is presented to understand which zone may produce uncertain parameter values and should be lumped with its neighbor. This approach is demonstrated using a regional numerical model for pumping test analysis in the Nottinghamshire aquifer, UK. A step-by-step process is used in identifying the aquifer zones and estimating their parameters based on the principle of using the smallest possible numbers of zones and parameters for adequate representation of the drawdown response. After the parameters of each zone are estimated, the sensitivity features of these parameters are examined. The results show that the parameters in one zone can be estimated properly by the drawdown in another zone only when there is significant sensitivity. For transmissivity, sensitivity between zones occurs when there is significant flow between them. For storativity, sufficient sensitivity can occur without large flows between the zones, provided that one zone causes significant drawdown in the other. This idea can be extended to the flow model for a large aquifer system. If the aquifer is divided in such a way that aquifer responses are not sensitive to the parameters in some of the zones, the parameters in those zones cannot be estimated properly and should be lumped into their neighboring zones. In this way, a simple but more reasonable model can be built.     

World demand for cobalt: An econometric study

This article analyses the world demand for cobalt. It estimates short- and long-run elasticities with respect to price, activity and in some cases with respect to substitute-complement variables. For the USA these estimates have been obtained for all the important end-use categories. Aggregate elasticities are estimated for Japan, West Germany, France and for the non-communist world (excluding the USA). The appendix to the paper models price setting in the cobalt market and presents two simple simulations conducted on the world cobalt market.     

A hedonic model of public market transactions for open space protection

A hedonic price function is estimated that illustrates how the price per acre of open space paid by public buyers such as counties or land trusts, is influenced by local demand and supply factors. The empirical regression model is illustrated using 133 public transactions (73% are purchases and 27% are easements) of open space in the Front Range of Colorado. The mean price per acre was $13 635. If a property provides access to water bodies, this feature increases the price per acre by $937, while adjacency of the parcel to existing park or open space adds $11 039 an acre. A 1% increase in county population results in a 0.27% increase in price per acre. Easements cost $6783 less than purchases, a sizeable cost saving. The prediction capability of the hedonic price equation may be an alternative to traditional real estate appraisal techniques when agencies must determine fair market values of prospective open space parcels that vary in attributes from existing ones.     

EFFECTS OF RATE STRUCTURE KNOWLEDGE ON HOUSEHOLD WATER USE1

ABSTRACT: Socioeconomic determinants of individual household water use were estimated using regressions of these characteristics with actual household water use for winter and summer. Results were disaggregated between those consumers who were aware of an increasing block rate price structure and those who were not. Most of the informed group members believed that this price structure did result in significant reductions in water use. Nevertheless, overall water use was greater for the informed group. The determinants of water use were found to differ between informed and uninformed users as well as between winter and summer. The uninformed users were influenced by a larger set of variables in each season than the informed group. In winter, the informed group members with swimming pools and/or arid landscaping used less water than their uninformed counterparts. Summer water use increased with length of tenancy in home for the uninformed group but not for informed, while increasing with ownership for informed consumers.     

An economic model of the US aluminium market

An economic model of the US aluminium industry is constructed and estimated with annual data over the period 1960–1978. The authors' analysis shows that both the short- and long-term price elasticities of demand are relatively low, and that demand is highly dependent on aluminium end-use activity. A forecasting exercise is also undertaken, and the errors of forecast calculated.     

Levying of Ecoenvironmental Compensation Fees in China: An Analysis and Proposals

In addition to estimating the total amount of the ecoenvironmental levies, the article analyzes the fee's quantitative effects on the government's major price indexes. Assuming fee collection started in calendar year 1998, total revenues collected by the end of the year 2000 are estimated to range from 6.68 billion Renminbi (RMB, unit of money used in China; 1990's comparative value, the same thereafter), 12.6 billion RMB, to 18.6 billion RMB, depending on the fee rate in question. The revenue collected in this way would, if used to finance environmental reclamation projects, greatly improve important parts of China's endangered environment. Moreover, our calculations indicate that fee collection would likely not lead to significant price fluctuations.     

Managing Congestion: Economics of Price and Lottery Rationing

It is not uncommon for the carrying capacity for congestible facilities to be estimated before the allocation method is known. This paper shows how efficient capacity differs between two competing resource allocation mechanisms, one which is efficient (price) and one which is fair (lottery). The welfare theoretic implications of adopting lottery allocation rather than price allocation are illustrated from the perspectives of economic efficiency and the benefits obtained by resource users and suppliers. It is found that risk-neutral resource users will always prefer lottery allocation to price allocation. While price allocation is efficient, it is never in risk-neutral resource users» interests to have price allocation imposed. Conclusions are tested using a linear constant crowding demand function, in which case it is found that the efficient capacity for lottery rationing exceeds the efficient capacity where price is to be used to allocate a congestible resource. Objectives may be better met by joint use of allocation mechanisms, the implications of which are investigated using the linear demand model.     

VALUING IRRIGATION WATER IN PUNJAB PROVINCE,PAKISTAN: A LINEAR PROGRAMMING APPROACH1

ABSTRACT: Linear programming models of a representative farm in a district of Pakistan's Punjab Province are formulated for the purpose of estimating the value of irrigation water. The models provide for choices among several irrigation levels for each potential crop. Solutions of the model for several water supply situations provide the basis for approximating the total, average, and marginal values of irrigation water. Prices for important crops in Pakistan are controlled at levels below their levels elsewhere in the world, so models are specified for both financial (domestic price) and economic (world price) scenarios. The value of water to society (its economic value) is high relative to the costs of some generally available water-augmenting investments, while financial values, which measure water management and allocation incentives faced by farmers, are less than the corresponding economic values. At current water supply levels, incremental returns to added water estimated from the economic model would justify investments in water-saving or water-augmenting technologies, while such a decision would be barely attractive assuming financial prices. While present government commodity price policies may serve to protect low-income and non-farm members of the population, they also inhibit farmer investments to increase the productivity of scarce irrigation water.     

World phosphate supply

The Bureau of Mines investigated the resources, costs, capacities, market relationships, and short- and long-run supply of phosphate rock and phosphoric acid. The 206 mines and deposits evaluated in 30 market economy countries (MECs) contain an estimated 35.1 billion tonnes of recoverable phosphate rock (demonstrated resource level). US resources are sufficient to satisfy both the domestic market and an export market for phosphate products well beyond 2000. Resource depletion at current producers, however, means new property development (with higher costs) will be required if US production levels are to be maintained. Existing worldwide capacity can satisfy expected demand through the early 1990s. Expansion at existing mines or low demand growth could mean no new property development is required before the late 1990s. Worldwide, almost $8 billion could be required for the development of new phosphate rock properties between now and 2000, given 3% annual growth in demand. Though profit may not be the principal motivation for development of government-owned operations, most properties that could develop in the 1990s would require price increases of 20–50% to break even. To earn a 15% rate of return on investment, prices must rise to nearly double the $23–271 tonne US price level of 1988. Current US phosphate rock and phosphoric acid producers appear to be competitive (on a variable cost basis) with many other suppliers in major markets. New US properties will have higher variable costs than current producers; however, they are competitive with most projected new foreign development. The US phosphoric acid industry will most likely face increased competition as more of the foreign phosphate rock producers develop the capacity to process rock into phosphoric acid and other fertilizer products.     

Company engagement with supply chains to protect biodiversity and rare,threatened, and endangered species

Future global megatrends project a population increase of 2 billion people between 2019 and 2050 and at least 1–2 billion people added to the global middle class between 2016 and 2030. In addition, 68% of the world's population is projected to be living in urban areas by 2050. With these projected large population increases and shifts, demand for food, water, and energy is projected to grow by approximately 35, 40, and 50%, respectively, between 2010 and 2030. In addition, between 1970 and 2014 there was an estimated 60% reduction in the number of wildlife in the world and an estimated net loss of 2.9 billion birds, or 29%, in North America between 1970 and 2018. Loss of species populations and number of species is interconnected with reduced health of biodiversity and ecosystems. Human activity has been the main catalyst for these substantial declines primarily through impacts on habitats. These losses are accelerating. Since a company's supply chain environmental impacts are often as great or greater than its own direct environmental impacts, it may be prudent for companies to engage with their supply chains to protect and enhance habitats and biodiversity and protect rare, threatened, and endangered species. As one example, companies may have opportunities and strategic reasons to include requirements in their supplier codes of conduct and supplier standards for suppliers to protect biodiversity and rare, threatened, and endangered species, as well as additional requirements to expand or enhance habitats and ecosystems to increase biodiversity. This article follows one pathway that companies could pursue further and with greater speed—to engage with their supply chains to strengthen supplier codes of conduct to protect biodiversity and rare, threatened, and endangered species. The importance of forests, private land, and landscape partnerships is discussed as means to protect much more of the planet's biodiversity and rare, threatened, and endangered species. Lastly, the article identifies examples of opportunities for companies to more formally incorporate biodiversity into their business, supply chain, and sustainability strategies.