This website uses cookies to ensure you have the best experience. Learn more

Theoretical Basis For Measuring Social Costs

2625 words - 11 pages

Appendix B. Theoretical basis for measuring social costs

In order to analyze cases where a change in environmental quality (q) affects individual preference and demand, a basic individual utility maximization problem is considered i.e., maximizing a strictly concave utility function subject to the compact (closed and bounded) budget set (Freeman 2003):

Maximize┬(x_j )⁡〖u(x,q)〗 subject to y = ∑_(j=1)^n▒p_j x_j (B-1)

where u is individual’s utility, x is a vector of private goods quantities x = (x_1, x_2, …, x_n), and q is the level of environmental quality, which is a scalar fixed exogenously. The variable y is income, and p is the price vector of private goods p = (p, p_2, …, p_n). This yields a set of ordinary demand functions, x_j = x_j (p, q, y) for j=1 to n. Inserting the ordinary demand functions into the utility function provides an indirect utility function, v (p, q, y) ≡ v [x_j (p, q, y), q].

Suppose changes in environmental quality (q^0 to 〖 q〗^1) and utility u^0≡v (p,q^0,y) to 〖 u〗^1≡ v (p,〖 q〗^1,y). If this change is an improvement in environmental quality, 〖 u〗^1> u^0. If this change is an decrease in environmental quality, 〖 u〗^1< u^0. The compensation surplus and equivalent surplus (CS and ES) measures of changes in environmental quality are defined by (Hanemann 1991):

v (p,〖 q〗^1,y-CS) = v (p, q^0, y) (B-2a)

v (p,〖 q〗^1,y) = v (p, q^0, y + ES) (B-2b)

In case of an improvement in environmental quality (CS > 0 and ES > 0), CS measures individual’s willingness to pay (WTP) to secure the gain by keeping the gainer at his initial welfare level, while ES is the willingness to accept (WTA) which would bring the gainer to his subsequent welfare measure in the event the proposed policy for an improvement in environmental quality is not implemented. Suppose a decrease in environmental quality (CS < 0 and ES < 0). CS is WTA for enduring the loss, the compensation which would keep the loser at an initial welfare level. ES is the loser’s WTP for avoiding the loss which would place the loser at his subsequent welfare level (Carson and Hanemann 2005).

Figure B. 1. Summary of Surplus Measures
Changes in Quantity and Utility WTP WTA
Quantity Increase q^0 to 〖 q〗^1 (u^1≥ u^0) CS ES
Quantity Decrease q^0 to 〖 q〗^1 (u^1≤ u^0) ES CS
Source: Pearce (2002)
The associated dual problem to (B-1) is minimizing total consumer expenditures needed to maintain a given level of utility (Hanemann 1991):

Minimize┬(x_j )⁡〖∑_(j=1)^n▒p_j x_j 〗 subject to u=u (x,q) (B-3)

where p_j is the price vector of private good j, x_j is a vector of quantities of private good j, and ∑_(j=1)^n▒p_j x_j is the total consumer expenditures given utility u. This solution yields a set of Hicksian demand functions, h_j =...

Find Another Essay On Theoretical Basis for Measuring Social Costs

Introduction Essay

872 words - 4 pages outcomes have to be noted for and prepared prior to the simulation procedures. The tools that will be used for measuring the attainment of objectives must also be determined in advance (Nehring and Lashley, 2010). Conclusion It is evident that this paper develops a theoretical framework for the research topic under discussion by focusing on the ethical considerations and the simulation framework. It sufficed to mention that there are six main

Externalities Essay

553 words - 2 pages What are externalities? Externalities are common in virtually every area of economic activity. They are defined asthird party (or spill-over) effects arising from the production and/or consumption of goods and services for which no appropriate compensation is paid. Externalities can cause market failure if the price mechanism does not take into account the full social costs and social benefits of production and consumption. The

Week 1 Questions - Lynn University MBA 650 - weekly assignment

322 words - 2 pages . They are capable of measuring employee performance in all departments of the organisation and they are responsible for improving employee productivity (Heizer, Chapter 1). 2. How can the operations manager measure the productivity of, a. bank tellers: the productivity of bank tellers can be measured by the amount of customers they interact with and the satisfaction of these customers. Operations managers will monitor how the bank teller

Making Sustainability Work

1032 words - 5 pages centers on the cost of reducing or altogether avoiding damage before it occurs while damage costing is assessing the real costs incurred. While these are the main two methods for measuring sustainability, other methods include market price and appraisal, contingent valuation, hedonic pricing, and travel cost. Methodologies for measuring social and environmental risks can be quantified and therefore are vital tools for improving resource allocation

Light House PLC- Sustainability Reporting Practice

1122 words - 5 pages provide a self-evidence of the conformity to the compliance of financial statement objectives that represents the economic, political, legal and sociological environment in which the company is operating. Whereas the statement of accounting principles contain the information about the general decision rules that are derived from the financial statement objectives and theoretical concepts which provide basis for the accounting techniques. The

To What Extent Does Social Identity Determine Job Choice

1658 words - 7 pages TO WHAT EXTENT DOES SOCIAL IDENTITY DETERMINE JOB CHOICE The literature review focuses on the collection of secondary data on the research topic, which is the extent to which social identity determines job choice. The literature review is conducted under three major themes, which act as the pivotal basis for constructing theoretical meaning to the larger research problem. The Social Identity Theory Studies on social identity have been

Service Quality and client Satisfaction: Cases of Multiple Providers of Agricultural Extension Service in Bangladesh

757 words - 4 pages timeliness and convenience; personal attention; reliability and dependability; employee competence and professionalism; empathy; responsiveness; assurance; availability; and tangibles such as physical facilities, equipment and the appearance of the personnel (Center for the Study of Social Policy, 2007). According to Garvin(1987) eight crucial dimensions for measuring quality are performance, features, reliability, consistency, validity, service

Network theory of internalization and social capital in internalization

964 words - 4 pages the translation of contracts for the decrease cost , institutional theory that seeks social legitimacy of the organization and the theory of resource dependency that determines the dependence on external resources affecting the permanence of the enterprise network. Thus, the author finds greater scientific basis of analysis in economic theory and transaction costs theory of resource dependency . Yoguel , G. (2000 ) determined that enterprise

The Joint Africa/EU Strategy: Analysis of a Common Agreement

1282 words - 5 pages States Make of It: The Social Construction of Power Politics‘ (1992). This literature gives me a good basic for my theoretical framework. Moreover, it is my intention to evaluate the arguments and explanatory power of each theory. Furthermore, my theoretical argumentation will be build up on Mary Farrell’s article ‘A Triumph of Realism over Idealism? Cooperation Between the European Union and Africa’ (2005). The shortcomings of this framework will

SERVICE QUALITY OF DIRECT SELLING COMPANIES IN DAVAO CITY

2003 words - 9 pages because of the convenience and service it render, including personal demonstration and explanation of products, home deliveries, and lavish satisfaction guarantees. Furthermore, direct selling provides a channel of distribution for companies with innovative or distinctive products not readily available in traditional retail stores, or who can’t spend to compete with the enormous advertising and promotion costs associated with gaining space on retail

Evaluating HRM's contribution to Organisational Effectiveness

1202 words - 5 pages 1. Table of Contents1. Table of Contents 22. Introduction 33. Reasons for Measuring 34. Indicators of HRM 45. Measuring HRM 46. Conclusion 87. Bibliography 92. IntroductionHuman Resource Management is a key component in the maintenance and utilization of an effective workforce. HRM includes myriad activities ranging from recruitment to training and even the development of compensation systems. HRM has evolved significantly since the early 1900s

Similar Essays

How Does Rousseau Argue That The Exercise Of Force Cannot Provide A Legitimate Basis For Social Order? The Areas Of Shared Concern Between Rousseau And David's Brutus

1135 words - 5 pages Jean-Jacques Rousseau argues that the exercise of force (physical power) cannot provide a legitimate basis for social order; some may say that the strongest always win, but how do they win and will they always win? The power produced by force doesn't create duty, only obedience. Let's take for example a wealthy land owner; do his employees work hard for him at all times or just when they are being watched? His power over them is their wages

Benefits Transfer And Social Costs Essay

2054 words - 8 pages Appendix B. Theoretical basis for measuring social costs Because landfill disposal creates external costs to nearby residents, market failure often occurs. While benefits provided by a new landfill site are shared by all citizens, harms from a landfill (e.g., reduction in housing values) concentrate on nearby residents (Kunreuther and Kleindorfer 1986; Mitchell and Carson 1986). In order to measure the community’s social costs for each

Literatura Review

1294 words - 6 pages social movement’s act in an organised way to mobilise resources. It entails looking at them as the obstacles and incentives to collective action; the costs and benefits of participation in social movements; and the way that organized political institutions react to the challenges of these movements. According to Nick Crossley, this approach provided the basis for the next paradigm known as political process. This theoretical approach focuses on

The Concept Of Prejudice Essay

811 words - 3 pages invisibility, stereotyping, imbalance and selectivity, unreality, and fragmentation and isolation (T&D, 2001). Exclusion of particular groups of people can be evidenced by employment rates for particular groups in society in the more prestigious and well-paying professions, as well as through membership rates in social and academic organizations. Analysis can also be carried out by surveying textbooks and accounts of history to determine if there