The following HTML text is provided to enhance online
readability. Many aspects of typography translate only awkwardly to HTML.
Please use the page image
as the authoritative form to ensure accuracy.
Technology for a Quieter America
sitional costs associated with regulation (which may include job losses and other consequences) (EPA, 2000, p. 16).
Other types of economic analysis commonly used to inform policy and public investment decisions include distributional analysis and cost-effectiveness analysis. Cost-effectiveness analysis tabulates costs associated with different methods of accomplishing a specific goal. This may be an appropriate tool if all methods being considered result in very similar outcomes. Otherwise, “cost-effectiveness analysis does not necessarily reveal what level of control is reasonable, nor can it be used to directly compare situations with different benefit streams” (EPA, 2000, p. 178). Distributional analysis, which might also be called economic impact analysis, differs from CBA in that it focuses primarily on costs and on different segments of society, rather than on society as a whole. Equity assessment is a variant that focuses on impacts on vulnerable segments of society (EPA, 2000, p. 20).
Explicit direct costs are usually easy to capture monetarily, because they are included in the budget for the investment and its maintenance or the ongoing costs of enforcement and monitoring of a regulation. Broad social costs are typically easier to monetize than benefits because they may include an increase in production costs for firms, prices for consumers, or other factors that can be readily monetized.
Measuring the benefits of environmental policy or mitigation investments requires first understanding the direct physical impacts of the policy or investment, whether measured in tons of effluent, decibels, wildlife population, or any other direct environmental metric. For many types of environmental impact, the metric may require further analysis to translate it into relevant consequences, such as increased incidence of cancer or asthma as an impact for airborne emissions. In the case of noise, the initial physical impact may be on a geographic area; but it becomes relevant to a CBA when population exposure is involved.
Once the impact has been described, it can be monetized. EPA guidelines state: “To the extent feasible, and warranted by their contribution to the results, as many of the effects of a policy as possible should be monetized. This enhances the value of the conclusions to policy makers weighing the many, often disparate consequences of different policy options and alternatives” (EPA, 2000, p. 176). Thus, the rationale for monetizing environmental impacts is to put them in terms that can be compared to the cost of policies to improve environmental quality or the benefits of actions that cause environmental harm.
Projects and actions often have different environmental effects (changes in noise level, air quality, climate, water quality); thus, another reason for monetizing these changes is so they can be compared with one another. Comparing noise annoyance and sleep awakenings with the incidence of asthma or cardiopulmonary disease and the long-term harm of climate change can be difficult. However, ultimately these comparisons must be made, and making an attempt to quantify these effects in a single comparative measure (typically monetary), while carefully accounting for uncertainty in the estimates, can be a valuable aid in decision making.
The applicable economic concepts of value for environmental benefits are (1) willingness to pay (WTP) for environmental improvements and (2) willingness to accept (WTA) compensation to endure degraded environmental quality (EPA, 2000, p. 60). WTP and WTA are not necessarily equal. Both are based on how society feels about particular environmental amenities, whether in the form of nuisance, health, aesthetics, existence (of species or natural feature), or legacy value for future generations. In CBA, environmental features are not valued in themselves; they derive their value from how highly society values them.
An estimate of WTP for environmental improvements varies by the nature of the impact associated with the improvement. An environmental amenity has “use value” when the environmental feature interfaces with relevant members of society—the interfaces may be direct or indirect, as well as market or nonmarket (meaning a transaction takes place or does not) interfaces (EPA, 2000, p. 70). Nonuse value includes “existence value,” when society derives value from knowing an environmental amenity exists, and “legacy value,” when society values knowing that an environmental amenity will be available to future generations (EPA, 2000, p. 71). Typically, because use values are associated with direct interactions with the environment, they are easier to monetize.
Monetization methods can be divided into three categories: (1) market methods, (2) revealed preference, and (3) stated preference (EPA, 2000, p. 72). When a good is traded in a market, the market prices, as well as supply and demand curves, are used to value it, consistent with microeconomic principles. Even when a good or environmental amenity is not directly traded, there may be data on actual market transactions that can be used to infer WTP for it. A relevant example is lower housing values in areas with high noise compared to values in areas with lower noise.
Among the many types of revealed preference techniques, hedonic analysis is the most relevant for noise (EPA, 2000, pp. 73–83). Hedonic analysis attempts to statistically decompose the market price of a good into the segments of that price associated with features or characteristics of the good using regression analysis (EPA, 2000, p. 77). For instance, if two cars are identical except for color, but the market price of a red car is $1,000 more, society has WTP of $1,000 for red. In environmental noise studies, the relevant market data that drive the analysis are real estate transactions. Controlling for other property characteristics, the difference in price or rent between a quiet property and a noisy one reveals the value a community places on quiet.
Stated preference methods range from survey techniques to constructed market techniques that attempt to incorporate perceived economic gain and loss to make survey results more plausible. For example, one might survey residents in different noise environments to find out how much they