Civil Engineering Reference
In-Depth Information
HEDONIC PRICING
The
hedonic pricing method
attempts to identify an implicit market value for
environmental services by analysing the bundle of characteristics that makes up
a product in order to attach a specific value to the environmental element. This
process has been described as establishing a 'surrogate market'. The method is easily
exemplified in the property market: two properties may be identical except for their
location, so the price that people are willing to pay for a house close to a river,
woodland, beautiful view or conservation area may be quantified.
The Value of Human Life
The underlying principle employed in all valuation exercises is opportunity cost and
this is most clearly illustrated when economists attempt to identify the value of a
human life. The conventional method of calculation is to base the value of life on
estimates of lost (forgone) contributions to the economy; the stream of lost career
earnings. In other words, the opportunity cost of the average victim involved in an
accident is based on a wage risk approach or, as some economists have preferred
to call it, the human capital approach.
In contrast, a more recent method follows
the principles of contingent valuation: estimates are based upon an individual's
willingness to pay to reduce risks and improve safety or, conversely, on the amount
that people are willing to accept to compensate for a loss of life. Not surprisingly,
the values based on the willingness to pay approach tend to be twice as high as those
estimated by the human capital approach as people tend to value their own lives
well above their earnings potential. And those living in poorer countries tend to
place lower monetary values on their lives than people in richer ones.
Government economists throughout the world have adopted these seemingly
crude methods to evaluate major infrastructure and transport projects. In resource
terms, this enables them to consider a dimension that traditional investment
appraisal normally overlooks - namely, the value of lives, lost or saved, due to
accidents. The estimated net benefits to society begin to look very different once the
appraisal incorporates a monetary value imputed for life.
Table 11.1
Statistical values of human life
Country
United States
C 000
3,189
United Kingdom
2,107
Sweden
1,954
Germany
1,266
589
France
206
Greece
Portugal
56
Source:
Adapted from SafetyNet (2009: 9)
Note:
In 2002 Prices
