Environmental Economics

Missing markets refer to the absence of traditional market mechanisms for buying and selling environmental goods and services. This absence makes it difficult to determine the willingness to pay (WTP) for environmental goods, as there are no established market prices to reference.

The hedonic model is a non-market valuation method used to estimate the economic value of environmental amenities by examining the prices of marketed goods, such as housing. It analyzes how variations in environmental characteristics affect the prices of goods and uses this information to estimate the value of environmental amenities.

The basic assumptions of the hedonic model include: 1. Each consumer purchases exactly one good. 2. Each good is fully described by a set of characteristics that consumers can observe. 3. Perfect competition.

Implicit attribute prices are the hidden values associated with the characteristics of a market good. For example, the impact of power plant openings on home values represents implicit attribute prices in the housing market. These values reflect how specific characteristics affect the overall value of the good.

The value of a statistical life (VSL) is a concept used to monetize changes in mortality risk. It represents the monetary value individuals place on reducing the risk of fatality. The VSL is calculated using the formula $VSL = \rac{f(r,z)},{r}$, where $f(r,z)$ represents the tradeoff between wages and fatality risk, and $r$ represents the reduction in mortality risk.