Description:
Environmental regulations that lead to the reduction in the emissions of air and water pollutants presumably have been undertaken in this chapter because of the welfare gains they generate for people. Several models and techniques have been developed to interpret individual's responses to allow the calculation of the money benefits of the hypothetical changes. The chapter discusses a simple model of the process through which an environmental regulation results in economic benefits. The chapter shows that economic measures of benefits require an understanding of the underlying physical, chemical, and biological processes that make up the environment. It considers some fundamental questions in the definition and measurement of welfare changes. The chapter examines models based upon the revealed behavior of producers and consumers responding to price signals and changes in environment quality and models based upon how people respond to specific hypothetical changes.