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CU-Boulder ECON 2010 - A Start on Nonmarket Valuation

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Valuation and Consumer’s Surplus, put simplyFor economists, value is anchored at the level of the individual: an individual associates different values with different things.I need to make a distinction between market and nonmarket commodities.A start on non-market valuation: Edward Morey October 13, 2014 A Start on nonmarket valuation: Nonmarket-introduction.doc Edward Morey October 13, 2014 Valuation and Consumer’s Surplus, put simply I use the term individual, to mean an individual member of some species, as in George Bush is an individual, and George the Gorilla is an individual. (Most economists are typically only interested in individuals that belong to the species homo-sapiens, but there is nothing in economics per se that keeps an economist from including non-human individuals in society.)1 For economists, value is anchored at the level of the individual: an individual associates different values with different things. It is a measure of the “worth” that an individual attaches to a commodity, activity, or state of the world.2 Put simply, if commodity A is valued by an individual more highly than commodity B, having A increases the individual’s “happiness” more than having B would increase his 1 Whether to include non-humans has probably not crossed the minds of most economists. 2 Note the word “attach.” For economists, a red ball only has value because one or more individuals have attached value to it. Otherwise it would be without value, at least for an economist.A start on non-market valuation: Edward Morey October 13, 2014 or her happiness. (Often we use the word utility as a substitute for happiness; one could also use the expression “well-being”) Values, from the individual’s perspective, are relative. As in, “I value my friendship with Marc more than I value my friendship with Don.” Or “I would give up three apples to remain friends with Marc but only two apples to remain friends with Don.”3 For economists, the values an individual associates with different commodities are expressions of that individual’s preferences.4 For economists, the value society places on a commodity is the sum of the values (positive and negative) placed on it by the individuals in that society. (For economists, if the individual members of society do not value a commodity, the commodity has no social value. Saying it another way, values that are not individual based, are not counted by economists.5) 3 Assuming I like apples. 4 A person is an individual, my dog Sofie is an individual, a worm is an individual, and my house plant, Wilbur, is an individual, a distinct member of its species. An economist would probably say that an individual who has no preferences cannot value things: for such an individual, there are no values, nothing to count. Some people say that the ability to experience pain is necessary for having preferences. Others would say it is both necessary and sufficient. I am not sure that the ability to experience pain is necessary but I would say one has to be able to “feel” something; that one has to be able to experience external stimuli at some level, so a rock cannot have preferences. A tree? 5 Soon I will briefly discuss other notions of value.A start on non-market valuation: Edward Morey October 13, 2014 An important question then is which individuals count? Whose values count? Economists typically limit counting to human individuals, but not typically all human individuals. That said, there is nothing in economics that requires this. Note that many Environmentalists, and some ecological economists, believe that the preferences/values of non-human individuals (or at least some of them) should count towards social value. (Who should and should not count is an equity question.)6 Value is of critical importance to economists because economists think the best thing to do is the thing that has the greatest value. Note that many people define value differently from how economists define value. For example, many environmentalists would argue that the earth has value independent of how individual humans value it, and that earth’s intrinsic value should count when decisions are made about how to use the earth and its resources. (An economist would either say that there are no such values, or, if there are, they should not be considered.) 6 Note the distinction between (A) Edward, the individual, is a member of society whose values count directly in the social adding-up. Edward has a dog, Sofie, whose happiness he cares about greatly. But, Sofie is not a member of society, so her values do not count directly in the social adding-up. And (B), Both Edward and Sofie are members of society, so both their preferences count directly in the social adding- up. Sofie’s welfare gets weight in both worlds, but in A) her preferences do not directly count; they count only because a member of society cares about her.A start on non-market valuation: Edward Morey October 13, 2014 Religious people might say that the only values that should count are God’s values; that what should be done, or not done, should be determined by the preferences of God, not the preferences of men.7 Many philosophers, but not economists, talk about whether things can have intrinsic value: value not assessed by some valuer—built in value.8 7 This is not to say that economists believe that people should not believe in God, and, in fact, many economists believe in a God. Rather, in this context, they would describe belief in God as something that affects one’s preferences. For example, a believer might not want to sin because sinning increase the probability that he will suffer in hell. That is, sinning, for believers, decreases long-run happiness. If God sends sinners to hell and non-believers don’t believe this, then non-believers misjudge the consequences of their sins. 8 Its value “for its own sake,” or “in its own right.” As in, a tree has value for its own sake, or for the sake of the cosmos, not simply because individuals, who count, use it for shade or value it because it can become part of a house. Tanya, a student, asked me "Can intrinsic values be factored into economic analysis?" Good question. The more general question is whether intrinsic value can be incorporated into decision making--letting things have intrinsic value would, it seems, set economics on its head. How might it work? There would be


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CU-Boulder ECON 2010 - A Start on Nonmarket Valuation

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