willingness to pay:the basic concept
the starting point for measuring costs and benefits is willingness to pay:the amount of money each individual would willing to pay for the change in his or her circumstances .(If it is negative,the change is a negative benefit or,equivalently,a cost.)the idea is that if the penson did pay that amount,he or she would be indifferent to the change.this powerful concept provides a consistent principle for dealing with a wide variety of measurement issues that might at first seem disjointed and intractable.
the concept need not be restricted to those most directly affectedby a project.expanding air traffic creates transportation services that users are willing to pay for,the direct effect,but it also creates noise that residents are willing to pay to avoid. reduced congestion on one road changes the amount of congestion on other roads,thereby creating positive or negative willingness to pay on the
part of users throughout the netwoek. a rail station in a previously isolated community may reduce unemployment there creating additional benefits in reduced alcoholism or crime for which people who never use the station nevertheless have a measurble willingnss to pay. as we shall see care is required to limit the analysis to effects that are realistic and causally related to the project in question.
the use of willingnss to pay what makes cost-benefit analysis consistent with the hypothetical compensation criterion described earlier. if the sum of everyone's willingness to pay for an entire project including its financial elements is positive then it is a potential pareto
willingness to pay:the basic concept
the starting point for measuring costs and benefits is willingness to pay:the amount of money each individual would willing to pay for the change in his or her circumstances .(If it is negative,the change is a negative benefit or,equivalently,a cost.)the idea is that if the penson did pay that amount,he or she would be indifferent to the change.this powerful concept provides a consistent principle for dealing with a wide variety of measurement issues that might at first seem disjointed and intractable.
the concept need not be restricted to those most directly affectedby a project.expanding air traffic creates transportation services that users are willing to pay for,the direct effect,but it also creates noise that residents are willing to pay to avoid. reduced congestion on one road changes the amount of congestion on other roads,thereby creating positive or negative willingness to pay on the
part of users throughout the netwoek. a rail station in a previously isolated community may reduce unemployment there creating additional benefits in reduced alcoholism or crime for which people who never use the station nevertheless have a measurble willingnss to pay. as we shall see care is required to limit the analysis to effects that are realistic and causally related to the project in question.
the use of willingnss to pay what makes cost-benefit analysis consistent with the hypothetical compensation criterion described earlier. if the sum of everyone's willingness to pay for an entire project including its financial elements is positive then it is a potential pareto
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