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The proxy-good techniqueThe concept A good, service or resource with a market price may be a substitute for the unpriced environmental effect of interest. The market price could then be taken as an approximation for the value of the effect. There are three different ways to apply this concept and each takes the value of the substitute or proxy good as the required value. When to use it
To resolve this question, the monetary values would need to be estimated for the benefits of research and the preservation of environments. 1. The proxy might be a different market good or service which already has a price. For example, a swimming pool might be a good substitute for rivers and lakes for some groups in the community. The benefits of research are often hard to value. Johnston (1982) explored the possibility of valuing the benefits of research to reduce bushflies from the price of cans of fly repellent. The research concerned the introduction of beetles which eat dung and so reduce nutrient for the bushflies. Fly spray and dung beetles can both reduce the harmful effects of bushflies. Accordingly, Johnston asked households about their purchases of fly spray. Half the survey population felt their current purchases of repellent sufficient, while 20 per cent felt they needed to purchase more. If the research on introduction of dung beetles were successful, the average use of repellent would drop from three items a year to under one to give a saving of about $4 per person. If the repellent is a good proxy for a successful research program, the cost saving measures the benefits of the research. 2. The proxy might be a similar environmental good, service or asset that has been priced in a similar situation. For example, the Big Tree is a River Red Gum near Castlemaine in Victoria that had been classified by the National Trust. The State Electricity Commission recently spent $8 600 to shift power lines away from the tree to reduce fire risks to it. The benefit from preserving a similar tree in a similar situation might be a similar amount. The Australian Bush Heritage Fund is a private organisation to collect funds to purchase and preserve native bushland. It recently purchased the Liffey blocks which comprise 241 hectares on the edge of the wilderness in northeast Tasmania. The market price of this particular forest type has been established and might be used in a new situation. 3. The proxy might be a good or service that is provided for a price by private enterprise in a market. The value of a similar good or service provided free by the government might be similar to this market price. Strengths and weaknesses The appeal of the technique is matched by the problems in its use. As long as the proxy provides the same kind of satisfaction in equal amounts to the same kinds of people, its price can be used to value the environmental effect of interest. Unfortunately, there is no guarantee of these similarities without intensive surveys of users. If the proxy is of lesser quality, the estimated value would be too low. If the proxy is of higher quality, the estimated value would be too high. In order to use the technique, it is important to carefully establish the comparability of the proxy and the environmental effect of interest. |
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©İsmail Güneş |