The Market Price Method

This is the common market price valuation. In external costs valuation it is a reliable method only  for those damage components that have a market. Since most environmental assets under valuation are luckily not “on the market”, the method is included in this review just to highlight differences of scope between methods.
For example, air pollution damages may be measured by valuating at market prices the health services  necessary to treat the illnesses epidemiologically associated to air pollutants. This measure captures only part of the whole health  damage, since it doesn’t include the air pollution costs for society in terms of  minor productivity, and of pain and suffering of the individuals harmed by exposure to air pollution.
The market price method is suggested to valuate damage components that are under property rights and that have a market where they are exchanged. For many types of externalities, such as human health or natural resources,  this method may be only complementary  to other techniques. If applied to valuate environmental resources, this method can only capture the value of those more commercial services offered by the environmental resources, but it ignores the value of the non-market ecological services offered by the resource, the  option value for future generations and the intrinsic existence value of natural resources trusted by many people. Not valuing these components may produce distortions  and no-way-back regrets  in decision making.

© 2006 - Andrea Molocchi