Methodology to calculate social values for air pollution using discrete choice models

Abstract

A new methodology for the estimation of social values of urban air pollution for project appraisal is proposed. This is performed by using individual perceptions (marginal disutilities) of those who are directly affected by this externality, which are then transformed into social values using the social welfare approach developed by Galvez and Jara-Diaz in 1998. The approach also unveils the implicit social bias behind the commonly accepted willingness-to-pay measures. The method is illustrated using individual perceptions obtained from stated preference experiments within the context of residential location including three attributes: an objective measure of air pollution by zone of the city, an index of family accessibility to work and study, and the monthly rent. Discrete residential choice models were estimated by income group, from which indirect utility functions were obtained. Marginal disutilities were used to obtain social values of air pollution for each income group by means of the calculation of a social utility of money. The methodological underpinnings and difficulties of the approach are specially highlighted. The need to establish a national programme for the estimation of social values is emphasized.