Embedding effects in valuation of non-market goods

Kjartan Sælensminde

Transport Policy, 2003, vol. 10, issue 1, 59-72

Abstract: Cost-benefit analysis (CBA) undertaken for the road sector in Norway includes non-market goods such as travel time savings, traffic safety, noise and air pollution. Traditionally, these non-market goods are valued through separate willingness to pay studies without attention to interactions between them. This paper shows that a simultaneous valuation procedure, accounting for embedding effects between the non-market goods included in CBA for road investments, significantly reduces the valuations of travel time savings, noise and air pollution compared to a separate valuation procedure. Another result is that a reminder of substitutes and budget constraints seems less necessary if the valuation procedure is more holistic.

Date: 2003
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