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Environmental Considerations – WATSON – December 2021 OECD discussion

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Environmental Considerations – WATSON – December 2021 OECD discussion

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This presentation by Nadine Watson, Senior Vice President, Compass Lexecon, was made during the discussion “Environmental Considerations in Competition Enforcement” held at the 136th meeting of the OECD Competition Committee on 1 December 2021. More papers and presentations on the topic can be found out at oe.cd/ecce.

This presentation by Nadine Watson, Senior Vice President, Compass Lexecon, was made during the discussion “Environmental Considerations in Competition Enforcement” held at the 136th meeting of the OECD Competition Committee on 1 December 2021. More papers and presentations on the topic can be found out at oe.cd/ecce.

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Environmental Considerations – WATSON – December 2021 OECD discussion

  1. 1. compasslexecon.com Roundtable on Environmental Considerations in Competition Enforcement Measuring environmental benefits in competition cases Nadine Watson 1 December 2021
  2. 2. 1 compasslexecon.com ASSESSING THE BENEFITS MAIN BUILDING BLOCKS Standard efficiencies analysis: consumer welfare Do non-price benefits offset price rises caused by a reduction in competition?  What are the benefits to the environment?  Are the claimed benefits likely and realistic?  When will they materialize?  How much are consumers willing to pay?  Internal documents  Internal calculations  Expert reports  Observed behaviour (revealed preferences)  Survey responses (stated preferences) VERIFICATION OF BENEFITS VALUATION OF BENEFITS Challenges for environmental benefits? (a) willingness to pay and (b) out-of-market benefits
  3. 3. 2 compasslexecon.com WILLINGNESS TO PAY FOR ENVIRONMENTAL BENEFITS Total value will vary with:  Choice context  Available information/awareness  Social norms (Inderst and Thomas, 2021)) USE VALUE  Value derived from the direct consumption  Generally, consumers are aware of that value  Also referred to as passive value, the value consumers attach to a product feature, even though they do not directly or indirectly consume or experience that feature  May not be aware of it and/or its value NON- USE VALUE Example: The Exxon Valdez oil spill killed wildlife and required years to remove the oil from the beaches.  The state of Alaska claimed $3 billon in damages based the loss of passive use value (Carson, 2012). – The valuation included: careful pretesting, rigorous sampling, high response rate, in-person interviews, a discrete choice modelling, a detailed description of oil spill effects of the oil spill, debriefing questions after the survey,.  Exxon estimated $4 million in direct economic losses from lost recreation days. Analysis of consumers’ willingness to pay for environmental benefits will be inaccurate, if consumers are unaware of the impact on the environment. WTP is the right approach, but the methodologies need to account for non use value
  4. 4. 3 compasslexecon.com METHODOLOGIES USE AND NON-USE VALUES Survey Xnt Purchase Travel cost & averting behaviour Hedonic prices Field experiments Simple Surveys Extended Survey Data collection Non-use value Method Prospective Standard tools to elicit willingness to pay, used extensively by competition authorities and in environmental economics. Purchase Survey Survey Xnt Xnt t nt X X Revealed Preference Stated Preference
  5. 5. 4 compasslexecon.com METHODOLOGICAL CHOICE CASE SPECIFIC Travel cost & averting behaviour Hedonic prices Field experiments Simple Surveys Extended Survey Method The choice of method will depend on the specific features of the case:  Size of the restriction  Relative importance of non-use values  Influence of future attributes and attitudes Expected impact on prices Qualitative WTP based on actual purchases
  6. 6. 5 compasslexecon.com • Who are the relevant consumers (accounting for changes to the product’s attributes)? • What about non-consumers views (on mitigating the externality imposed on them)? OUT-OF-MARKET BENEFITS CONSUMERS AND NON-CONSUMERS Stated preference Current Current WTP more if sustainable WTP more if others do WTP only if sustainable WTP more if others do WTP only if sustainable WTP only if others do WTP only for sustainability WTP only if others do Current consumer Current consumer +Potential consumer +Potential consumer +Non consumer Views on product attributes Views on conduct of others Groups Analysis required Market definition and WTP are affected by views on (a) attributes, and (b) others’ conduct Revealed

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