AEC 434 Problem Set 3

Total Points: 30
1. A researcher is interested in understanding whether or not home energy scores, as suggested recently in Corvallis, will make newly built homes more energy efficient. Imagine that this researcher is able to conduct an experiment on selected cities in Oregon.
This researcher randomly selects treatment and control newly-built homes. “Treatment” means that the home is given an energy score. “Control” homes do not get an energy score.
The research measures average energy efficiency of newly built homes before the experiment and two years after the experiment. The average energy efficiency measures for new homes (where higher is more energy efficient), before and after the experiment are below:

a. Calculate the impact of the energy score program using a “simple difference.” What is the counterfactual in this case?

Hint: The counterfactual is the outcome you are comparing against (i.e. what you use as a baseline). 2 pts

b. Calculate the impact of the energy score program using the “before and after” method. What is the counterfactual in this case? 2 pts

c. Calculate the impact of the permit program using “difference in differences” (or double- difference). 2 pts
Group Energy efficiency before
experiment
Energy efficiency after
experiment
Homes with scores 30 60
Homes without scores 40 42

2. Lincoln County has hired your economic consulting firm to calculate the net benefits from recreation visits to Seal Rock Wayside. Admission to Seal Rock is currently free. You conduct some field work and initial research that yields the following information:

City/Town Miles from
Seal Rock
Population
(1000 s)
Number of
Vehicles
Estimated
visitors
Visit rate
(per 1000
people)
Corvallis 58 58 35 250 4.3
Albany 70 54 15 130 2.4
Newport 9 11 40 1,000 90.9
Lincoln
City
32 10 30 700 70.0
Yachats 14 1 25 200 200.0

You estimate that each vehicle carried 3.5 persons (2.2 adults), on average, and make the following assumptions:
– The average operating cost of vehicles is $0.65 per mile.
– The average speed on county highways is 50 miles per hour.
– The opportunity cost to adults of travel time is 30 percent of their wage rate; it is zero for children.
– Adult visitors have the average county wage rate of $12 per hour.
This information is summarized in the attached Excel spreadsheet.
a. Calculate travel cost per vehicle and travel cost per person for each town. 3 pts.

b. Create a scatter plot with travel cost per person on the X axis and visit rate on the Y axis.
Fit a line through the data and report the slope. Make sure to include your plot with your answer. 3 pts

c. You know demand when admission is free. Find additional points on the demand curve by predicting visitors from each town as the fee goes up in $10 increments, until the demand is zero. Follow these steps:
– Calculate new rate = old rate + (fee*slope)
– New number of visitors = New rate * Population
– Get total number of visitors and plot D curve 4 pts

d. Estimate annual benefit to visitors by calculating the area under the demand curve. 3 pts

3. In an example for use of the Value of a Statistical Life in BCA we calculated the benefits of increasing the speed limit for a highway (Week 8). To get additional practice and a better understanding of the use of VSL, this exercise asks you to calculate the benefits of reducing the speed limit. Suppose the area around a 30-mile stretch of highway has become more urbanized and traffic has increased, so city planners are considering lowering the speed limit on the highway as it passes the town from 65 mph to 50 mph. The relevant information is available in the attached Excel spreadsheet. Use the worked example from week 8 as a guide to answer the following questions.

a. Calculate additional travel time costs by calculating average travel time before and after, then calculating the difference. Then calculate total time added. 2 pts
b. Calculate costs as the value of time added to leisure and business travelers. 2 pts
c. Calculate benefits as avoided operating, fatal crash, and non-fatal crash costs. 2 pts
d. Calculate NSB. Should the speed limit be lowered? 2 pts
4. An economist has conducted a survey of ranchers to find out their willingness to pay for adopting rotational grazing practices that benefit sage grouse populations. The survey yielded the following data:
Stated price (annual payment, $) Fraction of respondents accepting stated price
(%)
0 97
15 92
30 86
45 79
60 66
75 50
90 35
105 22
120 11
Calculate the mean Willingness to Pay (WTP) for the sampled population.

Hint: Use equation (16.1) from the text. 3 pts.