Iowa State University

Department of Economics

           

ECON 581                                                                                                                  Spring 2004

C. Kling

FINAL  EXAMINATION

 

Write your answers as completely and concisely as possible, remembering that you have 2 hours in which to complete the exam.  Your grade will be determined by the thoroughness and accuracy of your answers.

 

Choose 4 of the 5 following questions to answer (20 points each). 

 

  1. Describe the conditions under which Marshallian consumer surplus can be used as a good approximation for Hicksian compensating or equivalent variation (Willig). When will Willig’s results not be useful? Describe Hausman’s approach to this problem.

 

  1. Describe the empirical evidence on the divergence between willingness-to-pay and willingness-to-accept and the various theories that attempt to explain the divergence.

 

  1. How can a random utility model be used to model the demand for recreation and estimate welfare measures for changes in environmental quality? Discuss the strengths and limitations of the model.

 

  1. Describe the procedure for estimating the willingness-to-pay for an environmental quality improvement using dichotomous choice contingent valuation data.  How can the inclusion of a second dichotomous choice question (double-bounded) be included in the model?

 

  1. “Studies comparing contingent valuation estimates to experimental findings and ‘real’ transactions consistently find significant disparities between them.”  Do you agree? Explain.

 

Answer two of the following three questions (10 points each)

 

  1. Summarize one of the presentations of your classmates (not your own!) and explain the importance of the issues they raised.

 

  1. Does the compensation of victims affect the efficiency of a corrective policy? Explain.

 

  1. When does a per-unit subsidy for the reduction of an externality achieve the same efficiency properties as a per-unit tax?