Friday, June 21, 2013

Value of a view (pretty nerdy)

Usually when economists try to put prices on non-market goods such as scenic views, we are forced to resort to the very difficult task of finding out how much people are willing to pay for something by asking them. This opens a Pandora's box of problems as such estimates are subject to a variety of biases. For example, the power of suggestion: if I ask, "Are you willing to pay $100 to restore this view?" I'm sort of implying that the value is, if not $100, sort of in the ballpark of $100. After all you would never ask, "Would you pay $100 for this 5000 square foot home in the penthouse of a building overlooking Central Park in Manhattan?" Another problem is the difference between "willingness to pay" and "willingness to accept payment"- a famous experiment found that the values people put on items suddenly increased if the item was theirs. Thus, when attempting to value a view, it matters if you're going to be giving or taking away. To sum up, here's an article on the objections one fairly prominent economist has to "contingent valuation," which is the process of trying to put a price tag on goods with no market values.

That's all a very long introduction to what I really wanted to say, which is that a recent struggle has put a price tag on a certain view without using this survey-based methodology. Consumer electronics maker LG wanted to build a $300 million development in New Jersey, and they had plans to build a complex with buildings 143 feet tall. However, the buildings would block the view of some scenic cliffs from New York City, and in particular from the Cloisters, an art museum. In the end the view won out, and LG is going to have to substantially revise their plan. That must mean that the value of the view exceeds the value of the development, though that doesn't mean that the view is worth $300 million, since LG will retool their plans and eventually end up with a building there, I imagine. Still the view can be valued in part by the cost of investments made by anti-development forces and any potential loss of business in the local area, such as the fact that the complex will no doubt be postponed for another year or two while plans are reconfigured. 

Sorry if that's esoteric, but it's pretty interesting to me as a researcher!

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