Substitution Effects in the Valuation of Multiple Environmental Programs

A theoretical framework for understanding substitution and complementary effects between environmental programs is derived. A multiple program valuation function is specified and its structure analyzed. A maximum likelihood estimator is derived to estimate the parameters of the valuation function using referendum-type, contingent valuation data. The empirical analysis shows that the conventional benefit aggregation approach of independent valuation and summation overstates the benefits of two- and three-program policies by an average of 24 and 54%, respectively.