MEASURING DAMAGES ARISING FROM HAZY EPISODES SOME THEORETICAL DISCUSSIONS

Abstract

Southeast Asia is no stranger to the phenomenon of haze clouding the region since the early 1980s. Strangely, little in-depth studies have been done on this recurring transnational pollution problem, especially in terms of its economic cost.

This thesis first begins with descriptive examination of the haze as an transboundary environmental problem with a focus on the associated economic impacts. The conceptual framework is introduced and the conventional methodology to valuing environmental damages is discussed with reference to the haze, together with evaluations of some related empirical studies. Conventional valuation methods for environmental damage as applied to the haze are analysed in view of the special nature of the haze problem. In particular, the case is made for differentiating between net changes in social welfare and welfare transfers between different economic groups. The latter does not represent any net change in position for society in general as one group loses or gains at the expense of another and thus should not be included when calculating the haze damage cost. Conventional methods may reflect inappropriate values as damage cost or at best capture part of this net welfare change while neglecting the possibility of transfers. The possibility of increasing activities that partially compensate in reaction to haze-induced losses is also ignored by conventional valuation methods. One such activity is household production. This thesis thus examines the resulting implications for efforts to attach monetary values to haze damages. It takes the empirical structure in haze damages and evaluates them on the basis of consistency with conceptual or theoretical values.