Abstract
In this paper, on the bases of the indirect utility function and the expenditure function, we presented the general definitions of the compensating and equivalent variations which are the correct monetary measures of a welfare change for an individual, taking into account not only private goods but also public goods as the environmental services.
Then, we showed that the concept of social cost by the reduction of the environmental service was properly defined with the compensating variation, which has not been rigorously considered from a point of measurement.
And, we showed that this social cost would be measured with the monetary value of the environmental pollution which was defined as the compensated demand price of the environmental service, if the change in the environmental service did not effect on the market prices of private goods.
