Journal of Water Resources Planning and Management

The principal focus of this special issue of the Journal of Water Resources Planning and Management is on monetary valuation of environmental outcomes. The interest in valuation is embedded in the practice of benefit-cost analysis that has been an important practice in the water resource field since the 1930s, and is reinforced by contemporary growth in natural resource damage cases. This paper summarizes the state of the art in valuation, in physically-based alternatives to valuation, and in controversies surrounding this application of economics to water resource decision making. It also introduces the papers in this special issue.

Economic valuation of environmental uses of water resources has the potential to bring a more balanced perspective to the allocation and management of water resources. Environmental valuation allows water resource benefits received by nontraditional water users in society to be included in benefit-cost analyses. This allows for a more formal consideration in the decision-making process that is on par with historic uses of water. Some environmental valuation methods follow traditional economic approaches such as estimating the demand curve for recreation as a function of water flow or water quality. Other environmental valuation approaches utilize surveys to create simulated markets for public uses of water resources. These valuation methods are capable of monetizing the economic values of instream flow and water-based recreation as well as the value of preserving habitat for endangered species. Government-agency use of these environmental values and techniques in their resource analyses is presented. Several case studies illustrate how environmental valuation has been used to evaluate hydropower regulation at Glen Canyon Dam, hydropower relicensing, dam removal, and public trust benefits of water versus municipal uses.

Donor agencies invested millions of dollars in the 1980s and 1990s to improve water and wastewater services in Cairo, Egypt. An economic analysis of these investments raised several issues relevant to planning and financing similar projects. First, some service improvements have more value to households than others (i.e., a water connection was worth more than improved reliability of water service). The choice of how to allocate scarce project resources among different possible service improvements may substantially affect the measured benefits of the project. Second, recovering project costs through the fixed tariff charged for water and wastewater services in Egypt may charge a substantial portion of a household more than they are willing to pay for the services. Quantity-based pricing that allowed households to adjust their water use to their budget would allocate program costs among households in a manner more consistent with the value of the services.

An interesting and potentially important, but little appreciated, result of the use of dichotomous-choice contingent valuation (CV) techniques is that there are about a dozen ways to deal econometrically with the data on bid acceptance to construct a mean or median estimate of willingness-to-pay benefits, none of which is clearly the correct choice. They produce measures of central tendency that can differ, from lowest to highest, by factors ranging from 5 to 15. This is a source of uncertainty in benefit or damage estimation that can easily dominate the more traditionally recognized statistical uncertainty based on noise in the response (and respondent) data. It potentially can introduce ambiguity into a cost-benefit test of economic feasibility if a prospective investment either passes the test based on some willingness-to-pay measures or fails it based on others. These points are illustrated using actual data from a well-designed dichotomous-choice CV survey administered to residents of São Paulo, Brazil, as part of the application process for a loan to cover a multiphase project to improve the quality of the Tietê River.

Several major federal environmental statutes enacted in the 1970s designate federal, state, and tribal resource management agencies as trustees of natural resources on behalf of the public and enable the trustees to recover damages for injuries to public resources. The measure of damages in the statutes is the cost of restoring the resources to baseline conditions, plus the interim loss in value from the time of the incident until full recovery of the resources. The statutory restriction limiting use of the monies to enhancing or creating natural resources motivated the development of an alternative measure for interim losses—the cost of compensatory restoration actions providing in-kind compensation. In this paper alternative measures of damages are outlined and approaches and methods for scaling compensatory restoration are discussed. Two basic scaling approaches are presented: a simplified in-kind trading procedure and the more general valuation approach, in which a variety of economic methods may be employed to assess the trade-offs between gains from proposed actions and interim losses from the injuries. Experience indicates that natural resource liability actions represent a potent tool for federal and state resource managers to address injuries to public resources.

At present there are 1,194 Superfund sites throughout the United States that are on the National Priorities List, because past releases of hazardous substances have contaminated natural resources and pose a human health risk. Section 107 of the Superfund Act (more formally, the Comprehensive Environmental Response, Compensation, and Liability Act) allows federal and state government agencies, acting as natural resource trustees, to collect monetary damages from responsible parties for residual losses incurred by the public as a result of injuries to natural resources (such as ground water) caused by hazardous-substance releases. Residual losses may include losses incurred prior to and/or after the completion of remediation activities. The agencies must use the recovered natural resource damages to restore, rehabilitate, replace, or acquire the equivalent of the injured natural resources. This article focuses on estimating natural resource damages from ground-water contamination at Superfund and other sites where hazardous substances have been released. The first section briefly describes the application of the natural resource damage assessment process to ground-water contamination. The second section discusses some techniques for valuing reductions in the services provided by ground water. The third section examines the applicability and measurement of so-called nonuse values associated with ground water. The fourth section addresses natural resource damage assessment issues that may arise at actual ground-water–contamination sites. The last section summarizes the main results of this article and presents some conclusions.

This paper reviews methods that can be used to estimate the loss in use value associated with saltwater beach recreation in the case of an environmental accident, such as an oil spill. Particular attention is focused on methods for verifying beach attendance data and on transferring benefit estimates from other locales. The paper first reviews methods for estimating what reported attendance might have been had the accident not occurred. The next issue considered is how to verify reported attendance data and how to correct it when systematic inaccuracies are found. The paper then turns to the question of valuing a beach visit and reviews the relevant empirical literature.

In the last few decades economists have devoted significant professional attention to developing and applying methods to place monetary values on environmental services. This paper summarizes the criticisms from within the economics profession of the environmental valuation research program. Generally, the critics question whether meaningful benefit estimates can be made for environmental services and, if made, whether the estimates are acceptable guides to making environmental policy. We conclude by noting that the debate over the “value of valuation” in water resources will not subside, because this debate is part of a wider intellectual dialogue regarding the role of analysts and quantification in the making of public policy.