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Natural Resource Damage Assessment: Methods and Cases

Natural Resource Damage Assessment: Methods and Cases

Price of groundwater P0

Price of groundwater P0 P1 Price of groundwater D P0 P1 A B A B Figure 3.1: Market Price Method C J K Q0 Supply C K Q0 D D0 is the demand for groundwater before contamination. D1 is the demand for groundwater after contamination. P0 is the price of groundwater before contamination. P1 is the price of groundwater after contamination. A, B, C, and K identify key points on the graphs; see text. 59 Supply Panel B: Upward-sloping supply D1 D1 D0 Quantity of groundwater Panel A: Fixed supply D0 Quantity of groundwater

Output price P0 C D S0 is the supply of a product before groundwater contamination. S1 is the supply of a product after groundwater contamination. Q0 is output of a product before groundwater contamination. Q1 is output of a produce after groundwater contamination. A, B, C, and D identify key points on the graph; see text. Figure 3.2: Reductions in Profits from Groundwater Contamination Reductions in profit can also be measured by the price of the output times the change in the quantity of the good being produced. This can be treated as an estimate of the value of water if it is assumed that the price of the output is fixed and the price of the remaining inputs is unchanged. This method ignores the potential for substitution of other inputs for water in the production process. It can also lead to incorrect estimates if groundwater values or output prices are distorted due to government programs. C. Appraisal Method A B Q1 The appraisal method can be used in accordance with the applicable sections of the “Uniform Appraisal Standards for Federal Land Acquisition” incorporated into Title 43 of the Code of Federal Regulations. When contamination occurs, the value of the loss due to this contamination is determined by the difference between the value of the groundwater with contamination and without contamination. The value of groundwater in the absence of contamination could be its market value if groundwater rights are marketable. For example, suppose that the water at a site is potable prior to the contamination and is only suitable for 60 Q0 S1 S0 Output quantity

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