Natural Resource Damage Assessment: Methods and Cases

irrigation after contamination. Suppose further that the rights for drinking water and irrigation
are valued at $2,500/acre foot and $50/acre foot respectively. The value of damages is obtained
by multiplying the volume of water injured by $2,450 (=$2,500-$50). This represents the
diminished market value of a perpetual-use right for one acre-foot of local groundwater. Market
prices are determined with the help of local water brokers. To use this method, however,
groundwater must have a predetermined value, and its quality before contamination must be
known. Although this method only captures use values, the advantage is that given the value of
the resource with and without contamination, it is relatively easy to determine the value lost due
to pollution (NRD Task Force, 1998).
D. Cost-of-Illness Method
Groundwater contamination can lead to long term or chronic illnesses and possibly death.
This method involves estimating the expenses resulting from illness and the lost earnings due to
sickness. The limitations of this method are that it does not consider the disutility caused by
illness. It also does not take into account that individuals faced with contamination undertake
defensive or averting expenditures to protect themselves. This method will therefore
underestimate the true willingness to pay for pollution reduction.
E. Averting Expenditures Method
Averting-expenditure analysis relies on observed data on expenditures incurred by
individuals to avoid consuming contaminated water. Examples include the purchase of bottled
water and water filters if groundwater is being used as a source of drinking water. How much
people are willing to spend on these items to avoid contaminated water helps to determine the
value that they place on good water quality. A drawback of this method is that it does not take
into account all losses from the contamination of the resource. This method can provide a lower
bound for willingness to pay if the following assumptions hold: averting actions are perfect
substitutes for pollution reduction; the household does not obtain any direct utility from averting
behavior; there are no income effects because of loss of work through illness; averting behavior
does not require significant fixed costs such as drilling new wells.
This method is easy to implement and it is relatively inexpensive to obtain the
information required (Abdalla, 1994; 1991). It must, however, be noted that the average
expenditure on avoidance by those who chose to undertake that expenditure is not a measure of
the average value for the entire population since it does not incorporate the lack of expenditure
by some portion of the population who are either unaware or chose not to spend on avoidance.
The appropriate average avoidance cost measure for the entire population should average
expenditures over all individuals including those with zero expenditures. Additionally, averting
expenditures are based on an individual’s expectations regarding what the government (or
others) will do to reduce an individual’s exposure to contamination. Low expenditures may
simply reflect the expectation that the problem will be addressed publicly and rather than a low
value for groundwater (Segerson, 1994).
F. Travel Cost Method
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