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Natural Resource Damage Assessment: Methods and Cases

Natural Resource Damage Assessment: Methods and Cases

expenditures, that is,

expenditures, that is, money spent to avoid consuming contaminated water. These are summarized in Table 3.1. Powell (1991) obtained household bottled water expenditures as part of a CV study of groundwater benefits in eight clean and seven contaminated communities in Massachusetts, New York and Pennsylvania. Although half of the communities surveyed had recent contamination problems, only 16% of the respondents were aware of the contamination. He found that average expenditures on bottled water were $32 per year. Households aware of the contamination were willing to pay $82 per year for increased water supply protection and those relying on private wells were willing to pay $14 per year more for protection than those relying on the public system. Another study used the averting expenditures method to determine how much households actually spent in avoidance costs in College Township, Pennsylvania, where perchloroethylene (PCE), a volatile organic compound, was discovered in the groundwater that served as the source of the public water supply (Abdalla, 1991). Over the 6-month period between when customers were notified of the PCE contamination and when an alternative water supply for the community was put in place, over 76% of the households surveyed undertook averting activities such as purchasing bottled water, bringing water in from elsewhere, boiling water, using home water treatment systems, and purchasing food and beverages that did not require the addition of water. Averting expenditures included costs of bottled water, cost of transportation and lost leisure time hauling water, energy costs and lost leisure time boiling water and costs of home water treatment devices. The total costs, in 1987 dollars, were estimated to range between $137,371 and $160,343 depending on the imputed value of leisure. The mean value was $148,900 for the entire community over the 6-month period, or an average of $21 per month per household for those households who undertook averting activities (Abdalla, 1991). Abdalla et al. (1992) used averting expenditures to estimate the economic costs to households in southeastern Pennsylvania affected by groundwater contamination over an 88week contamination period. The area studied was Perkasie, Pennsylvania, where trichloroethylene (TCE) had been detected in a public well. Over the 88-week period between the time when public water supply customers were notified and when this study was conducted, customers undertook such actions as buying bottled water and home water treatment systems. Less than half of those affected by the TCE contamination were aware of the pollution, despite the fact that the public water supply was to notify their customers of the contamination. Of those that knew of the contamination, slightly less than half undertook actions to avoid the contamination. Costs averaged $123 for each household that chose to avoid the contaminant. Regression analysis showed that households were more likely to make averting expenditures if: they received information about TCE; they rated the cancer risks associated with the levels of TCE to be relatively high; children between ages three and 17 were present in the household. Households with children younger than three years of age incurred larger averting expenditures than others. Collins and Steinback (1993) found that 85% of rural households, relying on individual wells in West Virginia, engaged in averting behavior (such as cleaning and repairing water systems, hauling water, and water treatment) when informed about contamination. Average avoidance costs were estimated to be $320, $357 and $1,090 for households with bacteria, minerals and organic contamination problems, respectively. Table 3.1 highlights the facts from the above studies. 65

Table 3.1: Summary of Studies Estimating Averting Expenditures Location Source of Groundwater Average household contamination use valued avoidance cost MA, NY, TCE in six Drinking water $32, $82 and $14 per year for bottled PA communities; water, water supply protection and by diesel fuel in one private well owners, respectively College PCE (a volatile Municipal public Average: $252/HH/year Township organic water supply Average costs of a filtration system: PA compound) $383/HH/year (1987 dollars) Perkasie, TCE (a volatile Municipal public Average avoidance cost: $123/HH/year PA organic water supply Average bottled water exp: compound) $75/HH/year (1989 dollars) West Bacteria, minerals Drinking water $320-$1,090 per year per household Virginia and organics from private individual wells (1990 dollars) 66 Reference Powell, 1991 Abdalla, 1991 Abdalla et al., 1992 Collins and Steinback, 1993 These studies show that households do undertake expenditures to avoid exposure to groundwater contaminants in their drinking water. These expenditures can be substantial, with annual costs ranging from $125 to $330 per household per year. Expenditures on bottled water alone ranged from $32 to $330 per year. The magnitude of these costs varies with: the contaminant and its health risks; type of water supply; cost of averting actions; household and community characteristics. Households with individual water supplies were found to spend more than those served by the public system. Extent of public notification, confidence in the local water supplier, amount of information about contaminant or its health risk, and presence of children were also factors that influenced the extent of averting expenditures. B. Contingent Valuation Studies of Groundwater Studies using the CV method to estimate groundwater values are summarized in Table 3.2. These studies are typically eliciting ex ante values for programs to prevent groundwater contamination. The willingness to pay values reported here are measured for the year of the study and not corrected for inflation. The study by Edwards (1988) used the CV method to elicit a household’s total maximum willingness to pay to prevent uncertain nitrate contamination in Cape Cod’s only aquifer. A discrete choice willingness to pay question was posed to respondents with annual payments ranging from $10 to $2,000. Alternative payment vehicles were described such as a bond, a contribution and a higher water bill. Willingness to pay increased with income, with an increase in the probability of living in Cape Cod at the time of the contamination, and as the proposed management plan increased the probability of low cost groundwater supplies. Bequest motives (protecting groundwater for use by future generations) were found to have a strong influence on willingness to pay. The annual willingness to pay per household was estimated to be $1,623. This value is higher than those found in other studies for several possible reasons. These include the uniqueness of the aquifer in Cape Cod, the inclusion of option price and option values and the high mean income of the sample compared to the typical mean income of rural water users.

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