Natural Resource Damage Assessment: Methods and Cases

C. An Application of the Benefits Transfer Method for Valuing Groundwater
We briefly describe the case study conducted by Crutchfield et al. (1995) to show how
estimates of groundwater quality benefits can be transferred to areas beyond the original study
sites. They selected three studies from those listed in Table 3.2 because of the small amount of
information needed to compute willingness to pay estimates and because these studies had been
published in peer-reviewed literature. These three studies are Jordan and Elnagheeb (1993),
Shultz and Lindsay (1990) and Sun et al. (1992). Each of these studies estimated a willingness to
pay function for groundwater protection given by
WTP = f(b,x,z),
where WTP is willingness to pay for preventing contamination or cleaning groundwater to safe
levels for drinking, and the other notation is defined as follows:
f(.) is a valuation function
b= hypothetical bid value
x = variables proxying for price of access to the resource, quantity and quality of resource
z =demand determinants such as income, education, age etc.
The three original studies had included variables such as income, gender, race, age,
education, status of current water quality, land value, future demand for clean water and bid
value. Crutchfield et al. (1995) used USDA data from surveys of farmers in four Area Studies
regions in 1991 to obtain comparable data about socio-economic characteristics of farmers in
their study region. A proxy variable for income was constructed using data from the USDA Farm
Costs and Returns Survey. County level data on sex and racial composition was obtained from
the latest Census of Agriculture. Since the researchers did not have information on farmers’
attitudes about pollution probabilities for sites for which benefits were being estimated, they used
mean values from the original studies. They used these data to estimate willingness to pay for
groundwater quality in four areas on a county-by-county basis. County averages were then used
to estimate willingness to pay per household. The per-household values were multiplied by the
number of rural households in each county to obtain an estimate of aggregate willingness to pay
at the county level. These estimates were further improved by correcting for differences in the
distribution of risks across households based on the whether the region was classified as
hazardous, risky, slightly risky or safe, and by assuming that households whose water supplies
are not at risk will not be willing to pay.
D. Legislation Applying to Groundwater
As already established, groundwater is an important natural resource with many uses. In a
majority of situations, it is more expensive to clean up contaminated groundwater than it is to
prevent its contamination. Therefore, legislation to prevent or reduce contamination of
groundwater, as well as clean up the contamination when it does occur, has been instituted.
Unfortunately, the effectiveness of these laws in protecting groundwater may be limited, as many
of these laws focus on surface water rather than groundwater. Additionally, water protection
programs are split between federal, state, and local levels, making the enforcement of these laws
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