Natural Resource Damage Assessment: Methods and Cases

Research Council study (NRC, 1997) concluded that it is hard to generalize about the validity or
reliability of specific valuation approaches – the appropriateness of an approach depends on the
valuation context and the groundwater services being valued. Different approaches may be
needed to value different uses. The current empirical knowledge of the values of groundwater is
fairly limited and is restricted to valuing a few uses such as the consumptive uses of drinking
water. Indirect valuation methods (such as averting expenditure analysis, travel cost analysis, and
hedonic price methods), when used correctly, can only estimate use values of groundwater. CV
methods allow the estimation of the total value of groundwater. However, few if any, of the
existing studies have met the stringent conditions set by the NOAA panel, to produce defensible
estimates of nonuse values (NRC, 1997; Desvousges et al., 1999). The pervasiveness and
magnitude of nonuse values for groundwater cannot be reliably ascertained from existing studies.
Estimates of consumptive use value are more common and reliable, but may underestimate total
value when groundwater has a strong connection with surface water and contamination will
substantially alter surface water quality.
Academic studies conducted thus far have focused on CV and averting expenditures
methods. The results of these studies show that environmental values depend not only on the
physical measures of the extent of contamination but also on the demographic and socioeconomic
characteristics of the affected population. In practice, however, state agencies have
relied primarily on compensation schedules, habitat equivalency analysis, and market price
methods. These simplified methods disregard the characteristics and preferences of the affected
population in estimating the value of damages.
Alternative approaches that could be used for damage assessment while taking into
account both the physical level of damages and characteristics of the affected population are
benefits transfer methods. Benefits transfer and meta-analysis provide mechanisms which
provide information about the benefits of groundwater quality without requiring analysts to
gather extensive new data or conduct expensive and time consuming original studies. However,
the quality of the benefits measures will depend on the quality of the original studies themselves
and requires analysts to assume that individual preferences are the same at the new site and the
site in the original study. Care needs to be taken before conducting a benefits transfer exercise to
evaluate the quality and comprehensiveness of the published research and its suitability for
obtaining estimates for a new site. Though appropriate for preliminary evaluations, benefits
transfer may need to be supplemented with primary studies using new data when site-specific
measures are required for determining compensation and liability for damages.
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