Research Council study

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. 77

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