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Natural Resource Damage Assessment: Methods and Cases

Natural Resource Damage Assessment: Methods and Cases

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

References Abdalla, C. W. 1991. “Measuring Economic Losses from Ground Water Contamination: An Investigation of Household Avoidance Costs.” Water Resources Bulletin 26(3): 451-63. Abdalla, C. W., B. A. Roach, and D. J. Epp. 1992. “Valuing Environmental Quality Changes Using Averting Expenditures: An Application to Groundwater Contamination.” Land Economics 68(2): 163-69. Abdalla, C.W. 1994. “Groundwater Values from Avoidance Cost Studies: Implications for Policy and Future Research.” American Journal of Agricultural Economics 76: 1062- 1067. Bergstron, J. C., K. J. Boyle, C. A. Job and M. J. Kealy. 1996. “Assessing the Economic Benefits of Groundwater for Environmental Policy Decisions.” Water Resources Bulletin 32(2): 279-291. Boyle, K. J. and J. C. Bergstrom. 1992. “Benefit Transfer Studies: Myths, Pragmatism and Idealism.” Water Resources Research 28(3): 657-64. Boyle, K. J., G. L. Poe and J. C. Bergstrom. 1994. “What do We Know about Groundwater Values? Preliminary Implications from a Meta Analysis of Contingent Valuation Studies.” American Journal of Agricultural Economics 76: 1055-1061. Collins, A. R. and S. Steinback. 1993. “Rural Household Response to Water Contamination in West Virginia.” Water Resource Bulletin 29: 199-209. Caudill, J. D. 1992. “The Valuation of Groundwater Pollution Policies: The Differential Impact of Prevention and Remediation.” Ph.D. dissertation, Department of Agricultural Economics, Michigan State University. Crutchfield, S. R., J. C. Cooper and D. R. Hellerstein. 1997. Benefits of Safer Drinking Water: The Value of Nitrate Reduction. United States Department of Agriculture, Economic Research Service, Agricultural Economic Report 752, Washington D.C. Crutchfield, S. R., P. M. Feather and D. R. Hellerstein. 1995. The Benefits of Protecting Rural Water Quality. Agricultural Economic Report 701. Washington DC: United States Department of Agriculture, Economic Research Service. Desvousges, W. H., R. W. Dunford, K.E. Mathews, C.L. Taylor and J. L. Teague. 1999. A Preliminary Economic Evaluation of New Jersey’s Proposed Groundwater Damage Assessment Process. Prepared for New Jersey Site Remediation Industry Network by Triangle Economic Research, Durham, NC. Diamond, P. A. and J. A. Hausman. 1994. “Contingent Valuation: Is Some Number Better than No Number?” Journal of Economic Perspectives 8(4): 45-64. 78

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