A Primer on Nonmarket Valuation PDF
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A PRIMERON NONMARKETVALUATION THEECONOMICS OF NON-MARKET GOODS AND RESOURCES VOLUME3 Series Editor: Dr. Ian J. Bateman Dr. lan J. Bateman is Professor of Environmental Economics at the School of Environmental Sciences, University of East Anglia (UEA) and directs the research theme Innovation in Decision Support(Tools and Methods) within the Programme on Environmental Decision Making (PEDM) at the Centre for Social and Economic ResearchontheGlobalEnvironment(CSERGE),UEA.ThePEDM isfundedbytheUK Economic and Social Research Council. Professor Bateman is also a member of the Centre fortheEconomicandBehaviouralAnalysis ofRiskandDecision(CEBARD)at UEA andExecutiveEditorofEnvironmentalandResourceEconomics,aninternational journalpublished incooperation with the EuropeanAssociation of Environmental and Resource Economists(EAERE). Aims andScope The volumes which comprise The Economics ofNon-Market Goods and Resources series have been specially commissioned to bring a new perspective to the greatest economic challenge facing society in the 21stCentury;the successfulincorporation of non-market goods within economic decision making. Only by addressing the complexity ofthe underlying issuesraised by such a task can society hope to redirect global economies onto paths of sustainable development. To this end the series combines and contrasts perspectives from environmental, ecological and resource economicsandcontainsavarietyof volumeswhichwillappeal tostudents,researchers, and decision makersat arange ofexpertise levels.The series willinitially address two themes, the first examining the ways in which economists assess the value of non marketgoods,the second lookingatapproaches tothesustainableuseandmanagement of such goods. These will be supplemented with further texts examining the fundamental theoreticalandapplied problemsraisedby publicgooddecisionmaking. For further information about the series and how to order,please visit ourWebsite http:/www.wkap.nl/prod/s/ENGO A Primer on Nonmarket Valuation Edited by Patricia A. Champ u.s. Forest Sen,ice, Rocky MOlllltain Reseaff:h Station, FOrT Collins. CO, U.S.A. Kevin J. Boyle Libra Professor oj ElIl'irfmmenlal fcO/wlllies, Defwrtmen! of Resource Economics & Policy. Ullh'ersil), of Maille, U.S.A. Thomas C. Brown U.s. Forest SeHiee, Rocky MOllntain Research StatiO/I. FO/1 Collins. CO, U.S.A. SPRINGER SCIENCE+BUSINESS MEDIA, LLC A C.I.P. Catalogue record for this book is available ii·om the Library of Congress. ISBN 978-1-4020-1445-1 ISBN 978-94-007-0826-6 (eBook) DOI 10.1007/978-94-007-0826-6 Printed on acid-free paper All Rights Reserved © 2003 Springer Science+Business Media New York Originally published by Kluwer Academic Publishers in 2003 Softcover reprint of the hardcover 1s t edition 2003 No part of this work may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, microfilming, recording or otherwise, without written permission from the Publisher, with the exception of any material supplied specifically for the purpose of being entered and executed on a computer system, for exclusive use by the purchaser of the work. Contents List ofContributors vu Preface by Patricia Champ, KevinBoyle,and Thomas Brown ix 1.EconomicValuation: What and Why A. Myrick Freeman III 2. Conceptual Framework for Nonmarket Valuation 27 Nicholas E. Flores 3. Collecting Survey Datafor Nonmarket Valuation 59 Patricia A.Champ 4. Introductionto Stated PreferenceMethods 99 Thomas C.Brown 5. ContingentValuation in Practice III KevinJ Boyle 6. Attribute-Based Methods 171 Thomas P.Holmesand WiktorL.Adamowicz, 7. Multiple Good Valuation 221 Thomas C.Brown andGeorgeL.Peterson 8. Introductionto Revealed PreferenceMethods 259 Kevin J Boyle 9. TheTravel CostModel 269 George R. Parsons IQ.TheHedonic Method 331 Laura 0. Taylor v vi Contents II.DefensiveBehaviorand Damage Cost Methods 395 MarkDickie 12.BenefitTransfer 445 Randall S.RosenbergerandJohnB.Loomis 13.NonmarketValuation inAction 483 Daniel W.McCollum 14.Whereto from Here? 537 RichardC.Bishop Index 567 Contributing Authors VieAdamowiez,Department ofRuralEconomy,UniversityofAlberta, Edmonton,Alberta T6G 2Hl,CANADA Richard C. Bishop,Dept. ofAgricultural andApplied Economics,Universityof Wisconsin,427 Lorch Street,Madison, WI53706,USA Kevin J. Boyle,Department ofResourceEconomics& Policy,Universityof Maine, 5782 Winslow Hall,Orono,ME04469-5782,USA ThomasC. Brown,U.S.ForestService,Rocky MountainResearch Station, 2150 Centre Avenue,BldgA,FortCollins,CO80526,USA PatrieiaA.Champ,U.S.Forest Service,Rocky Mountain Research Station,2150 Centre Avenue, BldgA,FortCollins, CO80526,USA MarkDiekie,DepartmentofEconomics,College ofBusinessAdministration, University ofCentral Florida,p.a.Box 161400,Orlando,FL32816-1400,USA NieholasE. Flores,DepartmentofEconomics,University ofColorado,Economics 115,Campus Box 256,Boulder,CO80309-0256,USA MyriekFreeman,Ill,Department ofEconomics,Bowdoin College,Brunswick, ME04011,USA ThomasP.Holmes,U.S. ForestService,Southern Research Station,p.a.Box 12254,ResearchTriangle Park,NC 27709,USA John B.Loomis,DepartmentofAgricultural andResource Economics,Colorado StateUniversity,Fort Collins, CO80523-1172, USA DanielW.MeCollum,U.S.Forest Service,RockyMountain Research Station, 2150 CentreAvenue, BldgA,FortCoIlins,CO80526,USA GeorgeR. Parsons,CoIlegeofMarine Studies,UniversityofDelaware,Robinson Hall,Newark,DE 19716-3501, USA GeorgeL.Peterson,U.S.Forest Service,Rocky Mountain Research Station,2150 Centre Avenue,BldgA,FortCollins,CO 80526,USA Randall Rosenberger,Department ofForestResources, Oregon StateUniversity, 280Peavy Hall, Corvallis,OR97331-5703,USA LauraTaylor,Department ofEconomics,SchoolofPublic Policies,Georgia StateUniversity,Atlanta,GA30303-3083, USA vii Preface Public policy should reflect an understanding of the public's values. This is especially truewith respect totheenvironment. Because publicvalues about the environment are not generally expressed in the marketplace, nonmarket valuation has become an important source of information for environmental decisionmaking. While interest has grown in measuring nonmarket values, the technical nature of the nonmarket valuation literature can overwhelm newcomers. This book provides clear descriptions of the most commonly used nonmarket valuation techniques along with the steps for implementation. Individuals working for natural resource agencies, attorneys and consultants involved with natural resource damage assessments, graduate students, and others will appreciatethepractical toneofthis book. Our approach for developing this primer was to invite experienced, well respected experts to write the chapters. The next step was to get the authors together to work toward awell-integrated book. The Rocky Mountain Research Station ofthe U.S. Forest Service organized two author workshops. At the first meeting each contributor presented an outline of his or her chapter; as a group we critiqued the outlines and worked to define a consistent structure that would be used to write all the chapters. At the second meeting each author presented his or her draft chapter and another author in the group served as a discussant. This process facilitated developmentofacohesive textand provided peerreview ofallthechapters. The first section ofthe book,containing three chapters,provides background for the methodology sections that follow. The opening chapter explains the policy context ofnonmarket valuation. The next chapter develops theeconomic theory that is the basis ofnonmarket values. And because value estimates are only as good asthe data upon which they are based, the third chapter describes theprocess ofcollectingnonmarket valuation data. The valuation methods are presented in two sections, one section on stated preference methods and the other on revealed preference methods. Following a short introduction chapter, the section on stated preference methods includes three chapters-two covering widely used nonmarket valuation techniques (contingent valuation and attribute-based methods) and the other describing an emerging technique (the method of paired comparisons). The revealed preference section also includes an introduction chapter and three methods chapters. The methods chapters covered - the travel cost method, the hedonic method,andthe defensive behavior anddamage cost methods- each use"clues" from behaviors observed in markets to estimate nonmarket values. We expect readers will come away from these two sections with a thorough understanding ofhowtodesign and implementanonmarketvaluation study. The chapters also describe howtoanalyze thedata andestimate values. ix x Preface The final section of the book takes stock of the usefulness of nonmarket valuation. The first chapter in this section describes techniques for transferring values from existing studies to new situations. The next chapter discusses interesting situations in which nonmarket values were used to help make important natural resource and environmental decisions. The final chapter providesthoughtsonthe history, validity,and future ofnonmarketvaluation. Asacompaniontothis book, wedevelopedawebsite containing datasets, nonmarket valuation surveys, and links to publications based on the data (www.fs.fed.us!nonmarkctprimcrdata).This website should aidreaders who are curiousabout the formatofnonmarketvaluationsurveys and the resulting data. The data on the website can be used to replicate statistical models reportedinthe linked publications. We wish to express our gratitude for the help and support provided by the following people. This book has benefited greatly from the word processing skills ofKimJunkins. The companionwebsitewas designedand puttogetherby Pam Froemke. Alexandar Bujak carefully read and provided comments on every chapter for us. Fred Kaiser attended our second workshop and motivated allofuswith hisagency perspectiveonwhy this book isimportant. Finally, we dedicate this book to Georgc Pcterson. After a distinguished teaching career at Northwestern University, George became a research project leader with the Rocky Mountain Research Station in Fort Collins, Colorado. Professionally, he is known as an award-winning professor, an innovative researcher, and an outstanding project leader. Among those of us fortunate enough to work with George, he is considered a fountain ofwisdom and a dear friend. Patricia Champ,Kevin Boyle, andThomas Brown Chapter 1 ECONOMIC VALUATION: WHAT AND WHY A.Myrick Freeman III BowdoinCollege 1. THE MANAGEMENT PROBLEM Considerthe choices faced bythose responsible for managing releases of water attheGlen Canyon DamontheColoradoRiver. The sizeandtiming of thereleases determinethevalueofthehydroelectricpowergenerated. Butthe pattern of the releases influences the nature and value of the recreational activities onLakePowell abovethedamandontherivers inGlenCanyon and Grand Canyon below the dam. The release patterns also affect, in complex ways,theavailabilityofsuitablehabitat forandtheprobabilitiesofthesurvival ofseveralendangered species. Thus,managersfacechoices thatinvolvetrade offs.' More hydroelectric power means reduced quality and quantity of recreation opportunities and, perhaps, reductions in the survival of some endangered species. Itis necessary to reconcile the sometimes conflicting desires and interests ofthose affected bymanagementdecisions and to make wisechoicesconcerningthesetrade-offs. Todoso,resource managers require information on the value ofhydroelectric power and the values that people place on various attributes and types of recreation on and along the Colorado River and on changes inthe survival probabilities forendangered species.' We live inaworld ofscarcity andthus, we must makechoices about how to manage the human impact on natural systems. Greater use ofa particular environmentalservice orgreaterprotection ofaspecific naturalsystemresults inlessofsomethingelse. This isthe trade-offthatwe mustaccept. To make themostofscarce resources,wemustcomparewhat isgained fromanactivity
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