Peer review of "Contingent valuation of natural resource damages due to injuries to the upper Clark Fork River Basin"

324 Pages·1995·4.9 MB·English

by  Bishop, Richard C

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REVISED PEER REVIEW OF
"CONTINGENT VALUATION OF NATURAL RESOURCE DAMAGES
DUE TO INJURIES TO THE UPPER CLARK FORK RIVER BASIN"
AND REBUTTAL REPORT
PREPARED BY:
RICHARD C. BISHOP
OCTOBER 1995
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Revised October 1995
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PEER REVIEW OF "CONTINGENT VALUATION OF NATURAL RESOURCE DAMAGES
DUE TO INJURIES TO THE UPPER CLARK FORK RIVER BASIN"
STATE OF MONTANA
NATURAL RESOURCE DAMAGE LITIGATION PROGRAM
Prepared by
Professor Richard C BishorT
Department ofAgricultural Economics
ofWisconsin
University
Madison, WI 53706
October 25, 1995

INTRODUCTION
1
OVERALL VALIDITY OF THE CONTINGENT VALUATION METHOD 6
CONTENT VALIDITY ASSESSMENT
18
CONSTRUCT VALIDITY ASSESSMENT 42
CRITERION VALIDITY ASSESSMENT 50
COMPARISON OF CLARK FORK STUDY WITH TWO OTHER STUDIES 53
COMMENTS ON THE SCIENTIFIC STATUS OF CONTINGENT VALUATION 66
SUMMARY AND CONCLUSIONS 69
REFERENCES
73
LIST OF TABLES
Table 1: Content Validity Scores for the Clark Fork Study 30
Table 2: Comparative Content Validity Ratings for the
Wilderness Area (WA), Clark Fork (CF), and
Exxon Valdez Oil Spill (EV) Studies 53
Appendix A: Measuring Nonuse Values: Theory and Empirical Applications
Appendix B: Assessing the Content Validity ofContingent Valuation Studies
Addendum: Responses to Criticisms ofMy Peer Review by ARCO's Experts

INTRODUCTION
In a January 1995 report entitled "Contingent Valuation ofNatural Resource Damages
Due to Injuries to the Upper Clark Fork River Basin," a team from RCG/Hagler Bailly (now
Hagler Bailly Consulting, Inc.) reported the results ofa study they had conducted to value, in
monetary terms, complete and partial cleanup ofhazardous waste sites in the Clark Fork Basin.
In the present report, I will provide a peer review oftheir study. For convenience, I will refer to
this study as the "Clark Fork study." The Clark Fork study used contingent valuation, a method
that estimates values from survey data. For convenience, I will refer to contingent valuation as
"CV."
In addition to the body ofmy peer review, this report contains two appendices composed
ofdraft papers that provide background material about my approach to evaluating the validity of
CV studies. I will refer to these appendices as needed for elaboration on the principles that I will
be applying throughout the review. In addition, at the very end ofthe report, I have included as
Addendum 1 my responses to criticisms ofan earlier draft ofthis review by experts ofARCO,
which is the defendant in the natural resource damage case relating to the Clark Fork sites.
My peer review will focus on the validity ofthe Clark Fork study ' The term "validity" as
NOAA
used here is synonymous with what others, including the Panel (U.S. Department of
Commerce 1993), have termed "reliability." Either term refers to the accuracy ofthe results. The
issue is whether the results from the Clark Fork study are sufficiently valid to be used in
The boundariesofmy review needtobe explicitly stated. Ihavenotreviewed thecompleted questionnaires orthedata
files I have taken atfacevalue theresults ofthe statistical analysesperformed asthey aredescribed inthereport. I
havenot attempted toreplicate the statistical proceduresfollowed in arriving atthoseresults Also, Ihavenotreviewed
thevarious reportscovering injuries at the ClarkFork sites or attempted to comparethe injuriesdescribedinthe
contingent valuation surveys with the injuries described in thosereports. Finally,myreview stopswiththeestimated
valuesforpartial and complete cleanup at the Clark Fork sites andwill not includeproceduresfollowed inthe estimation
ofdamagesovertime.
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estimating the damages to Clark Fork Basin resources from releases ofhazardous substances at
the sites in question.
It will help ifthe definition ofeconomic value is reviewed at the outset. Economic
theorists think in terms ofthe economic well-being or "utility" enjoyed by individuals. Individuals
enjoy utility to the extent that their preferences are satisfied. In economic theory, the preferences
over alternative situations are translated into monetary economic values using the concept of
indifference Suppose, for example, that a consumer prefers Situation A to an alternative,
Situation B Situation B might involve a higher price than Situation A for a commodity that the
consumer enjoys or the pollution ofsome environment that the consumer has an interest in. In
either case, one measure ofthe economic value lost ifthe consumer were forced to accept
Situation B rather than Situation A would be an amount ofcompensation sufficient to make her
indifferent about the change from Situation A to Situation B once she received the compensation.
WTA WTA
This is the willingness to accept compensation or measure ofvalue. In this example,
is defined in a way that gives an economic interpretation to the legal concept ofpaying
compensation to make the consumer "whole" after she has suffered a loss. A second measure of
value would be the amount ofmoney that the consumer would be willing to pay to stay at
Situation A This is the willingness to pay or WTP concept ofvalue. The concept ofindifference
is central to both WTA and WTP. Economic value is defined as the amount ofmonetary
A
compensation paid or received that would leave the consumer indifferent between Situations
WTP WTA
and Situation B. and will be termed "indifference-producing" amounts ofmoney. In
WTP WTA
the terminology ofmeasurement theory, the concepts of and play the role of"true
values."
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