EPA-450/5-81-OO2
Executive Summary
Visibility Benefits
Assessment Guidebook
Benefits Analysis Program
Office of Air Quality
Planning and Standards
U.S. Environmental Protection Agency
Research Triangle Park,
North Carolina 2771]
August 1981
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EPA-450/5-81-002
EXECUTIVE SUMMARY
VISIBILITY BENEFITS ASSESSMENT GUIDEBOOK
by
Robert D. Rowe, Ph.D.
Lauraine G. Chestnut
Abt/west
1410 Grant Street
Suite C-207
Denver, Colorado 80203
(303) 830-0181
August, 1981
EPA Contract Number 68-02-3528
Project Officer
Tom Walton
Economic Analysis Branch
Office of Air Quality Planning and Standards
U.S. Environmental Protection Agency
Research Triangle Park, North Carolina 27711
Abtlwest
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VISIBILITY BENEFITS ASSESSMENT GUIDEBOOK
EXECUTIVE SUMMARY
1.0 INTRODUCTION
Good visibility is something that people value in recreational,
residential, and other situations. When vacationers make the drive to the
Grand Canyon, they expect to have a good view of the canyon. Few people
would be willing to spend the necessary time and money to go there if they
knew that the canyon vistas would be entirely obscured by haze. For those
who find the view partially obscured or the clarity of the view reduced,
the value of the experience is diminished, although they may still choose
to make the trip. Similarly, people prefer to have clear views from their
homes. Whether households have open views from their home that may be
obscured by haze or whether only the color and brightness of the sky
is noticeable, reduced visibility affects people's moods and their enjoy-
ment of their residences.
There are many reasons why people value and protect good visi-
bility. Economists divide these reasons into three categories. The
first is that people value good visibility when they are using a site such
as a residence or a park—this is called activity or user value. If
people know where they will live and vacation in the future, they will want
to protect visibility in anticipation of future as well as present activity
value. However, people usually experience some uncertainty planning
future activities and may want to preserve a certain level of visibility in
order to maintain the option of enjoying that site in the future—this
is called option value. This may be a particularly important value when
visibility deterioration is difficult to reverse. A third reason that
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people may want to preserve visual quality is simply to know that it
exists, though the individual does not ever intend to visit the site—this
is called existence value. This value may be especially important with
regard to unique natural wonders, such as the Grand Canyon, and may be tied
to the philanthropic goal of preservation so that future generations will
be able to enjoy the site. Changes in air quality that affect any of
these values will be associated with changes in an individual's well-being.
Visibility is often reduced due to natural causes, such as fog,
rain, and wind blown particles, but human activities have long been re-
cognized as an important contribution to diminished visual aesthetics. For
example, in response to recent EPA inquiries, Federal Land Managers have
indicated that roughly one third of the mandatory Class I Federal areas*
experience, at least at times, undesirable visibility conditions due to
manmade pollution.
Reflecting the importance of protecting visual aesthetics from
manmade pollution in our scenic areas, the 1977 Clean Air Act Amendments
established a national goal of remedying existing and preventing future
manmade visibility impairment in mandatory Class I Federal areas. They
mandated the EPA to establish regulations to ensure that reasonable pro-
gress toward this goal would be made. The EPA report to Congress, Protecting
Visibility, notes that the determination of what is reasonable progress
toward the national goal requires that the value as well as the costs of
protecting or improving visibility be considered.
^International parks, national wilderness areas, national memorial parks
exceeding 5,000 acres, and national parks exceeding 6,000 acres.
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Visibility regulations based upon the 1977 Clean Air Act Amendments
were promulgated on December 2, 1980. They indicate that some visibility
impairment will be tolerated only if the costs of reducing or preventing
impairment are considered too high. However, the size of these costs
is only relevant when compared to the benefits of the improved visibility
to be gained from control, or lost from the lack of control. Therefore, in
order to decide whether or not to tolerate existing or additional visi-
bility impacts, some Judgment regarding the size of the benefits must be
made. Thus, techniques to determine the value of visibility would be an
important aid in determining the appropriate level and type of pollution
controls to be required.
Although the potential usefulness of estimates of the benefits of
visibility aesthetics has long been recognized, aesthetic impacts of
pollution have tended to be considered nonquantifiable. This is no longer
the case. There are at present several defensible economic methodologies
being applied and developed to estimate the value of changes in visual
quality that may result from changes in air pollution control. Applications
of these techniques—referred to as visibility benefit analyses—can be
used to estimate the dollar value of changes in visibility. This can
add to our knowledge of the benefits of pollution control and improve the
benefit-cost analysis of controls. Current research Indicates that in most
cases the benefits of protecting visibility are substantial. This suggests
that the benefits of visibility should be included in the benefit-cost
analysis in order to help determine the appropriate allocation of resources.
The Visibility Benefits Assessment Guidebook aims to introduce
visibility benefit analysis techniques that can be used to estimate bene-
fits, in dollars, for changes in visibility aesthetics resulting from
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alternative levels of air pollution control. Policy makers can then
compare these benefit measures to the costs of controls. The Guidebook
saves researchers or reviewers of visibility benefit analyses considerable
time and effort in becoming well-versed by providing a comprehensive review
of the theory, terms, and best practice techniques. The Guidebook discusses
application of these techniques to evaluating existing or potential
visibility impacts from single sources or regional haze in recreational,
rural, or urban settings. Documentation of the assumptions, strengths, and
limitations of each method provides inexperienced users with a technical
basis for interpreting the results of visibility benefit studies. The
results of ten case studies are presented to demonstrate the magnitude of
pollution control benefits. In many cases, these benefit estimates may be
used to establish initial estimates of damages for other sites. In short
the guidebook translates technical work for a broad audience, provides
information about experts in the area and data sources, and offers refer-
ences on specific topics.
The guidebook is organized as follows:
Chapter 2. The conceptual economic framework and definitions of
monetary benefit measures for visibility Improvements derived from
consumer utility theory and demand analysis.
Chapter 3. An overview of required inputs from other disciplines
to aid the economic analyst in communicating with physical scien-
tists, psychologists, and sociologists in performing a complete
benefit analysis.
Chapter 4. The applications, theoretical foundations and strengths
and weaknesses of economic techniques currently used to measure
benefits of visibility and overall air quality changes. These
techniques include bidding methods, property value studies, travel
cost studies, the ranked attribute approach and others.
Chapter 5. A summary of the start to finish research tasks for a
complete visibility benefit analysis with suggested step-by-step
decision and application guidelines.
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Chapter 6. Five case studies of actual applications for both of
the two predominant techniques—bidding methods and the hedonic
property value approach—and a comparison of their procedures and
results.
A glossary, annotated bibliography, and an appendix with sample
picture sets and questionnaires for the bidding method are also included.
2.0 CONCEPTS AND MEASURES OF ECONOMIC BENEFITS
Performing a benefit analysis of changes in visibility aesthetics
first requires a careful definition of what the benefits are and how
monetary measures of these benefits are defined. This is especially
important for visibility aesthetics, because the concepts of visibility as
an economic good and of monetary benefits from visibility improvements may
not be obvious. Therefore, before launching into a description of the
actual benefit estimation techniques, it will be helpful to present the
general definition of benefits that economists use and that the estimation
techniques attempt to capture.
Consumer demand theory provides a framework for analyzing changes
in an individual's well-being caused by changes in visual quality and for
defining measures of benefits of these changes. The theory asserts that
individuals derive well-being, or what economists call utility, from the
consumption of goods and services. Thus, any change in the level of
consumption that affects someone's utility, such as a change in visibility
at a favorite park, has a value. This change in utility may be either a
benefit or a damage, depending upon whether the individual's well-being is
enhanced or diminished. The appropriate monetary measure of benefits for
an improvement in visibility indicates how much the increase in utility is
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worth. The benefit measure therefore equals the change in income that
would yield the same change in utility as that caused by the improvement in
visibility.
Market goods have easily recognized value because when individuals
purchase them they forego purchasing other goods and services that could
also have increased their well-being. The market price an individual pays
for a good therefore represents a minimum monetary measure of value to the
individual. Visual quality also has value even though it is not purchased
or sold in a market. People change their recreation patterns, move their
residences, or simply alter their moods due to changes in the existing
level of visual quality. Thus, analyzing how individuals react to visual
quality changes may reveal the value they place on these changes in visual
quality. In other words, a visibility benefit analysis attempts to deter-
mine what individuals would be willing to pay for a change in visual
quality if it were possible to purchase it.
In order to determine the value or benefits of changes in visi-
bility, economists usually try to estimate or derive a demand curve for
visual quality. Three related monetary measures of value are used in
visibility benefit analysis, and can be derived from demand curves. They
are willingness to pay (WTP), expenditures, and consumer surplus. To
illustrate these measures, a demand curve for an ordinary market good is
given in Figure A and a demand curve for visibility is given in Figure B.
WTP is the maximum amount an individual would be willing to pay
in order to obtain a given amount of a good or to experience a given level
of visibility. The maximum WTP for an additional unit is the corresponding
point on the demand curve—B for quantity F and C for quantity G in both
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Figures A and B. Expenditures represent the actual amount a consumer
spends, which in a situation of free choice would never be more than his
maximum WTP. Expenditures are represented by the price of each unit times
the quantity of units—the area BDFO for quantity F and a constant price B
in Figure A. Although consumers do spend money in order to go to a park
that has clear visibility or to live in a neighborhood that has clean air,
consumers do not directly purchase visibility. Therefore there are no
expenditures for visibility in Figure B.
In both of the illustrated cases, the consumer is paying less than
his maximum WTP for all units. This surplus value, or the difference be-
tween the maximum WTP and expenditures, is called consumer surplus. Con-
sumer surplus equals the difference between expenditures, if any, and the
area under the demand curve up to the quantity of the good consumed or the
quantity of visibility experienced—the area ADB at price B and quantity F
in Figure A and the area ADFO at quantity F in Figure B.
Rqure A
Figure B
QUANTITY OF
MARKET GOOD.
QUANTITY OF
VlSfflUJTY
Demand for Market Good
Demand for Visibility
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For changes in prices or quantities of goods, the changes in
consumer surplus are also shown. If the price of a market good falls from
B to C, the increase in consumer surplus is shown by the area BDEC in
Figure A. If the quantity of visibility increases from F to G, the
increase in consumer surplus is the area DEGF in Figure B.
The change in consumer surplus that results from a change in
visibility is the measure of the change in an individual's well-being
(benefits or damages) caused by the visibility change. When the level
of visual quality changes it affects the individual's willingness to pay
for visual quality or for the associated activity or good that has been
affected. If visibility is improved, for example, the individual would be
willing to pay more for either the higher visibility directly or for the
activity or good that is enhanced by the improvement in visibility. Th£
change in utility caused by the improvement in visual quality is reflected
by the change in WTP. However, in some circumstances, the individual will
have to pay part or all of his increased WTP in order to obtain the
improvement. Such an increase in expenditures would leave less income
left to purchase other goods and services; thus, to the extent that expend-
itures to obtain or enjoy visibility are increased, the increase in utility
from having improved visual quality is partially offset by decreased
utility from other goods and services. Therefore, it is only the change in
consumer surplus that represents the net benefit to the individual re-
sulting from the change in visibility.
In general, the change in consumer surplus tells us how much of
an increase in money income would have caused the same net increase in
utility as that caused by the visibility improvement. Thus, the aim of any
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visibility benefit analysis is to estimate the changes in consumer surplus
that would occur in the particular circumstances under study. By aggre-
gating the changes in consumer surplus for the individuals across all
affected individuals, benefit measures reflecting the total change in
utility can be obtained for use in benefit-cost analysis.
There are four refined measures of consumer surplus that each have
slightly different interpretations. Each of these refined measures is a
theoretically correct measure of benefits, but under different circum-
stances. In practice they are often quite close in size and therefore the
distinctions are sometimes ignored. Sometimes more than one of these
measures may be applicable in a given study situation and therefore several
are estimated. These refined measures are defined and discussed in the
Guidebook. The important point is that they are measures of changes in
well-being and as such are used as estimates of economic benefits that
result from changes in visual quality.
3.0 TECHNIQUES FOR ESTIMATING BENEFITS
The techniques used to obtain measures of the value of visual
aesthetics rely upon one of two categories of approaches: 1) asking people
to establish values directly through the use of hypothetical, or what is
known as contingent market, situations posed to survey respondents; and 2)
using actual market data regarding the relationship between private markets
and visual quality, combined with special analytical methods, to infer
implicit prices and the demand for visual quality.
The first group, contingent market approaches, elicits the value of
visual quality through surveys of how respondents think they would behave
if a proposed visibility change were to occur under various hypothetical
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circumstances. The usual version of this approach is the bidding method.
By this technique respondents are asked to estimate their willingness to
pay (in terms of entrance fees, utility bills, or whatever payment mecha-
nism is applicable to the situation) to achieve or prevent a given change
in visual quality that is described or pictured for them. Another contin-
gent market approach is a variation on the travel cost method: respondents
are asked how they would change their travel plans if they knew that
visibility at a particular recreation area were to change.
The second group, actual market approaches, uses market data in
cases where the selection of a market good may vary with visual quality.
Residential property value studies are a common application of this
approach. Such studies attempt to derive the demand for visual quality by
determining the effect of different levels of visual quality on the indi-
vidual's willingness to pay for a residence.
Following are brief descriptions of each of the most frequently
applied, or most promising, contingent market and actual market techniques
for estimating benefits for changes in visibility aesthetics. Following
these descriptions is a discussion of the necessary considerations in
choosing an estimation technique.
Contingent Market Techniques
In bidding methods, respondents are given information on current
and proposed or potential future levels of visual quality at a particular
site. They are also given hypothetical markets that describe how payments
for changes in visual quality are to be made or received by the respondents.
They are then asked to bid their maximum willingness to pay (WTP) or
minimum willingness to accept compensation (WTA) to obtain or prevent the
change.
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If a degradation of visibility is predicted, respondents might be
asked their WTP to prevent this change or their WTA to allow the change.
Similarly, for a proposed visibility improvement, respondents are asked
their WTP to fund the change or their WTA to forego the change. For
example, respondents might be presented a hypothetical situation—"Local
air quality may be degraded by energy development from the current level,
depicted in picture A, to a lower level, depicted in picture B" (illus-
trated with photographs)—and a market mechanism—"If a surcharge were to
be added to your utility bill that would go to fund equipment that would
prevent visibility degradation, what is the maximum you are willing to pay
each month on your utility bill to prevent the degradation in visibility
from level A to level B?" Answers are usually elicited by asking the
respondent if he would be willing to pay or accept a given amount. The
amount is adjusted until the highest amount the respondent would be willing
to pay or the lowest amount he would be willing to accept is determined.
This amount can be used as a direct estimate of the change in the indi-
vidual's consumer surplus that will result from the projected change in
visual quality.
Aggregate benefits are determined by projecting the average bids
for the respondents across all individuals that would be affected by the
visual quality change. The results must be adjusted for differences
between the respondents and the total impacted population in income and
other characteristics. If benefits will continue over a substantial
period of time, future benefits are usually discounted using standard
procedures.
It is imperative that this approach be carefully designed and
monitored, because the valuations given by respondents may vary with small
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nuances in its application. The values that respondents report may
well reflect their "true" values, estimated with a great deal of uncer-
tainty, but the respondents are subject to the influences inherent in the
design of the survey. These influences may decrease the accuracy of the
responses and may cause biases in the valuation process. Most important,
the contingent market mechanism and the proposed air quality changes must
seem realistic and credible to respondents. Otherwise, the hypothetical
questions will not elicit accurate answers from respondents (hypothetical
bias). Tests for the occurrence of bidding method problems and actions to
minimize their impacts on the accuracy of the valuation process have been
and are being refined. The evidence to date is that if hypothetical
problems can be overcome, the other potential biases may also be eliminated.
Bidding methods, and other contingent market approaches, also
require that the change in visual quality to be valued be accurately
communicated to the respondent. Pictorial representations of alternative
visual quality scenarios using photographs, slides, and motion pictures,
coupled with verbal descriptions and maps, have become the standard
mechanism for displaying alternative scenarios of visual quality. To be
successful, the scenario development must be clearly understood, realistic,
uniform for all respondents and, hopefully, leave the respondent with a
feeling that the situation and his responses are not only credible but
important. In addition, it must be possible to link the visibility scen-
arios as described to the respondents to the costs of attaining or avoiding
the associated levels of pollution. This requires knowing the nature and
the sources of the pollutants that are affecting the study area as well as
knowing how people perceive the effects of the pollutants. A competent
application therefore necessitates interaction with other physical and
social scientists.
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The contingent travel cost approaches to determining the value of
visibility at a recreation site follow the travel cost literature by
recognizing that to use the services of a recreation site, users not only
incur the expenses of entry fees and equipment, but must get to the site.
The cost, or price, to an individual of using the services at a recreation
site will vary according to the travel time and expenses incurred getting
there. The user's willingness to incur these expenses will be affected by
changes in the characteristics of the site, such as visibility. The travel
cost approaches attempt to determine the willingness to pay for the quality
of the recreation experience by examining the changes in travel costs
various individuals are willing to incur in order to use various sites as
air quality changes.
Travel cost approaches have been applied extensively to estimate
the demand for recreation sites using readily available data on visitation
rates, travel distances, and visitor characteristics such as income.
However, estimating the demand for a particular characteristic of recrea-
tion sites, including visibility conditions, requires data that are less
readily available, and generally requires accounting for all other important
characteristics of the sites as well.
Such applications of the travel cost approach are still being
developed. The contingent travel cost approach is a promising variation.
Sufficiently detailed data are obtained by surveying recreation site users
as to their expected recreation travel behavior given alternative hypo-
thetical scenarios of environmental conditions both at the site and at
competing sites. A utility maximizing individual is assumed to recreate at
the nearest outdoor facility if all areas are equal and to recreate at the
next nearest area only if there is significant deterioration at the closest
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site. By using answers to detailed questions on expected activity rates at
selected locations, given various site attributes, coupled with the costs of
substituting activities across locations the value of changes in the
levels of visibility can be inferred.
Other contingent market approaches that are less well developed
for estimating benefits for changes in visual quality than those so far
described, but that may prove to be useful, include the household produc-
tion function approach and ranked attributes. The household production
function approach is somewhat similar to the travel cost approaches in that
changes in activities and expenditures that are influenced by air quality
are used to generate WTP curves and damage functions for changes in air
quality. In the ranked attributes approaches, survey respondents are asked
to rank order sites that have different levels of visual quality, prices and
other site attributes. The respondent does not put a dollar value on
visual quality but values are revealed indirectly by the rankings or
probabilities that a site will be chosen for recreation, given the dif-
ferent entrance fees, travel expenditures, and other costs associated with
using each site.
Actual Market Approaches
Property value studies are based on the supposition that if air
quality varies across the area and if people are willing to pay more for a
residence with better air quality, the amount they are willing to pay will
be revealed by the price differences between properties that are similar in
all respects except air quality. Most such studies have used the hedonlc
-*
price technique to estimate an implicit price for changes in air quality
that are associated with, and influence, the value of residential property.
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Hedonic price theory suggests that the household values a residen-
tial property because it embodies particular attributes that the household
desires, such as places to sleep and eat, a pleasant environment, and
access to employment and recreation. The amounts of each attribute
determine the price that consumers are willing to pay for the residence.
If these attributes can be defined and quantified by consistent units of
measure, then by observing the prices of homes with different levels of
each attribute, the effect of each attribute on the prices of homes can be
determined.
This relationship between the price of a home and its attributes is
called a hedonic, or implicit, price function. Its estimation is the first
step of the hedonic price technique. The hedonic price function enables
the analyst to statistically hold constant all attributes but one in order
to see how changes in the level of that attribute alone affect the prices
of homes. The hedonic price function can be used to determine how dif-
ferences in visibility would affect prices of residential property if each
residence were identical in every other respect.
In this way, a marginal implicit price for each attribute can be
derived from the hedonic price function. The marginal implicit price of an
attribute is the additional amount that must be paid in order to obtain a
home with an additional unit of the attribute. Deriving a marginal
implicit price for changes in visual quality is a first step toward esti-
mating the household's willingness to pay for changes in visual quality.
The next step requires observation of how the marginal implicit
price for visual quality changes as the level of visual quality changes
either across locations or across time. Thus, a WTP function is estimated
which relates the marginal implicit price of visual quality to the level of
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visual quality at which the household chooses to locate. It must also
account for the effects of household income, household size, and other
household characteristics and property attributes that influence the
household's willingness to pay for visual quality.
Once estimated, the WTF function for visual quality can be used to
derive total benefits for all households that are expected to be affected.
Total benefits are the amount that all households are willing to pay for
the improvement. If separate WTP functions are estimated for different
household groups (separated according to income, location, or some other
characteristic), the benefits for each group must be summed to obtain total
benefits and some decision must be made concerning how to weight each
group's WTP. Standard discounting procedures would be applied to aggregate
benefits across time.
To conduct a property value study, fairly detailed residential
property and household data must be available. In particular, air quality
measures that reflect the aspects of air quality that people value and that
are specific to each neighborhood must be available. This typically
limits the locations and types of impacts that property value studies can
consider. To date, property value studies have used average concentrations
of specific pollutants or pollution indexes, such as the Pollution Standards
Index (PSI), which are available in most urban areas, as proxies for air
quality in each neighborhood.
Another actual market approach that has been applied with some
success is the wage and salary approach. In this approach, willingness to
pay for air quality is derived from differences in wages and salaries
between location^ with different air quality. In order to isolate the
effects of air quality on wages and salaries, other influences must also be
accounted for.
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Choice of Benefit Estimation Technique
Before a complete benefit estimation study using any of these
methods is undertaken, it would be desirable to determine if results from
previous studies are sufficient to answer the questions currently under
study. Two levels of accuracy are possible in transferring results.
It may be possible to transfer actual or systematically adjusted results
from past studies to achieve reasonably precise benefit estimates for the
current study—a level of accuracy we call strong transferability.
This requires that the circumstances of the two studies be identical or
different in ways for which the effect upon benefit measures is well known.
If this is not the case, it may still be possible to use previous results
to set upper or lower bounds on benefit estimates for the current study as
a starting point for decision making—a level of accuracy we call weak
transferability. This requires that the direction, but not the size, of
the differences in the situations be known. Theoretically, conditions are
established which should ensure valid strong and weak transferability of
results. Whether these conditions are met is an empirical question that
must be answered for each study area under consideration. At present, only
a few visibility benefit analysis studies have been completed from which to
transfer results.
Which benefit analysis technique is appropriate for the study
question at hand must be decided on a case-by-case basis. It will depend
on the location and nature of the visibility impacts, data availability,
and the budget and time available for the study. In general, contingent
market approaches are much more flexible in terms of locations and types of
impacts that can be considered, because survey questions can be designed to
suit the particular circumstances under study. Actual market approaches
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must rely on data that are already available. This implies that for many
recreation and rural study areas, there may be no choice but to use a
contingent market approach. Actual market approaches tend to be cheaper
and quicker, however, because they do not necessitate any survey work,
which can be very expensive and time consuming. No matter which approach
is used, the researcher needs to be well aware of its strengths and weak-
nesses in order to conduct a credible analysis and in order to understand
the meaning and reliability of the results.
The most important strengths of the bidding method are that it is
well grounded in economic theory and flexible in application. The approach
can be applied to obtain separate activity, option, and existence values,
both on-site and at alternative locations. Any type and location of visual
quality impact can be considered as long as the impact can be conveyed
to respondents in a manner they can understand along with a credible
contingent market mechanism. Similarly, the contingent travel cost
approach is quite flexible, although it cannot be used to estimate option
or existence values.
Contingent market approaches, however, presuppose that a particular
change in visual quality can be described to respondents, usually with
photographs and verbal descriptions, in a way that corresponds to what
their perceptions of the actual experience would be. For example, it is
assumed that a vacationer can look at a photograph of the Grand Canyon
obscured by pollution and accurately predict how experiencing it in reality
would lessen his enjoyment of the canyon and how it might cause him to
alter his plans. These types of approaches also assume that individuals
are capable of and willing to predict accurately their response behavior to
a hypothetical situation that they may or may not have ever actually
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experienced. In this respect, contingent travel cost methods may have an
advantage over bidding methods because they ask questions about decisions
that recreationists do routinely make.
An important strength of the property value approach and other
actual market approaches is that they are based on households' or indivi-
duals' actual behavior. This is a significant advantage over bidding
methods that ask people how much they would spend, but do not require them
to part with their money. If the visual quality attribute is successfully
separated from the other property attributes, the hedonic price technique
can be used to determine how much households have actually spent to obtain
various levels of visual quality.
Actual market approaches, however, presume that individuals
respond in a predictable manner to visual quality conditions that they
encounter in places where they live, work* and recreate. For example, it
is hypothesized that individuals prefer to live in neighborhoods where the
view is not impaired by air pollution. These approaches then assume that
the intensity of such preferences is revealed by the individual's behavior
and his willingness to pay for associated market goods.
A summary guide to method selection is presented in Table 1. In
addition to these criteria, it is also important to consider that both
contingent market and actual market approaches require several other
analytical and operational assumptions upon which their validity depends.
The analytical assumptions are similar to those used frequently in economic
analysis. The operational assumptions concern the conditions necessary to
ensure that the procedure is capturing the desired value. These assump-
tions need to be considered in any application of these valuation procedures.
If they are not valid in theory or not met in practice, the validity of the
results generated by the techniques are weakened.
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T«bl« 1
Selection of Visibility Benefit Estimation Method — A Summary
Selection
Criteria
Transfer Resulta
of Previous Studies
Bidding Methods and
Other Survey Approaches
Property Values and
Other Market Approaches
NJ
O
Major strength
Major weakness
Coat and timing
Locations where impacts can be
addressed
Types of values
Separability of Impacts
(health vs. aethetics, etc.)
Types of Impacts that can be
addressed
Lowest cost, quickest results
Lack of prior studies and consistent
empirical analysis
Lowest cost, quickest results
At present; weak transferablllty for
urban areas and Southwest parks
Constrained by prior studies, primarily
activity value*
Constrained by prior studies, primarily
not separated
Constrained by prior, studies
Flexibility In application to
location, type of Impact and
values
Reliability of data from hypo-
thetical questions
.Highest costs, often takes > 1
year, seasonal problems
All locations, Class I, urban,
rural, other
Activity, option, existence
Benefits are separable
Haze or plume, and ratea and
levels of occurence; uniform
or variable
Reliability of data re-
flecting actual behavior
Availability of data for
nonurban locations and re-
quired variations In Impacts
Medium costs, usually < 1
year
Urban, or where sufficient
data exists
Activity, sone option
Separability not yet
addressed
Haze or plume, and rates
end levels of occurence;
must vary across study area
Evaluation of current vs.
future impacts
Atmospheric data requirements
Economic and population
data
Reliability of data and results
Both, depending upon prior studies
Accurate data required to match current
situation to prior studies
Affected population characteristics
Depends upon accuracy of prior studies
and match to current Impacts
May evaluate both current or
future Impacts
Accurate data required for al-
ternative "typical situations"
across area
Affected population characteris-
tics must be cross-checked with
sample characteristics
Some uncertainty due to hypo-
thetical approach
All alternative Impact levels
should occur In study area
Accurate data required .on all
pollution levels at a neigh-
borhood or census tract level
Property values, property use
and characteristics plus pop-
ulation characteristics
Reliable market data, some
uncertainty regarding estima-
tion techniques
This table is to be used only as a summary of more detailed comparisons contained in Chapter* 4 and 5 of this guidebook. The same
criterion can be applied to travel costs, wage and salary hedonlc techniques, etc., as they are developed for application to
visibility benefit analysis.
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4.0 OVERVIEW OF THE VISIBILITY BENEFIT ASSESSMENT
Visibility benefit analysis requires input from many fields in
addition to economics in order to provide useful input for air pollution
control policies. In general, it requires knowing or determining the
following:
• Source of the pollution and its type, intensity, and frequency.
• Spatial dispersion of pollutants and type of impact (plume,
haze).
• Scenic content of the affected view.
• Atmospheric conditions and transmission of visual images, which
is affected by lighting, cloud cover, etc.
• Human perception of impacts.
• Psychological effects of perceived impacts.
• Economic valuations of impacts in terms of willingness to alter
time or dollar expenditures.
The various research tasks necessary in a typical visibility
benefit assessment can be organized into a six-step process. This process
should not be considered a formal procedure, but merely a guideline to help
the researcher understand the step-by-step process of performing a benefit
analysis. There is at present no formal legislative requirement to
perform visibility benefit assessments in any specific situations or in any
particular format. In addition, any such guidelines should remain flexible
enough to incorporate what is learned through more research and repeated
application. The six basic steps are as follows:
Step 1; Problem Formulation
1. Describe potentially impacted area.
2. Identify sources of potential visibility changes.
3. Define potential pollution changes in terms of specific air quality
measures.
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4. Identify legal foundations and requirements relevant to pollution type,
source and impact area.
5. Determine public perceptions of potential emission rates and air
quality levels.
6. Determine if further analysis is required, i.e., screen out projects
whose "worst case" impacts are obviously insignificant in terms of
physical variables and human perceptions.
Step 2; Scenario Development
1. Determine existing air quality conditions in terms of appropriate air
quality measures.
2. Determine the most probable future conditions without the proposed
change, using selected air quality measures.
3. Define changes in visibility conditions expected to result from
proposed action or policy, using selected measures.
4. Conduct initial physical impact analysis.
Step 3; Selecting the Economic Benefit Estimation Technique.
Discern whether the results from previous studies can be transferred
to the study at hand. If possible, using results from previous studies
will save considerable time and money. If the results from other studies
cannot be accurately or defensibly transferred, the benefit estimation
technique(s) must be selected based upon the following factors:
1. The location of the impact—urban/rural/national park/other—and
whether the impact is regional or site specific.
2. The nature of the impact. Take into consideration the timing of the
impact; type of Impact such as haze or plume; frequency, intensity and
duration of the Impact; and whether it is an aesthetic, health and/or
materials impact.
3. Type of values (activity, option, existence) for which benefits
are to be estimated.
4. Data requirements and data availability and reliability for each
technique.
5. Necessary assumptions of each benefit estimation technique.
6. Costs and timing requirements for the study effort.
Step 4; Application of Estimation Technique. The bidding method
and property value approach are the two most commonly used to date. If
applying bidding methods, the following steps are necessary:
I. Determine the benefit measures (WTP, WTA) to be estimated.
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2. Select alternative scenarios to be evaluated and select methodology for
depicting visibility conditions, usually some type of pictorial
representation.
3. Determine survey procedures—who will be interviewed and how and when
they will be interviewed—and design survey instrument to obtain
estimates of benefits with a minimum of respondents' time.
4. Pretest the survey and implement the survey.
5. Conduct statistical analysis and compute benefit measure estimates.
If applying the hedonic property value approach, the following steps
are necessary:
1. Select final data—the most important of which are property and
air pollution data—and make sure all neighborhood amenities are
incorporated. Data may be available from U.S. Census, state and local
government, or private organizations.
2. Select the study sample and organize data by adjusting data from
different sources for compatibility.
3. Perform statistical analysis by estimating the hedonic price function,
willingness to pay, and benefits or damages of the changes in air
quality.
Step 5; Aggregation of Benefits Across All Affected Populations
Project benefit estimates for the study sample across the entire population
expected to be affected. Adjustments should be made for differences in
characteristics such as incomes. Benefits should be aggregated across the
expected time frame of the impact using standard discounting procedures.
Step 6; Benefit-Cost Analysis
1. Identify related emission contrcl costs.
2. Identify other environmental and non-environmental costs and benefits.
5.0 CASE STUDIES OF VISIBILITY BENEFIT ANALYSIS
The results of the dozen or more visibility benefit analyses
conducted so far, including both contingent and actual market approaches,
indicate overwhelmingly that the value people place on visibility aesthe-
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tics is substantial. Protecting visibility aesthetics is therefore an
important benefit of air pollution controls that should be considered in
policy decisions. The results of the studies reviewed in the Guidebook
are summarized below. Although the circumstances of each study differ,
the results are broadly consistent, providing evidence that estimation
procedures are valid.
The five bidding method studies reviewed in the Guidebook are the
Four Corners study, by Randall et al. (1974); the Lake Powell study, by
Brookshire et al. (1976); the Farmington study, by Rowe et al. (1980 a,b);
the South Coast Air Basin study, by Brookshire et al. (1979; 1980); and
the Grand Canyon/Southwest Parks study, by EPA (1981). Although the
bidding method has been applied to several dozen other environmental and
resource problems in recent years, these five are the best known applica-
tions to visibility benefit estimation. With the exception of the South
Coast Air Basin study, all of these studies concern visual range and
discoloration impacts upon recreation areas and local communities induced
by rapid growth in the coal-fired electric-generating industry in the
southwestern United States.
Each of these studies examines at least one alternative level of
visual quality that occurs or is expected to occur in the study area. All
of them have used pictorial presentations to describe visual quality
variations to survey respondents. The scenario developments have evolved
from general scenarios in the earlier studies, which defined air quality
variations simply as "worst" to "best" and lumped several types of impacts
together, to carefully defined scenarios in more recent studies that
attempt to separate visibility aesthetics, power-plant siting, and health-
related impacts and to distinguish between user values and existence
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values. Only the Farmlngton study and the Grand Canyon/Southwest Parks
study, however, have linked the visual quality scenarios to emissions,
allowing the benefits of Improved (or prevention of deterioration In)
visual quality to be linked to the costs of attaining or preserving clean
air.
All of the studies obtained a sufficient number of Interviews
for analysis, but not for all subgroups of respondents. In all cases
the percentages of usable responses were high, but the percentages that
refused to participate and the exact survey procedures were not generally
reported. Self-selection bias may have occurred because respondents are
likely to be different from those who refuse to participate, especially in
terms of their concern about air quality. As studies have become more
careful in defining impact scenarios and in isolating values for different
types of impacts, questionnaire length has increased, creating the poten-
tial for response fatigue problems.
When bias tests were formally designed and implemented, bias
problems were found in most cases. This has not always been the case for
bidding method applications to other problems. In some cases the biases
were not large, but the results indicate that respondents do have trouble
putting quantitative values upon visibility and that they are influenced by
the survey and questionnaire design.
In all of the studies, respondents' incomes have been found to be
statistically correlated with respondents' bids, but the effect of incomes
on bids appears to be surprisingly small. For residents, income elas-
ticities (percentage change in bid divided by percentage change in income)
are all less than one, and for recreationists they are very close to zero.
This means that respondents with larger incomes are willing to pay somewhat,
but not much, more than those with lower incomes.
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The Four Corners study, conducted In 1972, was concerned with
air and land (strip mining, transmission lines) visual aesthetic impacts of
coal-fired electric generating plants on residents and recreationlsts in
the Southwest. Respondents were shown photographs illustrating (A) the
plant without pollution controls, and an unreclaimed strip mine; (B) the
plant with some controls (circa 1972), and a partially reclaimed strip
mine; and (C) the plant with no emissions, and no visible strip mining
impacts. Residents said they would be willing to pay an average of $50 per
year in additional sales taxes in order to obtain an improvement from A to
B and an average of $82 to obtain an improvement from A to C.* Total
regional WTP estimates were obtained by adding these results to the res-
ponses of recreationists concerning additional user fees they would be
willing to pay. For A to B, the regional WTP was about $15.5 million per
year, and for A to C, it was about $24.5 million per year.
The Lake Powell study, conducted in 1975, considered the
visual impacts of large power plants and visible smoke plumes in view from
a predominantly recreational site. Recreationists and a few local residents
near Lake Powell were asked what they were willing to pay to prevent
construction of an additional plant if only the plant would be visible
and if the plant and pollution would be visible, as opposed to current
conditions. Average bids by users of the recreation area, in terms of
additional user fees per day, were between $.87 and $2.11 to prevent an
additional plant and between $1.75 and $3.38 to prevent an additional plant
and pollution. The lowest average bids were by residents while the highest
average bids were by remote campers. Aggregate bids indicate that the
*A11 benefit figures in each case study are reported in dollars current
the year the study was undertaken.
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benefits of preventing visibility degradation at that site alone (there are
also several other recreation areas in the vicinity) were $400,000 to
$700,000 yearly.
The Farmington study, conducted in 1977, was also concerned
with the impacts of coal-fired electric-generating in the Southwest. The
focus of this study was the effects of reduced visibility upon local
residents in and near Farmington, New Mexico. The three visibility levels
illustrated by photographs of two standardized long distance landscape
views from Farmington were (A) visual range of about 120 km, somewhat
better than current conditions; (B) visual range of about 80 km; and (C)
visual range of about 40 km. The average monthly bid by residents to
prevent deterioration in visual range from 120 km to 80 km was $4.75, and
to prevent deterioration from 120 km to 40 km was $6.50. Non-resident
recreationists in the area had average bids of $3.00 and $4.00 in additional
user fees per day for the same scenarios. Aggregate benefit estimates for
the study area over a 35-year horizon, assuming a 10% discount rate, were
$14.2 million for preventing A to B and $19.2 million for preventing A to
C. One of the purposes of this study was to test for biases in the bidding
process. Hypothetical, starting point, and information biases were
detected. Additionally, it was found that in contradiction with theoretical
expectations, WTA bids were much larger than WTP bids. This was attributed
to differences in implied property rights in the two questionnaire proce-
dures .
The South Coast Air Basin study, conducted in 1978, was an appli-
cation of the bidding method and the property value approach to the same
urban area in order to compare the results of these two techniques. The
scenarios used in the bidding method were illustrated with photographs of
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two views in Los Angeles showing (A) poor air quality as a visual range of
about 2 miles, typical in much of the area; (B) fair air quality as a
visual range of about 12 miles, the predominant condition in the area; and
(c) good air quality as a visual range of about 28 miles. Residents in 12
different communities, each categorized as having poor, fair, or good air
quality, were interviewed. Average monthly bids in communities with poor
air quality were between $11 and $22 in order to obtain fair conditions.
In communities with fair air quality, average monthly bids to obtain good
conditions were between $5 and $28. In communities with good air quality,
residents offered average bids of $18 to $67 per month to obtain good air
quality in the entire region. For all proposed changes, aesthetic, acute
health, and chronic health components each constituted about one third of
the bid. Aggregate annual benefits of a 30% improvement in air quality for
the region were estimated between $580 million and $650 million.
The Grand Canyon/Southwest Parks study, conducted in 1980, used
interviews with urban residents at their homes in Los Angeles, Denver,
Chicago and Albuquerque. The respondents were asked how much they were
willing to pay to protect visibility at the Grand Canyon and at other parks
in the Southwest region. Both users and non-users were interviewed in an
attempt to derive both activity and existence values. Photograph sets
depicted views from the Grand Canyon, Zion and Mesa Verde national parks,
each with five levels of air quality. The middle level, C, represented
typical current conditions. The expected impacts of uncontrolled emissions
were shown in views A and B, and views D and E showed the expected impacts
of more stringent controls than were currently in effect. The average user
value bid in terms of additional daily entrance fees to improve air quality
at the Grand Canyon from A to C was $2.76; and from A to E was $5.15.
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An additional $4.29 per day was the average user value bid to prevent
deterioration in regional air quality from C to B. The average preser-
vation value bid, which the authors defined as user plus existence values,
was $5.38 in terms of a residential monthly utility bill increment to
prevent deterioration at the Grand Canyon from C to B, and was an addi-
tional $4.58 to prevent the same deterioration region wide. These results
indicate the existence values overwhelm activity values, even for park
users. Aggregate annual benefits for residents of the Southwest region
were estimated to be $470 million for preserving visibility at the Grand
Canyon and $889 million for preserving visibility in the entire region.
Extrapolated to the nation as a whole, these annual benefit estimates were
$3,370 million and $5,760 million respectively.
The magnitude of the preservation value bids from this study
suggests that the scenarios should be evaluated in terms of their credi-
bility to the respondents. Future attempts to obtain existence values need
to be designed in order to test for hypothetical bias problems in the
procedure.
The five property value studies reviewed in the Guidebook are the
Washington D.C. study, by Nelson (1978); the Boston study, by Harrison and
Rubinfeld (1978); the Denver study, by Bresnock (1980); the South Coast Air
Basin study, by Brookshire et al. (1979; 1980); and the San Francisco Bay
Area study, by Loehman et al. (1980). They are all based, at least in
part, on the theoretical framework (described in Section 3.0) for applying
the hedonic price technique to residential property values to estimate the
WTP for air quality at the residential site. Each study was conducted in a
major metropolitan area where substantial and detailed data regarding
households, property, and air pollution were available.
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All of these studies have applied the hedonlc price theory In a
similar way. However, there were some significant differences In the
specification of the hedonlc price function. Due to differences In
housing markets and In data availability, different combinations of
property characteristics (In addition to neighborhood air pollution
measures) were used to explain property values. All of the studies derived
marginal Implicit prices for some measure of air pollution and estimated
WTF for reductions in air pollution, as previously discussed.
One important characteristic of the property value studies con-
ducted so far is that they have all used measures of air pollution, usually
of a specific pollutant, In the hedonlc price function. Because many
common pollutants in urban areas have both aesthetic and health as well as
some material damage effects, there has been no attempt in these studies to
separate these impacts. We do not know from these studies, therefore, how
much people are willing to pay to avoid simply the aesthetic impacts of air
pollution. We know only what they are willing to pay to avoid the combined
impacts.
In the Washington D.C. study, measures of TSP (total suspended
particulates) and oxldant were used. Both measures were found to have a
negative relationship with property values. Based on 1970 data, the
estimated mean marginal implicit price of TSP was $69 per pg/m3 (micro-
grams per cubic meter) and of oxldant was $15 per .001 ppm (parts per
million). Total benefit estimates were not derived.
In Boston, based on 1970 data, the average property value differ-
ences attributable to air pollution between those neighborhoods with the
highest levels of pollution and those within the standards, all other
30
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things being equal, was about $5,000 to $6,500.* The reported mean
marginal implicit price was $1,613 for a one pphm (parts per hundred
million) change in NO . Both NO and ISP measures were used, but the
X A
results of the TSP equation were implausible and therefore the NO^
equation was used for further analysis. Using the estimated WTP functions,
benefit measures for the reduction in emissions expected by 1990 from
automobile emissions standards were derived. These averaged $83 per
household per year.
The Denver study used 1977 data and measures of carbon monoxide
(CO) concentrations, one of the pollutants in Denver that frequently
exceeds national ambient air quality standards. The mean marginal implicit
price was between $67 and $83 per one pptm (parts per ten million) CO.
This price implies a property value difference of approximately $10,000 to
$12,000 between those neighborhoods with the worst pollution levels and
those that met the standards, all other things being equal. From the
estimated WTP functions, the benefits of attaining national ambient air
quality standards were estimated at an average of $258 per household per
year.
The South Coast Air Basin study used 1978 data and measures of
NO2 and TSP. The benefit estimates derived using each measure were quite
comparable to one another. The mean marginal implicit price was $2,010
*These estimates of property value differences are ballpark figures given
for illustrative purposes. The study reports do not include enough
information to calculate these estimates precisely; therefore, they are
roughly calculated using the reported mean marginal implicit price of
pollution. Since the marginal implicit price usually increases as pol-
lution increases, the actual property value differences attributable to
pollution are understated in the higher pollution ranges.
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per one pphm of N0_. This implies an average property value difference
of approximately $5,700 between homes in poor and in fair air quality
locations, and an average difference of approximately $5,300 between homes
in fair and in good air quality locations, all other things being equal.
Average benefits for a regionwide 30% improvement in air quality were
estimated to be between $44 and $49 per month per household. Aggregated
across all households in the region, this amounted to annual benefits of
$610 to $650 million for improvements from poor to fair air quality and
annual benefits of $340 to $360 million for improvements from fair to good
air quality. These results are similar, but not equivalent, to those of
the bidding method study for the same communities. Given the difficulties
in both procedures this is an encouraging result that supports the validity
and defensibility of the benefit measures.
The San Francisco Bay Area (1980) study attempted to duplicate the
South Coast Air Basin study in order to test the comparability of the
results, but it was found that the study procedures had to be adapted to
the different study area characteristics. The results of the two studies
are similar, but they do indicate that results cannot necessarily be easily
or directly transferred from one study area to the next. The final results
of this study were based on measures of ozone and the PSI (Pollution
Standards Index) that included both concentration levels and frequency of
high level concentration occurrences. Although such measures make sense,
they are difficult to interpret. The average annual benefits derived from
the estimated WTP function were $82 per household for a 30% improvement in
the ozone measure. .Extrapolated to the entire study area, this amounted to
about $136 million per year.
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6.0 FUTURE DIRECTIONS FOR VISIBILITY BENEFIT ANALYSIS
Results of visibility benefit analyses conducted to date have shown
that visibility benefits can be quantified, that the amounts are substan-
tial enough to significantly influence benefit-cost analyses of air
pollution controls, and that they improve the information available for
resource allocation decisions. Nevertheless, much still needs to be done.
Problems in these applications do exist. Complete confidence cannot as yet
be placed in the exact values so far estimated, but progress is being made
in the application of these techniques which warrants continued efforts in
this area. First, the public and the public policy decision makers need to
be made aware that the benefits of protecting visual aesthetics, just as
the costs, are important and can be measured. Second, continued verifi-
cation and refinement of the estimation techniques are needed in order to
improve the reliability and crediblity of the results.
The bidding methods need verification through more comparisons to
actual market results and through follow-up studies to determine if actual
behavior is consistent with predicted behavior. The most important ques-
tion concerning the bidding methods is whether hypothetical markets can be
used to derive accurate measures of visibility benefits. If it is deter-
mined that they can, the other application problems, such as implied
property rights, detection of false bids, payment vehicles, and selection
of WTP or WTA measures can probably be resolved.
Hedonic property value studies have some theoretical problems that
need to be resolved. Most important is the question concerning the
relationship between'property value differentials and households' WTP, and
whether reliable WTP functions can be identified from the information
33
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provided by a cross sectional study of a single housing market. Another
area that must be explored before property value studied can produce
visibility benefit estimates is the identification of measures of aesthetic
impacts that can be separated from measures of health impacts of air
pollution.
More research is needed to determine the applicability of contin-
gent travel cost, household production function, wage and salary, and
ranked attribute approaches for visibility benefit analysis. It may be
that some of these can be applied in situations when other techniques
cannot be used. Some of these techniques have been quite successfully
applied to other types of recreation demand questions.
Finally, more visibility benefit analyses need to be completed in
order that there be a sufficient set of results from which to choose for
transferring results to new study questions. This will allow estimates of
visibility benefits to be obtained, in many cases, more quickly and inexpen-
sively than by performing a complete visibility benefit analysis.
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