January 1978
Socioecononic Environmental Studies Series
          OPTION  VALUES,  PRESERVATION  VALUES
                     AND  RECREATIONAL  BENEFITS
                   OF IMPROVED WATER  QUALITY:
        A Case Study  of the  South Platte River
                                    Basin, Colorado
                                    Health Effects Research Laboratory
                                   Office of Research and Development
                                   U.S. Environmental Protection Agency
                              Research Triangle Park, North Carolina 27711

-------
                                             EPA-600/5-78-001
                                             January  1978
  OPTION VALUES, PRESERVATION VALUES AND RECREATIONAL
          BENEFITS OF IMPROVED WATER QUALITY:
A Case Study of the South Platte River Basin,  Colorado
                            by

 Richard G. Walsh, Douglas A. Greenley, Robert A.  Young,
           John R. McKean and Anthony A. Prato
                 Department of Economics
                Colorado State University
              Fort Col I ins, Colorado  80523
                 Grant No. R 803206-01-5
                     Project Officer

                     Donald GiIlette
           Criteria and Special  Studies Office
           Health Effects Research Laboratory
           Research Triangle Park, N.C. 27711
          U.S. ENVIRONMENTAL PROTECTION AGENCY
           OFFICE OF RESEARCH AND DEVELOPMENT
           HEALTH EFFECTS RESEARCH LABORATORY
           RESEARCH TRIANGLE PARK, N.C. 27711

-------
                           DISCLAIMER

     This report has been reviewed by the Health Effects Research
Laboratory, U.S. Environmental Protection Agency, and approved  for
publication.  Approval does not signify that the contents necessarily
reflect the views and policies of the U.S. Environmental Protection
Agency, nor does mention of trade names or commercial products
constitute endorsement or recommendation for use.

-------
                               FOREWORD

     The many benefits of our modern,  developing,  industrial  society  are
accompanied by certain hazards.   Careful  assessment of  the  relative risk
of existing and new man-made environmental  hazards  is  necessary  for the
establishment of sound regulatory policy.  These regulations  serve to
enhance the quality of our environment in order to  promote  the public
h.ea!th and welfare and the productive  capacity of our  Nation's population.

     The Health Effects Research Laboratory,  Research  Triangle Park,
conducts a coordinated environmental  health research program  in  toxicology,
epfdemiology, and clinical studies using  human volunteer subjects.  These
studies address problems  in air pollution, non-ionizing radiation,
environmental carcfnogenesis and the toxicology of  pesticides as well  as
other chemfcal pollutants.  The Laboratory develops and revises  air quality
criteria documents on pollutants for which national ambient air  quality
standards exist or are proposed, provides the data  for registration of new
pesticides or proposed suspension of those already  in  use,  conducts research
on hazardous and toxic materials, and  is  preparing  the health basis for
non-ionizing radiation standards.  Direct support to the regulatory function
of the Agency Is provided In the form of  expert testimony and preparation of
affidavits as well as expert advice to the Administrator to assure the
adequacy of health care and surveillance  of persons having suffered  imminent
and substantial endangerment of their health.

     Pollution may impact upon man either directly by  altering his
health status or  indirectly by altering the environment and his
ability to derive enjoyment thereof.  This study attempts to  measure,
in economic terms, some of the dfsamenltfes which are   imposed upon
man from tfie pollution of our streams and rivers.  These disamenities
are measured by estimating the willingness of individuals and households
to pay for the preservation and  improvement of the quality of water  in
selected river basins.  The total annual  benefits from improved  water
quality In the South Platte Basin of Colorado was estimated to be in
excess of $60 million per year, of which  nearly one half was  directly
related to water based recreation uses and the remaining to non  user
activities,  I.e., the desire to maintain and preserve  the quality of
the water for future use  or generations.
                                               H.  Knelson, M.D.
                                               Director,
                                    Health  Effects  Research Laboratory

                                    If

-------
                                  ABSTRACT


     This is believed to be the first empirical test of the concept of
option value for any non-market good.  Application of the bidding game
technique was successful in meeting the primary study objective of measuring
the option value of improved water quality.  Also included are improved
estimates of the benefits to recreational users of enhanced water quality,
the existence value of a natural ecosystem, and the value of its bequest
to future generations.  The relationship between the value of improved water
quality and several socioeconomic variables was tested with regression and
other statistical procedures.  The report is based on direct interviews with
202 residents of Denver and Fort Collins  located  in the South Platte River
Basin, Colorado.   Interviewees  responded to the survey within the context
of improving the quality of water degraded by  heavy metals from post mining
activities and  preventing future degradation from such sources.  Substantial
benefits from improved water quality are  indicated.  Recreation user house-
holds interviewed reported they were willing to pay an average of $56.68
annually for improved water quality by 1983 to enhance enjoyment of water-
based recreation activities in the River Basin.  Willingness to pay for the
option to choose to engage in water-based recreation activities in the
future contributed $22.60 annually to resident user household values.
Adding the two  values, the total recreation value of improved water quality
to the 80.8 percent of the households who expect to continue to use water-
ways  in the River Basin for recreation activities averaged $79.28 annually.
This was equivalent to $5.26 per household activity day in 1976.  Preserva-
tion value of water quality was equal to nearly one-half of recreation
values.   The 19.2 percent of the resident households interviewed who do
not expect to use the River Basin for recreation activities  in the future
reported they were willing to pay an average of $24.98 annually for the
existence of a  natural ecosystem and $16.97 annually to bequest clean water
to future generations, for a total preservation value of $41.95 annually.
As a first approximation, the existence and bequest value estimates for
non-user households were extrapolated to all residents of the River Basin,
including users.  Future research should measure existence and bequest
values of recreation users as well as non-users to test the reasonableness
of this procedure.
                                      Iv

-------
                             TABLE OF CONTENTS
                                                                      Page

FOREWORD	        Hi
ABSTRACT	;v
TABLE OF CONTENTS	v
LIST OF FIGURES	vij
LIST OF TABLES	vm
ACKNOWLEDGEMENTS  	   xi
CONCLUSIONS	xij
SECTIONS
  1.  INTRODUCTION   	    1
        Background and Scope of Study  	    1
        Objective and Plan of Study	2
  2.  CONCEPTUAL FRAMEWORK 	    5
        Review of the Theoretical  Literature on Option Value   ...    5
        An Empirically Testable Formulation of
          Preservation Values 	    9
            Option Value and Irreplaceable Environments  	    9
            Existence Value   	   13
            Bequest Value  	   14
  3.  RESEARCH PROCEDURES  	   16
        Study Area	16
        Sample Selection   	   19
        Contacting Respondents   	   23
        Color Photographs	25
        Method of Payment	28
        Bidding Game	29
  4.  USE AND NON-USE VALUES	34
        Option and Recreation Use  Value   	   34
        Existence and Bequest Value 	   37
        Annual Benefits and Present Value of Future Benefits   ...   39
        Method of Payment	41
        River Basin Versus State Values of Improved Water Quality .   .   43
        Delay to Year 2000	45
        Level  of Water Quality	47
        Inter-City Comparisons   	   4^
  5.  SOCIOECONOMIC VARIABLES 	   51
        Household Income   	   51
        Sex of Respondent	55
        Employment	57
        Education	60
        Former Residence   	   60
        Reasons for Moving	63
        Permanence of Residence  	   63
        Age of Respondent	66
        Size of Household	66
        Recreation Use	69

-------
                                                               Page
APPENDIX	     73
  References	     73
  Water Quality Opinion Survey   	     79
  Environmental Awareness  	  ..        83
  Statistical Analysis  	     85
                                  vl

-------
                               LIST OF FIGURES


Number                                                                Page

  1      The South Platte River Basin  	    17

  2      Three Levels of Water Quality, South Platte River
         Basin,  Colorado, 1976	    26
                                       v?f

-------
                               LIST OF TABLES


Number
                                                                      Page
  1       Sample Response in Denver and Fort Collins,
         Colorado, 1976	20

  2      Comparison of Population and Sample Demographic Profile
         Estimates of Denver and Fort Collins, Colorado, 1976   .   .   22

  3      Heavy Metal Pollution at the Three Photograph Sites,
         South Platte River Basin, Colorado, 1973   	   27

  4      Total Number of Respondents Interviewed Compared to the
         Number Answering Questions Relating to Value of Water
         Quality and the Number Willing to Pay, Denver, Fort
         Collins, and South Platte River Basin, Colorado, 1976  .   .   31

  5      Willingness of Recreation User Households to Pay
         Additional Sales Tax to Improve Water Quality, Denver,
         Fort Collins and South Platte River Basin, Colorado, 1976 .   35

  6      Willingness of Recreation User and Non-User Households
         to Pay Additional Sales Tax to Improve Water Quality
         for Preservation of the Existence of a Natural Ecosystem
         and  its Bequest to Future Generations, Denver, Fort
         Collins and South Platte River Basin, Colorado, 1976   .   .   38

  7      Annual Value and Present Value of Benefits from Water
         Quality  Improvement for Recreation, Option, Existence,
         and Bequest Demands by Residents of the South Platte
         River Basin, 1976	40

  8      Willingness of Resident Households to Pay Additional
         Water Bill to Improve Water Quality, Denver, Fort
         Collins and South Platte River Basin, Colorado, 1976   .   .   42

  9      Willingness of South Platte River Basin Residents to
         Pay an Additional Sales Tax to Improved Waterways
         Throughout Colorado, 1976	   44

 10      Effects of Delay to the Year 2000 on WiIlingness to Pay
         an Additional Sales Tax to Improve Water Quality in
         South Platte River Basin, Colorado, 1976   	   46

 11       Effect of Level  of Water Pollution Control on Willingness
         of Residents to Pay an Additional Sales Tax to  Improve
         Water Quality for Recreation Use in the South Platte
         River Basin, Colorado, 1976	48
                                      vlll

-------
Number                                                                Page

 12      Regression Coefficients of Significant Socioeconomic
         Variables, Denver and Fort Collins, Colorado, 1976  ...   52

 13      Household Income and Willingness to Pay Additional
         Sales Tax for Improved (C-A) Water Quality, Denver,
         Fort Collins, and South Platte River Basin, Colorado,
         1976	53

 14      Marginal  Effect of a Change of Income on Willingness
         to Pay Additional Sales Tax for Improved Water Quality,
         at Various Age Levels, Denver Metropolitan Are-'i,
         Colorado, 1976	            54

 15      Sex of Respondents and Willingness to Pav  Ar?~  rir-r...-
         Sales Tax for Improved (C-A) Water Quality, Denver,
         Fort Collins, and South Platte River Ba?in, ColoraH^
         1976	            Cf

 16      Where People Work and Will ingness +o Pay AJ.''I '•:•- -
         Sales Tax for Improved (C-A) Water duality, ler>,<-
         Fort Collins, and South Platte River Basin, Colorado,
         1976	5£

 17      Occupation and Willingness to Pay Additional Sales Tax
         for  Improved (C-A) Water Quality, Denver,  Fort Collins,
         and South Platte River Basin, Colorado,  1976   	   5°

 18      Education and Willingness  to Pay Additional Sales Tax
         for  Improved (C-A) Water Quality, Denver,  Fort Collins,
         and South Platte River Basin, Colorado,  r'76   	   £1

 19      Size of  Place of Previous  Rer.idf-nce an::  V; i I i I r. jne^s  to
         Pay  for  Imprcvec (C-A) Water -ual'Tv, Denver,  ?:ort Collins
         and South Dlatte River Ba?in, Co I once,  1 Q >>	''

 20      Reason for Moving to Colorado and Willingness  TO  Pav
         Additional Sales Tax for  Improved  (C-A)  Water  Oualitv,
         Denver,  For"- Collins, and  South Platte River Basin,
         Colorado, 1976	     <•-
 21      Permanence of  Residence  and  Willingness  to Pay
         Additional Sales  Tax  for Improved  (C-A)  Water Oualitv,
         Denver,  Fort Collins,  and  South  Platte River Basin,
         Colorado,  1976
 22      Age and Willingness  to  Pay  Additional  Sales Tax for
          Improved  (C-A)  Water Quality,  Denver,  Fort Collins, and
         South Platte  River Basin, Colorado,  1976
                                      lx

-------
Number
                                                                      Page
 23      Size of Household and Willingness to Pay Additional
         Sales Tax for Improved (C-A) Water Quality, Denver,
         Fort Collins, and South Platte River Basin, Colorado,
         1976	68

 24      Survey Respondents' Reported Annual Water-Based
         Recreation Activity Day in the South Platte River
         Basin and Willingness to Pay Additional Sales Tax
         for Improved (C-A) Water Quality, Denver, Fort
         Collins, and South Platte River Basin, Colorado,
         1976	70

 25      Survey Respondents' Reported Annual Water-Based
         Recreation Activity Days in the United States and
         Willingness to Pay Additional Sales Tax for
         Improved (C-A) Water Quality, Denver, Fort
         Collins, and South Platte River Basin, Colorado, 1976 .   .    71

 26      Environmental Awareness of Residents, Denver, Fort
         Collins, and South Platte River Basin, Colorado, 1976 .   .    84

 27      Grouped T-test of Significant Difference Between
         Average Benefits from Improved Water Quality in
         Denver and Fort Collins, Colorado, 1976	91

-------
                              ACKNOWLEDGEMENTS
     Without  implicating them in the final results, we wish to express our
thanks to Dr. Anthony Fisher, University of Maryland, Dr. John Krutiila,
Resources for the Future (Washington, D.C.), Dr. Allan Randall, University
of Kentucky, Dr. Phillip Meyer,  Fisheries and Marine Service (British
Columbia, Canada), Dr. Lawrence Leuzzi, University of Hawaii, and
Jonathan ScherschIight, Water Quality Control Division, Colorado
Department of Health, for their assistance in development of the con-
ceptual framework and questionnaire used  in this study.

     We also wish to acknowledge the support by the Colorado State Univer-
sity Experiment Station of the sample survey and a portion of the principal
investigators' salaries.  A number of colleagues at Colorado State Univer-
sity have raised questions and provided useful  criticism:  Dr. Perry Brown,
Recreation Resources Management, Dr. Raymond Anderson, Economic Research
Service, USDA, and Dr. Kenneth C. Nobe, Chairman of the Department of
Economics.

     The authors also thank Mr. Austin Buckman for  interviewing assistance
and Ms. Denese Gekas for typing the drafts of this report.

     Finally, the advice and patience of Fred Abel, Dennis Tihansky,
Thomas WaddelI and Donald Gillette, EPA Project Officers, have been
greatly appreciated.
                                        x!

-------
                                CONCLUSION!:,


     The purpose of this study was to develop and apply a procedure for
measuring the benefits of  improved water quality  in terms of:  (1) enhanced
enjoyment of water-based recreation activities,  (2) option values to choose
1o engage in water-based recreation activities  in the future by avoiding
irreversible mineral and energy pollution,  (3)  preservation value of the
existence of a natural ecosystem and  its bequest to future generations.
''Yohlems in the estimation of preservation values were discussed.  This
report is based on  interviews of 202  resident households  in Denver and
Fort Collins, located  in the South Platte River Basin, Colorado,  in which
the bidding game technique was used as an estimating technique.  A number
of statistical procedures, including  regression analysis of the relation-
v'   h"tv-,,.-n responses regarding ir-.er values and option values, were analysed,

      ru-.-.r, r : i b ,-iccrue to users ot  laKei, and streams tor fishing,  boating
 sr.  _.v\ ',:• :r:' n j aj well  ds n^n-^n tact recreation activities su^h o^ picnicklru
 ar,.J  sightseeing near water from enhanced aesthetic satisfaction  of such
 recreation  experiences.   Recreation user households interviewed  reported
 tht_'Y  were  wi I I i ng to pay an  average of $56.68 annual iy for improved water
 quality  by  1983 to enhance enjoyment of water-based recreation activities
 i r, th-;  River Basin.

      WiI I inqness to pay for the option to choose to engage in water-based
 recreation  activities in the future contributed $22.60 annually  to resi-
 dent  user  household values,  or about 40 percent.  The Henry Model tested
 in this  study was presented  in terms of willingness to pay for the option
 of choosing between two environmental alternatives, either clean water or
 polluted water from energy and mineral  development, at some future date
 under conditions of sufficient knowledge as to the relative benefits of
 each  +o the respondents.  Adding  the two values, the total recreation
 v-alue of improved water quality to the 80.8 percent of the households
 who  expect  to continue to use waterways in the River Basin for recreation
 activities  averaged $79.28 annually.  This was equivalent to $5.26 per
 household  activity day in 1976.

      The preservation value of water quality improvement was equal to nearly
 one-half  recreation use values.   The 19.2 percent of the resident households
 interviewed who do not expect to  use the River Basin for recreation acti-
 vities  in the future reported they were willing to pay an average of $24.98
 annually for the existence of the natural  ecosystem and $16.97 annually to
 bequest  clean water to future generations,  for a total  preservation value
 of $41.95 annualIy.

      As  a first approximation,  the existence and bequest value estimates
 for non-user households were extrapolated  to all residents of the River
 Basin,  including users.   Recreation users reported preservation  values of
 $66.87 annually under the assumption they would not engage in recreation
                                      xi

-------
 activities in the River Basin.  This expected preservation value if no
 recreation activities were present could not be added to recreation use
 vaIues.

      Total annual benefits from water quality improvement in the South
 Platte River Basin were estimated at $61.1 million,  including recreation
 use value of $26.4 million, option value of $10.5 million, existence value
 estimated at $14.4 niI I ion, and bequest value of $9.8 mi II ion.   This was
 the estimated value for the 576,435 households in the River Basin in 1976.

      The present value  of a perpetual  stream of  annual  benefits from water
 quality improvement in  the South Platte River Basin  was calculated  as
 $938.5 million,  including recreation use value of $414.1 million, option
 vaIue of $ 165.i  '"i I lion,  ex i stence vaIue est imated at $225.9 million, and
 bequest value of $15^,4  million.  Present value is the amount of money
 that would have to be invested at 6 3/8 percent interest today  in order
 to yield trie specified  annual  benefits  from improved  water quality  for
 an inoefinite Deriou  of  time.   This is  likely to prove a conservative
 estimate because of DO^ulation growth and the exclusion of tourists who
 account for approximately 30-40 percent of total  water-based recreation
 activities in the ~iv.-"-  Basin.

      Residents  reported  they  were willing to pav more for improved  water
 quality when the method  of hypothetical payment was  an increase in  sales
 tax  compared to an increase in water bill.  Willingness to pay  for  improved
 water quality was reported as  about one-third as much in annual water bill
 as annual  sales tax.  Respondents were  more reluctant to participate in
 the  water biM  value  estimation procedure.  This may  have resulted  from
 perceived inequities.   Everyone including tourists pay sales tax whereas
 only property owners  and  indirectly renters, Day water bills.  Moreover,
 willingness to pay additional  sales tax was approximately the same  per-
 centage of the  annual sales tax bill as the willingness to pay  additional
 w.-iJ.->"- hill was  of the annual  water bill.   Thus,  the  selection among alter-
 native methods  of hypothetical payment  affects the resulting values.

     Ke^jl+s of this study suggest that the River Basin  is an appropriate
:eographic area when evaluating willingness to pay for  improved water
quality.  Respondents were also queried as to their willingness to pay
if the added revenues were used throughout the state rather than only  in
the South Platte Basin.   There was no significant difference  between willing-
ness to pay to improve water quality  in the River Basin and throughout
Colorado.  It seems that residents of the River Basin are not  willing  to
pay directly for  improved water quality in other river basins in the  state.
Nearly 40 percent of the residents of the  River Basin were of the opinion
that the community as a whole  should bear  the primary responsibility  for
paying the costs of water quality  improvement.  An additional 15 percent
reported the opinion that the  polluting industries should  pay the costs,
while 30 percent favored sharing the costs between polluting  industries
and the people benefiting.  Residents of other river basins  in  the state
may be willing to pay to improve water quality in their  local areas.   River
basin values appear to be additive throughout the state.
                                     xi

-------
     The measures of willingness to pay for improved water quality through-
out this report were based on the premise that all waterways in the River
Basin^would be cleaned up by 1983 and then maintained in a clean state
indefinitely.  If circumstances such as postponement of environmental
quality objectives resulted in delaying the improvement of water quality
in the River Basin to the year 2000, the proportion of respondents willing
to pay some amount of additional sales tax for improved water quality  to
enhance recreation enjoyment would decline by 11  percent.  If it is not
possible to improve water quality in the River Basin until the year 2000,
annual willingness to pay for recreation use would fall  by an average  of
$10.51 per household or 17.4 percent.

     As pollution levels increased, willingness to pay for improved water
quality increased more than proportionately.  Improving polluted water
to an intermediate quality level accounted for 63 percent of total recrea-
tion benefits from clean water in Fort Collins and 74 percent in Denver.
This is the willingness to pay for enhanced recreation use, as respondents
were not asked for the value of option, existence and bequest demands
attached to an intermediate level of water quality.  With only three data
points, it would be heroic to generalize about the nature of the slope
of the benefit curve for water quality improvement.  The average values
suggest that recreation use benefits from water quality improvement in-
crease at a decreasing rate.

     The hypothesis that size of city may affect the willingness to pay
for improved water quality was not supported by this study.  There was no
significant difference in the recreation use value and option value re-
ported in the two cities at the 95 percent confidence level.

     The expectation that recreationists would be willing to pay more than
non-users for  improved water quality was not supported by this study.   The
relationship between the number of water-based recreation activity days
annually in the South Platte River Basin and willingness to pay for im-
proved water quality was not significant at the 95 percent confidence  level.
Average values suggest that the relationship may  have been curvilinear.  As
recreation activity  increased from zero to 21 days annually, average water
quality values also tended to increase.  Over 21  days annually, water qual-
ity values fell off.  However, the tendency was not always consistent.
The average option value of water quality  increased continuously over the
entire range of recreation use, but changes  in value were  not statistically
signif icant.

      Income was positively related to  willingness to pay  for  improved water
quality.  Level of  household  income was significant at the 5  percent  level
in the regression analysis of variables associated with the value of
improved water quality for recreation  use.   For example,  in Fort  Collins
a $1,000 increase  in  household  income  was  associated with  a $3.66  increase
in willingness to pay a sales tax  for  improved water quality.   Regression
analysis showed a significant positive relationship  between  household
income and option value of water quality,  in  both cities,  as  measured  by
    lingness to pay additional sales  tax.   However,  in Fort Collins, there
w i
                                      xlv

-------
was a negative correlation between household  income and option value of
water quality, as measured by willingness to  pay additional water bill.
A  higher proportion of Fort Collins residents engaged  in water-based recrea-
tion activities outside of the River Basin than did Denver residents.

     Where people work and the type of work they do had a significant
effect on the value of improved water quality for recreation.  Employees
of small business and government were willing to pay more for water quality
than either employees of  large business and manufacturing or unemployed
persons.  The lowest values were among the retired.  Employees of small
business in Denver were willing to pay $25.08 more sales tax for improved
water quality.  Government employees were willing to pay $28.44 more than
respondents work! ng in the private sector.  In Denver, professionals and
business owners and rrunniiers valued water quality for recreation use by
$!'1.(>7 per yoor  loss Hum other occupations.   Retired residents valued
w.ilor qualify for nn re.rHon uso by $30.03 less than those who remained
nrlivo in ("he work forv.o.

     Whether fho respondent was male or female had a significant effect
on willingness fo pay to  improve water quality for recreation use.  For
example, rnon were williru] to pay $26.^5 more  for water quality than women
in Denver.   The primary reason may have been  that men engage in water-
based recreation activities more than women,   particularly fishing and to
some extent boating.   Apparently women who worked outside the home were
particularly reluctant to allocate more of their income to sales taxes
for improved water quality because housewives who remained in the home were
willing to pay $20.91  annually more than those employed in other occupa-
tions,  whether male or female.

     Number of children in the household was  not significant at the 5 per-
cent level  in the regression of variables associated with the value of
improved water quality for recreation use.  However, there was a significant
relationship between number of children per household  in Fort Collins and
the option  value of water quality.  As the number of children in Fort Collins
households  increased,  option value decreased  by $10.45 per year.

     Education level  may be associated with more concern about the future
of water quality than with current recreation use.  There was a positive
correlation between level of education and option value of water quality in
Fort Collins.  The relationship was significant at the 5 percent level.
However, education was not significant at the 5 percent level in regression
analysis of factors explaining the value of improved water quality for
recreation  use.

     Age may be associated with less concern  about the future of water
quality, while concern about current recreation use is not associated with
age.   Older people were less concerned with preserving their option to
engage in water-based recreation activities in the River Basin  in the
future.   For example,  willingness to pay a water bill declined by $6.60
with each 10 year increase in age of Denver respondents.  However, age of
                                      xv

-------
respondent was not significant at the 5 percent level in regression analysis
of factors associated with the value of improved water quality for current
recreation use.

     Permanance of residence was a significant variable in regression
analysis of variables associated with the value of improved water quality
for recreation use.  For example, Denver residents were willing to pay
$3.40 less water bill for each 10 years they lived in the city.  This ap-
pears contrary to the expected effects of permanence of residence on commu-
nity pride, preservation of neighborhoods, and a quality environment.
Recently arrived residents were willing to pay more than residents of
11-20 years and 21-40 years.  Thus, the immigration of young adults into
the state  in the past decade may have increased the value of improved water
qua Ii ty.

     Reasons given for moving to the River Basin were not significant in
regression analysis.  However, average values suggest that residents who
immigrated to the River Basin for environmental reasons may value water
quality more highly than those who came for other reasons.  This would be
consistent with the widespread belief that many people move to Colorado
because'of its reputation for a quality living environment.

     Size of former residence was significant  in regression analysis of
variables associated with the recreation use and option value of improved
water quality.  For Denver residents, the smaller the place of former resi-
dence, the more they tended to value water quality.  Having developed an
appreciation for the natural environment  in rural areas, they may place
special  emphasis on preserving it for recreation use  in the future.  For
residents of Fort Collins, regression analysis shows the  larger the place
of former residence, the more they valued water quality.  Perhaps those
who are wiI I ing to pay more for  improved water qua Iity tend to migrate to
smaller cities which have recreation resources nearby, while those who are
less willing to pay for water quality remain in or move to  large cities.

     The bidding game technique was successful in meeting the objective of
valuing the benefits of improved water quality.  Bidding game techniques
have been successfully used as a research tool for valuation of air quality
in the past.   The technique appears appropriate for valuation of a wide
variety of non-market goods including water quality.  It should be remem-
bered, however, that bidding games measure the hypothetical responses of
individuals faced with hypothetical situations.  Thus, considerable care
must be exercised  in the design of bidding games and the conduct of sur-
veys,  to ensure the results obtained are as realistic as possible
                                      XVI

-------
                                  SECTION  1

                                 INTRODUCTION
 BACKGROUND AND SCOPE OF STUDY

     This study  is an attempt to analyze and quantify recreational and
 aesthetic benefits accruing to society from the control of water pollu-
 tion.—    Improving the estimation of benefits from pollution control pro-
 grams is one of  the more challenging aspects of applied benefit-cost analysis.
 Determination of willingness to pay for recreational and aesthetic attributes
 of  improved environmental quality has proven to be a difficult aspect of
 an  already complex problem.  In addition to the usual difficulties encoun-
 tered in measuring the value to society of a recreation user good where
 market transactions are absent, the benefits from pollution abatement may
 include significant "option," "existence" and "bequest" components.  The
 primary contribution of this study will be to empirically test the  importance
 of  these  l< rter  values relative to the conventional user value.  However,
 as  noted above, measurement of the non-market and rather abstract values
 such as "option," "existence" and "bequest" requires careful development
 of  a methodology which allows the assessment of the worth of such attributes
 of  water pollution abatement to members of the appropriate populace.

     Krutilla [1967] noted several possible instances of willingness to pay
 for environmental conditions which were distinct from the direct or imme-
 diate benefits to users of the environment.  These additional contributors
 to  the worth of  a natural environment Krutilla termed "preservation bene-
 fits."  Because  this study concentrates on the development and implementation
 of a procedure for measuring these "preservation benefits" it  is appropriate
 to  carefully delineate just what will be measured at the outset.

     Option value has been the subject of considerable controversy among
 economists.   This study will utilize a definition and model developed by
 Henry [1974].  Option value is taken to mean the premium that  individuals
 would be willing to pay to preserve irreplaceable environmental resources
     — A complete >._unomic analysis of a proposed pollution control policy
would attempt to measure (a) the benefits of pollution control, (b) the costs
of reducing or removing waste discharge, (c) the costs of monitoring and
enforcement of regulations, and (d) where chronic unemployment exists, the
indirect or secondary benefits and costs.  A feasible policy  Is one for which
the incremental benefits exceed the incremental costs [Kneese and Schulze,
1975].

-------
now,  in order that at  some  future date, when the necessary information
affecting their decision whether or  not to preserve the environment is
available, they can  at that time make the decision.   It should be noted
that  this construct  is quite  different from earlier notions of option
value.  Existence value  is  simply the willingness to  pay for the knowledge
that  the natural environment  is preserved.  Bequest value, which seems
closely related to existence  value,  is the worth to present generations
from  preserving the  environment for  future generations.

     Pollution of a river or  |ake to the extent that it diminishes  the satis-
faction of some individuals is a damage and improved water quality,  is  a
benefit.  Improvement  in water quality which reduces this kind of external
cost  is a non-market product, since  it is non-exclusive,  and  a public  good
since it is inexhaustible at  least over a substantial  range.   That  is, more
consumers of this kind of environmental  improvement can be added  without
diminishing the aesthetic appreciation and recreation use of  the  resource
available to each individual.  Additional  beneficiaries can be added  at near
zero marginal  cost over a substantial range.

     Bradford [1970] has presented a conceptual framework for the valuation
of public goods.  Traditional demand curves are inappropriate for the  analy-
sis of demand for public goods, since the situation is not one of individuals
responding to a price  per unit by choosing an appropriate number  of units.
Rather, the individual directly arrives at the total value to himself  of
various given packages.  In the case of a public good, the individual  is
unable to exercise any choice over the quantity provided him, except as a
member of the group of residents of a river basin which make  a social  choice.
The nature of a public good, such as water quality improvement, is  that
increases in the quantity provided are not purely quantitative increases,
but are more in the nature of improvements in quality.  Thus, the individual
compares, alternative packages of a public good, which may differ in quantity
and quality [Randall,  1974].


OBJECTIVE AND PLAN OF  STUDY

     The primary objective of this study  is to develop and apply a procedure
for analyzing the benefits of improved water quality to both  recreational
users of the resource  as well as non-users.  The South Platte River Basin,
located in northwestern Colorado was selected as the site for a case study.
A random sample of 202 residents of Denver and Fort Collins were interviewed
in their homes in the  Summer of 1976.

     Specific objectives are:

      1.  Develop a conceptual framework and empirically test its application
         in the measurement of benefits of water quality improvement.   Bene-
         fits to be measured  include:
         a.  Consumer  surplus from enhanced enjoyment of water-based recrea-
             tion activities;
         b.  Option value of  assured choice of recreation use  in the future

-------
              by avoidance of irrevocable pollution  by  mineral  and  energy
              development, and
          c.   Existence and bequest values for non-users.
      2.   Identify the relationship between these  values  and  the  quality of
          water available as measured  on a 3-point scale  from low to  high.
      3.   Test statistically the relationship  between the expressed values
          of  improved  water quality and  socioeconomic variables including
          income,  degree of urbanization,  education, age,  occupation,  amount
          of  water-based recreation, and family size.


     A review of previous research shows that a number of studies have been
completed on question  la of this study,  recreation user benefits from water
quality  improvement.  No empirical estimates,  to our knowledge, have been
developed on objective  1b, option value, and only one study of objective 1c,
the value associated with preservation of the existence of a natural  eco-
system and its bequest to future generations.   Davidson,  Adams and  Seneca
[1966] related unimproved and improved water quality to recreation  partici-
pation in boating and fishing in the Delaware Estuary.    Improved water
quality resulted in an additional 8.7 million discounted  activity days of
boating and about .9 million days of fishing.   No empirical estimates of
dollar values were developed.  Willeke [1968]  related water quality improve-
ment to recreation participation at San  Francisco Bay,  California.   Ditton
and Goodale [1972] showed the relationship between water quality improve-
ment and recreation participation by residents of Green Bay,  Wisconsin.
Stevens [1966] and Stoevener, et_ aj_. [1972] related  water quality and angler
success to participation  in fishing on the Yaquina Bay, Oregon.  Based on
a travel  cost procedure, the sport fishery was valued at $22,747 annually.
Reiling,  Gibbs, and Stoevener [ 1973] related unimproved and improved water
quality to recreation participation with benefits to recreation users and
 regional  economic development at  Klamath  Lake,  Oregon.   The  demand function
 for recreation was  estimated  using  travel  cost approach.   Direct and  indirect
 benefits  of  improved  water  quality  were estimated as $2.6 million.  An
 Environmental  Protection  Agency  draft report  [Abel, Tihansky,  and  Walsh,
 1975;  Walsh,  1977]  estimated  the  national  damages to fishing,  boating, and
 swimming  from  water pollution  levels  in  1970.   Extrapolation of  previous
 information on recreation  participation  and travel costs  resulted  in  a
 damage estimate ranging  from  $69  per  household  in travel  costs to  $115
 per household  including  costs of  travel  and time  at $2 per hour.   Ericson
 [1977] interviewed  a  random sample  of 141  visitors to Rocky Mountain National
 Park  in  Northcentral  Colorado during the  Summer of  1973.   Willingness of
 tourists  to pay for improved  water  quality to enhance  enjoyment  of water-
 based  recreation activities averaged  $5.55 per day of  recreation.  Oster
 [1977] interviewed  200  residents  of the Merrimack River  Basin  in New  Hamp-
 shire  and Massachusetts  reporting they  were willing to pay $12 per person
annually  for  improved  water quality in  the River  Basin.   Meyer [1974]  inter-
viewed a  sample of  residents  of  the Fraser River  Basin,  Vancouver, Canada
concerning the value  of  preserving  salmon  in  a  natural river environment.
He reported average preservation  values  of $223 per household  annually.

-------
     The remainder of this report is organized into five sections.   We out-
line the conceptual framework in Section 2 and describe the research pro-
cedures used in the analysis in Section 3.  The empirical findings  with
respect to the user and non-user values of improved water quality are
presented in Section 4.  Section 5 presents the relationship between
willingness to pay for improved water quality and socioeconomic vari-
ables.  The appendix contains the sources of  literature, the questionnaire,
and the statistical results of regression analysis.

-------
                                  SECTION 2

                            CONCEPTUAL FRAMEWORK


REVIEW OF THE THEORETICAL LITERATURE ON OPTION VALUE

     The origin of the concept of option demand may be traced to an article
by Weisbrod [1964].  The formulation was an attempt +o rebut Friedman's [1962]
advocacy of the extreme case of cutting down the redwoods in Sequoia Na-
tional Park.  Weisbrod set forth two conditions for the presence of option
demand:  (1) infrequency and uncertainty of demand for the commodity under
consideration, and (2) prohibitively high cost in time or resources of
renewing production of the commodity once it has been curtailed.  Visits
to Sequoia National Park are usually infrequent and uncertain.  Should
production of the magnificent forests be diverted from aesthetic enjoyment
to lumbering, it would require centuries for the forest to become reestab-
lished.  The opportunity cost of lumbering would then be the aesthetic
enjoyment foregone.

     Weisbrod's analysis began with a simplified problem for which he
assumed that a market exists for the collection of an admission fee from
all users to the park.  It was further assumed that the park  is privately
owned by a perfectly discriminating monopolist whose present value of
total costs exceed present value of total revenues.  All external economies
were assumed away, the product was considered non-storabIe,  and the possi-
bility of purchase before consumption was precluded.  Given  the foregoing
propositions, if the private and social rates of discount are equal, then
based solely on grounds of economic efficiency the park should be closed.
Its productive resources should be reallocated to other uses.

     Even so, Weisbrod contended that it may be unsound from society's stand-
point to reallocate the park's resources.  Given the presence of "economic
men" who anticipate possibly visiting the park, but who are  uncertain and
in actuaIity may or may not make such a visit, they will be  wi1 I ing to pay
a fee for an option which would guarantee their access to the park in the
future.  If a private market existed whereby this "option value" could be
collected then it would influence the entrepreneur's decisions.   However,
without the option market, aggregate user fees would understate the total
worth of the park to society.  If in fact the park closes as a consequence
of a lack of a practical way to collect the option value,  the option demand
of potential future users  is unfulfilled.

     Weisbrod emphasizes the fact that option value is significant for
economic decision makers only when a decision to close the park  is imminent.
As long as the park remains open the provision of the option  is a costless
by-product of current operation.  It fulfills the conditions of a pure

-------
collective good since all potential future users of the park can maintain
the option without enfringing on the consumption opportunities of others.

     Other examples, cited by Weisbrod, where option value might exist are
hospital service and public urban transit, which often meet the criteria of
infrequent and uncertain demand and high production costs of reestablishing
service once ended.  In generalizing, Weisbrod explains that infrequency
and uncertainty, and the high cost of re-initiating production are relative
concepts and hence all  goods probably have option value.  The more frequent
the purchase and the smaller the cost of re-introduction of a commodity
the smaller will be the significance of option demand.

     Following Weisbrod's introduction of option value, a debate ensued
as to whether it was a totally new concept or merely "the unrecognized
son of that old goat, consumer surplus" [Long, 1967J.  Long attempted to
show that option value was nothing more than "the expected consumer surplus
from consuming the good at the terms specified in the option."  He used
Lerner's measure of consumer surplus as ". . . how much money a consumer
would pay for the right to continue to buy at the current price something
that he is now buying."  He pointed out that the difference between his
concept and Weisbrod's is that consumers under the latter definition may
never use the option to purchase a commodity.  The key to reconciling the
two definitions according to Long, is recognizing that the terms specified
in the option will have a significant effect on option value.

     Given a typical Marshal Iian individual demand curve, consumer surplus
would normally be defined as the area under the demand curve and above price.
According to Long, if price is a positive amount, option value will be
of a smaller magnitude than if price is zero.  If price should rise further
to a level that the  individual would never purchase the commodity because
of its prohibitively high price, then no option fee would be paid to pre-
serve future access to the good.  Since option value  is a fee paid for
future access, Long concludes that option value is simply expected consumer
surplus from consuming the commodity at the specified price.

     Long contends that divisibility and homogeneity are the important
concerns of option value and not frequency of use as Weisbrod indicated.
In Long's view, etption value attains significance only when discrete
change in product must be made and no good substitute exists, rather than
for marginal changes necessary for efficient resource allocation.  Weisbrod's
high cost condition then becomes unrelated to the problem.  Long concludes
that introducing option value into economic analysis would serve only to
inflate measures of demand for public goods.

     Lindsay, [1969] takes exception to Long's contention that "option
value is exactly the expected consumer surplus from consuming the good
at the terms specified in the option" [Long, 1967].  He points out that
Long ignores Weisbrod's  initial assumption of uncertainty of consumption
                                      6

-------
 and  implicitly  substitutes certainty.  Yet, as Lindsay explains it would be
 nonsensical  to  purchase options for future consumption for goods which the
 consumer  knows  with certainty he wiI I or wi II not purchase.  But since
 uncertainty  pervades the future, many consumers may wish to pay a premium
 to  insure against the risk of not having the commodity available.

     The debate continued with comments by Byerlee [1971] and by Cicchetti
 and  Freeman  [1971].  Byerlee formulated the issue in mathematical  terms
 which up to  this point had been missing.  Using a game theoretic framework,
 Byerlee established that under conditions of certainty of consumption that
 option demand was equivalent to consumer surplus.  He further argued that
 where uncertainty of demand exists, option value as defined by Weisbrod
 can  be shown to be greater than, equal to, or less than consumer surplus.
 He concludes that, as Long had suggested, including both consumer surplus
 and  option demand would be double counting.  He supports a modification of
 Lerner's definition of consumer surplus to include "how much money a con-
 sumer would  pay for the right to buy at the current price something that
 he is now buying or may buy in the future" [Byerlee, 1971].

     Cicchetti and Freeman countered Byerlee by suggesting that along with
 uncertainty  in demand, uncertainty in supply must also be considered.
 Possible deterioration of the natural  amenities of the site must threaten
 the  continuance of supply for option demand to become relevant.  This was
 a-condition  specified by Weisbrod, which Byerlee neglected in his state-
 ment of the  probability of option demand.  Cicchetti and Freeman used
 probabilistic demand theory to illustrate that a risk-averse individual
 will  be willing to pay a positive amount, to preserve his option of using
 a facility in the future, when there is a threat to an irreversible
 consequence to the natural  environment.  Cicchetti and Freeman then
 argue for the inclusion of a risk premium to be added to consumer sur-
 plus derived from recreational enjoyment of the site.

     Schmalensee [1972] disagrees with the approach used by Cicchetti and
 Freeman.   He considers a state-preference model  in a timeless world.
 Under the assumption of the model, Schmalensee attempts to show that risk
 from either alternative use of a natural environment must be considered.
There is an associated risk if demand for recreation greatly increases
 in the future (present non-users opt to recreate at the site in the
 future)  and the natural environment is not saved for recreation enjoyment.

     Schmalensee points out that the other alternative must also be con-
 sidered.   If the natural  environment is preserved there is a risk asso-
ciated with a very small  future demand.  Society may desire products which
cause pollution of a site more than it desires recreation.  The opportunity
cost of  preservation becomes very great.  It is argued that the magnitude
of each  alternative risk determines whether option value  is positive,
 negative or zero.   If the development alternative is riskier, then option
value is positive.  Should the preservation alternative prove riskier
then option value is negative.  With no way of measuring the sign or

-------
magnitude of the associated risk premiums, Schamlensee regards expected
consumer surplus as an adequate approximation of society's option values.

     Henry [1974] suggests that Schmalensee's "timeless world" assumption
where an individual can make but one irreversible decision (one decision
is as irreversible as another) reduces option value to "a risk premium
in favour of 'irreplaceable assets'."  Henry proposes a "sequential  world"
model where decisions must be made by the individual at appropriate inter-
vals.   In so doing, Henry adds to our conception of option value.  The
principle changes from paying to preserve the possibility of using an
unspoiled environment, to paying for preserving the option of deciding
later on the two alternative uses of the environment when conditions of
certainty will exist.  Henry's model serves as a theoretical basis for
the empirical measurement of option demand in this study.  A fuller
presentation of the theory is provided below.

-------
AN EMPIRICALLY TESTABLE FORMULATION OF PRESERVATION VALUES


Option Value and Irreplaceable Environments

     The lengthy debate surrounding the economic delineation of option
value apparently has been laid to rest.  Two recent articles published at
about the same time show that option value may exist without the side con-
dition of risk aversion motivating an individual.   If there is a prospect
of better information forthcoming relating to alternative uses of an asset
with irreplaceable characteristics a situation arises where a positive
option value may be generated.

     Arrow and Fisher [1974] formulated a quasi-option value model developed
in terms of aggregate benefits and costs of alternative environmental action,
They questioned whether or not the existence of option value for the individ-
ual necessarily leads to a similar situation for society.  They concluded
that even in the aggregate society must take cognizance of the presence
of option value.

     The Henry [1974] model, adopted for this study, was presented in terms
of willingness to pay for the option of choosing between two environmental
alternatives at some future date under conditions of perfect information.

     Consider a two period model with the following defined symbols:

          N  = The N-th  individual
          U  = N's utility  function
          Y  = N's  i ncome
         CS  = N's consumer  surplus  generated  from  use of  the
              natural environment
          D  = Availability  of  the  natural  environment
              D = d, the natural  environment  is available
              D = d*, the  natural  environment  has  been  appropriated
                  for an  alternative use  and  is  not available
         0V  = Option Value
           i  = States of  the world,  i  =  1,  2
         PJ  = Probability  that state i wiI I occur
          j  = Time  period,  j  = 1,  2
         CJ  = Opportunity  cost to retain the  natural  environment

The  postulated model  is  based on  the following  assumptions:   (1) the future
 is uncertain,  (2) one  use  of  the  natural  environment is more irreversible
than  the other,  (3) a  decision is  imminent as to which  use the natural

-------
environment will be put and  (4) sequential decision making takes place
based on better  information  acquired through time.  Let


               22    .      .
          U =  E   E  pJ lh!(Y^, DJ)
              j=1  i=1   '   '   '

              (where EP. = 1, for j =  1, 2)
be N's two period probability weighted utility function.
tunity cost CJ must be paid to obtain DJ = d, that  is, a
                                                          Assume an oppor-
                                                         cost is imposed
in the form of foregone alternatives  if the natural environment is to
remain available.. C1 and C2 must be  financed at instant 1 and
respectively if DJ = d is chosen.
are assumed known with certainty
                                                               instant 2.
                                 .  .For simplicity of exposition CJ and YJ
                                 —  Finally assume that
 2
 E
.,
1=1
P! u!(d)
  11
2
E
                             P! u!(d*)
                               11
                                                                      (2)
This assumption specifies that  if only the first period  is considered, N
will choose d* so that the natural environment  is not avaiFable.   In this
case the cost, C , of preserving the natural environment  is greater than
the associated benefits  in period 1.

     In the following case no new information  is expected to become avail-
able between  instant 1 and instant 2.  A decision is njade as if a  "timeless
world" existed.  Consumer surplus for N can be  defined as the equating
factor in:
           Z
          i=1
         - CS, d) +
         Z
        5=1
                                      P? U?(d)
                                                                      (3)
           22..
           E   E  pJ lh!(d*)
           • t  • 1
           =1  1=1
The equation simply states that N wi I I  be willing to pay an amount CS at
instant 1 to have d.
    — The notation may then  be  simp lied  to

     yj (YJ, d*) = U1! (d*) and  in  later  equations,  U^  (YJ - CJ, d) = U-j  (d)
                                        10

-------
     Even after  payment of the amount CS, the  individual will still receive
the same expected utility as  if the natural environment were not available.

     Note that N wi I I choose the preserved natural environment as opposed
to the development alternative i f CS > C .  No CS term need appear in the
second period term of the preservation alternative since no change in
information occurs between the two periods.  As  long as C  is paid at
instant 1 the natural environment will be available in all following
periods  because  of the static situation.  In this case CS is the present
worth of N of the preserved natural environment for all time.

     Now assume that new information enters between instant 1 and instant 2.
Individual N wi I  I know with certainty at instant 2 which state of the
world will obtain.  Allowing for a sequential decision making process to
take place the following question must be answered:  How much will N be
willing to pay at instant 1 to (1) enjoy the natural environment through
period 1 and (2)  to have the option of choosing under conditions of cer-
tainty at instant 2 whether or not to retain the natural environment?

     The preceding question can be answered by referring to the following
equation :

          2                             2
          E  P! ul(Y1 - CS1 - 0V, d) +  £  P? max {U?(d), U?(d*)} =
         1=1  '  '                     1=1'''
                                                                      (4)
          22..
          Z   Z  pJ IhUd*).
         •1-1   '   '
         j=1 1-1

The terms CS  and 0V are the balancing factors in equation (4).  At instant 1
individual  N wi I  I be willing to pay CS  to enjoy the natural  environment
during period 1.   In addition N is willing to pay an amount 0V to choose,
at instant 2, either the preserved environment or the development alternative
with full knowledge of which state of the world will obtain.    In equation  (4)
CS  results from the enjoyment of the preserved natural environment through
period 1 only.

     Note that the magnitude of 0V in period 1 is a function of the magni-
tudes of P?, U?(d) and U?(d*) in period 2 as they exist at instant 1.

     In considering the term  (max (U?(d), U.(d*)}) four possible cases can
occur:
          (a)  U(d) > U(d*) and
          (b),  U(d) < U(d*) and
                                        11

-------
           (0   U(d)  < U(d*)  and UCd)  < U

           (d)   U^(d)  > U^(d*)  and U^d)  > U

 If,  for example,  situation (a) evolves then:
            Z   [P  u (Y1  - CS1  - 0V,  df]  + Pf uf(d)  +  P;  U,(d*) =      (5)
           i = 1                          —"II        L   Z.
            22..
            E    I   pJ  lh!(d*)
The  i nequa I i ty :
                                   2
          P^ U^(d)  + P^ U^Cd*)  >   E  P? U?(d)                          (6)
                                  i = 1   '   '

exists  because maximum values of  U?(d)  and  U.(d*)  were  chosen.  Therefore
0V >  zero and d  will  be chosen  at Instant 1  if  CS1  +  0V >  C1 -  The magnitude
of 0V  is determined precisely by  the  difference between the  right and  left-
hand  expressions of inequality  (6).  In cases  (b)  and (c)  0V  will  likewise
be positive.  Only  in case (d)  will option  value be equal  to  zero.  None
of the  four  possible situations will  produce a  negative option value.

      Option  value is irrelevant to the  decision-making  process as  long as
CSJ > C-J .  Here  the option to use the environment  in  the future has been
preserved free of cost.   The option is  a free by-product as  long as the
user  benefit of  the preserved environment exceeds  the opportunity costs
of preservation.   It is for this  reason that inequality (2)  is required.
This  expression  states that if  the first period is  considered by  itself,
development  is preferred over conservation.  Under  this condition  it  is
necessary to include explicit consideration  of  the  second  period  in order
to determine the proper course  of action at  the beginning  of  period one.

     An empirically derived estimate of  0V is provided  in this study.   To
meet the assumptions of  the model  the future was assumed uncertain, a
reasonable assumption  for  the survey participants.  The  real threat of
expanding coal and metal mining operations were assumed  to have irrever-
sible consequences  for  rivers and streams in the South Platte River Basin.
This i rreversibi  I i ty  results from the prohibitive costs  of pollution abatement
from non-point sources.  Finally, better information  as  to which use of the
River Basin would be more  beneficial to  the  individual was assumed to be forth-
                                       12

-------
 coming  in  the  future.  Respondents were asked what they would be willing
 to  pay  now for the option of making a choice  in the future with better
 information available as to whether preservation or mining development
 would benefit  them more.
 Existence Value

     There exists no rigorous definition and theory of existence value.
 It has been defined as the amount an  individual would be willing to pay to
 preserve an area as a natural habitat for the satisfaction provided by
 the knowledge that such an area exists.

     KrutiI la [1967] provided a brief introduction to the possibility of
 existence demand:

          There are many persons who obtain satisfaction from mere
          knowledge that part of wilderness North America remains
          even though they would be appalled by the prospect of being
          exposed to it.  Subscriptions to World Wildlife Fund are
          of the same character.  The funds are employed predomi-
          nately in an effort to save exotic species in remote areas
          of the world which few subscribers to the Fund ever hope to
          see.  An option demand may exist therefore not only among
          persons currently and prospectively active in the market for
          the object of the demand, but among others who place a value
          on the mere existence of biological and/or geomorphologicaI
          variety and its widespread distribution.

 Discussion of existence value is also found  in a  later work by KrutiI la
 and Fisher [1975].  Essentially the same arguments are made to support the
 case for existence value.

     Existence value like option value attains relevance only when there
 is an imminent danger to a natural environment.  Otherwise it serves as a
 pure public good, free to all as long as the area is preserved.  No one can
 be excluded  from the satisfaction which is derived from the area's existence.

     Although an individual may not physically use a natural  environment
 the knowledge of its existence acquired vicariously provides utility to
 him.   Let Q be defined as a preserved natural environment serving as a
 native habitat for fish, plant and animal  life.  Knowledge of the exis-
 tence of this environment is defined as K.  Then K = f(Q).  This means
that the natural environment Q is providing the "service" of existence,
 knowledge of  which yields satisfaction to the individual.  A similar service
 provided by  the area may be the aesthetic appreciation and enjoyment derived
 from hiking  through the natural  setting.  One essential difference between
the two services is that the latter is provided "on site" while in the former
case one need never set foot in the area to gain satisfaction derived from
the knowledge of its existence.   Since K = f(Q) the satisfaction from
                                      13

-------
existence knowledge is dependent on the physical preservation of Q.  The
reasonable assumption is made that the nearer the area is to being a natural
pristine setting (as opposed to a degraded environment) the greater will
be the magnitude of existence value.  Willingness to pay for existence
knowledge must be added to recreational use benefit estimates for a pre-
served natural environment or an underestimation of such benefit estimates
will resuIt.

     For the purposes of this study, empirical measurement of existence
value was undertaken within the guidelines outlined by KrutiMa.  That is,
it was assumed that bona fide non-users of the South Platte River Basin
possessed satisfaction from the knowledge of existence of the preserved
environment.  There appears to be no a priori reason why users as well as
non-users should not have an existence value for the South Platte River
Basin.  Once the presence of existence value  is established  it should be
quite an easy matter to extend the empirical estimation process to users
of the natural environment.  Willingness of users to pay for knowledge of
existence could* in some instances, exceed that of non-users since they
have acquired first hand experience and appreciation of the preserved area.

     Survey respondents in this study were asked what they would be willing
to pay for preservation of the South Platte River Basin knowing that  it
would be available as a natural habitat for fish, plant and animal life, even
though it were certain they would not use the area fro recreation  in the future.
The question was designed so that an estimate from a sub-sample of non-
users could be made.  Non-users were defined as those whose probability of
future recreational use of the South Platte River Basin was zero.  Benefits
to the non-user population were approximated from this sub-sample,

Bequest Value

     An additional type of non-user benefit has been suggested by
KrutiI la [1967]:

          We are coming to realize that consumption-saving behavior
          is motivated by a desire to  leave one's heirs an estate as
          well as by the utility to be obtained from consumption.  A
          bequest of maximum value would require an appropriate mix
          of opportunities to enjoy amenities experienced directly
          from association with the natural environment along with
          readily producible goods.  But the option to enjoy the
          grand scenic wonders for the bulk of the population depends
          upon their provision as public goods.

Bequest value is the satisfaction derived from endowing future generations
with a natural environment.   In many respects  it  is similar to existence
value.  Little work has been done theoretically or empirically on this
concept.  Although the bequest motivation means that non-users may also
have a desire to preserve natural environments, there  is no a priori


                                       14

-------
reason that users could not likewise have such a desire with an appropriate
value.  Bequest value may actually be greater for users than non-users as
they have firsthand knowledge of the environment.

     Bequest value is a pure inter-temporal  public good.  Members of the
present generation will be in a position to provide a bequest of a natural
area to future generations so long as its remains preserved.  If there is a
threat to the area's preservation, bequest value takes on greater signifi-
cance.  Bequest value then is no longer a free service of the environment.
It must be estimated along with use values of the environment to attain an
accurate estimate of the total  benefits of the preserved area.   The total
value of the natural  environment to society may be underestimated and a
serioues misaI location of resources could result if bequest values are
ignored.

     As in the case for existence value, bequest value in this  study was
conservatively measured only for individuals who did not use the natural
environment.  Non-users were defined as those who probability of future
use was zero.   Respondents were asked what they would be willing to pay
to bequest improved water quality in the Souht Platte River Basin to future
generations if  it were certain they themselves would not use it for recrea-
tion in the future.  A sub-sample of non-users was drawn to estimate the
aggregated benefits to the general non-user population of the survey area.

     It should  be restated that as long as there is no threat to the natural
environment by  a competing use (e.g., metal  and energy development), then
option, existence and bequest values are provided as a free public good
to all who possess such satisfaction.   If circumstances change so that
there is a significant possibility of a competing use occurring, such
values may attain great importance for society.  The total value of all al-
ternative uses  of the environment must be ascertained to enable society
to make the correct decision as to which use it should be put.
                                      15

-------
                                SECTION 3

                            RESEARCH PROCEDURE
STUDY AREA
     The South Platte River Basin drains an area of 19,450 square miles in
northwestern Colorado, approximately one-fifth of the total land area in
the state of Colorado (Figure  1).   It extends from the Continental Divide
on the western edge to the Nebraska border on the east.  It extends from
a  line just outside Colorado Springs on the south to Wyoming and Nebraska
borders on the north.   It encompasses an area known locally as the Northern
Front Range of Colorado.

     Streams originate  in the  higher mountainous elevations with pristine
water quality, and gradually yield to degradation as elevation diminishes
and human encroachment  increases.  There are some areas within the Basin
even at high elevations where  streams have become heavily polluted through
past mineral mining and milling operation and abandoned shaft drainage.
The Central City and Boulder Creek drainage areas are examples.  Rocky
Mountain National Park on the  western edge of the River Basin contains
the headwaters of the Cache La Poudre River, the Big Thompson River and
the St. Vrain River, major northern tributaries to the South Platte River.
The River Basin contains 2,400 miles of fishing stream, about 30 percent
of the 8,233 miles of stream in the State capable of sustaining game fish
such as trout.

     With an estimated population of 1,742,900 in 1976, the River Basin
contains two-thirds of Colorado's estimated population of 2,628,137.  The
Denver Metropolitan Area excluding Boulder County with population of about
1.3 million is representative  of  larger cities in the U.S.  It is the
principle commercial center of the Rocky Mountain Region.  Manufacturing,
service industries and government are important sources of employment.
Agriculture is important economically with large cattle feeding operations,
packing plants, irrigated and  dryland crops.  The 1969 Census of Agriculture
showed approximately 10,158 farms in the South Platte River Basin.  With
an average family size of 4 persons, the farm population is estimated at
40,632 or 2.4 percent of the total Basin population.  About 11.5 percent
of the residents in the Basin  live in areas of less than 2,500 people.
A substantial  portion of the crops produced in the Basin are irrigated.
Most of the Basin east of the  mountains is arid and irrigation is necessary
for agricultural  production other than wheat and grazing.  More rainfall
and snow occurs at the higher  elevations, and runoff in the Spring is
captured in reservoirs for agricultural and domestic consumption.  Also,
water is transferred into the  region from the Western Slope of Colorado.

                                       16

-------
                                 STERLING
              GREELEY
MORGAN/^

 PLA
                                            SOUTH PLATTE
                                            RIVER BASIN
BOULDER
IDAHO
SPRINGS
                 COLORADO
          DENVER
  FIG. I  THE SOUTH  PLATTE RIVER BASIN, COLORADO

-------
     The South Platte River Basin contains 267  lakes and reservoirs suit-
able for shoreline fishing, about 38 percent of the 711  lakes and reservoirs
in the state.  With  1,122 miles of shoreline, the Basin contains 48 percent
of the total  lake and reservoir shoreline  in the state of 2,314 miles.
The Basin provides 40.5 percent of water-based  recreation activities  in
the state.   It provided 58 percent of the  lake  swimming, 56 percent of the
sailing and  49 percent of the  power boating.  It provided 34 percent of
the lake fishing and 26 percent of the stream fishing.  Resident water-
based recreation use of the River Basin accounted for approximately 72
percent of the total recreation use by residents and non-resident tour-
ists.  Many  types of water-based recreation such as fishing and swimming
are not compatible with water  pollutants from mine drainage and other
sources.  Therefore  if current demand is large  relative to the available supply
of water-based recreation areas the consequences of further degradation
may be of a  much greater order of magnitude than if demand was small while
the available supply was  large.

     Streams and rivers in the Basin are generally out of compliance with
state water quality standards.  Almost all  rivers and streams in the South
Platte River Basin are classified Class B fisheries.   Lakes and reservoirs
are classified as Class A, suitable for body contact recreation activities.
Major point sources of pollution are municipal  and industrial  discharges.
In 1974 the Colorado Department of Health and local  departments found
95 of approximately 120 discharges out of compliance with state effluent
standards.   The largest non-point source of pollution in the Basin is
irrigation return flow.  Feed lot run-off ranks second as a source of non-
point pollution.   Heavy metal  effluent serves as an index of water pollu-
tion for the study.  Although  metal-mine drainage is generally limited
to streams in the headwaters of the Basin there is a total  of 111  miles
of streams polluted with heavy metals.  In the absence of complete water
quality analysis and an objective index of overall  water quality,  heavy
metal  effluent serves well in  representing the general  problem of
polluted waterways.  It is estimated that a 90 percent reduction is heavy
metals would be required before fish could live in Clear Creek above
Denver.  This particular form  of pollution tends to be irreverisble
because of the prohibitive costs of improvement in most areas of the
Basin.

     Mining  activity  is expanding with opening  of the Henderson molybdenum
mine, other  newly found ore deposits and the opening of abandoned metal
mines and new open pit coal mines.  This expansion is  likely to have  a
pronounced effect on the River Basin's water quality.  There are more than
250 indentifiable minerals  in  the South Platte  River Basin.  Metallic
minerals include gold, silver, copper,  lead, zinc, tungsten, molybdenum
and uranium.  Two coal fields  are  located  in the Basin.  The Denver
Region coal  field  is an area of 535 square miles extending  from the Colo-
rado-Wyoming state  Iine southward to the Arkansas River Basin.  The South
Park coal field covers about  100 square miles in Park County.  Over 3,682
million tons of coal  is estimated to exist  in these two  fields.
                                       18

-------
 SAMPLE  SELECTION

     A  random sample of residents was selected from the Denver Metropolitan
 Area  (as  representative of residents of  large cities  in the U.S.), and
 from Fort Collins  (as representative of  residents of small cities in the
 South Platte River Basin).  Fort Collins  is smaller than Boulder but larger
 than other small cities in the Basin such as Greeley, Loveland, Fort Morgan
 and Sterling.  Figure 1 shows the location of these communities in the
 River Basin.

     A  total of 202 in-depth interviews were completed in the two cities
 from May through July, 1976.  The 101 interviews in Fort Collins repre-
 sented  a 0.5 percent sample of 18,923 households in that city.  With a
 population of 58,531 in 1976, the average number of persons per household
 was 3.1.  Boulder County was excluded from the Denver Metropolitan Area
 on the  grounds that it is more representative of small cities in the River
 Basin.  The 101 interviews in the Denver Metropolitan Area (less Boulder
 County) represented a very small  proportion of the 424,900 households in
 that large city, approximately 1  in 4,200.  The number of households inter-
 viewed  was based on experience with similar opinion surveys and was specified
 in the  contract with the Agency.

     A  list of names was randomly selected from current telephone directories
 for the two cities.  For the Denver Metropolitan Area, one name was drawn
 randomly from every ninth page of the telephone directory.  Two names were
 drawn randomly from every page of the directory for Fort Collins.   Initially,
 an attempt was made to select the sample from city directories.  However,
 at the  time the sample was drawn, the directories were over one year old.
 Telephone directories were more up-to-date than city directories and this
 was considered important because of high mobility of residents in the two
 cities.  By sampling from telephone directories, it is recognized that
 residents who moved into the cities within the year and residents without
 phone service were automatically excluded from the sample.  However, it
 was concluded that the resulting bias in sample selection was small, as
 92 percent of the households in the Denver Metropolitan Area had telephone
 service, as did 95 percent of the households in Fort Collins.

     An initial  list of potential respondents (392 in Denver and 208 in
 Fort Collins) was selected from the current telephone directory.  Each house-
 hold on the list was sent an introductory letter.  The interviewers con-
tacted  respondents by telephone,  proceeding randomly through the initial
 list until the pre-established quota of  100 for each city was interviewed.

     Table  1  shows the rate of acceptance and refusal in the two cities.
 In Denver, 25.8 percent of an initial list of 392 households were inter-
viewed, compared to 48.6 percent of a list of 208 in Fort Collins, a small
city where Colorado State University is  located.  Therefusal rate was small,
21.7 percent in Denver and 16.3 percent  in Fort Collins.  However, a large
 proportion of the sample could not be contacted although telephoned at
 least twice.  Interviewers were unable to contact 42.1 percent of the sample

                                       19

-------
Table  1
Sample Response in Denver and Fort Collins,  Colorado,  1976.
Response
Denver
Metropol itan
Area
Number
Percent
Fort Col 1 ins
Number
Percent
South Platte
River Basin
Number
Percent
TotaI  Samp Ie

Accepted and
  Interviewed

Refused

Could Not Contact

Returned Letters
392
101
85
165
41
100.0
25.8
21.7
42.1
10.4
208
101
34
66
7
100.0
48.6
16.3
31.7
3.4
600
202
119
231
48
100.0
33.7
19.8
38.5
8.0
                                       20

-------
 in Denver compared to 31.7 percent in Fort Collins.   In addition,  returned
 letters accounted for 10.4 percent of the Denver sample and 3.4 percent
 in Fort Collins.  The letters were returned by the Postal  Service  because
they could not be delivered.   These potential  respondents had moved since
publication of the directory and had no forwarding address.

     Characteristics of  the sample were compared with the available demo-
graphic characteristics  of the population of the two cities.   Generally,
the relatively' smaI I sample represented the population rather well.  For
most comparisons, the sample statistic was very close to the  population
parameter.   Table  2  lists the demographic data for the relevant  popu-
lation and sample.

     The Metropolitan Denver sample under-represented young residents of
18-24 years of age.   There is less chance of younger residents being listed
individually in telephone directories.  Often  younger adults  continue to
live with their families where the listing is  not in their name.   If they
are living independently of their families they are  likely to be living
in a shared household so that the listing may  be under another individual's
name.

     Minorities  including Spanish surnamed, black Americans and American
 Indians were also under-represented.  A  large percentage of minority resi-
dents with common surnames such as Martinez or Gonzales are concentrated
on a few pages of the alphabetically  listed directories.  The selection
procedures used  in this study would result  in an under-representation
because of this phenomenon.  It may also be true that fewer minorities
have telephone service.   Twenty percent of the population of  the Denver
Metropolitan Area were non-white as compared to 5 percent of  the sample.

    Average incomes were virtually identical for the sample and the popu-
lation at about $15,000.   Income distribution categories for the sample
had slightly different brackets than the population data brackets; however,
it appears that the sample included slightly more lower income people than
in the general population. Average education of the sample at 14.6 years
was higher than for the population, reported as 12.5 years in 1970.

     Sample representation of the sexes closely approximated the popula-
tion characteristics.  In Fort Collins females were under-represented by
about 10 percent.  This  was the result of a number of female family members
requesting that their spouse provide the information for the survey.  There
was a reluctance on the part of these female family members to provide the
survey information.   In  most of these cases the husband was the traditional
family spokesman and the wife requested that he provide the necessary data.

     The Fort Collins sample also under-represented young residents of
18-24 years of age.   However, average age of the sample was 38 years compared
to a 40.5 years average  age of the population.  Average education of the
sample was 14.6 years compared to 12.6 years for population  in 1970.  Minor-
ities represent about 9  percent of the population compared to only  1 percent


                                       21

-------
Table  2  .  Comparison of Population and Sample Demographic Profile Estimates
             of Denver and Fort Collins, Colorado, 1976.
Statistic
Male/Female Ratio9 (1975)
Average Agea(1970)
( 18 years and over)
Age Distribution3 (1970)
18-24
25-49
50-64
65 and over
Average Educat iona( 1 970)
(25 years and over)
Raceb (1976)
White
Other
Average I ncome
Income Distribution3 (1975)
(Under $5,000) (Under $6,000)
($5,000-$7,999)($6,000-$8,499)
($8,000-$9,999) ($8,500-$10,999)
Denver
Population | Sample
49.5/50.5 48.9/51.1
38.2 46.5


19.7 7.6
48.9 50
19.5 25.3
11.9 17.4

12.5 14.6

79.7 94.6
20.3 5.4
$14,647a $14,958

8.2 14.1
8.0 8.7
9.1 9.8
($10,000-$14,999)($11,000-$15,999) 26.5 22.8
($15,000 & over)($16,000 & over)
48.2 44.6
Fort Co
Popu I at ion
53.1/46.9
40.5


23.2
48.5
16.8
11.6

12.6

91.2
8.8
$13,500C

11.1
13.5
11.0
25.9
38.5
I lins
I Sample
63.3/36.4
38


9.1
57.6
16.1
17.2

14.6

99
1
$12,838

15.2
10.1
12.1
31.3
31.3
 a(Colorado Department of Health, 1976).

 ''(Colorado Division of Planning, 1976).

 'Estimate for the Fort Collins Metropolitan Statistical Area by the Department
  of Housing and Urban Development, Denver, December 31, 1976.
                                          22

-------
of  the  sample.  Average income of the population was reported as $13,500
 in  December,  1976 compared to $12,838 for the sample taken  in May - July,
 1976.   Income distribution of the sample conformed closely to income dis-
tribution of the general population with slightly more  lower income people
 included  in the former.
CONTACTING RESPONDENTS

     The method adopted to contact potential respondents was successfully
used in a previous study by Meyer [1974].  An  introductory  letter was
mailed to respondents about seven days before they were contacted by phone.
The  introductory  letter said they would be contacted and asked them to
participate  in a  survey of attitudes toward the quality of water resources
in the state.  It stated that there was no obligation to cooperate in the
survey but that those who did may influence future water quality decisions.
A copy of the  introductory letter is shown in the Appendix to this report.

     The letter of introduction proved useful  in identifying the Univer-
sity and added credibility to the survey.  This was found to be quite
important because of the many telephone sales schemes to which the
general public are subjected.  The seven days between receipt of the initial
introductory letter and phone contact was an appropriate length of time
in most cases.   The potential respondents had sufficient time to discuss
the  letter with family members yet not so lengthy a time that contents
of the letter would be forgotten.

     Within approximately one week after mailing the introductory letter,
interviewers began telephoning potential respondents.  They were asked
if they had received the introductory letter, and the credentials of the
caller were reestablished in the memory of the potential respondent.  For
those who agreed  to participate, a convenient time was arranged for an
interview with the head of the household.  The interviews occurred during
the following five days.  The proportion of potential respondents missing
appointments rose appreciably as the scheduled time exceeded five days
after telephone contact.

     Two trained  interviewers were used to minimize inconsistency of pre-
sentation.   The interviewers had advanced training in economics of natural
resources and environmental  management at the Masters degree level.  Close
liaison was maintained between them throughout the survey process so that
unanticipated procedural problems were solved as they arose.  Interview
time ranged from  15 minutes to 2 hours and averaged approximately one-half
hour each.   Approximately five interviews per  interviewer were completed
per day.

     Relatively few problems were encountered during the survey.  Most
problems that did arise resulted from interviewing in a large metropolitan
area such as Denver.   It took more time in the large city to establish
credentials and explain the importance of the study during the initial


                                      23

-------
phone contact.  Also, there was no feasible way to survey one section of  the
city at a time and effort was spent traveling from one interview to another.
Another problem encountered in both cities was an expressed lack of con-
fidence in public entities to achieve improvement in water quality even
if appropriate financing could be secured.  Little confidence was expressed
in the Denver Water Board, the State of Colorado, and Environmental Pro-
tection Agency and the Federal government by a significant number of
participants.  This problem may have led to more conservative bids then
would otherwise be forthcoming.  In some cases there was an expressed
disapproval of one or both methods of financing improved water quality.
Minor problems were also encountered with a few individuals who could
not easily grasp financing water quality through one of the posited methods.
Hence considerable time was expended in explanation.

     At the time of the scheduled interview, an introductory statement
established the credentials of the interviewer and the purpose of the
survey.  This was an informal paraphrase of the following:

     "Hello,  I am	of Colorado State University in
     Fort Collins (hand respondent a copy of the introductory
     letter).  A short time ago you received a similar letter in
     the mail.  An appointment was made with you for this hour.
     This  letter from the chairman of the Department of Economics
     briefly explains the purpose of the study and the importance
     of talking with people in households Iike yours throughout the
     (Denver) (Fort Collins) area.  I  want to find out how you feel
     about water quality.  I am interested in your enjoyment from
     using and viewing rivers and lakes (fish, waterfowl, waterplants
     and the water itself), and your satisfaction in knowing such
     natural environments are preserved."

     Then the respondent was handed a copy of the questionnaire shown  in
the Appendix and asked to read along with the  interviewer.  Any questions
raised by the respondents were clarified by the interviewer.  First, the
respondent was asked to provide some common socioeconomic information such
as age, place of former residence and income.  Then, respondents were
asked their opinions about general environmental problems and perceived
water quality in the South Platte River Basin.

     Immediately after the respondents were asked their opinion on how
they rated the waterways of the South Platte River Basin  in terms of quality
(Question  11) they were shown a map illustrating the area encompassing
the Basin.  They were thus made familiar with the rivers and boundaries of
the Basin.  When such information was needed during the remainder of the
interview to provide an appropriate answer the respondents were free to
review the map.

     Next the respondents were read the following introduction to water
quality and associated problems in Colorado:
                                       24

-------
     "Coal development along with expanding mining operations may
     have significant effects on the quality of Colorado's water
     in the near future.  As an aid in planning for the future I
     would like to find out how you feel about clean water for
     recreational activities.  I  have some questions which consider
     different ways of financing improved water quality.   Let us
     consider three levels of water quality in a waterway such as
     the South Platte River."
COLOR PHOTOGRAPHS

     Then respondents were shown pictures of three levels of water quality
illustrated in Figure  2  and technical data on heavy metal  pollution shown
in Table  3  .  The three photographs depict three levels of water quality
in the South Platte River Basin.  The respondent was told that in Situa-
tion A, water pollution had been nearly eliminated and the waterway re-
stored to its natural condition.  Situation B shows considerable reduction
in water pollution, but a greenish tint resulting from the presence of
copper and other metals remains clearly visible.  Situation C shows severe
water pollution, with a heavy load of mining waste.

     The interviewers pointed out the salient features of water pollution
in each set of photographs.  For most of the respondents, the situations
were rooted in real experience.   The residents of the River Basin are
familiar with pollution of waterways by mine tailings as in Situations C
and B.  Situation B was a fairly good approximation of the Denver situation
at the time of the interviews.  The pristine water quality of Situation A
is typical of several high mountain streams in Rocky Mountain Park and
National Forests on the western edge of the River Basin.

     Photographs were taken at river  locations along the Colorado Front
Range.  The composition of photographs was held constant in so far as
possible.  Site C with the most pollution  is located on California Gulch
near Leadville.  Although California Gulch is in the Arkansas River Basin
drainage system, pollution at the site was equal to Clear Creek in the
South Platte River Basin.  By using this site colored water features related
to mine drainage could be  illustrated.  Site B is an intermediate pollution
situation.  It is directly below the Henderson Molybdenum mine near Berthoud
Falls.  The site is  located en the West Fork of Clear Creek.  Site A, the
cleanest of the three pictural sites  is located on the Poudre River above
Fort Col I ins.

     Color photographs are realistic  in depicting evidence of visual pollu-
tion such as algae, weeds and heavy metal  coloration, but do not show non-
visual pollution such as odor, nor the presence of chemicals and bacteria.
Measures of heavy metal concentrations at the sites where the photographs
were taken were available, and these were presented to the respondents as
an example of one major source of water pollution.
                                       25

-------
Figure 2.  Three Levels of Water Quality,  South
           Platte River Basin, Colorado, 1976.
                            26

-------
Table  3  .   Heavy Metal Pollution at the Three Photograph Sites,
             South Platte River Basin, Colorado, 1973.
Heavy Meta 1 s
Metal Concentration (Microq rams/Li ten)
C
B
A
Recommended Biological
Limits for Fish
Surviva 1
Arsenic
Cadmium
Copper
1 ron
Lead
Magnesium
Manganese
Molybdenum
Nickel
Selenium
Vand ium
Zinc
Total Metals
16*
620*
2,000*
50,000*
450*
66*
28,000
-
50
48*
-
100,000
181,250
-
<10
10
380*
<50
1.4
580
1
<25
-
3.1
90
<1,150.5
1,000
10
10-20
300
5-10
-
1,000
-
50
1,000
-
30-70
500
*lndicates these metalic concentrations exceeds recommended drinking water
 standards.

Source: [Wentz, 1974].
                                       27

-------
     Water quality  data  for  the  three  photograph  sites are shown  in
Table  3  .  Metals  associated  with  acid  mine  drainage are  listed with
the amount of each  in micrograms per  liter.   An *  indicates that the
concentration exceeds recommended drinking water  standards.  Recommended
biological  limits for fish and wildlife  communities are also shown.
Site C exceeds  concentration recommended for  drinking water.  Site B
exceeds total metal  concentrations  recommended for fish and wildlife
communities.  No heavy metals  were  measurable at  Site A by the sampling
and analytical  methods used.


METHOD OF PAYMENT

     The  bidding game process  described  in Section 2 was used to measure
the respondent's consumer surplus in two separate  simulated market situa-
tions.  These situations were:   a general sales tax and residential sewer-
water bill.  The methods of  payment were chosen so as to maximize the real-
ism and credibility  of the hypothetical  situation  posited to respondents.
Both approaches represent established, routinized  methods of paying for
public services.  It was therefore  not difficult  for most respondents to
comprehend the  financing of  pollution abatement by either approach.

     Residents  of both cities  were  familiar with  the practice of paying
xa  sales tax.  For most  it  is a daily occurrence.   People are aware that
income collected  in  sales taxes  is  used  to provide public services.  It
is realistic to conceive of  a  public agency collecting a sales tax and
using the  income to  finance  improved water quality.  Respondents were
asked to  assume that a sales tax would be collected on a I I purchases in
the South Platte River Basin for purposes of  financing improved water
quality  in the  region.   This provision was designed to avoid the effects
of the free-rider problem.

     The  sales  tax measure of  the value  of improved water quality may be con-
sidered superior to  the  water  bill  in that tourists pay sales taxes as
well as residents of the  River  Basin.  Tourism is  the third largest industry
in the state with total  sales  of approximately $700 million in 1976.
Tourism  is an important  source of revenue to  state and local units of
government.  A  6 percent sales tax  raises approximately $42 million
annually  in revenue  from tourists.

     Residents  of born cities  are familiar with the practice of paying
for wastewater  treatment through monthly water bills.  Homeowners and
renters realize that revenues  collected  through the water bill also provides
sewer treatment services.  Monthly  water bills show the sewer assessment
as a separate item,  and  sewer  rates are  based on  water usage.  Inadequate
treatment of wastewater  causes much of the water  pollution in the River
Basin.  Most people  can  readily  comprehend that reduction of the damage
may raise the cost  of operating  sewer treatment plants, and that paying
these additional costs through increases in the sewer-water bill  is a
distinct  possibility.  For the residents of small  and  large cities of the


                                      28

-------
River Basin, payment of .3 monthly sewer-water bill is routine.  Howe/en,
renters do not directly pay water bills, landlords do, so  the sales tax
is considered to have more general acceptance than a water bill.

     Immediately preceding the commencement of the bidding game the respon-
dents were shown a table with the annual amount of money in dollars that
families in Colorado pay in sales tax as estimated by the Internal  Revenue
Service in 1975.  Tax rates were shown for Internal Revenue Service income
brackets and family size.  The table showed the amount of money a family
would pay with a 5 percent sales tax, the amount of state and city  tax
collected per dollar in Fort Collins.  Denver residents pay 6.5 percent
per dollar in sales tax and surrounding areas pay a varying amount  depending
on the particular suburb.  The additional annual amount of money that
would be paid through a one-quarter cent increment in sales taxes was
shown and the total annual  amount paid in sales tax was calculated  for
each respondent.  Thus the respondent knows approximately how much money
he presently paid in sales taxes along with how much additional money he
would pay for every one-quarter cent increment in sales tax before  the
bidding game began.
BIDDING GAME

     The bidding game procedure used in this study had been successfully
applied to other natural resource value problems such as recreation use
of forest areas and air quality [Davis, 1963, Randall, 1974].   It was
employed here to determine willingness to pay for improved water quality
to enhance recreation enjoyment, option, existence,  and bequest values.
Respondents were asked by how much they would be willing to increase their
current sales tax in cents per dollar and water bill   in dollars per month
to pay for improved water quality in the South Platte River Basin.  The
sales tax bidding procedure began at one-half cent with one-fourth cent
incremental changes upward or downward.  The water bill bidding procedure
began at 50 cents per month with 50 cents per month incremental changes.

     For each bidding situation, respondents were asked to consider Situa-
tion C, the greatest degree of water pollution as the starting point.
The bidding games were designed to discover the maximum amount of money
which the respondent, an adult speaking for his or her household, was
willing to pay to improve water quality to intermediate Situation B and
the clean water of Situation A.  Answers were given as "yes" or Mno" to
questions expressed in the following form:

     "Would you be willing to add one-fourth cent on the dollar to
     present sales taxes every year, if that resulted  in an improve-
     ment from Situation C to Situation B?"

A ''yes" answer would  lead the  interviewer to raise the amount  by one-fourth
cent and repeat the question, as many times as need be until a "no" answer
was given.  A "no" answer would  lead the  interviewer to reduce the amount

-------
 until  a  "yes"  answer  was  given.  The  increment which resulted  in the high-
 est  "yes"  answer  was  recorded  as the  amount  the  respondent was willing to
 pay.   One  important advantage  of the  bidding game procedure  Is that it
 asks  yes-no  questions rather than  for a  dollar estimate.  This is expected
 to yield less  biased  estimates of  willingness to pay [Randall, 1974].

      It  should be noted that the respondents were instructed to assume that
 the method of  payment used  was the only  possible way to finance water quality
 improvement.   This stipulation was designed  to minimize the  Incidence of
 zero  bids  as protests against  the  particular method of payment.  If a re-
 spondent said  that he was not  willing to pay anything, he was asked a
 series of  questions to find out why.   Table  4 shows that 13.9 percent
 of the respondents refused  to  answer  the sales tax questions stating that
 taxes are  already too high  or  the  belief  that it is unfair to expect people
 who are  adversely affected  by  the  pollution  of others to pay the costs.
 A respondent reporting that he did not consider  his household harmed by
 water pollution and saw no  reason  to  pay for improved water quality was
 recorded as  bidding zero.   Only 1.9 percent  of respondents fell into this
 category with  respect to  zero  payment for current recreation use value,
 however, 26.7  percent gave  zero option value.

     The hypothetical  situations presented to respondents were designed to
 be as realistic and credible as possible.  The bidding procedure was in-
 troduced with  the following statement:

     "Suppose  a sales tax was  collected  from the citizens of the
     South Platte River Basin  for  the purpose of financing water
     quality in this  basin.  All of the  additional tax would be
     used  for  water quality improvements to  enhance recreational
     enjoyment.   Every Basin resident would  pay  the tax.  All bodies
     of  water  in  the  River  Basin would be cleaned up by 1983.
     Assume that  this is  the only  way to finance water quality
      improvement."

     The definition of recreation  enjoyment  was  left to each individual
 respondent.  This  approach  was adopted so that respondents would be more
 likely to  estimate the total recreation  value.   Any particular definition
of water-based recreation activities  provided by the interviewer might
 have omitted an activity  for which the respondent would be willing to
pay.   The  estimated value of water quality to enhance the water-based
recreation experience then  would be biased downward.  As a result, re-
spondents conceived of water-based recreation broadly to include swimming,
boating,  fishing,  sightseeing, picnicking, camping, hiking, driving,
and other  leisure  time activities  within  view of lakes and streams.

     The year  1983 was specified because it  is a national goal that water-
ways become suitable  for  fish  life and human contact recreation by that
year.  Abatement methods  incorporating the best  available technology which
 is economically achievable are to  be  employed by industry point source
polluters by 1983.

                                       30

-------
Table 4.  Total Number of Respondents Interviewed Compared to the Number Answering
          Questions Relating to Value of Water Quality and the Number Willing  to
          Pay, Denver, Fort Collins, and South Platte River Basin,  Colorado,  1976.
Response
Denver
Metropol i tan
Area
Number | Percent
Fort Col 1 i ns
Number
Percent
South Platte
River Basin
Number | Percent
Total Number Interviewed

Number Answering Value of Water
  Quality Questions
  Recreation Use Value
    Annual Sales Tax
    Water BiI I
  Option Value
    Annual Sales Tax
    Water BiI 1

Number WiI I ing to Pay Some
  Amount
  Recreation Use Value
    Annual Sales Tax
    Water BiI I
  Option Value
    AnnuaI Sales Tax
    Water BiI I
                                      101
100.0
101
100.0
202
100.0
85
82
88
83
84.2
81.2
87.1
82.2
89
78
89
78
88.1
77.2
88.1
77.2
174
160
177
161
86.1
79.2
87.6
79.7
84
81
65
59
83.2
80.2
64.3
58.4
86
75
58
52
85.1
74.3
57.4
51.5
170
156
123
111
84.2
77.2
60.9
55.0

-------
     The hypothetical situation presented to respondents regarding option
value was designed to be as realistic as possible.  A rereading or explanation
was provided by interviewers where deemed necessary.  The introductory
paragraph explains a realistic coal and metal mining threat to water quality
in the River Basin and possible irreversible consequences.  The possibility
of substituting other recreation areas is minimized.  The alternative
uses of water are explained, i.e., irreversibly polluted water or pre-
servation of water quality.  The option value questions were the following
statements:

          "In the near future, one of two alternatives is likely
     to occur in the South Platte River Basin.  The first alternative
     is that a  large expansion in mining development will soon take
     place, creating jobs and income for the region.  As a conse-
     quence, however, many  lakes and streams would become severely
     polluted.  It is highly unlikely, as is shown in Situation C,
     that these waterways could ever be returned to their natural
     conditions.  They could not be used for recreation.  Growing
     demand could cause all other waterways  in the area to be crowded
     with other recreationists.

          "The second possible alternative is to postpone any decision
     to expand mining activities which would irreversibly pollute
     these waterways.  During this time, they would be preserved at
     level A for your recreational use.  Furthermore, information
     would become available enabling you to make a decision with near
     certainty  in the future, as to whether  it is more beneficial
     to you to preserve the waterways at level A for your recreational
     use or to permit mining development.  Of course, if the first
     alternative takes place, you could not make this future choice
     since the waterways would be  irreversibly polluted.

          "Given your chance of future recreation use, would you be
     wiI I ing to add 	 cents on the do Ilar to present sales taxes
     every year to postpone mining development.  This postponement
     would permit information to become available enabling you to
     make a decision with near certainty in the future as to which
     option (recreational use or mining development) would be most
     beneficial  to you?  Would it be reasonable to add 	to
     your water bill every month for this postponement?"

     The bidding procedure for existence and bequest values was  introduced
with a question concerning the chances of future recreation use of water
in the River Basin.  This was designed to facilitate use of a sub-sample
of non-user values.  The hypothetical situation presented to respondents
also was prefaced with the condition that it is certain the respondent
will not use the River Basin for water-based recreation activities.  The
existence and bequest questions were:
                                       32

-------
     "(1)  What would you estimate are the chances in 100 that
you will  travel to lakes and streams in the South Platte River
Basin in  the next year, for water-based recreation if they are
preserved at level A?  Do you anticipate any significant change
in your chances for future years?  (If 'yes') What change?

     "(2)  If it were certain you would not use the South Platte
River Basin for water-based recreation, would you be willing to
add 	 cents on the dollar to present sales taxes every
year, just to know clean water exists at level A as a natural
habitat for plants, fish, wildlife, etc.?  Would it be reason-
able to add 	 to your water bilI  every month for this
know I edge?

     "(3)  If it were certain you would not use the South Platte
River Basin for water-based recreation, would you be willing
to add 	cents on the do Ilar to present sales taxes every
year to ensure that future generations will be able to enjoy
clean water at level  A?  Would it be reasonable to add 	
to your water bill every month for this knowledge?"
                                  33

-------
                                  SECTION  4

                       RECREATION USE AND  NON-USE  VALUES
      This  section  presents  a  summary  and  analysis of the  results of the
 interview  survey described  earlier.   Responses  to recreation use and
 option  value  questions  are  first  discussed  and  existence  and bequest
 value estimates are  described.  We  then aggregate the survey results to
 the  basin  population and  express  the  estimates  in terms of the present
 worth of a  future  time  stream of  values.
OPTION AND  RECREATION  USE  VALUES

     Option value  constitutes  a substantial part of the total value of
 improved  water quality for recreation  use  in the South Platte River Basin.
From our  random  sample,  175 resident households reported they were willing
to  pay for  the option  to choose to  engage  in water-based recreation activ-
 ities  in  the future.   Their responses  averaged $22.60 per year.  The
preservation of  water  quality  provides the option to make a future deci-
sion between two alternative uses of waterways in the River Basin, either
for water-based  recreation or  for wastewater discharge by industrial and
energy development, under  conditions of certain knowledge about which
will be more beneficial.   Option value added about 40 percent to the
recreation  user  value  from enhanced enjoyment of recreation activities
with improved water quality by  1983.

     These  same  175 resident households reported they were willing to
pay an average of  $56.68 annually to improve water quality in the River
Basin for recreation use.   This was the average value for the 80.8 per-
cent of the households  interviewed  who expect to continue to use lakes
and streams in the River Basin for  fishing, boating, swimming, and non-
contact recreation activities  such  as  picnicking and sightseeing near
water with  enhanced aesthetic  satisfaction of such recreation experiences.
These residents' households  reported an average of about slightly over
15 water-based recreation  activity  days annually in the River Basin, so
the recreation use value of  improved water quality was equivalent to
$3.76 per activitiy day.   The two values, current recreation use and the
option value to  choose future  recreation use, are additive.   Table 5
shows that  the total recreation value  of improved water quality averaged
$79.28 annually, which was  equivalent  to $5.29 per household activity
day.

     There  is very little  empirical literature available with which to
compare these results.  The  recreation use value of water quality improve-

                                       34

-------
   Table  5.  Willingness  of  Recreation  User  Households  to  Pay  Additional  Sales Tax  to  Improve
             Water Quality,  Denver,  Fort  Collins  and  South Platte  River  Basin, Colorado,  1976.


Water Qua I ity Values

Denver
Metropol itan
Area

Tax?./
Rate
Cents
Annual
Do I lars
Per
User
Day

Fort Col 1 i ns

Tax
Rate
Cents
Annua 1
Dol tars
Per
User
Day

South Platte
River BasinJL/

Tax
Rate
Cents
Annua 1
Dol lars
Per
User
Day
Ul
Ul
Mean Recreation Use
  Value
    95$ Conf idence
    Interval £/
    Number Reporting
Mean Option Value
    95$ Confidence
    Interval
    Number Reporting
Total  Use Value
.00     $50.18    $3.92

    ($42.94-$57.43)

)        (85)
.39     $18.31    $1.43

    ($13.27-$23.36)
                                                    1.63
        $74.00   $3.57    1.17
$56.68   $3.76
   ($51.07-$96.94)

         (89)
.85     $34.05   $1.65

   ($20.11-$47.99)
                                                                               .52
                          1.39
 (88)
$68.49
$5.35
                         2.48
  (89)
$108.05
                 $5.22    1.69
 (174)
$22.60
 (177)
$79.28
                                                              $1.50
         $5.26
   — Each one-hundredth  cent  increase  in  sales  tax  added  50.32 cents to annual sales tax payment, at mean
      income of  $13,500 and  a  family of  4  persons.   (IRS  1975 Sales Tax Table for Colorado.)  These average
      values  include  those who bid  zero  because  they felt  no water quality  improvement was necessary.  It
      excludes those  who  refused  to bid  because  taxes were considered already too high or for some other
      reason.

   — Weighted by  population.   The  Denver  Metropolitan Area population of 1,267,000 persons excluding
      Boulder County  was  72.7  percent of the  1,742,900 persons  in the South Platte River Basin in 1976.

   — The confidence  intervals show the  range of values that would include 95 percent of the means of a I I
      samples of this size drawn  from the  population.

-------
merit to residents of the River Basin was similar to tourists in Rocky
Mountain National Park.  A substantial portion of the national  park is
located within the South Platte River Basin.  In the Summer of  1973,
park visitors reported they were willing to pay an average of $5.55 per
household day to avoid water pollution where they engage in outdoor recrea-
tion activities [Ericson, 1977].  Water quality is higher in the park
than in the River Basin as a whole.  The park is one of the unique natural
areas of the nation, with pristine rivers and lakes, and majestic mountain
peaks.   This unique natural setting may have influenced value estimates
of these respondents.

     The present estimate of the recreation use value of water  quality in
the South Platte River Basin was somewhat higher than a recent  study of
the Merrimack River Basin in New Hampshire and Massachusetts.  Ostar [1977]
interviewed 200 residents of that basin and found an average willingness
to pay for pollution abatement of $12 per person annually.   If  family size
averaged four persons, this would be equivalent to a value of $48 per
household in that basin.  This figure, however, is well within  the 95 per-
cent confidence interval of the South Platte River Basin.

     The recreation use value of water quality to residents of  the South
Platte River Basin was similar to a national estimate.  The annual use
value of water quality to fishermen, boaters and swimmers was $69.59 per
U.S. household in 1970 [Walsh, 1977].  This was based on a calculation of
travel  cost savings resulting from improved water quality,  excluding
travel  time costs.  River Basin residents have experienced less water
pollution than in the  industrial centers of the nation.  Also,  Colorado
residents may have more close substitutes available, i.e.,  pristine high
mountain rivers and  lakes elsewhere in the Rocky Mountains.  Davis found
the bidding game approach to valuing outdoor recreation resources yields
results not significantly different from the travel cost approach [Knetsch
and Davis, 1966].   In any case, the fact that the national  estimates pre-
pared by the travel cost figure method falls in the 95 percent confidence
interval of our South Platte survey suggests the reasonableness of the
resuIts.

     The recreation use value of water quality is similar in amount to
the recreation value of air quality.  A 1972 survey of resident and
tourist  households  showed a willingness to pay $85 annually to avoid
aesthetic damages from air pollution by the Four Corners Power Plant at
Fruitland, New Mexico  [Randall, 1974].  The reliability of this study has
5een tested by replication under similar conditions.  A random sample of
households were interviewed while visiting Lake Powell in Glen Canyon
National Recreation Area [Brookshire, Schulze and  Ives, 1976].   In 1973,
households were wilting to pay an average of $2.77 per recreation day to
avoid air pollution damage from the Navajo power plant visible south
of the  lake.  It was reported that an unpublished replication of these
studies in Farmington, New Mexico, also was consistent with the earlier
results [Randal I, 1977].


                                      36

-------
EXISTENCE AND BEQUEST VALUES

     Non-user values from preservation of water quality in the South
Platte River Basin were defined to include both the value placed on exis-
tence of a natural ecosystem and the value of its bequest to future genera-
tions.  Table 6 compares existence and bequest values for resident user
and non-user households.

     From our random sample, 181 resident user households reported an
average existence value of $33.86 and a bequest value of $33.01, for a
total preservation value of $66.87 annually.   This was the value reported
by the 80.8 percent of the households interviewed who expected to continue
to use lakes and streams in the River Basin for fishing, boating, swimming,
and non-contact recreation activities such as picnicking and sightseeing
near waterways.   If there were no recreation  activities in the South
Platte River Basin, this group of households  would still value improved
water quality.   Estimates of preservation values by recreation users were
premised on the assumption that the respondents knew with certainty they
would not engage  in water-based recreation activities in the River Basin.
Thus, existence and bequest value estimates by recreation users can not
be added to their recreation use and option value estimates but are in
lieu of them.  Preservation values reported by recreation users are the
expected levels if no recreation use values were present.

     Non-user households reported an average  existence value of $24.98 and
a bequest value of $16.97,  for a total  preservation value of $41.95 annually.
This was the value reported by the 19.2 percent of respondents who reported
a zero chance of future use of the River Basin for recreation activities.
The two tailed  t-test of significance revealed that the value estimates
for this small  sub-sample of 24 respondents was significantly different
from zero in the case of existence and bequest values in Denver but not
in Fort Collins.  A one tail test may be more appropriate for data such as
this where only positive values were reported.  Existence value  in Fort
Collins was significant in a one tail test at the 95 percent confidence
level,  and bequest value was significant at the 90 percent  level.  However,
we consider the average values reasonable and a larger sub-sample would
increase their significance.  These estimates of non-user preservation
values in the South Platte River Basin are small compared to those es-
timated in the Fraser River Basin, British Columbia, Canada [Meyer, 1975].
There,  preservation values  increase salmon fishing values by 54 percent
or  $233  per household annually.  It should be noted that these values were
reported for the preservation of a free flowing river system from a large
water impoundment project,  and are not strictly comparable to values from
the preservation of water quality alone.

     As a first approximation, the existence and bequest value estimates
for the 19.2 percent of respondents who reported a zero chance of future
recreation use of the River Basin are extrapolated to all residents.
The procedure involves the premise that recreation users would be willing


                                      37

-------
   Table  6  .  Willingness of Recreation  User and Non-User Households to Pay Additional Sales Tax to
                Improve Water Quality  for  Preservation of the  Existence of a Natural Ecosystem and its Bequest
               to Future Generations,  De wer, Fort Collins and  South Platte River Basin, Colorado, 1976.


Water Quality Values
Denver
Metropol itan


Tax
Rate
Cents
Annua 1
Dol lars
Fort Col 1 ins


Tax
Rate
Cents
Annua 1
Dol lars
South Platte
River Basin


Tax
Rate
Cents
Annua 1
Dol lars
03
   Resident  User
      If Non-Use for  Recreation  Assumed  Cer+ain
Existence of Natural Ecosystem
95% Confidence Interval!./
Number Reporting C )
Bequest to Future Generations
95% Confidence Interval
Number Reporting ( )
TOTAL
Resident Non-User
Sub-sample Reporting a Zero Chance
of Future Use
Existence of Natural Ecosystem
95% Confidence Interval
Number Reporting ( )
Bequest to Future Generations
95% Conf i dence 1 nterva 1
Number Reporting C. )
TOTAL
.61 $28.95
($22.67-535.22)
(88)
.56 $28.48
($22.70-$34.26)
(88)
1.17 $57.43



.70 $26.03
($1.78-$50.29)
(15)
.42 $16.43
($6.67-$26.19)
(15)
1.12 $42.46
1.09 $46.92 .74
($32.00-$61.84)
(91)
1.10 $45.09 .70
($30.18-$60.01)
(93)
2.19 $92.01 1.44



.50 $22.17 .64
L-$5.33-$49.66)
(9)
.40 $18.42 .41
(-$9.70-$46.53)
(9)
.90 $40.59 1.06
$33.86

(179)
$33.01

(181)
$66.87



$24.98

(24)
$16.97

(24)
$41.95
    — The confidence intervals show the range of values  that  would  include 95 percent of the means of a I
      samples of this size drawn from the population.

-------
 to  pay  as much  in additional sales tax for existence and bequest values
 as  non-users.   Users were also asked existence and bequest value questions,
 but the resulting value estimates were much  larger than those for non-
 users and were  not considered additive to recreation users values.  It was
 felt that many  recreation users would have lowered their reported existence
 and bequest values if they were to be added to previously reported recrea-
 tion use and option values.  Therefore, the extrapolation of the smaller
 existence and bequest values of non-users is appealing.  However appealing
 this procedure  may be, our survey did not ask users for their existence
 and bequest values in such a way as to permit adding them to user's values.
 Thus, the extrapolation of non-user existence and bequest values over all
 residents cannot be interpreted as an estimate of true willingness to pay
 for these preservation values.  It would be interesting to extend this
 research to allow measurement of existence and bequest values to recrea-
 tion users as welI  as non-users in such a way as to a I  low them to be added
 to  user values.
ANNUAL BENEFITS AND PRESENT VALUE OF FUTURE BENEFITS

         Estimates of total annual benefits from improved water quality were
prepared for the South Platte River Basin.  These were used to calculate
the present value of a future stream of annual benefits.  Table 7 shows
the annual and present values of benefits from recreation use, option,
existence, and bequest demands.

         Total annual benefits from water quality improvement in the South
Platte River Basin were estimated at $61.1 million,  inlcuding recreation
use value of $26.4 million, option value  of  $10.5 million, existence value
estimated at $14.4 million, and bequest value of $9.8 million.  These annual
benefits were estimated in two steps:  (1) for the 80.8 percent of the house-
holds who expect to be recreation users in the future, and (2) for the
19.2 percent of the households who expect to be non-users in the future.
It was estimated that there were 576,435 households in the River Basin in
1976.  The annual benefit estimates were a weighted average based on the
proportion of Basin population in the Denver Metropolitan Area and the pro-
portion of the population in non-metropolitan areas.  It was assumed that
Fort Collins was  representative of the non-metropolitan areas of the River
Bas i n.

         The weighted average benefits to the 80.8 percent of the households
who reported they intend to engage in recreation use of the waterways in
the River Basin was estimated as $121.23 annually.   This is the sum of the
average recreation use value of $56.68, option value of $22.60, existence
value of $24.98, and bequest value of $16.97.  Existence and bequest values
are those reported by a sub-sample of residents who currently do not expect
to use the River Basin for recreation, on the assumption that they are
representative of existence and bequest values for the general population
in the River Basin.  This may be a conservative estimate as the experience
and appreciation gained in the recreation use of these resources may result
in somewhat higher estimates of existence and bequest values than for the
non-user sample of the population.

                                      39

-------
Table  7  .  Annual Value and Present Value of Benefits  from Water Quality  Improvement  for Recreation,
             Option, Existence, and Bequest Demands by Residents of the South Platte River Basin,  1976.
Water Qual ity Values
(Wi 1 1 ingness to Pay
Sales Tax)
Denver
Metropol itan
Area
Annual
Value
Present ,
Va 1 ue^7
Non-Metropol itan
Areas
Annual
Value
Present,
Value^
South Platte
River Basin
Annua 1
Value
Present,
Va 1 ue2-7
Recreation Use Value
  Improvement from Polluted
  Water to Intermediate Level
  of Water Quality (C-B) by
  1983
Improvement from Polluted Water
  to Highest Level of Water
  Quality (C-A) by 1983
Improved Water Quality
  Delayed to the Year 2000

Option Value
Existence of Natural
  Ecosystem
Bequest to Future
  Generations'
Total Benefits of Highest
  LeveI of Water Qua Ii ty
   Improvement,  (C-A)  by
  1983 for Recreation, Option,
  Existence and Bequest
  Values
$12,491,660  $195,947,600   $750,883 $11,778,555  $18,499,947 $290,195,255
 16,886,624   264,888,216  1,191,622  18,692,110   26,399,220  414,105,414
 14,594,916   228,939,855

  6,161,700    96,654,102

 11,060,147   173,492,502
863,765  13,549,254

548,307   8,600,896

419,523   6,580,752
21,504,093  337,319,106

10,526,153  165,116,132

14,399,346  225,872,099
  6,981,107   109,507,561     348,562   5,467,634    9,782,102  153,444,736
 41,089,578   644,542,400  2,508,014  39,341,396   61,106,821   958,538,360
— Assuming  a  pecpetiiial  benefit  stream, where Present Value = B/i, B = Annual Aggregate Benefits and i  =
   Federal Rate  of  Discount,  6 3/8  percent.

-------
       The weighted  average  benefits  to  the  19.2  percent of the  households
 who reported  they do  not  expect  to make recreational use of the waterways
 in  the River  Basin  was  estimated  as  $41.95  annually.  The non-user  benefits
 from improved  water quality were  the sum of existence and bequest demand
 values for the relevant population of non-users.  Recreation use and option
 value  estimates were  excluded from non-user benefits since they reported a
 zero probability of future  recreation use in the River Basin.   These non-
 user households represented 14.9  percent of the Fort Collins population,
 and  20.8  percent of the Denver population.

     The  present value  of a perpetual stream of  benefits from water quality
 improvement in the  South  Platte  River Basin was  calculated as $958.5 million,
 including recreation  use  value of $414.1 million, option value  of $165.1 mil-
 lion,  existence value estimated  at $225.4 million,  and bequest  value of
 $153.4 million.  Present  value  is the amount of  money that would have to
 be  invested at interest today  in  order  to yield  the specified annual bene-
 fits from improved  water  quality  for an indefinite  period of time.  The
 formula is PV  = B/i where PV  is  the  present value of a perpetual stream
 of  annual  benefits, B is  the annual  benefits from water quality improve-
 ment and  i  is  the Federal discount rate of  6 3/8 percent currently  used
 in  calculation of benefits  and costs of public projects.

     The  calculation  of present  value of future  benefits  is  included for
 illustrative  purposes,  and  is  likely to be  a  low estimation for a number
 of  reasons.   Future benefits are  assumed to remain  constant at  1976 levels,
 which  seems unlikely  to occur.   For  one thing, population  is espected to
 continue  to grow rapidly  in some  parts  of the River Basin, as migration
 from other parts of the nation continues to occur.  Also, the results of
 the socio-economic  regression analysis  suggest that variables such  as
 future growth  in  income,  increased education  levels, and changes in the
 age characteristics of  the  population will  significantly  increase willing-
 ness to pay for improved  water quality.  Substitute recreation  areas may
 become crowded and  polluted, and  with more  leisure  time available the
 proportion  of  the population who  engage in  water-based recreation activ-
 ities  in the River Basin may increase.  These trends suggest that the present
value of the benefit  stream may prove conservative.   In addition, tourists
account for approximately 30-40 percent of the total water-based recreation
activities  in  the River Basin, and benefits to them were not estimated in
this study.  The value of  improved water quality to non-resident tourists
should  be added to the  resident values  shown here to arrive at a complete
estimate of water quality benefits in the River Basin [Ericson,  1977].


METHOD OF PAYMENT

     Survey respondents indicated a greater willingness to pay  for  improved
water when the method  of hypothetical payment was an increase in sales tax
rather than an  increase in water  bill.  Comparing table  8  with tables  5  and
 6  shows that willingness to pay additional water  bill  for improved water
quality was about one-third as much as willingness  to pay additional sales

                                      41

-------
Table 8.  Willingness of Resident Households to Pay Additional Water Bill to  Improve Water
          Quality, Denver, Fort Collins, and South Platte River Basin, Colorado, 1976.
Water Quality Values
Denv«
Metropo
Arec
Monthly
Water
Surcharge
sr
i tan
3
Annua 1
Dol lars
Fort Col 1 ins
Month ly
Water
Surcharge
Annua 1
Dol lars
South Platte
River Basin
Monthly
Water
Surcharge
Annual
Dol lars
Recreation Use Value
95% Conf i dence 1 nterva 1
Number Reporting ( )
Option Value
95$ Confidence Interval
Number Reporting ( )
Existence of Natural
Ecosystem!*/
95% Confidence Interval
Number Reporting ( )
Bequest to Future
Generations3.'
95$ Confidence Interval
Number Reporting ( )
$1.32 $15.84 $2.16
($12.99-$18.69)
(82)
.50 6.04 1.00
($4.58-$7.51)
(83)
.54 6.43 .58
($4.78-$8.07)
(14)
.46 5.57 .42
($3.93-$7.22)
(14)
$25.92 $1.55
($11.79-$40.06)
(78)
12.00 .64
($5.86-$18.14)
(73)
7.00 .55
($5.37-$8.63)
(9)
5.00 .45
($2.70-$7.31)
(9)
$18.60

(160)
7.65
(160)
6.60
(23)
5.40

(23)
—Existence  and  bequest values shown here are for a 20 percent sub-sample of respondents who
   reported a zero chance of  future use of the South Platte River Basin for water-based
   recreation activities.

-------
tax.  This was an unexpected result, as previous research suggested alter-
native methods of payment would not affect willingness to pay.   In a con-
trolled test of the bidding game approach to estimation of willingness to
pay, Bohm [1972] found that several hypothetical methods of payment did not
significantly affect results as compared to when actual payment was made.

     The relative size of the estimated values for the two methods of payment
was nearly identical in both Denver and Fort Collins.   For example, willingness
to pay additional water bill for recreation use was reported as 32 percent as
much as sales tax in Denver, and 35 percent as much in Fort Collins.  This
suggests that factors  influencing the cnoice of payment were general in
nature.  A sales tax is collected from everyone who purchases goods and
services in the taxing district, including tourists, whereas water bills
are paid by property owners, and only indirectly by renters.  This  is the
free rider problem  in which tourists tend to escape payment when water
quality is improved primarily through water sewer district revenues [Walsh,
Soper and Prato, 1977].  Respondents were more reluctant to participate
in the water bill value estimation procedure.  This may have resulted from
perceived inequities.  In portions of both cities which were not metered,
small families were required to pay the same flat fee as  large families.
Also, with average water bill of $10-15 per month, an  incremental  willing-
ness to pay of 50 cents per month is a larger percentage of the total water
bill than ? cent in additional sales tax.  Although the average willingness
to pay additional sales tax for improved water quality amounted to more
total annual  dollars,  it was approximately the same percentage of  the
annual sales tax bill as the water bill estimates were of the annual water
bill.
RIVER BASIN VERSUS STATE VALUES OF IMPROVED WATER QUALITY

     Results of this study suggest that the River Basin is an appropriate
geographic area when evaluating recreation satisfaction from improved water
quality.  Residents of the River Basin were asked how much their willingness
to pay for improved water quality would change if waterways of the entire
state were improved to level A.  Table  9  shows that the average willingness
to pay to improve water quality throughout Colorado was slight by comparison
to the river basin where residents live.  The paired T-test showed no
significant difference at the 5 percent level.  In other words, it seems
likely that residents of the River Basin are not willing to pay for improved
water quality in other river basins in the state.  However, residents of
other river basins throughout Colorado may be willing to pay to improve
water quality in their own  local area.  The clear implication  is that these
findings for the South Platte River Basin are additive to water quality
values Which .could be estimated for each major river basin in the state.

     Residents of the South Platte River Basin tend to engage  in water-
based recreation activity within the Basin.  Denver residents reported an
average of 20 water-based recreation activity days annually of which 12 or
                                       43

-------
Table  9  .  Willingness of South Platte River Basin Residents to Pay an Additional Sales Tax
             to  Improve Waterways Throughout Colorado, 1976.
Water Qual ity Values
Denver
Metropol itan
Area
Tax
Rate
Cents
Annua 1
Dol lars
Percent
of Annu-
al Bid
Fort Col 1 ins
Tax
Rate
Cents
Annua 1
Dol lars
Percent
of Annu-
al Bid
South Platte
River Basin
Tax
Rate
Cents
Annual
Dol lars
Percent
of Annu-
al Bid
Recreation Use Value of
   Improved Water Quality
   in the South Platte
  River Basin
  95% Confidence
     IntervaI
  Number Reporting  I )

Recreation Use Value of
   Improved Water Quality
  Throughout
  Colorado
  95% Confidence
     Interval
  Number Reporting  ( )

Change  in Willingness
   to Pay
1.00   $50.18    100.0    1.63   $74.00   100.0      1.17   $56.68    100.0
   ($42.94-$57.42)
   ($51.07-$96.93)
(85)
(89)
(174)
 .99   $48.88     97.4    1.70   $76.10    102.8      1.18   $56.32    98.9
   ($41.45-$56.31)

(86)
   ($52.70-$99.50)
(89)
(175)
-.01    -1.30     -2.6     .07     2.10     2.8     -.01     -.38    -1.1

-------
some 60 p  -_J,T, were within the River Basin.  Fort Collins residents reported
an average of 26 water-based recreation  activity  days annually of which
21 or about 80 percent were within the River Basin.  Still, with 20-40
percent of annual water-based recreation activities outside of the River
Basin, it is surprising that residents were unwilling to pay for improved
water quality at these other locations.   This may be related,  in part, to
the opinions' respondents hold concerning who should pay for water quality
improvement.

     Nearly 40 percent of the residents of the River Basin were of the
opinion that the community as a whole should bear the primary responsibility
for paying the costs of water quality improvement.  An additional 15 per-
cent reported the opinion that the polluting industries should pay the
costs, while 30 percent favored sharing the costs between polluting indus-
tries and the people benefiting.


DELAY TO YEAR 2000

     The measures of willingness to pay for improved water quality through-
out this report were based on the premise that all bodies of water in the
River Basin would be cleaned up by 1983 and then maintained in a clean
state indefinitely.  If circumstances such as postponement of environmental
quality objectives resulted in delaying the improvement of water quality in
the South Platte River Basin to the year 2000,  the proportion of respon-
dents willing to pay some amount of additional  sales tax for improved water
quality declined from 170 to 151 or by 11 percent.   If it is not possible
to improve water quality in the South Platte River Basin until the year
2000, annual  willingness to pay for recreation use may fall by an average
of $10.51 per household or 18.5 percent.  Table 10  shows the relative
values for Denver and Fort Collins.  As water pollution abatement is
delayed,  water quality values in Fort Collins fall at a rate about twice
as fast as Denver.   The differences in values reported in the two cities
are significant at the five percent level.

     Understanding the effects of a delay in the improvement of water
quality on recreation values is important.  It appears that the goals
established for water quality will not be met by 1983 in the South Platte
River Basin.   The Environmental Protection Agency [1977] reports that:

          Current water quality in the South Platte River and
     its  tributaries is generally poor.   Relatively good water
     quality is found in streams' headwaters at the fringes of
     the  urbanized Denver region, but water quality deteriorates
     as the streams flow through the urban area.  By the time the
     South Platte reaches Henderson downstream of Denver, water
     quality closely resembles the treated discharge from a sewage
     treatment plant.  The alternative strategies evaluated in the
     EIS  all  result in improved water quality by 1983, but the goals
     established for water quality are not met.

                                       45

-------
    Table  10 .   Effects of  Delay to the Year 2000 on Willingness to Pay  an  Additional  Sales  Tax
                 to Improve  Water Quality in the South Platte River Basin, Colorado,  1976.
Water Quality Values
Denver
Metropol itan
Area
Tax
Rate
Cents
Annua I
Do I lars
Percent
of Annu-
al Bid
Fort Co I I i ns
Tax
Rate
Cents
Annua 1
Do) lars
Percent
of Annu-
al Bid
South Platte
River Basin
Tax
Rate
Cents
Annua 1
Dol lars
Percent
of Annu-
al Bid
JS.
O\
Recreation Use Value of
  Improved Water Quality
  by 1983
  95% Confidence
    IntervaI
    Number Reporting ( )

Recreation Use Value of
  Improved Water Quality
  Delayed to the Year
  2000
  95% Confidence
    IntervaI
  Number Reporting  ( )

Change  in Willingness
  to Pay
                                1.00   $50.18    100.0    1.63    $74.00    100.0
  ($42.94-$57.42)

(85)
                                                             <$51.07-$96.93)
(89)
                                 .89   $43.37     86.4    1.22     $53.64     72.5
                                  ($35.59-$51.15)

                                (86)


                                -.11    -6.81
                            ($37.73-$69.55)

                          (89)


                  13.6    -.41     -20.36    27.5
                                                      1.17    $56,68    100.0
(174)
                                                       .98    $46.17    82.60
                            (175)
                           -.19    -10.51     17.40

-------
LEVEL OF WATER QUALITY

     Table 11 shows the relationship between level of water pollution
control and willingness to pay additional sales tax for improved water
quality.  This is the willingness to pay for enhanced recreation use, as
respondents were not asked for the value of option, existence and be-
quest demand attached to an intermediate level  of water quality.  With
only the three data points shown, it is perhaps heroic to generalize
about the nature of the slope of the benefit curve [Green ley, 1977],
The average values suggest that recreation use benefits from water quality
improvement increase at a decreasing rate,  which is consistent with de-
creasing marginal utility of consumption observed for private consumption goods.

     In Fort Collins, improving polluted water to an intermediate water
quality level  (from C to B on the photographs)  accounted for 63 percent
of total recreation use benefits from clean water.  This is similar to
research results concerning benefits of air quality improvement.  It has
been shown that  improving air quality to an intermediate level  accounts
for 57 [Brookshire, Schulze and Ives, 1976] to 59 percent [Randall,  1974]
of total aesthetic benefits from clean air.


     Even more of the benefits to residents of Denver are realized by
improving water  quality from the worst condition of pollution to an  inter-
mediate level, from C to B.  The intermediate  level of water pollution
control depicted accounted for 74 percent or $37.12 annually of total
values reported  for  improving water quality from polluted to clean  levels.
This is consistent with recent experience  in the Denver Metropolitan Area.
Benefits have accrued to residents from partial  improvement of water quality
from year to year.   In Central Denver, the quality of the South Platte
River has been improved from a level which would not support fish life to
a  level which now can sustain  lower  levels of fish  life such as catfish
and bullheads.  This may be considered an  improvement from a classification
of polluted to an intermediate level of water quality (from C to B), for
the river does not yet contain sufficient dissolved oxygen to sustain game
fish such as trout.  When the highest  level of improvement is eventually
achieved,  it may be considered an improvement from  intermediate water
quality to clean water (from B to A).  When the South Platte River becomes
clean, the additional recreation use benefits to Denver residents will
increase by $13.06 annually representing 26 percent of the total value
of water quality reported by Denver residents in 1976.

     Since an improvement in water quality from situation C to situation B
accounts for a larger reduction in pollution than from B to A, these esti-
mates appear to  be reasonable.  Heavy metal pollution was used as a proxy
of water pollution rather than the more general  indices of dissolved oxygen
and biochemical oxygen demand.  Heavy metal content was selected since  in
many areas of Colorado it has resulted in  irreversible degradation with
prohibitively high cost of pollution control.  Irreversible consequences
from mineral  and energy development was an essential assumption  in the
estimation of option value.  Heavy metal effluent results  in many of the
                                       47

-------
    Table   11 .  Effect of Level of Water Pollution Control on Willingness of Residents to Pay an
                 Additional Sales Tax to  Improve Water Quality for Recreation Use in the South
                 Platte River Basin, Colorado,  1976.
Water Quality Values
Denver
Metropo! itan
Area
Tax
Rate
Cents
Annua 1
Dol lars
Percent
of Annu-
al Bid
Fort Col 1 ins
Tax
Rate
Cents
Annual
Dol lars
Percent
of Annu-
al Bid
South Platte
River Basin
Tax
Rate
Cents
Annua 1
Dol lars
Percent
of Annu-
al Bid
00
Improvement from Polluted
Water to an 1 ntermed i -
ate Level of Water
Quality (C to B)-7
95% Confidence
Ij i
nterva 1
Number Reporting ( )
Improvement from an
Intermediate Level
to Clean Water^/
(B to A)
Number Reporting ( )
Total Improvement from
Po 1 1 uted Water to
Clean Water (C to A)3/
95% Confidence
11 i
nterva 1
Number Reporting ( )

.73 $37.12 74.0

($30.62-$43.62)

(86)

.27 $13.06 26.0

(86)

1.00 $50.18 100.0

($42.94-$57.42)

(86)

1.13 $46.63 63.0

($33.45-$59.8l )

(89)

.50 $27.37 37.0

(89)

1.63 $74.00 100.0

($51.07-$96.93)

(89)

.83 $39.72



(175)

.34 $16.96

(175)

1.17 $56.68



(175)

70.1





29.9



100.0




    g/
    —Levels A,  B  and C  refer to water qualities associated with photographs presented on page 26
      of  Section 3, above.

-------
 same problems  as  do  other  effluents,  such as  fish  kills.  Some metals, such
 as the presence of  iron  which  results  in acid  formation, have a more pro-
 nounced effect on water  quality and adjacent  wildlife community.  However,
 an objective basis for weighting was  unavailable.  Although situations B
 and A are quite close together in metals content relative to situa-
 tion C,  there  is  a significant change  in the  level of water quality.
 Fish and wildlife are still  limited by the toxic effects of the water  in
 situation B while the water  in situation A is  pure and  non-toxic.  Situa-
 tion B is representative of  areas with approximately 1,158 micrograms of
 heavy metals per  liter of  water, situation C  with  approximately 181,250 mi-
 crograms of heavy metals per liter of water,  and situation A where undetected
 trace elements remain represents clean water.  Situation C depicts the
 worst water quality  level  within the South Platte  River Basin where metalic
 content exceeds recommended  drinking water standards and biological  limits
 for fish survival.   The  proportion of waterways polluted to this extent
 was not specified.   Thus respondents provided  estimates of benefits based
 on their personal experience and judgement of  the  actual amount of pollution
 in the River Basin.
 INTER-CITY COMPARISONS

     The t-test showed there was no significant statistical difference
between values reported  in +he two cities at the 95 percent level of signif-
icance.  Tables  5  and  6  show the average willingness to pay addi-
tional sales tax for  improved water quality in Denver and Fort Collins.
Annual average values are higher in Fort Collins than Denver with the
exception of the sub-sample of non-users where existence and bequest values
are slightly higher in Denver.  This would suggest that as size of city is
increased, the recreation use value of water quality in the South Platte
River Basin may tend to decrease relative to preservation value.  Resident
households in Fort Collins were willing to pay $108.05 annually  in addition-
al sales tax for improved water quality for recreation use compared to
about $68.49 for resident households in Denver, or nearly 60 percent more.
However, a non-user sub-sample of Denver residents were willing to pay
an average of $42.46 annually in additional sales tax to preserve water
quality for existence and bequest demands compared to $40.59 for residents
of Fort Col I ins.

     It was expected that differences between annual  water quality values
for recreation use would be related to differences in the number of days of
recreation use of the South Platte River Basin.  Denver residents reported
fewer days of water-based recreation use of the River Basin than Fort
Collins residents.   Average household use days were reported as  12.8 in
Denver compared to 20.7 in Fort Collins.  When annual water quality values
were divided by the number of days the River Basin was used, there was
no appreciable difference between value of water quality for recreation
                                       49

-------
use in the two cities (Table  5 ).  Average total recreation use value
(including option value) was $5.35 per day in Denver and $5.22 in Fort
Collins.  However, the variable, days of water-based recreation use of
the River Basin, was not statistically significant  in explaining willing-
ness to pay for improved water quality, as will  be  shown in the following
section.
                                       50

-------
                                  SECTION 5

              EFFECT OF SOCIOECONOMIC VARIABLES ON WILLINGNESS
                      TO PAY FOR  IMPROVED WATER QUALITY


     A total of 30 variables representing socioeconomic attributes of re-
spondents were tested with multiple regression analysis for significance
in explaining willingness to pay for improved water quality.  Of these,
15 variables were found to be significant at the 5 percent  level.  Together
they explained as much as 47 percent of the variation in willingness to
pay for  improved water quality, although some of the equations explained
less.  The results are summarized in Table 12.  A discussion of the signif-
icant socioeconomic variables is  included in this section, along with tables
showing a simple cross tabulation of average values for the more important
socioeconomic variables including:  household income, sex, employment,
permanence of residence, previous residence, reasons for moving, number of
children, age and recreation activities.


HOUSEHOLD INCOME

     Table 13 shows household income and willingness to pay additional sales
tax for  improved water quality.  The cross tabulation of the two variables
suggests that average income may be positively related to the average value
of water quality.  As income increases, the value of improved water quality
in the South Platte River Basin also tends to increase.   The trends is not
always consistent.  For example, households with incomes at the mean of
$15,000-15,999 were willing to pay less for recreation use than households
below the mean with incomes of $8,500-10,999.  However,  households with
even lower incomes were willing to pay even  less.  Moreover, households
with incomes of $21,000 and above (estimated average of  $32,000) were
willing to pay substantially more by nearly every measure.  This suggests
that general  prosperity which resulted in increased real personal income
for Colorado residents would increase the value of improved water quality
in the South Platte River Basin.

     Level of household income was significant at the 5 percent  level in
the regression analysis of variables associated with the value of improved
water quality for recreation use.  For example,  in Fort Collins a $1,000
increase in household income was associated with a $3.66  increase in annual
willingness to pay for improved water quality via a sales tax.   Income levels
and the willingness to pay by Denver residents may be associated with the
family life cycle.  As age increases, the value of water quality increases
per $1,000 of added family income, but the effect is slight.  Table 14
shows that as age increases by 10 years, the marginal effect of a $1,000


                                      51

-------
   Table  12  .  Regression Coefficients of  Significant  Socioeconomic  Variables,  Denver
                and Fort Collins, Colorado,  1976.
a/
Significant Independenl —
Variable (5 percent level)
Recreation Use Value
Sales Tax
Denver
Fort
Col 1 ins
Water Bi 1 1
Denver
Fort
Col 1 ins
Option Value
Sa 1 es Tax
Denver
Fort
Col 1 ins
Water Bi 1 1
Denver
Fort
Col 1 ins
Ul
X.  Family Income
X22 1/Family Income
X2g Family Income X Age
X7  Sex-Ma Ie
Xig Employer-Government
X5  Education
Xq  Previous Residence
    (5,000-25,000)
X4  Age
X^ Occupation-Professional/
    Business Owner-Manager
X2« 1/Years Lived  in City
X2Q Number of 'ChiIdren
Xn Previous Residence
    (100,000+)
Xj4 Occupation-Housewife
X15 Occupation-Retired
X17 Employer-Small Business
                                     .00001
                                     26.55
                                     28.44
                                    -21.67
                                    20.91
                                   -30.03
                                    25.08
                                              .00366
56.45
                                              45.62
                Regression Coefficient
                             .00068
6.92
28.01    7.18
         8.44
                             3.19

                             7.70
                             -.66
                             -14.07
                                                                                          15,176

                                                                                38.04     3.65


                                                                                          5.02

                                                                                          -.15
                                                        .34
                                                                                   -10.45
                                                                                                      2.71
                                    .4721
.2141
.3518
Fraction of Explained
  Variance (R2)
— See the Statistical Appendix for coding of variables.
                                                             .1949
.2857
.1678
.2390
.3809

-------
   Table 13.  Household  Income and Willingness to Pay Additional Sales Tax for  Improved  (C-A) Water
              Quality, Denver, Fort Collins, and South Platte River Basin, Colorado, 1976.
Water Quality Values
Household Income Groups
Under
6,000
6,000-
8,499
8,500-
10,999
11,000-
13,499
1 S^OO-
IS, 999
16,000-
18,499
18,500-
20,999
21,000a/
or more
Tota I or
Average
Willingness to Pay Additional Sales Tax (Dollars per Year)
OJ
Denver Metro Area
Number Reporting (
Fort Col 1 ins
Number Reporting (
South Platte
River Basin
Option Value
Denver Metro Area
Number Reporting (
Fort Col 1 ins
Number Reporting (
South Platte
River Basin
Tota 1 Va 1 ue
Denver Metro Area
Fort Col 1 ins
South Platte
River Basin
$22,77
) (11)
31 .87
) (13)
25.29


9.35
) (12)
28.50
) (13)
14.65


32.13
60.37
39.94

$51.96
(7)
46.43
(10)
50.43


7.03
(8)
32.80
(10)
14.16


58.99
79.23
64.59

$51.08
(9)
84.88
(10)
60.44


18.36
(9)
52.80
(10)
27.90


69.44
137.68
88.34

$42.94
(8)
36.03
(16)
41.02


29.17
(8)
15.20
(16)
25.30


72.11
51.23
66.32

$42.85
(12)
78.58
(13)
52.75


17.67
(12)
16.58
(13)
17.37


60.52
95.16
70.12

$50.17
(6)
48.05
(5)
49.58


11.46
(6)
10.00
(5)
11.06


61.63
58.05
60.64

$46.33
(9)
147.42
(6)
73.93


13.53
(9)
46.50
(6)
22.53


59.86
193.92
96.46

$70.25
(23)
133.52
(16)
87.78


26.74
(24)
63.52
(16)
36.93


96.99
197.04
124.71

$50.18
(85)
74.00
(89)
56.68


18.31
(88)
34.05
(.89)
22.60


68.49
108.05
79.28

   -/An  average  of  $32,000.

-------
Table  14 .  Marginal Effect of a Change of Income on
             Willingness to Pay Additional Sales Tax
             for Improved Water Quality, at Various
             Age Levels, Denver Metropolitan Area,
             Colorado, 1976.
Age of
Respondent
20
30
40
50
60
70
— Since the variab
Change in Willingness to
Sales Tax per Year per $
Added Family Income^-
$0.20
.30
.40
.50
.60
.70
Pay Added
1,000 Of

e defined as the cross-products
  of age and income were significant, the marginal
  effect of  income on willingness to pay increased
  sales tax  for  improved water quality was computed
  by taking  the  derivative of the regression equation
  and substituting various ages.  This gives
             9y
              6
             8X,  =  B26X4

  where the  variables are  defined as  in Table
  and B25  is the regression coefficient of the
  cross-products.  Substituting the regression
  coefficient  and various  ages  into the above
  equation will yield the  marginal effect of
   income on  willingness  to pay.
                              54

-------
 increase  in  income  is to  increase the value of water quality by an additional
 10 cents  per household.   In this calculation the variation across individ-
 uals  in the effects on willingness to pay of all variables shown in the
 statistical appendix are adjusted for by multiple regression.

      Regression analysis  showed a significant relationship between house-
 hold  income and option value of water quality, as measured by willingness
 to pay additional sales tax.  The relationship was a positive one in both
 the Denver Metropolitan Area and Fort Collins.  There was a negative corre-
 lation between household  income and option value of water quality in Fort
 Collins,  as measured by willingness to pay additional water bill.  This
 is inconsistent with the  findings regarding willingness to pay a sales
 tax for  improvement  in water quality.  One possible explanation for the
 negative  association may  be a tendency for those with higher income levels
 in Fort Collins to  have a vested interest in the pollution of water resources
 from  economic development.  They would be willing to pay  little to post-
 pone  economic development merely for the option to choose a recreation
 use of the South Platte River Basin.  They are quite sure now they will
 not choose water quality over pollution from development  in the future.
 A higher  proportion of Fort Collins residents engage in water-based recrea-
 tion  activities outside of the River Basin than do Denver residents.   Higher
 income households are more able to travel long distances to fish in Wyoming,
 northwestern Colorado and other places where recreation water resources
 tend  to be less polluted.
SEX OF RESPONDENT

     Table 15 shows the sex of respondents and average willingness to pay
additional sales tax for improved water quality.  It can be seen from the
cross tabulation that, on the average, men were willing to pay more for
water quality than women.  In regression analysis of socioeconomic vari-
ables associated with the value of improved water quality for recreation
use, sex of the respondent had a significant effect.  Sexual  differences
were significant in both cities, but the effect was greater in Fort Collins.
There, the value of improved water quality for recreation use to male
respondents was more than double (2.4 times) the value reported by female
respondents.   In Denver, male responses were nearly 60 percent greater
than those of females.

     The  primary reason may  be  that men tend to engage  in water-based recrea-
tion activities more than  //omen, particularly fishing and to some extent
boating.  Both men and women  swim  in  nearly equal proportions and more
women than men go sightseeing,  picnicking, and walking  for pleasure, much
of which  occurs along  lakes  and  streams   [Adams, Lewis  and Drake, 1973].

     More men than women work outside the  home and  thus observe the condi-
tion of water quality  in the  streams  and  lakes which they pass on the way
to and from work.  This may  result  in a greater awareness of water quality
among male respondents.  Supporting this  hypothesis,  it can be seen  in the
table that retired persons who  do  not  leave the home on a regular basis
as employed persons have  lower  water  quality values.  Contrary to this
hypothesis, however, housewives  who do not work outside the home place a
higher value on water quality.   Most  likely women who work outside the home
account for the  lower value of  water  quality attributed to women respondents

                                      55

-------
Table 15.  Sex of Respondent and Wililingness to Pay Additional
           Sales Tax for  Improved (C-A) Water Quality, Denver,
           Fort Collins, and South Platte River Basin,
           Colorado, 1976.
Water
Va
Qua I
lues
ity
Sex

Wi 1
Fema 1 e
! inqness
|
to Pay
Male
Sa 1 es


Tax
Tota
(Dol 1
1 or
ars
Average
per Year)
Recreation Use Value
Denver Metro Area
Number Reporting ( )
Fort Col 1 ins
Number Reporting ( )
South Platte
River Basin
Option Value
Denver Metro Area
Number Reporting ( )
Fort Col 1 ins
Number Reporting ( )
South Platte
River Basin
Total Value
Denver Metro Area
Fort Co 1 1 i ns
South Platte
River Basin

$42.81
(47)
40.52
(33)
42.18

19.14
(47)
11.02
(33)
16.89


61.95
51.54
59.07


$59.30
(38)
93.73
(56)
68.10

17.37
(41)
47.63
(56)
25.63


76.67
141.36
94.33


$50.18
(85)
74.00
(89)
56.68

18.31
(88)
34.05
(89)
22.60


68.49
108.05
79.28

                                  56

-------
as a group.  Perhaps households in which women work outside the home tend
to be on an especially tight budget, either because no male adult is pre-
sent or two bread-winners are necessary to make ends meet.


EMPLOYMENT

   Both where people work and the type of work they do have a significant
effect on the value of improved water quality for recreation use.  Table 16
shows where people work and willingness to pay additional  sales tax for
improved water quality.  The average values suggest that employees of
government and small business are willing to pay more for water quality
than either employees of large business and manufacturing or unemployed
persons in Denver.  However, in Fort Collins employees of large business
and manufacturing are willing to pay more for improved water quality than
small business and agriculture employees.  Average skill levels of busi-
ness employees may be higher in Fort Collins, which has several high tech-
nology firms in close proximity.

     Government employees were willing to pay more for improved water quality
in 4 of the 6 regression equations.  Government employees in Denver were
willing to pay $3.91 more for option value and $28.44 more for water quality
improvement for enhanced recreational opportunities than employees of the
private sector.  Denver is a center of national  and regional government.
Government employees may have a greater awareness of environmental problems
in the region.  In many cases these employees work in areas of environment
concern and planning.  The Denver Federal Center includes employees of the
Bureau of Reclamation, Bureau of Land Management, the U.S. Forest Service,
the U.S. Geological Survey, Environmental Protection Agency and other environ-
mental research branches.  The Colorado Water Quality Control Commission,
the Denver Water Board, the Division of Wildlife and state and local planning
agencies are also  located in Denver.

     Table 17 shows the type of work people do and average willingness
to pay additional sales tax for improved water quality.  The average values
suggest that,  in Denver, housewives are willing to pay more than profes-
sionals, business owners and managers, those in other occupations, and
the retired.   In Fort Collins, however, professionals, business owners
and managers are willing to pay more than those  in other occupations, and
housewives reported the lowest values, even  lower than retired persons.

     The type of work people do was significant  in regression analysis
of variables associated with the value of improved water quality for recrea-
tion use, as measured by willingness to pay additional sales tax.   In the
Denver Metropolitan Area, regression results show that professionals and
business owners and managers value water quality by $21.67  less than other
occupations.  Retired residents value water quality by $30.03  less than
those who remain active in the work force.  Housewives were willing to
pay $20.91 more than those employed  in other occupations.  Since this


                                      57

-------
   Table  16.  Where People Work and Willingness to Pay Additional Sales Tax for  Improved (C-A)
              Water Quality, Denver, Fort Collins, and South Platte River Basin, Colorado, 1976.
Water Quality Values
Emp loyer
Sma 1 1 Busi
and Agricul
ness
ture
Large Business
and Manufacturing
Government
Other9/ and
Unemp loyed
Total
or Average
Willingness to Pay Additional Sales Tax (Dollars per Year)
co
Denver Metro Area
Number Reporting ( )
Fort Co II ins
Number Reporting ( )
South Platte
River Basin
Option Value
Denver Metro Area
Number Reporting ( )
Fort Col 1 ins
Number Reporting ( )
South Platte
River Basin
Total Values
Denver Metro Area
Fort Col 1 i ns
South Platte
River Basin
$60.02
(14)
57.96
(23)
59.45


11.46
(16)
23.04
(23)
14.76


71.48
81.00
74.12

$44.12
(13)
112.25
(10)
62.72


13.73
(13)
60.95
(10)
26.62


57.85
173.20
89.34

$66.23
(14)
103.00
(28)
76.42


23.24
(15)
44.63
(28)
29.17


89.47
1 47 . 63
105.59

$43.74
(44)
44.53
(28)
43.96


20.95
(44)
22.90
(28)
21.49


64.69
67.43
63.45

$50.18
(85)
74.00
(89)
56.68


18.31
(88)
34.05
(89)
22.60


68.49
108.05
79.28

    — Other include petro-chemica I s  and mining.

-------
Table 17.  Occupation and Willingness to Pay Additional Sales Tax for  Improved (C-A) Water Quality,
           Denver, Fort Collins, and South Platte River Basin, Colorado, 1976.
Water Quality Values
Occupation
Prof ess iona Is,
Business Owners,
and Managers
Housew
Wi I I i ngness
fe
Reti red
Other a/
to Pay Sales Tax (Do
Total
lars per Year)
or Average

    Recreation  Use Value
      Denver Metro Area
       Number  Reporting  (  )
      Fort Col I ins
       Number  Reporting  (  )
      South Platte River  Basin

vji   Option Value
"°     Denver Metro Area
       Number  Reporting  (  )
      Fort Col I ins
       Number  Reporting  (  )
      South Platte River  Basin

    Total Value
      Denver Metro Area
      Fort Col I ins
      South Platte River  Basin
                                 $52.44
                                  (23)
                                  94.00
                                  (33)
                                  63.95
16.66
(24)
39.64
(33)
23.03
                                  69.10
                                 133.64
                                  86.98
$58.63
 (17)
 38.61
 (11)
 53.08
                                                     30.11
                                                     (17)
                                                      7.93
                                                     (11)
                                                     23.97
 88.74
 46.54
 77.05
                                $29.07
                                 (14)
                                 41.68
                                 (11)
                                 32.65
$53.41
 (31)
 76.50
 (32)
 59.71
6.97
(16)
6.27
(11)
6.78
18.98
(31)
46.06
(34)
26.37
                                 36.04
                                 47.95
                                 39.43
 72.39
122.56
 86.08
— Other  includes skilled, foreman, salesman, keeper, office worker, unskilled and student.
$50.18
 (85)
 74.00
 (89)
 56.68
                                           18.31
                                           (88)
                                           34.05
                                           (89)
                                           22.60
 68.49
108.05
 79.28

-------
variable entered only one of the six regressions it is difficult to con-
clude that it may effect a similar general response from the Basin popula-
tion.
EDUCATI ON

     Table 18 shows years of education and average willingness to pay addi-
tional sales tax for improved water quality.  The cross tabulation of the
two variables shows that average education  level attained is positively
related to the value of water quality.  As mean schooling increases,  the
mean value of improved water quality  in the South Platte River Basin  tends
also to increase.  While the trend is not wholly consistent and there are
few in the sample with less than a high school education, it is clear that
they valued water quality less than those who graduated from high school.
High school graduates and college graduates valued water quality less than
those with professional or graduate level education beyond the college
I eve I.

     Level of education was significant at the 5 percent level  in regres-
sion analysis of the factors explaining the value of improved water quality
for recreation use.  In Fort Collins there was a positive correlation be-
tween level of education and the value of water quality, as measured  by
willingness to pay a higher water bill.  Each additional year of schooling
was associated with a $2.71 increase  in option value and a $8.44 increase
in recreation use value.  This suggests that educational attainment may
be associated more with concern about environmental quality.  No explana-
tion is available as to why this variable was not significant in Denver.
FORMER RESIDENCE

     Table 19 shows where people  lived before moving to this area and
average willingness to pay additional sales tax for improved water quality.
The average values suggest the effects vary between the two cities.  Rural
immigrants to Denver value water quality more highly for recreation use
than immigrants from other cities whether small or  large, with the lowest
values reported for immigrants from  large cities of 100,000 people or more.
In Fort Collins, immigrants from  large cities valued water quality more
highly than other immigrants.  There, rural immigrants reported the lowest
vaIues.

     Place of former residence was significant in regression analysis of
variables associated with the recreation use and option value of improved
water quality.  For Denver Metropolitan Area residents, the smaller the
place of former residence, the more they tended to value water quality.
These former residents of rural areas and small cities may have had easier
access to recreation areas hence more recreational use of lakes and streams
than those from large cities.  Having developed an appreciation for the
                                      60

-------
Table 18.  Education and Willingness to Pay Additional Sales Tax for Improved (C-A) Water Quality,
           Denver, Fort Collins, and South Platte River Basin, Colorado, 1976.
Water Quality Values
Recreation Use Value
Denver Metro Area
Number Reporting ( )
Fort Col 1 ins
Number Reporting ( )
South Platte
River Basin
Option Value
Denver Metro Area
Number Reporting ( )
Fort Col 1 ins
Number Reporting ( )
South Platte
River Basin
Tota 1 Va 1 ue
Denver Metro Area
Fort Col 1 ins
South Platte
River Basin

8

9-11

12 |
Will inqness to Pay

$26.00
(1)
10.42
(3)
21.68


8.88
(2)
2.83
(3)
7.20


34.88
13.25
28.88


$45.44
(4)
30.80
(5)
41.38


7.69
(4)
3.10
(5)
6.42


53.13
33.90
47.80


$46.88
(17)
67.16
(21)
52.50


13.40
(18)
40.67
(21)
20.95


60.28
107.83
73.45

Years
13-15
Add i tiona

$56.95
(28)
79.68
(21)
63.15


27.17
(28)
22.93
(21)
26.01


84.12
102.61
89.16

of Educat
1 16
on
Over 16

Total or Average
Sales Tax (Dollars per Year)

$47.30
(23)
56.70
(12)
49.90


19.04
(23)
29.92
(19)
22.05


66.34
86.82
71.95


$48.19
(12)
112.01
(20)
65.87


9.47
(13)
55.13
(20)
22.12


57.66
167.14
87.99


$50.18
(85)
74.00
(89)
56.68


18.31
(88)
34.05
(89)
22.60


68.49
108.05
79.28


-------
  Table  19.  Size of Place of Previous  Residence  and Willingness to Pay for  Improved  (C-A) Water
             Quality, Denver, Fort Collins  and  South Platte River Basin, Colorado,  1976.
O>
Water Quality Values
Recreation Use Value
Denver Metro Area
Number Reporting ( )
Fort Co 1 1 i ns
Number Reporting ( )
South Platte
River Basin
Option Value
Denver Metro Area
Number Reporting ( )
Fort Col 1 ins
Number Reporting ( )
South Platte
River Basin
Tota 1 Va 1 ue
Denver Metro Area
Fort Col 1 ins
South Platte
River Basin

100,000+


$43.73
(41)
107.49
(30)
61.13


14.97
(41)
47.60
(30)
23.87


58.70
155.59
85.00

Size of
| 25,000-100
Will inqness

$52.20
(23)
55.51
(26)
53.12


15.62
(25)
26.49
(26)
18.63


67.82
82.00
71 .85

Dlace of Previous Res
,000 I 5,000-25,0000
to Pay Sales Tax (Dol

$54.44
(12)
85.25
(16)
62.97


32.64
(13)
48.39
(16)
37.00


87.08
133.64
99.97

idence
| Rural

Tota I or Average
lars per Year)

$63.96
(7)
31.72
(17)
55.03


7.00
(7)
8.20
(17)
7.33


70.96
39.92
62.36


$50.18
(85)
74.00
(89)
56.68


18.31
(88)
34.05
(89)
22.60


68.49
108.05
79.28


-------
natural environment, they may place special emphasis on preserving it for
recreation use in the future.  For residents of Fort Collins, regression
analysis shows the  larger the place of former residence, the more they
value water quality.  Perhaps those who are willing to pay more for im-
proved water quality tend to migrate to smaller cities which have outdoor
recreation resources nearby, while those who are less willing to pay for
water quality tend to remain in large cities.


REASONS FOR MOVING

     Table 20 shows reasons for moving to Colorado and willingness to
pay additional sales tax for improved water quality.  The average values
suggest that residents who immigrated to the River Basin for environmental
reasons may value water quality more highly than those who came for other
reasons.  This is not the case for residents of the Denver Metropolitan
Area, where those who moved there for family reasons value water quality
most highly.  Those who moved there for economic and other reasons such as
quality of the public services valued water quality less.  This is also
the case- in Fort Collins.  However, Fort Collins residents who moved
there for environmental reasons place the highest value on water quality.
This is sufficient to overcome the lower values by those who moved to Denver
for environmental reasons, so that the overall  South Platte River Basin
estimate of the "value of water quality for recreation use is highest for
those who moved there for environmental reasons.  This is in accord with
the widespread belief that people move to Colorado because of its reputation
for a quality living environment.   However, reasons for moving to Colorado
were not significant in regression analysis of  variables associated with
the value of improved water quality for recreation use or for option value.
PERMANENCE OF RESIDENCE

     Table 21 shows how long people live in one place and willingness to
pay additional sales tax for improved water quality.   The cross tabulation
of the two variables suggests that, on average, the longer people live
in one place, the  less they are willing to pay for water quality improve-
ment for recreation use.  The trend is not always consistent,  but newly
arrived residents of less than 5 years were willing to pay over one-fourth
more than  long standing residents of 11-20 years.  The same relationship
was apparent  in Fort Collins.  Newly arrived residents were willing to
pay more than twice as much as residents of 11-20 and 21-40 years.   This
suggests that immigration of people into the state in recent decad.-; may
have increased the value of improved water quality for recreation use.

     Permanence of residence was a significant variable in regression
analysis of variables associated with the value of improved water quality
for recreation use, as measured by willingness to pay additional water bill.
In the Denver Metropolitan Area, for example, additional years of residence


                                      63

-------
fable 20.   Reason for Moving to Colorado and WiI Iinnnps^  to Pay Additional  bales  Tax
           for Improved (C-A) Water Quality, i>.-nv
-------
VJ1
Table 21.  Permanence of Residence a
           Water Quality, Denver, Foi
                                          Willingness to Pay Add tional Sales Tax for  Improved  (C-A)
                                           Ml ins, and South Platte River Basin, Colorado.  1976.
Water Quality Values
Recreation Use Value
Denver Metro Area
Number Reporting ( )
Fort Col 1 ins
Number Reporting ( )
South Platte River Basin
Option Value
Denver Metro Area
Number Reporting
Fort Col 1 i ns
Number Reporting
South Platte River Basin
Total Value
Denver Metro Area
Fort Col 1 ins
South Platte River Basin
Number of Years Lived in Area
1-5 I 6-10
11-20
21-40
Over 40
Willingness to Pay Additional Sales Tax (Dollars

$55.58 $43.23
(19) (13)
108.32 70.85
(38) (13)
69.98 50.77

23.33 18.51
(19) (13)
53.45 36.94
(38) (13)
31.67 23.62

78.91 61.74
161.77 107.79
101.65 74.39

$44.32
(12)
46.40
(17)
44.89

19.61
(14)
16.63
(17)
18.78

63.92
63.03
63.67

$53.78
(32)
41.55
(15)
50.44

18.31
(32)
13.38
(15)
16.96

72.09
54.93
67.40

$43.83
(9)
22.88
(6)
38.03

6.70
(10)
5.92
(6)
6.48

50.53
28.80
44.51
| Tota I or Average
per Year)

$50.18
(85)
74.00
(89)
56.68

18.31
(88)
34.05
(89)
22.60

68.49
108.05
79.28

-------
 in the city was associated with a decrease  in willing to pay additional
water bill for water quality  improvement.  Permanence of residence was
not a significant variable in regression analysis of variables associated
with the option value of  improved water quality.  Still, the average values
shown in Table     suggest that newly arrived residents tend to report
higher values for improved water quality than residents who have lived
 in the area for a longer  time.  This appears contrary to the usual  effects
of permanence of community residency.  Sociologists suggest that community
and area pride grow as  length of residency  increases.  Community social
bonds are stronger and  neighborhoods are better preserved.  Thus, it would
be reasonable to expect that  long term residents would value improved
water quality more highly than newer residents.  This enigma can be par-
tially explained by the finding of a correlation coefficient of .55 between
 length of residency and age.  There  is a tendency for water-based recrea-
tion activity to decrease with age,  hence the comparison of averages can be
mislead!ng.

AGE OF RESPONDENT

     Table 22 shows the age of respondent and willingness to pay additional
sales tax for improved  water quality.  The average values suggest that age
of respondent may be negatively related to the value of water quality.  As
age increases, the value of improved water quality in the South Platte
River Basin tends to decline.  The trend is not always consistent.   For
example, youths of 18-29  years of age are not as willing to pay for recrea-
tion use as are the middle aged,  30-49 years.  However, middle aged respon-
dents are willing to pay more than older persons,  those 50-65 years of age
and those retired, over 65 years of age.  This suggests that recent immi-
gration of young adults may tend to  increase the value of improved  water
quality in the River Basin.

     Age of the respondent was not significant at the 5 percent level in
regression analysis of  the factors associated with value of improved water
quality for recreation  use.  However,  in the Denver Metropolitan Area,
there was a significant negative correlation between age and option value
of water quality, as measured by willingness to pay a higher water bill.
As age increased, willingness to pay declined.  For each 10 years increase
 in age, willingness to  pay declined  by $6.60 per year.  This would seem
reasonable as young people expect to live  longer than older people and
have more at stake in preserving their option to engage  in water-based
recreation activities in  the South Platte River Basin  in the future.
SIZE OF HOUSEHOLD

     Table 23 shows size of household and willingness to pay additional
sales tax for improved water quality.  As can be seen from tne cross tab-
ulation of the two variables, the average value of water quality appears
to be inversely related to size of family.  As the number of children  in
resident household declines, the value of improved water quality in the

                                       66

-------
  Table  22.   Age  and  Willingness  to Pay Additional  Sales Tax for Improved  (C-A)  Water Quality,

              Denver,  Fort Collins,  and  South Platte River Basin, Colorado,  1976.
en
-j


Water Quality Values

Recreation Use Value
Denver Metro Area
Number Reporting
Fort Col 1 ins
Number Reporting
South Platte River
Option Value
Denver Metro Area
Number Reporting
Fort Co II ins
Number Reporting
South Platte River
Total Value
Denver Metro Area
Fort Col 1 ins
South Platte River



( )

( )
Basin


( )

( )
Basin



Basin
Aqe (Years)
18-29
Wi

$46.71
(24)
66.43
(31)
50.10

27.40
(24)
43.19
(31)
31.71

74.11
109.62
81.81
I 30-49
I i ngness to Pay

$53.67
(27)
104.07
(31)
67.63

21.09
(27)
44.04
(31)
27.45

74.76
148.11
95.08
50-64 |
Additional Sales

$50.35
(22)
59.93
(14)
53.00

13.32
(23)
18.04
(14)
14.63

63.67
77.97
67.63
Ov -,-r 64
Tota 1 or Averaqe
Tax (Dollars per Year)

$48.98
(12)
35.54
(13)
45.26

5.59
(14)
5.67
(13)
5.61

54.57
41.21
50.87

$50.18
(85)
74.00
(89)
56.68

18.31
(88)
34.05
(89)
22.60

68.49
108.05
79.28

-------
Table 23. Size of Household
Qual ity, Denver,

Water Quality Values

Recreation Use Values
Denver Metro Area
Number Reporting ( )
Fort Col 1 ins
Number Reporting ( )
South Platte River Basin
and Wi 1 1
Fort Col 1

0
Wi 1

$48.63
(23)
70.98
(27)
54.73
ngness to
Pay Additional Sales Tax for Improved
ns, and South Platte River Basin, Colorado,

1
Number of Chi
2
3
inqness of Pay Additional Sa

$53.65
(10)
88.15
(10)
63.21

$41.32
(23)
95.08
(32)
56.21

$62.67
(13)
35.89
(13)
55.25
1976
(C-A) Water

dren
4 or more |
es Tax (Do) lars

$52.84
(16)
39.89
(7)
49.25
Tota 1 or Average
per






Year)

$50.18
(85)
74.00
(89)
56.68
co
Option Value
  Denver Metro Area
    Number Reporting ( )
  Fort Col I ins
    Number Reporting ( )
  South Platte River Basin
19.17
(23)
45.00
(27)
26.23
12.65
(10)
69.55
(10)
28.41
16.67
(24)
25.99
(32)
19.25
20.13
(14)
10.12
(13)
17.36
22.28
(17)
22.39
(7)
22.31
 18.31
 (88)
 34.05
 (89)
 22.60
   TotaI  VaIue
     Denver  Metro Area           67.80     66.30      57.99      82.80
     Fort Collins               115.98    157.70     121.07      46.01
     South Platte River Basin     80.96     91.62      75.46      72.61
                    62.28
                    71.56
 68.49
108.05
 79.28

-------
South Platte River Basin tends to increase.  The trend is not always con-
sistent,  but it  is clear that households with two or fewer children value
 improved  water quality more than households with three or more children.
The  national trend is toward fewer children per household.  This suggests
that future changes  in size of households may result in increased willing-
ness to pay for water quality.

     Size of household was not significant at the 5 percent level in a
regression of variables associated with the value of improved water quality
for  recreation use.  However, regression analysis showed a significant
negative  relationship between the size of household in Fort Collins and
the  option value of water quality, as measured by willingness to pay addi-
tional sales tax.  As the number of children in households increased,
option value decreased by $10.45 per year.  This may be related to ability
to pay.   Smaller families have more income per person than larger families,
at any given level of income.  Thus, smaller families have more income
available to pay additional sales tax for improved water quality.

RECREATION USE

     Table 24 shows the reported number of water-based recreation activity
days experienced annually in the South Platte River Basin by survey respon-
dents and willingness to pay additional sales tax for improved water quality.
Number of water-based recreation activity days was not significant in
regression analysis of variables associated with recreation use and option
value of  improved water quality.  The average values suggest that the rela-
tionship may be curvilinear.   As recreation activity increases from zero to
21 days annually, the average value of water quality for recreation use
also tends to increase.   Over 21 days annually,  water quality values fall
off.  This is particularly evident for Fort Collins residents.  However,
the  tendency is not always consistent.  Even in Fort Collins,  the average
option value of water quality increased continuously over the entire range
of recreation use.

     It seems that with the possible exception of values for recreation
use  in the Denver Metropolitan Area, those who are not currently engaging
in water-based recreation activities  in the River Basin may be less willing
to pay for improved water quality to enhance recreation enjoyment of its
use  both now and in the future.  Also, light users who report current
water-based recreation activity as 1-7 days annually appear to have lower
water quality values than either medium-heavy users of 8-21  days or heavy
users of over 21 days annually.

     Table 25 shows the reported number of water-based recreation activity
days in the United States by survey respondents and willingness to pay
additional sales tax for improved water quality.  It shows the same general
relationship as Table 24 .

     The proportion of the population which participates in water-based
recreation activities in the River Basin is difficult to estimate.  Of
the  101  households samp led in Denver, 79.2 percent reported participating

                                      69

-------
   Table 24.   Survey Respondent's Reported Annual  Water-Based Recreation Activity Days in the South
              Platte River Basin and Willingness to Pay Additional  Sales Tax for Improved (C-A)  Water
              Quality, Denver, Fort Collins, and South Platte River Basin,  Colorado,  1976.
o
Water Quality Values
Recreation Use Value
Denver Metro Area
Number Reporting ( )
Fort Co 1 1 i ns
Number Reporting ( )
South Platte River Basin
Option Value
Denver Metro Area
Number Reporting ( )
Fort Col 1 ins
Numbber Reporting ( )
South Platte River Basin
Tota 1 Va 1 ue
Denver Metro Area
Fort Col 1 ins
South Platte River Basin
Annual Water-Based Recreation in the
0
1-7
8-21
South Platte R
Over 21
ver Basin (Days)
Total or Average
Willingness to Pay Additional Sales Tax (Dollars per Year)

$49.22
(17)
17.38
(8)
38.43

12.31
(17)
2.09
(8)
8.99

61.53
19.47
50.05

$45.66
(22)
53.24
(18)
47.76

18.29
(24)
28.43
(18)
21.10

63.95
81.67
48.86

$51.71
(32)
101.85
(29)
65.60

22.58
(32)
43.39
(29)
28.34

74.29
145.24
93.94

$54.96
(14)
74.57
(34)
60.39

16.04
(15)
36.58
(34)
21.73

71.00
111.15
82.12

$50.18
(85)
74.00
(89)
56.68

18.31
(88)
34.05
(89)
22.60

68.49
108.05
79.28

-------
Table 25.  Survey Respondents' Reported Annual Water-Based Recreation Activity Days in the United
           States and Willingness to Pay Additional Sales Tax for  Improved (C-A) Water Quality,
           Denver, Fort Collins, and South Platte River Basin, Colorado, 1975.

Water Quality Values

Recreation Use Value
Annual Water-Based Recreat
0 1-7 |
Willingness to Pay Add it

Denver Metro Area $51.22 $46.01
Number Reporting ( )
Fort Co II ins
Number Reporting ( )
South Platte River Basin
Option Value
Denver Metro Area
Number Reporting ( )
Fort Col I ins
Number Reporting ( )
South Platte River Basin
Tota I Va I ue
Denver Metro Area
Fort Col I i ns
South Platte River Basin
(9) (30)
7.60 50.44
(5) (21)
35.44 47.24

12.81 16.66
(9) (32)
0.95 24.94
(5) (21)
8.42 18.95

64.03 62.67
8.55 75.38
48.88 66.19
ion in the
8-21 |
iona I Sa I es

$52.56
(30)
94.89
(29)
64.29

21.86
(30)
39.03
(29)
26.62

74.42
133.92
90.91
Un;ted States
Over 21
Tax (Do I lars

$53.10
(27)
81 .41
(31)
60.94

19.44
(28)
43.68
(41)
26.15

72.54
125.09
87.09
(Days)
| Tota I or Average
per Year)

$50.18
(85)
74.00
(89)
56.68

18.31
(88)
34.05
(89)
22.60

68.49
108.05
79.28

-------
in water-based recreation activites in the South Platte River Basin,  com-
pared to 85.1 percent in Fort Collins.  On this basis, the weighted
average participation rate was estimated at 80.8 percent for residents
of the River Basin in 1976.  One reason for the rather high participation
rate was the definition of what constituted water-based recreation acti-
vities.  It was a broad one including the usual water sports—fishing,
swimming, boating (power boat, sail boat, and canoe), and water skiing.
Also included were non-contact recreation activities such as picnicking,
sightseeing, pleasure drives, and hiking within sight of lakes and streams.
Water quality was reported to enhance the enjoyment or aesthetic satis-
faction of such recreation experiences.

     This may appear to be a high estimate of participation in comparison
to a 1972 census [Adams, Lewis and Drake, 1973] which shows that in the
Western Region, 26.7 percent of the population fished, 5.9 percent water
skiied, 2.2 percent canoed, 2.4 percent sailed, 17 percent used power
boats, and 36.1 percent swam at a beach.  However, 48.9 percent picnicked,
44 percent went sightseeing, 40.9 percent went driving for pleasure,
23.5 .percent went on nature walks, and 14.2 percent bicycled.  Many people
engaged in more than one water-based recreation activity, and it is not
possible to show the proportion of the total population who engaged in
water-based sports and the proportion who did not.   It is known that most
boaters also fish and most swimmers also picnic.  The Colorado Division
of Parks and Outdoor Recreation estimates that residents of the state devoted
an average of 32 days in all outdoor recreation activities in 1971.  The
present study found that all water-based recreation activities accounted
for 20.3 days in the case of Denver residents and 26 days for Fort Collins
residents.  Thus water-based recreation accounted for about 62 percent in
Denver and 81 percent in Fort Collins of average total outdoor recreation
activities by Colorado residents.  The weighted average number of water-
based recreation days by River Basin residents was 21.6 days or a reasonable
67.5 percent of the average number of recreation activity days reported
by Colorado residents in 1971.

     The South Platte River Basin appears to be the most important loca-
tion for water-based recreation activities by residents of both the Denver
Metropolitan Area and outlying cities in the Basin such as Fort Collins.
For the Denver residents sampled, the average number of water-based recrea-
tion days reported for 1976 was 12.8 or 63 percent in the South Platte River
Basin.  Fort Collins residents, the average number of water-based recreation
days in the same year was 20.7 or 80 percent in the South Platte River
Basin.  The weighted average amount of water-based recreation in the River
Basin was 15 days or an estimated 46.9 percent of the average number of
recreation activity days reported by Colorado residents  in 1971.
                                      72

-------
                                  APPENDIX

                                  REFERENCES
 Abel,  Fred  H.,  Dennis  P.  Tihansky  and  Richard  G.  Walsh,  National  Bene-
      fits of  Water Pollution  Control.  Preliminary Draft,  U.S.  Environ-
      mental Protection Agency,  Washington, D.C.,  1975.

 Adams,  Robert L.,  Robert  C. Lewis  and  Bruce H. Drake, Outdoor  Recreation,
      Appendix A,  An Economic  Analysis. Bureau  of  Outdoor  Recreation, U.S.
      Department of the Interior, Washington, D.C., December,  1973.

 Arosteguy,  Daniel  J.,  "Socio-Economic  Based Projection of Wildlife  Recrea-
      tion  in  Colorado  to  1985,"  unpublished Ph.D.  Dissertation, Department
      of  Economics,  Colorado State  University,  Fort Collins, May,  1974.

 Arrow  K. J. and R.  C.  Lind, "Uncertainty and the  Evaluation of Public
      Investment Decision," Quarterly Journal of Economics, 60: 364-78,
      June, 1970.

 	and  A.  C. Fisher,  "Environmental Preservation, Uncertainty,
     and  IrreversibiIity," Quarterly Journal of Economics, 88:  312-319,
     1974.

Bohm, Peter,  "An Approach to the Problem of Estimating Demand  for Public
     Goods,"  Swedish  Journal of Economics, 73: 55-66,  1971.

	, "Estimating the Demand for Public Goods:  An Experiment,"
     European  Economic  Review,  3:  111-130, June,  1972.

Bradford, David F., "Benefit-Cost Analysis and Demand Curves for Public
     Goods," Kyklos, 23: 775-791,  1970.

Brookshire, David S., William D. Schulze and Berry C. Ives, The  Impact of
     Energy Development on Recreation Use and Value  in the Glen Canyon Na-
     tional Recreation  Area, Department of Economics, New Mexico University,
     Albuquerque, Unpublished Draft Report,  1976.

	, Berry C. Ives, and  William D. Schulze, "The Valuation of Aes-
     thetic Preferences," Journal of Environmental Economics and Management,
     3: 325-346, Fa I I, 1976.

Brown, W. G. and J. M.  Hammack, Waterfowl and Wetlands, Toward Bioeconomic
     Analysis, Johns Hopkins University Press, Baltimore,  1974.

Burns, M. E.,  "A Note on the Concept and Measure  of  Consumer's Surplus,"
     American  Economic  Review,  63: 335-344,  June,1973.
                                       73

-------
Byerlee, D. R., "Option Demand and Consumer Surplus:  Comment," Quarterly
     Journal of Economics. 85: 523-527, August, 1971.                 ,

Cicchetti, C. J. and V. K. Smith, "Congestion, Quality Deterioration, and
     Optimal Use:  Wilderness Recreation  in the Spanish Peaks Primitive
     Area," Social Science Research, 2: 15-30, March, 1973.

           and A. M. Freeman, 111, "Option Demand and Consumer Surplus:
     Further Comment," Quarterly Journal of Economics. 85: 529-539,
     August, 1971.

Clawson, Marion and Jack L. Knetsch, Economics of Outdoor Recreation, Johns
     Hopkins University Press, Baltimore, 1966.

Colorado Department of Health, Demographic ProfiIe:  Colorado Planning and
     Management, District 2 and 3, State of Colorado, Denver, May 7, 1976.

Colorado Division of Mines, A Summary of Mineral Industry Activities in
     Colorado 1975, State of Colorado, Denver, Colorado,  1975.

Colorado Division of Parks and Outdoor Recreation,  Interim Colorado Compre-
     hensive Outdoor Recreation Plan, State of Colorado Denver, 1974.

Colorado Division of Planning, Ethnic Group Population of Colorado Counties,
     1960-1976, State of Colorado, Denver, April 23, 1976.

Davidson, Paul  F., Gerard Adams and J'  "^h Seneca, "The Social Value of
     Water Recreational Facilities Rf        ci~om an Improvement in Water
     Quality:  The Delaware Estuary,              ^se and Stephen C.
     Smith (eds.), Water Research,           .,ns University Press,
     Baltimore, 1966.

Ditton, Robert and Thomas Goodale, Marine RecreationalUse of Green Bay:
     A Survey of Human Behavior and Attitude Patterns, Technical Report
     No. 17, Sea Grant Program, University of Wisconsin, Madison, 1972.

Dwyer,  John F,, John R. Kelly and Michael D. Bowes,  Improved Procedures
     for Valuation of the Contribution of Recreation to National Economic
     Development, Report No. 128, Water Resources Research Center, Univer-
     sity of Illinois, Urbana, September, 1977.

Eastman, Clyde, Peggy Hoffer and Alan Randall, A Socioeconomic Analysis
     of Environmental Concerns:  Case of the Four Corners Electric Power
     Complex, Agricultural Experiment Station, New Mexico State University,
     Bulletin 626, Las Cruces, New Mexico, September, 1974.

Ericson, Raymond P., Water Quality Values in Outdoor Recreation, Ph.D.
     Dissertation in Progress, Department of Economics, Colorado State
     University, Fort Col I ins, 1977.

Fisher, A.  C. and J. V. Krutilla, "Valuing Long-Run  Ecological Consequences
     and IrreversibiIities." Journal of Environmental Economics and Manage-
     ment,  1: 96-108, 1974.
                                      74

-------
	, J. B. Krutilla and C. J. Cicchetti, "The Economics of Environ-
     mental Preservation:  A Theoretical and Empirical  Analysis," American
     Economics Review. 62: 605-619, September, 1972.

 Friedman,  Milton,  Capitalism  and  Freedom,  University of  Chicago  Press,
      Chicago,  1962.

 Gilbert, Alphonse  H.,  Determination of  the Economic Demand  and Value  of
      Hunting  and Fishing in Colorado, Unpublished  Ph.D.  Dissertation,
      Department  of  Economics, Colorado  State  University,  Fort Collins,
      November,  1971.


 Greenley,  Douglas  A.,  Recreation  and Preservation  Benefits  from  Water
      Quality  Improvement,  Unpublished Ph.D. Dissertation, Department  of
      Economics,  Colorado State  University,  Fort Collins,  1977.

 Grubb,  Herbert W.  and  James T.  Goodwin,  Economic Evaluation of Water  Or-
      iented Recreation,  Preliminary Texas  Water Plan, Texas Water  Devel-
      opment Board,  Report No. 84,  Austin,  Texas, 1968.

 Henderson, James M. and  Richard G.  Quandt,  Microeconomic Theory:   A
      Mathematical  Approach, McGraw-Hill,  Inc., New York,  New York,  1971.

 Henry,  Claude, "Option Values  in  the Economics of  Irreplaceable  Assets,"
      The Review  of  Economic Studies Symposium, pp.  89-104,  1974.

 Kalter, R. J. and  L.  E.  Gosse,  Outdoor  Recreation  in New York State:
      Pro.jection  of  Demand, Economic Value,  and Pricing Effects for the
      Period 1970-85,  Special  Cornell Service  No. 5, Cornell  University,
      Ithaca,  New York, 1969.

 Kneese, A. V. and  C.  W.  Schultze,  Pollution,  Prices and  Public  Policy,
      Brookings  Institution, Washington,  D.C.,  1975.

 Knetsch, J. L. and  R.  K.  Davis,  "Comparison of Methods for  Recreation
      Evaluation,"  in  Allan V. Kneese and Stephen C. Smith (eds.),  Water
      Research, Johns  Hopkins  University Press, Baltimore, 1966.

 Krutilla, John V.,  "Conservation  Reconsidered," American Economic  Review,
      57: 777-786,  September, 1967.

           and Anthony C.  Fisher,  The Economics of Natural  Environments,
     Johns Hopkins  University  Press,  Baltimore,  1975.

     	, C.  J. Cicchetti, A.  M.  Freeman,  III,  and C.  S.  Russell,  "Ob-
     servations on  the  Economics of  Irreplaceable Assets,"  A.  V.  Kneese
     and B. T.  Bower  (eds.), Environmental Quality Analysis:   Theory and
     Method  in  Social Science,  1972.
                                      75

-------
	and C.  J. Cicchetti,  "Evaluating  Benefits of Environmental
     Resources with Special  Application  to Hell's Canyon," Natural Resources
     JournaJ .  12:  11-29,  1972.

Lerner,  Lionel J., "Quantitative Indices of  Recreational Values," Water
     Resources and Economic  Development  of the West:   Economics  in Out-
     door  Recreation Policy. Report No.  11,  Conference Proceedings of the
     Committee on  the  Economics  of Water Resources Development of the
     Western Agricultural  Economics Research Council,  Jointly with the
     Western Farm  Economics  Association, University of Nevada, Reno, 1962.

Leuzzi,  L. and R.  Pollock, "Option Demand Revisited:   A Note on the Under-
     lying Analytics,"  unpublished paper.

Lindsay, C. M.,  "Option Demand and Consumer's Surplus," Quarterly Journal
     of  Economics, 83:  344-45, May,1969.

Long, M. F., "Collective  Consumption  Services of  Individual Goods:  Com-
     ment," Quar1^£ly_^ourr\c^               81: 351-352, May, 1967.
Meyer, Phillip A., Recreational and  Preservation Values Associated With
     the Salmon of the  Eraser  River,  Environment Canada, Fisheries and
     Marine Service,  Information  Report  Series No.  PAC/IN-74-1, Southern
     Operations Branch,  Pacific Region,  Vancouver,  B.C., Canada,  1974.

Moran, Robert E. and  Dennis  A. Wentz,  Effects of Metal-Mine Drainage on
     Water Quality  in Selected Areas of  Colorado,  1972-73, Colorado Water
     Resources Circular No.  21, Colorado Water Conservation Board, Denver,
     1974.

Nemerow, Nelson L. and  Robert  Faro,  Benefits of Water Quality Enhancement,
     Environmental Protection  Agency,  Washington,  D.C., December,  1970.

Oster, Sharon, "Survey  Results on the Benefits of  Water Pollution Abate-
     ment  in the Merrimack River  Basin," Water Resources Research, Forth-
     coming, 1977.

Peskin, H. M. and E.  P.  Seskin, Cost Benefit Analysis and Water Pollution
     Pol icy. The Urban  Institute,  Washington, D.C.,  1975.

Randall, Alan, Personal  Interview, Colorado State  University, Fort Collins,
     February 17, 1977.

	, Barry Ives  and Clyde Eastman,  "Bidding Games for Valuation of
     Aesthetic Environmental  Improvement," Journal  of Environmental Economics
     and Management,  1:  132-149,  Fall, 1974.

Reiling, S. D., K. C. Gibbs  and H. H.  Stoevener, Economic Benefits from an
     Improvement  in Water Quality, Environmental Protection Agency,
     Washington, D.C.,  January, 1973.

                                      76

-------
 Russell,  Clifford S.,  "Municipal  Evaluation of  Regional  Water Quality
      Management Proposals,"  in Robert Dorfman,  Henry  D.  Jacoby and
      Harold A.  Thomas,  Jr.  (eds.),  Models for Managing  Regional  Water
      Qua Iity,  University  Press,  Cambridge,  Mass.,  1972.

 Samuelson,  P.  A.,  "The  Pure  Theory  of Public Expenditure,"  Review of
      Economics  and Statistics,  36:  387-389,  November, 1954.

 Schmalensee,  R.,  "Option  Demand  and Consumer's  Surplus:   Valuing Price
      Changes  Under Uncertainty,"  American Economic  Review,  62:  814-824,
      December, 1972.

c-Unaer ,  j.  A.  "The Evaluation of  Extra-Market Benefits:   A Critical Review,"
     World Agricultural  Economics and Rural  Sociology  Abstracts,  9(4): 1-16,


        i ,h^iy  Economics,  Report  to  National  Marine  Fisheries  Services,  bv
      University  of  Idaho,  Moscow,  '-'arch, 1973.

 Stevens,  Joe  B.,  "Recreation  Benefits  from Water  Pollution  Control,"  Water
      Resources  Research,  Vol.  2,  Second  Quarter,  1966,  pp.  167-182.

 Stoevener,  Herbert  H.,  et_ a_l_.,  Multi-Disciplinary Study of  Water  Quality
      Relationships:   A  Case Study  of Yaquina  Bay,  Oregon, Agricultural
      Experiment  Station Special Report 348, Oregon State University,
      CorvaI I is,  February, 1972.

 Tihansky, Dennis P.,  "Recreational Welfare Losses from  Water  Pollution
      Along  U.S.  Coasts,"  Journal  of Environmental  Qua Iity,  3:  335-346,
      Oct-Dec, 1974.

 Unger,  Samuel G., National Benefits of Achieving  the  1977,  1983 and  1985
      Water  Quality  Goals,  Development  Planning  and Research Associaties,
      Inc.,  Manhattan, Kansas,  Apr!I, 1976.

 U.S.  Environmental  Protection  Agency,  Draft Denver Regional Environmental
      Impact Statement for Wastewater Facilities and the Clean  Water Plan,
      Summary, Region  8,  Denver, June, 1977.

 Walsh,  Richard G.,  "Recreational  User  Benefits  from Water Quality Improve-
      ment," Outdoor Recreation:   Advances  in  AppIication of Economics,
      General  Technical  Report  WO-2, Forest Service, U.S.  Department of
      Agriculture, Washington,  D.C., March, 1977.

 	, Jared P.  Soper and  Anthony A. Prato,  Efficiency of Wastewater
      Disposal  in Mountain Areas,  Environmental  Resources Center,  Colorado
      State  University,  Fort Col I ins, 1977.

 Weisbrod  B.,  "Collective-Consumption Services of  IndividuaIized-Consumption
      Goods,"  Quarterly  Journal  of  Economics,  78:  471-477, August, 1964.
                                      77

-------
Wentz, Dennis A., Effect of Mine Drainage on the Quality of Streams in
     Colorado, 1972-74, Colorado Water Resources Circular No. 21, Colorado
     Water Conservation Board, Denver, 1974.

WiIleke, Gene E., Effectof Water Pollution  in San Francisco Bay, Report
     No. EEP-29, Engineering, Economic Planning Program, Stanford Univer-
     sity, Palo Alto, California, 1968.

Young,  Robert A.,  S.  Lee  Gray,  et a I., Economic  Value of Water:  Concepts
      and  Empirical  Measurement,  Report to the  National  Water Commission  by
      Colorado State University,  Fort Collins,  NTIS  No.  PB  210  356,  U.S.
      Department  of  Commerce,  Springfield, VA,  March,  1972.
                                      78

-------
                           Department of Economics
                          Colorado State University
                           Fort Col I ins, CO  80523
                        WATER QUALITY OPINION SURVEY
                                          (Fort Collins) area?  (years)
                                          this area?  City 	
6.
7.
How long have you lived in the Denver
Where did you live before you moved to
Would you classify this as a:
     Very large city or metro area (100,000+)
     Medium-sized city (25,000 - 100,000)
     SmalI  City (5,000 - 25,000)
     Rural  area or town (non-farm)
     Farm
     Have always lived in this area
    did you come here to live?   (rank three most important)
                                        Health
                                        Less polIution
                                        Less congestion
                                        School
                                        Other






3.





4.
5.
(1)
(2)
(3)
(4)
(5)
(6)
Why
(1)
(2)
(3)
(4)
(5)
(6)
How
Whii
     A better job, higher income    (7)
     Family                         (8)
     Cost of I iving                 (9)
     Climate                       (10)
     Recreation opportunities      (11)
     Services
    many children do you have?
    h of the following best
(1)  White
(2)  Oriental
(3)  Amer ican Ind ian
Is any of your family Spanish American or Mexican American?
Respondent's  (1) Sex  (2)  Age  (3)   Years of formal  education
              (4) Employment   (5)  Employer
                                describes your fami
                                        (4)  Black
                                        (5)  Other
                  (6) Head of Household  (0) No  (1) Yes
    Cod i ng:
            Employment
            Professional            1
            Business owner/mgr.     2
            Ski I led, foreman        3
            Salesman, buyer         4
            Off ice worker           5
            Unskilled               6
            Housewife               7
            Retired                 8
            Student                 9
            Other                   0
    Which income category represents your tota
    (1) Under 6,000       (4)  11,000 - 13,499
    (2) 6,000 - 8,499     (5)  13,500 - 15,999
    (3) 8,500 - 10,999    (6)  16,000 - 18,499
                                     Employer
                                     SmaI I  Bus i ness
                                     Large Business
                                     Manufacturi ng
                                     AgricuIture
                                     Petro-ChemicaIs
                                     Mi ni ng
                                     Government
                                     Unemployed
                                     Other
                                                           1
                                                           2
                                                           3
                                                           4
                                                           5
                                                           6
                                                           7
                                            family income before taxes?
                                            (7) 18,500 - 20,999
                                            (8) 21,000 or more
                                       79

-------
 9.  Have you noticed any environmental problems in this area (e.g.,  air
     pollution, water pollution, land pollution (junk, dumps)?  (0)  No (1)  Yes
10.  Have any of these environmental problems affected your family or other
     people in this area (e.g., affected human health, damaged plants or
     livestock, reduced the enjoyment of life, or  lowered property values)?
     (1) Nobody  (2) Other people   (3) Family  (4) Other people and family
11.  In general, how do you rate the waterways in the South Platte River
     Basin in terms of quality?  (1) Poor  (2) Fair  (3) Good  (4) Excellent
12.  How would you classify lakes and streams in the South Platte River Basin
     as a source for your recreational enjoyment such as boating, swimming,
     fishing or viewing?  (1) Very  important  (2)  Important  (3) Somewhat
     important  (4) Not important
13.  If you were asked to distribute an increase in federal revenue,  what
     percentage of 100 would you use to improve each of the following?
     (1) National defense  (2) Highways  (3) Education  (4) Health Services
     (5) Water quality  (6) Air quality  (7) Other

     Coal development along with expanding mining operations may have signif-
icant effects on the quality of Colorado's water in the near future.   As an
aid in planning for the future  I would like to find out how you feel  about
clean water for recreational  activities.   I have some questions which consider
different ways of financing improved water quality.  Let us consider three
levels of water quality in a waterway such as the South Platte River Basin.

     Suppose a sales tax was collected from the citizens of the South Platte
River Basin for the purpose of financing water quality  in this Basin.  All
of the additional tax would be used for water quality improvements to enhance
recreational enjoyment.  Every Basin resident would pay the tax.  All bodies
of water in the River Basin would be cleaned up by 1983.  Assume that this
is the only way to finance water quality improvement.

14.  Would you be willing to add	cents on the dollar to present sales
     taxes every year, if that resulted in an improvement from situation C
     to situation B?
15.  Would you be wiI I ing to add 	 cents on the do Ilars to present sales
     taxes every year, if that resulted in an improvement from situation C
     to situation A?
16.  (If 14 and 15 "zero" choose one).  Did you answer  "zero" because:
     (1)  You do not suffer any  ill effects from water  pollution and there-
          fore see no reason to reduce it?
     (2)  You believe taxes are already too high?
     (3)  You believe  it is unfair  to expect people adversely affected to pay
          the costs of reducing water pollution?
     (4)  Other

     Now let's consider a different way of financing water quality improvement.
Suppose an extra water bill charge  was collected from citizens of the South
Platte River Basin for the purpose  of financing water quality in this Basin.
All of the additional charge would  be used for water quality  improvements
                                        80

-------
 to  enhance  recreational enjoyment.  Every Basin resident would pay the charge.
 All  bodies  of water  in the River Basin would be cleaned up by 1983.  Now
 assume  that this  is  the only way to finance water quality improvement.

 17.  Do you think  it would be reasonable to add 	 to your water bill
     every  month,  if that resulted in an improvement from situation C to
     situation B?
 18.  Do you think  it would be reasonable to add 	 to your water bill
     every  month,  if that resulted in an improvement from situation C to
     situation A?
 19.  (If  17 and  18 "zero" choose one.')  Did you answer "zero" because:
     (1)  You do not suffer any ill effects from water pollution and therefore
          see no reason to reduce  it?
     (2)  You believe your water bill is already too high?
     (3)  You believe it is unfair to expect people adversely affected to pay
          the costs  of reducing water pollution?
     (4)  Other
 20.  If situation A  was not achieved until  the year 2000, how would this delay
     affect your payment of the (1) Sales tax from your original estimate
     of 	  (2) Water bill charge from your original estimate of 	.
 21.  (If all Colorado residents and tourists would pay the sales tax:)  (If
     all Colorado water users would pay the water bill charge:)   how would
     improving the quality of water to level A by 1983 throughout Colorado
     for recreational enjoyment affect your payment of the:   (1) Sales tax
     from your original  estimate of 	?   (2) Water bill charge from your
     original  estimate of 	?
 22.  How many days per year do you spend at water-based recreation such as
     fishing,  boating, swimming, picnicking near streams, etc:   (1) In the
     South  Platte River Basin?  (2) Anywhere in the United States?
 23.  How well  do you like doing these activities?
     (1)  Dislike very much            (4)  Like
     (2)  Dislike                      (5)  Like very much
     (3)  Indifferent
 24.  What would you  estimate are the chances in 100 that you will travel to
     lakes  and streams in the South Platte River Basin in the next year, for
     water-based recreation if they are preserved at level A?  (2) Do you
     anticipate any  significant change in your chances for future years?
     (3) (If "yes")  What change?
 25.  Given  your chances of future use would you be willing to add 	 cents
     on the dollar to present sales taxes every year for water recreation
     opportunities at lakes and streams in the South Platte River Basin if
     they are preserved at level A?  Would  it be reasonable to add 	 to
     your water bill every month for these opportunities?

     In the near future, one of two alternatives is likely to occur in the
South Platte River Basin.  The first alternative is that a large expansion
 in mining development will  soon take place, creating jobs and income for the
 region.  As a consequence,  however, many lakes and streams would become
severely polluted.   It is highly unlikely,  as is shown in situation C, that
                                        81

-------
these waterways could ever be returned to their natural condition.  They
could not be used for recreation.  Growing demand could cause all  other
waterways in the area to be crowded with other recreationists.

     The second possible alternative is to postpone any decision to expand
mining activities which would irreversibly pollute these waterways.  During
this time, they would be preserved at level A for your recreational use.
Furthermore, information would become available enabling you to preserve the
waterways at level A for your recreational use or to permit mining develop-
ment.  Of course, if the first alternative takes place, you could not make
this future choice since the waterways would be irreversibly polluted.

26.  Given your chances of future recreational use, would you be willing
     to add 	 cents on the do Ilar to present sales taxes every year to
     postpone mining development?  This postponement would permit informa-
     tion to become available enabling you to make a decision with near
     certainty in the future as to which option (recreational use or mining
     development) would be most beneficial to you?  Would it be reasonable
     to add 	 to your water bill every month for this postponement?
27.  If it were certain you would not use the South Platte River Basin for
     water-based recreation, would you be wiI ling to add 	 cents on the
     dollar to present sales taxes every year, just to know clean water
     exists at level A as a natural  habitat for plants, fish, wildlife, etc?
     Would  it be reasonable to add 	 to your water bill every month
     for this knowledge?
28.  If it were certain you would not use the South Platte River Basin for
     water-based recreation, would you be wiI I ing to add 	cents on the
     do Ilar to present sales taxes every year to ensure that future genera-
     tions will be able to enjoy clean water at level A?  Would it be
     reasonable to add 	 to your water bill every month for this know-
     ledge.
29.  Who do you think should pay the costs of water qulaity preservation?
     (1)   The people benefiting by it, i.e., the local residents and other
          recreat i on i sts.
     (2)   The final  consumer of the things produced by polluting recreationists,
     (3)   The polluting firms.
     (4)   Some combination of the above (Which bears primary responsibility?)
     (5)   The community as a whole.
                                        82

-------
 ENVIRONMENTAL AWARENESS

     Table  26 shows that residents of both cities tend to be sensitive to
 their environmental surroundings.  In both Denver and Fort Collins, nearly
 84  percent of the residents  interviewed report that they are aware of en-
 vironmental problems in the area such as air pollution, water pollution
 and solid waste pollution (i.e., visible junk).  Nearly half of the resi-
 dents interviewed report that these environmental problems have affected
 their family or other persons in the area, as for example, human health,
 damaged plants or animals, reduced enjoyment of  life or lowered property
 values.  There is more personal  contact with environmental problems in the
 large city.  A reported 36.6 percent of households in Fort Collins had
 personal contact with environmental problems compared to 50.0 percent in
 Denver.

     Over half of the residents of the two cities rated the quality of
 waterways in the South Platte River Basin as either poor or fair.  Few
 respondents (only about 4 percent) rated the quality of water in the River
 Basin as excellent.  The largest proportion of respondents (47.2 percent)
 rated the quality of water in the River Basin as fair, and about 15.4 per-
 cent rated its water quality as poor.  One-third (33.7 percent) of the
 respondents rated the quality of water in the River Basin as good.  This
 is particularly true for residents of Fort Collins where water quality
 deterioration is not as evident as in the Denver Metropolitan Area.

     Table  26 shows that residents of both cities consider the South Platte
 River Basin an important recreation resource.  Thirty percent of households
 in Fort Collins report thar the River Basin is very important as a recrea-
 tion resource compared to 20.0 percent in Denver.  About 30 percent of
 households in Denver report that the River Basin is somewhat important as
 a recreation resource compared to 15 percent in Fort Collins.  Residents
 of Fort Collins tended to rate the importance of the River Basin as a
 recreation resource more highly than residents of Denver.   The Poudre River
Canyon,  a major tributary to the South Platte River,  emerges from the moun-
 tains just above Fort Collins, and Horsetooth Reservoir is located in the
 foothills west of the city.   Both are heavily used for day outings by resi-
 dents of Fort Collins.   The  incidence of use of the South Platte River as
 it passes through Denver is much less by comparison.

     The table also shows that residents of both cities would be willing to
 distribute a substantial portion of  increased federal revenues appropriated
 by Congress to water and air quality improvement.  In both Denver and Fort
Collins, the residents interviewed report that they would distribute about
 40 percent of an increase in federal  revenues for improved water and air
quality.  They would allocate 22 percent of increased federal revenues to
 improved water quality, and nearly 20 percent to improved air quality.
Allocations to other public services are shown in the table.  Improved
 health services would receive nearly 18 percent, as would education.  High-
ways would receive  less than 7 percent, national defense 10 percent and
other public services about, 5 percent.
                                      83

-------
Table 26. Environmental Awareness of  Residents,  Denver,  Fort  Collins,

          and South Platte  River Basin,  Colorado,  1976.
       r-   •      j.  i o                u J.J.       port     South  Platte
       Environmental Concern          Metropolitan    _ ...      .
                                          .            Collins   River Basin
                                          Area

Awareness of Environmental Problems
in the Area
Knowledge of Environmental Damages
Persona I Know I edge
Respondent's Household
Other Households
Both Respondent's Household
and Other Households
No Personal Knowledge
Quality Rating of South Platte
River Basin
Poor
Fai r
Good
Excel lent
Importance of South Platte River
Basin for Recreation Use
Very Important
Important
Somewhat Important
Not Important
Preferred Distribution of Increased
Federa I Revenues
Water Qua I Ity
Air Qua I ity
Health Services
Education
Highways
National Defense
Other

84.2


50.0
11.2
4.1
34.7

50.0


18.2
48.5
30.3
3.0


20.0
35.0
29.0
16.0


21.3
19.5
17.4
17.7
6.4
10.8
6.1
Percent of Sample
83.2


36.6
5.0
5.9
25.7

63.4


7.9
43.6
42.6
5.9


29.7
40.6
14.9
14.9


23.4
19.6
17.7
18.5
7.9
8.9
3.7

83.9


46.3
9.5
4.6
32.3

53.7


15.4
47.2
33.7
3.8


22.7
36.5
25.2
15.7


21.9
19.5
17.5
17.9
6.8
10.0
5.4
                                       84

-------
                             STATISTICAL ANALYSIS
SPECIFICATION OF THE REGRESSION MODELS

     The hypothesis is that the dependent variable willingness to pay. Y,
is a function of the specific socioeconomic characteristics of the survey
participants.   Independent socioeconomic variables X-)  through X-^Q were used
in estimating the regression equations although not all  of the variables
were found to be statistically significant.  Dummy variables were used
for qualitative socioeconomic categories.  These include:   sex, size of
former residence, occupation, and employer.

     Various other algebraic forms including linear, hyperbolic,  quadratic,
and log functions were estimated.  The linear model was chosen for the
subsequent evaluations since it provided the best fit.   The functions with
insignificant constants were forced through the origin with no improvement
in the percentage of explained variance or in the numbers  of significant
coefficients.  Significant hyperbolic terms were checked for consistency
through use of  log transformations.  Since consistent  results were obtained
the hyperbolic terms were retained in the final estimated  equations.

     Four models were considered.  These models may be formulated as:
                     +Z.+Zk+
     BnXn
where Y may be defined as:

     MODEL I
     MODEL
                 Resident household willingness to pay an increased sales
                 tax for improved water quality to enhance recreation.

                 Resident household willingness to pay an increased water
                 bill for improved water quality to enhance recreation.
     MODEL III   Resident household willingness to pay an increased sales
                 tax for option value of improved water quality.

     MODEL IV    Resident household willingness to pay an increased water
                 bill for option value of improved water quality.
                                      85

-------
The regression parameters are:
     a     joint reference category  intercept value
     Zh    net effect of sex,  h =  1, 2
     Z.    net effect of previous  residence,  i =  1,  . . ,4
     Z.    net effect of occupation, j =  1,  . . , 4
      .J
     Z.    net effect of employment, k =  1,  . . ,4
     Bn    regression coefficient  for the continuous variables
     E     Stochastic disturbance  variables
All four models are estimated  for  both the Denver Metropolitan Area and
Fort Col I ins.

Variables Used in Analysis of  Relationship Between Willingness
to Pay and Socioeconomic Characteristics:
Y.   Annual amount willing to  increase sales tax for improved water quality
Y_   Annual amount willing to  increase water bill for improved water quality
Y,   Annual amount willing to  increase sales tax for option value
Y.   Annual amount willing to  increase water bill for option value
X.   Gross annual family income
X~   Annual South Platte River Basin water-based recreation days
X,   Annual water-based recreation days, total
X4   Age
XE-   Years of formal education
X,   Female, 0 (dummy reference category)
X-,   1 if male, 0 otherwise
X_   Population of previous residence—under 5,000, 0 (dummy reference
     category)
Xq   1 if population of previous residence 5,000-25,000, 0 otherwise
Xin  1 if population of previous residence 25,000-100,000, 0 otherwise
X    1 if population of previous residence 100,000+, 0 otherwise
X1?  Occupation—all other including:  foreman, salesman/buyer, office
     worker, unskilled and student 0 (dummy reference category)
X.,  1 if occupation professional, business owner, or manager, 0 otherwise
                                      86

-------
X.J4   1  if occupation housewife, 0 otherwise
X^   1  if occupation retired, 0 otherwise

X16   Employer—all other including unemployed 0 (dummy referency category;

X17   1  if employed in small business or agriculture, 0 otherwise

X.|g   1  if employed in large business or manufacturing, 0 otherwise
X^g   1  if employed in government, 0 otherwise
X2Q  Number of children in family

Xyi  Years  lived  in present city
X22   I/Gross annual family income

X23   1/Age
X2<   I/Years Iived in present city

^25   ^/Years of formal  education
X2,  Family income x Age

X2y  Family income squared

X28  Age Squared
X-2g  Years of formal  education squared

X^Q  Number of  children in family squared


STATISTICAL RELIABILITY OF THE SOCIOECONOMIC REGRESSIONS

     The least squares regression estimation procedure is founded on the
assumption that the disturbance terms are normally distributed with a zero
mean and constant variance.  There are a number of statistical problems
associated with regression analysis of economic data which may violate
this assumption resulting  in biased and/or inconsistent estimators.  Among
these are muIticolIinearity, heteroscedasticity, mis-specification of
the model, non-random disturbance terms, and non-normally distributed sample
values.  These problem areas will be briefly discussed in relation to
the preceding analysis.

     MuIticolIinearity arises when at least one of the independent vari-
ables is a  linear combination of the others.  This results in a situation
of too few  independent normal equations so that estimators cannot be de-
rived for all of the coefficients.  A classic symptom of mu1ticolIinearity
occurs when a  large coefficient of determination  is produced while esti-
mators of the coefficients are found to be insignificant.  It might
arise when high correlation exists between such variables as ed-
ucation or age and income.  This was not the situation in the preceding
analysis.  Very low correlation was observed between the variables com-
prising the socioeconomic data generated from the survey.  Only a very
                                      87

-------
few pairs of variables had correlation coefficients exceedings .50.   The
symptom of insignificant coefficient estimators in conjunction with  large
Rz values was not observed.  Thus there was no available evidence to suggest
that multicolIinearity resulted in any difficulty in estimating the  regres-
sion coefficients.

     The condition of nonconstant variance among the error terms in  called
heteroscedasticity.  Since it is assumed in regression analysis that the
variance of the error term is constant, this assumption is violated  when
heteroscedasiticity occurs.  The least squares estimation procedure  produces
an estimate of error term variance used in calculating the standard  errors
of the coefficients.  These standard errors will become an average of the
differing variances of the error terms.  Since the estimator does not pro-
duce the statistic with the smallest variance tests of hypothesis and confi-
dence interval  estimates derived by using the t-statistic will be suspect.
The variance of the disturbance terms may be expected to increase as house-
hold income increases.  Wealthy people generally have greater variability in
their consumption patterns than do the poor.  This situation was not apparent
from a plot of the  least squares residuals against willingness to pay esti-
mates.  Variance among the error terms appeared to be constant as willing-
ness to pay estimates increased.  There was no evidence to suggest the
variance among the error terms was heteroscedastic.

     Omission of an  important  independent variable may  lead to a viola-
tion of the assumption of  an expected  zero mean for the error term.   The
 low coefficients of determination of the various socioeconomic regressions
might lead one to the conclusion that  a significant variable  not among
those listed may  have been omitted.  One case  in point  is that there
were no  independent variables available which  adequately served
as an indicator of  tastes  and preferences of the participating residents
regarding their enjoyment  of the natural environment  in general and water-
based recreation activity  in particular.  Respondents were asked how well
they  liked outdoor  water-based  recreation on a  4 point scale  from dislike
very much to  like very much.  This scale did not provide sufficient detail
to detect differences in the tastes of the  respondents.  Almost all  respon-
dents indicated that they  either "liked" or "liked water-based recreation
very much." Likewise, the  number of water-based recreation activity days
failed to indicate  adequately the tastes of the residents for outdoor
recreation.  This was most likely the  result of respondents who spent
 little time  in these activities because of  work or time restrictions but
enjoyed water-based recreation  activity very much.  Other respondents
reported spending a  large  number of days engaged  in water-based recrea-
tion activity, not  so much because they personally enjoyed them as they
wished to please other members  of their families.  Greater emphasis on
the development of  a refined question  designed  to  reflect tastes and appre-
ciation of the outdoor environment may mitigate this  problem.  Randall  [1977]
reported a similar  problem in a study  of the benefits to abatement of air
particulates  in the Four Corners area  of the Southwest.
                                      88

-------
     The relatively  low coefficients of determination may also be the result
of omitting other significant variables associated with environmental con-
cern.  Our findings are less pessimistic than Eastman, Hoffer and Randall  [1974]
who concluded that concern for the environment may tend to be randomly dis-
tributed among residents of the Four Corners area.  The authors suggest that:

          "A tentative explanation of this randomness may be that
          attention has focused on environment only recently and
          attitudes have not yet fully crystalized.  With time, a
          more patterned relationship may emerge.  Or it may be
          that aesthetic concerns are inherently less patterned
          -"hin many other phenomena."

     The fit oi the regression equations in this study was somewhat higher
then that of the equations estimated by Eastman, Hoffer and Randall [1974].
A pattern,  although somewhat weak, signified by the repeated occurrence
of variables affecting willingness to pay was also more pronounced in this
study.   It may be that characteristics affecting environmental  concern
are crystalizing throughout the population but are still  not fully identified.
Interestingly, although it might be expected that a more homogenous popu-
lation would be found in a small  university town, benefit estimates were
more highly associated with socioeconomic profile characteristics of Denver
residents.   Perhaps attitudes toward the natural environment have crystalized
more rapidly in the more densely populated Denver Metropolitan Area than
i n Fort Co I Ii ns.

     The willingness to pay bids generated from the survey were estimates
of the amount of household income respondents would allocate to water
quality improvement.  They may have been subject to errors  in measurement
on the part of the respondents.  This may have  resulted  in  low R  values,
as log linear, hyperbolic and quadratic transformations did not  improve
the fit of the data.

     There were no apparent trends  in the overall  plot of the  residuals
and plots of the residuals against the dependent and  relevant  indepen-
dent variables.  There was however, an outlier  problem associated with
high bid estimates which could not be mitigated  by use of any of the avail-
able independent variables.  This problem may be related to the  lack of
a sufficient indicator of tastes or unpredictable  behavior as  discussed
above.

     Although plots of the estimated use and  non-use  values appear to be
normally distributed, there  is a cluster of values at the zero point.
Respondents were not permitted to  associate  negative values of  recrea-
tional  opportunities derived from water quality  improvement.   Hence the
normal  distribution curve of values becomes truncated  instead of asymptotic.
The 95 percent confidence  intervals for the estimated coefficients of the
independent variables are generally  large.  This problem reduces the pre-
dictive ability of the equatipns.
                                      89

-------
     The statistical relationship between willingness of residents to pay
for improved water quality and socioeconomic characteristics is estimated
through use of variance estimators, based on sample responses to hypotheti-
cal situations.  It  is impossible to indicate what effect the introduction
of a real as opposed to a hypothetical payment situation would have on
the willingness to pay variance estimators and hence the estimated statis-
tical  relationships.
GROUPED T-TESTS OF SIGNIFICANT DIFFERENCES BETWEEN AVERAGE
BENEFITS IN DENVER AND FORT COLLINS

     There is a large difference  in the reported mean values of benefits
for Denver and Fort Collins residents.  Given the sizeable dispersion of
individual benefit estimates, the apparent difference between means must
be tested to see  if  it exceeds that which might occur randomly.  Table 27
shows the results of the group t-test, comparing corresponding Denver and
Fort Collins  benefit values.  The t-test provides an estimate of the
significance of the difference in the reported mean values for the two
cities.  None of the t value statistics are significant at the 5 percent
level and only two at the  10 percent  level.  On the basis of these tests,
we conclude that there is  no strong evidence of any difference between
the reported mean values for Denver and Fort Collins residents.  We do not
find evidence in this study to support the hypothesis that residents of
smaller cities would be willing to pay more for water-based recreation
than residents of  large cities.
                                       90

-------
 Table  27  .  Grouped T-test of Significant Difference Between Average
             Benefits  from  Improved Water Quality  in Denver and Fort
             Col I ins,  Colorado,  1976.
Mean Water Quality Values
Recreation Use Value
Improvement from Polluted Water
to an Intermediate Level of
Water Qual ity (C-B)
Sales Tax Levy
Writer Bill Surcharge
Hproveme.'.t fror, Polluted Water
+••> Highest Level .>f Wifer
Qua I itv (C-A)
'S'i I es Tax Levy
nater Bill Surcharge
Improved Water Quality Delayed
to the Year 2000
Sales Tax Levy
Water Bi 1 1 Surcharge
Improved Water Quality Throughout
Colorado
Sales Tax Levy
Water Bi 1 1 Surcharge
Preservation of Water Quality
at Level A
Sales Tax Levy
Water Bill Surcharge
Option Value
Sales Tax Levy
Water Bi 1 1 Surcharge
Existence of Natural Ecosystem
Sales Tax Levy
Water Bi 1 1 Surcharge
Bequest to Future Generations
Sa 1 es Tax Levy
Water Bi I 1 Surcharge
T Value^




1.32
1.17



1.65
1 .04


.72
.92


1.89
1.13


1.49
.72

1.51
1.01

1.69
.99

1.55

Two Ta i I Probabi I ity
That Means Are Equal




.811
.756



.89-'
.697


.5?4
.638


.939
.740


.862
.528

.868
.684

.907
.676

.876
.617
— Tests the significance of difference  between the compared mean values at
  the 5 percent  level.
                                       91

-------
                                   TECHNICAL REPORT DATA
                            (Please read Instructions on the reverse before completing)
  . REPORT NO.
   EPA-600/5-78-00!
              3. RECIPIENT'S ACCESSION NO.
 4. TITLE AND SUBTITLE
  Option Values, Preservation Values and Recreational
  Benefits of Improved Water  Quality: A Case Study of
  the South Platte River  Basin,  Colorado
              6. PERFORMING ORGANIZATION CODE
              5. REPORT DATE
                January 1978
 7. AUTHOR(S)

  Richard G. Walsh, D.A.  Greenley, R.A. Young, J.R. McKeai.
  and A.A. Prato
              8. PERFORMING ORGANIZATION REPORT NO.
 9. PERFORMING ORGANIZATION NAME AND ADDRESS
  Department of Economics
  Colorado State University
  Fort Collins, CO  80523
              10. PROGRAM ELEMENT NO.

               1AA601
              11. CONTRACT/GRANT NO.

               R 803206-01-5
 12. SPONSORING AGENCY NAME AND ADDRESS
  Health Effects Research Laboratory
  Office of Research  and  Development
  U.S. Environmental  Protection Agency
  Research Triangle Park, N.C.  27711
              13. TYPE OF REPORT AND PERIOD COVERED
RTP.NC
              14. SPONSORING AGENCY CODE

               EPA-600/11
 15. SUPPLEMENTARY NOTES
 16. ABSTRACT

       This is believed to the the first empirical  test  of the concept of option
  value for any non-market good.  Application of  the  bidding game technique was
  successful in meeting the primary study objective of measuring the option value
  of improved water  quality.  Also included are improved estimates of the benefits
  to recreational  users of enhanced water quality,  the existence value of a natural
  ecosystem, and the value of its bequest to future generations.  The relationship
  between the value  of  improved water quality and several socioeconomic variables
  was tested with  regression and other statistical  procedures.  The report is
  based on direct  interviews with 202 residents of  Denver and Fort Collins located
  in the South Platte  River Basin, Colorado. Interviewees responded to the survey
  within the context of improving the quality of  water degraded by heavy metals
  from post mining activities and preventing future degradation from such sources.
  Substantial benefits  from improved water quality  are indicated.
17.
                                KEY WORDS AND DOCUMENT ANALYSIS
                  DESCRIPTORS
                                              b.IDENTIFIERS/OPEN ENDED TERMS  C. COSAT1 Field/Group
  water quality
  empirical equations
  economic analysis
  economic factors
  pollution
                            05 C, K
 3. DISTRIBUTION STATEMENT

  RELEASE TO PUBLIC
 19. SECURITY CLASS (ThisReport)
   UNCLASSIFIED
21. NO. OF PAGES
    106
                                              20. SECURITY CLASS (Thispage)
                                                 UNCLASSIFI'ED
                                                                         22. PRICE
EPA Form 2220-1 (9-73)

-------
                RESEARCH REPORTING SERIES

Research reports of the Office of Research and Development, U.S. Environmental
Protection Agency, have been grouped into nine series. These nine broad cate-
gories were established to facilitate further development and application of en-
vironmental technology.  Elimination of traditional grouping was consciously
planned to foster technology transfer and a maximum interface in related fields.
The nine series are:

      1.   Environmental  Health Effects Research
      2.   Environmental  Protection Technology
      3.   Ecological Research
      4.   Environmental  Monitoring
      5.   Socioeconomic Environmental Studies
      6.   Scientific and Technical Assessment Reports (STAR)
      7.   Interagency  Energy-Environment Research and  Development
      8.   "Special" Reports
      9.   Miscellaneous Reports

This report has been  assigned  to the SOCIOECONOMIC ENVIRONMENTAL
STUDIES series. This series includes research on environmental management,
economic analysis,  ecological impacts, comprehensive planning  and fore-
casting, and analysis methodologies. Included are tools for determining varying
impacts of alternative policies; analyses of environmental planning techniques
at the regional, state, and local levels; and approaches to measuring environ-
mental quality perceptions, as well as analysis of ecological and economic im-
pacts of environmental  protection measures. Such topics as urban form, industrial
mix, growth policies, control, and organizational structure are discussed in terms
of optimal environmental performance. These interdisciplinary studies and sys-
tems analyses are presented in forms varying from quantitative relational analyses
to management and policy-oriented  reports.
This document is available to the public through the National Technical Informa-
tion Service, Springfield, Virginia 22161.

-------