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INNOVATIVE  RESEARCH FOR A SUSTAINABLE FUTURE
     Environmental Economics for Watershed Restoration:
     Valuation for Non-Economists
     Background

     Researchers can measure the value of
     goods that are not traded in a market.
     Knowing the value of nonmarket
     goods helps with handling tradeoffs
     with market goods, with analyzing
     regulatory impacts, and with
     prioritizing, refining or justifying
     environmental restoration projects.

     EPA economists completed research
     projects and summarized related
     valuation methods and case studies,
     mostly dealing with acid mine
     drainage. Their recent book (edited
     by Thurston, et  al.) is intended to
     make stakeholders more comfortable
     talking about economic jargon and to
     inform non-economists whose
     valuation needs may not require
     expensive economic consultation.
     Revealed Preferences Methods

     These methods infer the value of
     nonmarket goods or attributes based
     on prices of related market goods.

     Travel Cost Method
     The travel cost method can estimate
     how much people spend to travel to a
     recreation spot and can use the data
     to estimate what the spot is worth.
     The method requires a large amount
     of data.

     Hedonic Modeling
     Hedonic modeling uses data on
     market transactions to value
     nonmarket goods. For example, the
     prices of two houses that are similar
     except for an environmental factor
             such as the odor from a pig farm can
             be used to estimate the (likely
             negative) value of that smell.

             Hedonic modeling generates
             estimated values that policy makers
             are likely to understand. However,
             economists should probably help
             collect, analyze and model the data.
             Stated Preferences Methods

             These methods use surveys to ask
             people to state directly how much
             they value or prefer something.

             Contingent Valuation Method
             The contingent valuation method
             uses surveys to ask people to place a
             value on a change in a nonmarket
             good or service. The method needs
             careful study design to help
             respondents that are not familiar with
             the relevant issues and to tackle
             validity and reliability issues.

             Stated Choice Method
             The stated choice method gives the
             survey respondent a choice between
             several options. The data from many
             such choices can be used to estimate
             the value of different tradeoffs.
             Sophisticated statistical techniques
             are needed to analyze the data.
             Combining Studies: Benefit
             Transfer Method

             The benefit transfer method can save
             money and time by using values
             estimated from the four methods
             already summarized. With benefits
and costs estimated for one project or
area, the benefit transfer method
estimates costs and benefits for
another project or area. The method
accommodates a wide range of
ecological and human health benefits
(e.g., soil retention, scenic vistas or
reduced risk of asthma).

The benefit transfer method needs
the careful treatment of uncertainty
to incorporate values generated by
various methods, and is open to
variability in transferring estimates
from one study to another or from a
study site to a policy site. Due to the
inherent complexities, best practices
are still being debated and expertise
in meta-analysis is critical.
Applications: Decision Tools

Environmental Economics for
Watershed Restoration relates the
impacts of the application of five
valuation methods, mostly in acid
mine drainage case studies. However,
the valuation methods can be applied
to diverse ecological (e.g., ecosystem
services) or human health benefits.

Four decision tools summarized
below can use values from the five
valuation methods to inform
decision-making.  Since political,
location or cultural concerns may
make the monetizing of benefits
unnecessary in some cases, one
decision tool presents benefits in
non-monetary terms. In addition,
conceptual models can clearly
communicate tradeoffs to stakeholder
groups and function as analytical
            U.S. Environmental Protection Agency
            Office of Research and Development
            National Risk Management Research Laboratory
            Sustainable Technology Division
                                                        EPA/600/F-12/509
                                                        February 2012

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road maps if further transdisciplinary
analyses are needed.

Benefit-cost analysis includes market
and monetized nonmarket values.
Ratios of the benefits to the costs
enable comparisons of the efficiency
of resource use.

Economic impact analysis examines
economic inputs and outputs across
different business sectors. The
input/output analysis reflects the
impact of changes to the local
economy from an increase in demand
for outdoor recreation or tourism
(e.g., from fishing or bird watching).
                          Equity assessment determines the
                          winners and losers of a particular
                          project, focusing on subpopulations.

                          Cost-effectiveness analysis presents
                          costs in dollars and benefits in non-
                          monetary terms (e.g., ratio of dollars
                          to unit of pollution reduced). It is
                          typically used when quantifying the
                          benefits is too difficult.
                                                  REFERENCE
                                                  Thurston, H.; M. Heberling; A. Schrecongost
                                                  (eds). 2009. Environmental Economics for
                                                  Watershed Restoration. CRC Press, Boca
                                                  Raton, FL.
                                                  CONTACTS
                                                  Hale Thurston, Ph.D.
                                                  Office of Research & Development
                                                  513-569-7627, thurston.hale@epa.gov

                                                  Matthew Heberling, Ph.D.
                                                  Office of Research & Development
                                                  513-569-7917, heberling.matt@epa.gov
The table below summarizes five
valuation methods.
              How Value is
              Measured
                Strengths
                               Limitations
Travel
Cost
Method
Revealed by
people
completing a
trip
Good for well-defined sites of
interest
Assumes people respond to travel cost and admission price
in the same way

Assumes trip has a single purpose

Assumes people can substitute recreational time for wages
Hedonic
Modeling
Revealed by
people
completing a
transaction
Useful when values of related
goods are known
Market must exist

Must include relevant variables

Limited by the data	
Contingent
Valuation
Method
Stated by
people in a
survey
Useful when evaluating
proposed policy alternatives
Hypothetical bias

Strategic bias

Design bias/information bias

Payment vehicle bias	
Stated
Choice
Method
Stated by
people in a
survey
Good for mimicking tradeoffs
Difficult to make tradeoffs not familiar with

As number of attributes and levels increase, so must
number of choice sets and sample size (survey cost)

Sophisticated statistical techniques needed for analysis
Benefit
Transfer
Method
Approximated
using other
studies
Useful when many related
studies are available
Requires good quality economic studies and similar
populations

Not as accurate as other methods

Expertise in meta-analysis is critical	
        U.S. Environmental Protection Agency
        Office of Research and Development
        National Risk Management Research Laboratory
        Sustainable Technology Division
                                                                            EPA/600/F-12/509
                                                                            February 2012

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