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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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