9391

• UCREFRP Catalog Number: 9391
• Author: Watts, G., W. R. Noonan, H. R. Maddux and D. S. Brookshire.
• Title: The Endangered Species Act and Critical Habitat Designation
• USFW Year: 1997.
• USFW - Doc Type: An Integrated Biological and Economic Approach.
• Copyright Material: NO

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and services, foreign borrowing (investment), and employment payments from outside. The
Armington and CET functions described earlier account for the external linkages that take place
through the goods and services markets.

To evaluate the national economic consequences of critical habitat designation the analysis must
be conducted in such a manner that the following assumptions are violated to a minimum degree.
First, to use market prices to value the resources displaced by the impact requires that the market
for the good in question be free of distortions so that the prices truly reflect the opportunity costs
of the resources used to produce it. Second, all other markets in the economy must be operating
completely free of distortions. That is, the price paid by consumers must be identical to the cost
of producing the good in all markets.22 Third, the entire national impact must be identical with
the regional level impact.

The analyst must still make judgements concerning the extent to which regional impacts are, in
fact, national impacts or whether they are pure transfers of resources from elsewhere in the
country. This is particularly important in the case of direct impacts relating to large scale
investment in new facilities. If the construction and capital equipment sectors are operating at
capacity, then the newly installed thermal capacity within the Colorado River Basin region will
displace capacity expansion activities elsewhere in the U. S. economy. If the value of the
displaced activities is very close to the value of the thermal generation plants and since these
changes occur at the margin, the net national impact of the thermal capacity addition would have
a zero value. On the other hand, if there is sufficient excess capacity in the construction and
capital equipment sectors then the investment in expansion of the thermal capacity is a pure
addition to the national economy. 23

22 An alternative to this assumption is that the economic consequences of the listing and proposed critical
habitat designation are confmed to the markets in which the direct impacts occur. That is, there are no indirect
effects that are felt in related markets.

23 The hydropower capacity that is lost due to the changes in the hydrographs in the with fish scenario is a
sunk cost. The owners of the resources in this sector will experience a loss but not the national economy.

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