Colorado Water Dec 2005

• Year: 2005
• Title: Colorado Water
• Author: Water Center of Colorado State University
• Description: December 2005 Issue
• Publications - Doc Type: Other

Technique: Passive Use Values
Existence and bequest values are public goods and as
such their values are not fully reflected in markets or
in the behavior of most individuals. Thus economists
have developed constructed or simulated markets to
allow people to state what they would pay to know
that a restored river exists with native fish. This stated
preference or contingent valuation method (CVM)
starts by providing households with a comparison of
existing river conditions and improved river condi-
tions, and then asking whether they would pay a given
increase in cost, that varies across households. This
varying costs and the response to it, allow for tracing
out a demand like relationship for restoration (i.e., the
higher the cost, the fewer people would pay).
While reliance on what people say they would pay has
been controversial (see Portney, 1994), the method
has shown to be reliable in test - retest studies (Loomis,
1989; Reiling, et al., 1990, Carson, et al. 1997). Past
comparisons with actual cash have sometimes show
that CVM derived values may overstate true WTP.
However, a blue ribbon panel appointed by the Na-
tional Oceanic and Atmospheric Administration that
was chaired by two Nobel Laureates concluded that
carefully constructed CVM studies are believed to
yield reliable enough estimates of existence or passive
use value to be a useful starting point for judicial and
administrative deliberations (Arrow, et al., 1993).
The hedonic property method has been frequently
employed to estimate the value of river restoration
to nearby residents. One of the first applications
was by Streiner and Loomis (1995) that showed that
houses in northern California along streams that were
restored sold for l l % -12% more than houses along
unrestored streams. Research in Arizona by Colby
and Wishart (2002) and Colby, et al. (2005) suggest
that riparian areas have a significant positive influence
on property values. Netusil (2005) found that publicly
owned streams had a positive and significant influence
on property values in Oregon.
Restoration of free - flowing rivers and recovery of
native species often has existence values that are
received by households all across the entire nation
(Loomis, 2000). Previous studies have shown that
existence values make up at least half the benefits
of improving water resources (Fisher and Raucher,
1984; Sanders, et al., 1990). As such it is important
to include these passive use or non use benefits when
calculating the benefits of restoration. The empirical
importance of doing so is illustrated with a case study.
Elwha River Case Study
Removing two dams from the Elwha River near
Olympic National Park in Washington, is an expen-
sive proposition with costs of nearly $250 million.
It will take decades before significant increases in
harvestable fish return to support appreciable com-
mercial and recreational fishing. But the restoration
of the river and return of the natural migration of the
salmon is expected to occur within the first decade. In
order to estimate the existence or passive use values
associated with the dam removal and river /salmon
restoration a CVM survey was conducted of Washing-
ton households to ask them whether they would pay
for dam removal and salmon recovery. The economic
question was framed as a voter referendum ques-
tion asking whether they would vote in favor of dam
removal and salmon restoration at a specific increase
in cost. This cost ($X) varied from $3 to $190 per
household across the sample.
The survey response rate was 68% for Washington
residents, and their average WTP was $73 (with a
90% confidence interval of $60 -$99). This translates
into about $94 million in passive use values to Wash-
ington households each year. Including these passive
use value results in positive net benefits (benefits in
excess of cost) for dam removal.
As the case study illustrates, calculating the total
economic values of restoration including passive use
values is necessary so as to not understate the benefits
of river restoration. The passive use or non use values
often make up a majority of the benefits, and their
omission can often lead to the impression that the
restoration is uneconomic. As this case study indi-
cates, inclusion of passive use values demonstrated
that restoration was economic efficient, with benefits
exceeding costs. While economics should not be the
sole determinant of whether to restore an area or not,
as restoration projects expand in frequency and scale,
some prioritization of restoration projects becomes
inevitable. In sorting through restoration projects
competing for scarce funding, having information
about the use and passive use values of the restoration
project can aid decision makers in selecting among
those restoration projects which provide the greatest
benefits to society as a whole.