| Economic Tools Used by DARRP
|Fishing at Belmont Pier, California
Credit: John Cubit, NOAA
Most ecosystem services (with the exception of provisioning services like food,
fuel, and timber) are not commonly traded in economic markets; as a result,
there is not a market price to use as a measure of their value. While it is
possible to use a market price to determine how much a loaf of bread (an item
bought and sold commonly) is worth, there is no such readily available metric
for the value of most ecosystem goods and services. Given the absence of a
market price for many of the ecosystem services provided by nature, economists
have developed "non-market" techniques to estimate their missing values for use
in conducting natural resource damage assessments, cost-benefit analyses, or
According to regulations governing the damage assessment process,
service-to-service scaling is the preferred approach for determining the
required amount of compensatory restoration following an injury. In this
approach, the services lost from natural resource injury are equated to the
services gained from restoration. Using the critical assumption that the
services lost from the injury are of the same type and value as those restored
through a compensatory project, no direct valuation of the injured resources or
restored resources occurs.
For example, "X" acres of marsh restoration (with its associated ecosystem
services) would be required to compensate for a loss in marsh services from an
oil spill. In effect, this is the most direct form of addressing ecosystem
service losses. Habitat equivalency analysis (HEA) and the similar,
resource-specific, resource equivalency analysis (REA) are both examples of the
service-to-service scaling approaches that could be used for determining the
amount of restoration required (or "X" in the marsh example mentioned above).
The different levels of service flows that come from different marsh habitats
as well as the duration of the injury mean that we cannot assume that
restoration of 5 acres of one marsh will adequately compensate for injury to 5
acres of another marsh. Instead, HEA must be used to determine the compensatory
To find out more details about HEA and scaling, click here
for a link to technical papers and publications.
When the critical service-to-service equivalency assumption is not valid because
of uncertainty about whether the value of services gained from restoration
equals the value of services lost from the injury or an inability to assess the
difference in value, DARRP relies on the Value-to-Value and/or Value-to-Cost
approaches described below.
|Fishing pier at St. Petersburg beach following restoration
Value-to-Value and Value-to-Cost Approaches
Value-to-value scaling entails equating the monetary value of natural resource
services lost from an injury with the monetary value of restoration project(s)
that would compensate for those lost services. In other words, the value of the
services provided by the restoration project should equal the value of the
interim losses. Related to this approach, value-to-cost only requires
estimation of the value of the interim losses of natural resource services.
That value, or dollar amount, is then spent on appropriate compensatory
restoration projects. The value-to-cost approach is typically used when the
cost and/or feasibility of developing and executing a primary study for valuing
restoration benefits is prohibitive and not viewed as cost-effective.
For example, imagine that 10,000 recreational fishing trips valued at $40 per
fishing trip are lost as the result of an oil spill. This is a total monetary
loss of $400,000. An economic model generated at the site indicates that a boat
ramp would generate 7000 recreational fishing trips valued at $40 per fishing
trip and a fishing pier would generate 4,000 recreational fishing trips valued
at $30 per fishing trip. Those two projects would provide a benefit of $400,000
and could be appropriate compensation for the loss to the recreational fishing
population. This example is the value-to-value approach and does not consider
the cost of the projects themselves. The
Lavaca Bay case provides a real-world example of this approach.
On the other hand, imagine that we have the same estimated loss ($400,000), but
no economic model predicting the benefits from restoration at the site.
Trustees could then use the value-to-cost approach, ensuring that the total
cost of restoration projects matches the estimated damages of $400,000. This
approach explicitly considers the cost of the necessary restoration projects.
Athos I case provides a real-world example of this approach.
Revealed Preference and Stated Preference Methods
|Fisher on Port Lavaca pier
Revealed preference and stated preference techniques are two economic methods
used to value environmental goods and services. Both techniques create the
missing market demand curve (i.e., the relationship between the demand for the
environmental good and its cost to the consumer) and thereby identify the value
for ecosystem services. Each method has its own strengths and weaknesses. Both
enable economists to obtain a value that is then used in value-to-value and
value-to-cost approaches for estimating the required compensation.
Revealed preference techniques use the behavior "revealed" by individuals in
their day-to-day actions and decisions about how they use natural resources,
typically dealing with recreational use. Travel cost models, a type of revealed
preference approach, are the most common approaches for estimating the value of
recreational use. These models evolved from single-site models to multiple-site
models and random utility models that evaluate how individuals choose between
different recreation sites. Such models are valuable since they track actual
behavior of individual users. A limitation of these models, however, is the
reliance on use of the resource, thereby ignoring the economic values
associated with a resource in the absence of any demonstrated use. For example,
a state park may provide an economic benefit to residents who never travel to
the park; their economic value for the park would not be captured in a revealed
preference method. These are termed passive use values and include existence
value (e.g., simply valuing that a resource exists in a certain state even if
one never plans to use it) and bequest value (e.g., the value from being able
to bequest a resource in a certain state to future generations).
Stated preference techniques elicit values by directly asking people to "state"
what their preferences are. Examples of these techniques include stated choice,
contingent valuation and conjoint analysis. The hypothetical nature of the
questions, the sensitivity of values to survey design, and potential difficulty
in identifying an appropriate payment vehicle are some of the challenges
inherent in the stated preference models. One benefit of using stated
preference techniques is the possibility of assessing a broader range of
economic value by including the passive use values for natural resources and
services. In addition, stated preference techniques can estimate the value of
hypothetical injuries or restoration scenarios for planning purposes. A stated
preference technique, for example, could value the loss resulting from mercury
contamination of a lake even if the contamination is not occurring at present,
but might occur under a future development scenario.
While multiple studies have focused on stated preference and revealed preference
techniques in isolation, research has also focused on combining these two
approaches to take advantage of their strengths while attempting to mitigate
their weaknesses. Although there are benefits to such an approach, caution is
needed to ensure that the data obtained from combined stated preference and
revealed preference surveys are compatible.
Often, rather than conducting an economic study using the methods described
above at the injured site, economists use benefit transfer to estimate the
value of services provided by an ecosystem, both in its natural and impacted
states. Benefit transfer uses a value or model developed from a primary
valuation study at one location (the study site where the revealed
preference or stated preference technique was initially applied) and transfers
that value or model to a different location (the policy site where the
injury has occurred or is occurring).
This approach is generally less costly than conducting a site-specific economic
valuation study, but does not have the specificity of a study designed
especially for the injured site. Researchers must carefully evaluate and
consider the similarities and differences between the original study site and
injured sites to ensure that the benefit transfer approach is appropriate.
Adjusting values or functions transferred from the study site based on
demographic information at the injured site can further refine the analysis.
For example, if the study site is in one state and the injured site is another
state, economists may adjust the value from the original study site to account
for differences in income between the two states before applying it to the
Economic valuation of natural resources continues to be an ongoing area of
research. Click here for relevant research studies
and a regularly updated list of select papers describing the use of revealed
and stated preference methods to value resources for which NOAA is a trustee
(e.g., fish, coastal habitats, marine mammals, endangered and threatened marine
Studies such as those linked to above are also useful in providing economic
values for recreational activities that can be applied in natural resource