ENVIRONMENTAL VALUE TRANSFER: ISSUES AND METHODS

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1 ENVIRONMENTAL VALUE TRANSFER: ISSUES AND METHODS

2 THE ECONOMICS OF NON-MARKET GOODS AND RESOURCES VOLUME 9 Series Editor: Dr. Ian J. Bateman Dr. Ian J. Bateman is Professor of Environmental Economics at the School of Environmental Sciences, University of East Anglia (UEA) and directs the research theme Innovation in Decision Support (Tools and Methods) within the Programme on Environmental Decision Making (PEDM) at the Centre for Social and Economic Research on the Global Environment (CSERGE), UEA. The PEDM is funded by the UK Economic and Social Research Council. Professor Bateman is also a member of the Centre for the Economic and Behavioural Analysis of Risk and Decision (CEBARD) at UEA and Executive Editor of Environmental and Resource Economics, an international journal published in cooperation with the European Association of Environmental and Resource Economists. (EAERE). Aims and Scope The volumes which comprise The Economics of Non-Market Goods and Resources series have been specially commissioned to bring a new perspective to the greatest economic challenge facing society in the 21 st Century; the successful incorporation of non-market goods within economic decision making. Only by addressing the complexity of the underlying issues raised by such a task can society hope to redirect global economies onto paths of sustainable development. To this end the series combines and contrasts perspectives from environmental, ecological and resource economics and contains a variety of volumes which will appeal to students, researchers, and decision makers at a range of expertise levels. The series will initially address two themes, the first examining the ways in which economists assess the value of non-market goods, the second looking at approaches to the sustainable use and management of such goods. These will be supplemented with further texts examining the fundamental theoretical and applied problems raised by public good decision making. For further information about the series and how to order, please visit our Website

3 Environmental Value Transfer: Issues and Methods Edited by Ståle Navrud Associate Professor Department of Economics and Resource Management Norwegian University of Life Sciences and Richard Ready Associate Professor Department of Agricultural Economics and Rural Sociology Pennsylvania State University

4 A C.I.P. Catalogue record for this book is available from the Library of Congress. ISBN (HB) ISBN (HB) ISBN X (e-book) ISBN (e-book) Published by Springer, P.O. Box 17, 3300 AA Dordrecht, The Netherlands. Printed on acid-free paper Cover photograph of frozen apples taken by Ståle Navrud All Rights Reserved 2007 Springer No part of this work may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, microfilming, recording or otherwise, without written permission from the Publisher, with the exception of any material supplied specifically for the purpose of being entered and executed on a computer system, for exclusive use by the purchaser of the work.

5 TABLE OF CONTENTS Preface S. Navrud and R. Ready Foreword A.C. Fisher 1. Review of Methods for Value Transfer 1 S. Navrud and R. Ready 2. Benefit and Informational Transfers 11 D. Brookshire and J. Chermak 3. Correspondence and Convergence in Benefit Transfer Accuracy: Meta-Analytic Review of the Literature 23 R. Rosenberger and T. Phipps 4. Transferring Landscape Values: How and How Accurately? 45 J.M.L. Santos 5. Morbidity Value Transfer 77 R. Ready and S. Navrud 6. Uncertainty, Benefit Transfers and Physical Models: A Middle Rio Grande Valley Focus 89 D. Brookshire, J. Chermak and R. DeSimone 7. Estimating the Economic Value of Improvements in River Ecology Using Choice Experiments: An Application to the Water Framework Directive 111 N. Hanley, R.E. Wright and B. Alvarez-Farizo 8. Contrasting Conventional with Multi-Level Modeling Approaches to Meta-Analysis: Expectation Consistency in UK Woodland Recreation Values 131 Ian J. Bateman and Andrew P. Jones 9. Benefit Transfer Using Meta-Analysis in Recreation Economic Valuation 161 R. Shrestha, R. Rosenberger and J. Loomis 10. Benefit Value Transfers Conditional on Site Attributes: Some Evidence of Reliability from Forest Recreation in Ireland 179 R. Scarpa, W.G. Hutchinson, S.M. Chilton and J. Buongiorno v vii ix

6 vi TABLE OF CONTENTS 11. Can Use and Non-Use Values be Transferred Across Countries? 207 D. Kristófersson and S. Navrud 12. The Application of Bayesian Methods in Benefit Transfer 227 C. León, R. León and F. Vázquez-Polo 13. Improving the Practice of Benefits Transfer: A Preference Calibration Approach 241 S. Pattanayak, V. K. Smith and G. Van Houtven 14. How Much is Enough? The Value of Information from Benefit Transfers in a Policy Context 261 D. Barton 15. Lessons Learned for Environmental Value Transfer 283 S. Navrud and R. Ready

7 S. NAVRUD AND R. READY PREFACE The transfer of environmental values in time and space has increased rapidly with the widespread use of cost benefit analysis in project evaluation and regulatory assessments over the last three decades. Over the last 15 years, other policy uses like environmental costing, greening of systems of national accounts and natural resource damage assessments after oil spills and other pollution accidents have also contributed to the increased demand for environmental values. However, most early transfers were conducted in an uncritical manner, often lacking sound theoretical, statistical and empirical basis, and did not question the validity and reliability of the transferred values. What appears to be the first environmental value transfer exercise estimated damages, and illustrates the point that what is generally termed benefit transfer, should rather be termed value transfer in order to capture both reductions and increments in environmental quality and natural resources. This first attempt to transfer environmental values seems to be the calculation of lost recreational value from the Hell s Canyon hydroelectric project more than 30 years ago, as described by John V. Krutilla and Anthony C. Fisher in their book (Chapters 5 and 6): The Economics of Natural Environments Studies in the Valuation of Commodity and Amenity Resources. (John Hopkins Press, Baltimore, 1975). The first large-scale user of value transfer was the USDA Forest Service. In preparation for the 1980 Resource Planning Assessment (RPA) the Forest Service launched a large-scale effort to collect data on the economic values associated with recreational use of forest lands, in order to balance these against timber production and other uses. This research effort and policy use was expanded in the later RPAs, conducted every fifth year. The set of papers in the 1992 Special Issue of Water Resources Research on benefit transfer organized by David Brookshire, and the 1992 Workshop on Benefit Transfer of the Association of Environmental and Resource Economists (AERE) in Snowbird, Utah were instrumental in questioning the prevailing practice of value transfer and putting uncertainty of value transfer on the agenda. Since then there has been a steady growth in the literature on testing validity of benefit transfer, the development of transfer methods and statistical techniques, and applications of these to both use and non-use values of different environmental goods. This book attempts to present the state-of the-art in value transfer after more than 10 years of more directed research into the applicability and validity of different value transfer techniques, and concludes by identifying issues and challenges for value transfer as policy applications of environmental values are expanding. vii

8 viii PREFACE The idea of this book first emerged after Olvar Bergland and Ståle Navrud organized a workshop on benefit transfer in Lillehammer, October The workshop was the seventh in a series of nine workshops organized under the Concerted Action Environmental Valuation in Europe (EVE), funded by DG Research of the European Commission. The papers from the workshop got the book project started, but more than half the chapters were invited after we became part of this book series on The Economics of Non-Market Goods and Resources. We would like to thank all contributors to the book for their keen interest and enthusiasm in contributing to this book, and the book series editor Ian Bateman for his patience and encouragement in finalizing the book. Thank you also to the Journal of Environmental Management and editor A. Gill for permission to reprint the paper in Chapter 7, to Land Economics and editor Dan Bromley for permission to reprint the paper in Chapter 8, and to the people at Springer for their positive attitude and support. Drøbak / State College Ståle Navrud Richard Ready

9 A.C. FISHER FOREWORD It is very kind of the editors to attribute to John Krutilla and me the first exercise in value transfer, in our 1975 volume on the economics of natural environments. In fact the material appeared even earlier, in our 1972 article, with Charles Cicchetti, in the American Economic Review. As they note, we were attempting to estimate the recreational value that would be lost as a consequence of putting a dam in the Hells Canyon reach of the Snake River, part of the Columbia River system in the Pacific Northwest of the U.S. By modern standards, the attempt was of course very unsophisticated. First, we worked only with unit values, rather than a value function, much less a meta-analysis of studies of value functions. Second, we did not exactly transfer the values. But this was in my judgment a strength of the approach, and one I think still has some merit, as I shall explain. The recreational activities we were looking at were primarily hunting and fishing of various kinds. We first developed estimates of the number of visitor days in each type of activity that would be lost due to the project, and then imputed values to the visitor days. Although some early results on estimation of the imputed value of these activities were available, we focused instead on amounts actually paid in settings where this occurred, where rights to game and fish are privately vested. For example, grouse shooting in the United Kingdom was known to go for $ per week, and the privilege of taking the red stag in central Europe for $5,000. Similarly in the case of fishing, we found that the cost per rod day on the better artificial ponds in the United Kingdom was about $9, and as much as $ for Atlantic salmon fishing. Of course the characteristics of the recreation experience, and almost certainly of the recreationist, were different in these instances from their counterparts in our study. What we did, however, was to impute very much lower values to the big game, bird hunting, and fishing days in the Hells Canyon area: $25, $10, and $5 respectively, and then argue that these were very conservative estimates, in that they were very much lower than the prices paid for comparable if not exactly equivalent activities elsewhere. Further and most importantly with these very conservative estimates, the resulting value of lost hunting and fishing days, when added to the other costs of the project, resulted in an overall negative net present value for the project. Better estimates could not reverse the ranking of the project/no project alternatives. The procedure was undoubtedly crude, and much more sophisticated and more defensible methods are now available, as this excellent volume, a thoughtful exposition and critical analysis of the now large literature on benefits or value ix

10 x FOREWORD transfer makes clear. But where what is required is a ranking of alternatives, such as different projects or no project and research resources are limited, our strategy may yet have merit. Athony C. Fisher is professor, Department of Agricultural and Resource Economics, Universiity of California, Berkeley.

NO MORE MUDDLING THROUGH

NO MORE MUDDLING THROUGH No More Muddling Through Mastering Complex Projects in Engineering and Management by RAINER ZÜST Zürich, Switzerland and PETER TROXLER Rotterdam, The Netherlands A C.I.P. Catalogue