Paper Number: EE-0013

Document Date: 10/01/1992,  06/29/1993, 11/1/1994

Author(s):  McClelland, Gary H.; Schulze, William D.; Lazo, Jeffrey K.; Waldman, Donald; Doyle, James K.; Elliott, Steven R.;
Irwin, Julie R. and EPA, Science Advisory Board, Environmental Economics Advisory Committee

Subject Area(s): Economic Analysis, Benefits Analysis, Stated Preference Methods, Contingent Valuation; Groundwater Benefits

Keywords: Economic Analysis, Benefits Analysis, Stated Preference Methods, Contingent Valuation; Groundwater Benefits, Non-Use  Values, RCRA, Hedonic Models

Abstract: 　

This study focused on methodological issues in measuring non-use values for groundwater cleanup using contingent valuation. An immediate purpose was to provide information for estimating the economic benefits of groundwater cleanup. The report was organized into two documents.

1. Methods for Measuring Non-use Values: A Contingent Valuation Study of Groundwater Cleanup

• Introduction
• A Theoretical Basis for Estimating the Benefits of Groundwater Cleanup--defines the sources of benefits which might arise from groundwater cleanup and analyzes a number of theoretical issues relevant to the measurement and estimation of benefits, especially as regards non-use benefits.
• Methodological Issues in Using Contingent Valuation to Measure Non-Use Values--summarizes the authors' methodological research into the roles of information and context, embedding, hypothetical error, and scenario rejection.
• Perfect Information/Full Context Survey Instrument Design and Testing--initial research and pretesting
• Design and Testing of Mail Survey Instrument
• Sample Design, Administration and Results of the National Mail Survey
• Analysis of Results
• Conclusion

In addition, there are five appendices, as follows:

• A. Survey Instrument for October 1990 Pretest
• B. Survey Instrument for December 1990 Pretest
• C. Verbal Protocols
• D. Facsimile Surveys
• E. Modeling Willingness to Pay with True Zero Bids and Right-skewed Errors

2.  Additional Explication of Methods for Measuring Non-use Values: A Contingent Valuation Study of Groundwater Cleanup: Memorandum to the Science Advisory Board, Environmental Economics Advisory Committee. 

This memo is written in response to a number of remaining questions raised both by the Environmental Economics advisory Committee (EEAC) as part of its review of the McClelland et al. report listed above on the benefits of groundwater cleanup and by reviewers. The motivating question the groundwater study was designed to address is simply: Do any non-use benefits derive from corrective actions regarding groundwater contamination and if so, how large might they be?

The contingent valuation study of the benefits of groundwater cleanup undertaken by the research team at the University of Colorado followed naturally from prior contingent valuation studies. These previous studies were undertaken to examine methodological issues in using contingent valuation to measure the benefits from improving visibility in the Eastern United States. Results from these prior studies indicated, among other things, that 1) for a familiar commodity such as visibility, information had little effect on total values and 2) that embedding posed serious problems for disaggregating and interpreting respondent’s stated values. Groundwater presented a more challenging commodity for valuation in that, as shown in pre-testing by Mitchell and Carson (1989), people know very little about groundwater and people reject an existence value scenario where groundwater would never be used i.e.., they did not believe that clean groundwater would not be used (“... it is too difficult to overcome people’s beliefs about future use by others to design a scenario that would only capture stewardship [existence] values.”, p.85, Mitchell and Carson (1989).

The authors of the memo state that this scenario rejection problem severely limited the types of scenarios they could consider. For example, they say, it would have been desirable to use a scenario in which groundwater was already contaminated and other surface water sources had been substituted. This would have allowed the authors to ask for existence values for cleanup of groundwater directly. However, the problem with this scenario is that as soon as cleanup occurs, many respondents would assume that the water would be available for immediate use and include use values in their valuation. Again note, the authors state, that Mitchell and Carson (1989) were unable to convince pretest respondents that clean groundwater would not be used (“.. many participants are unwilling to believe that there is no likelihood of future use in the relatively near future, despite specific assurances to the contrary.”, p. 54, Mitchell and Carson (1989). Given this problem, the ability of the CVM to estimate non-use values as a separate category from use values becomes difficult. However, groundwater does provide an excellent commodity to test the methodological limits of contingent valuation. Thus, the authors believe that their study should be viewed as exploratory in nature. Both the office of Solid Waste and the Office of Policy, Planning and Evaluation recognized the experimental nature of the study and gave the authors complete intellectual freedom in its conduct.

This memorandum discusses these methodological and empirical issues in depth, focusing on the definition of the commodity in this study, and the applicability of the results to estimating national benefits. The document contains: 

• Chapter 1 - Introduction
• Chapter 2 - Commodity Definition
• Chapter 3 - Issues in the Use of the Benefit Estimates
• Chapter 4 - Conclusions
• References 
• Appendices - Post-Test Question on Temporal Aspects of Valuation
• Viewgraphs Used by Professor William D. Schulze
• Viewgraphs Used by Professor Gary H. McClelland.

3.  An SAB Report:  Contingent Valuation Methodology (CV 1).  Review of the Contingent Valuation Method for the Proposed Regulatory Impact Analysis (RIA) for Resources Conservation and Recovery Act (RCRA), Corrective Action Rule by the Environmental Economics Advisory Committee (EEAC).  EPA Report Number, SAB-EEAC-94-001

The EEAC addressed the design, conduct, and results of the contingent valuation study (undertaken for the EPA Office of Solid Waste by Drs. McClelland, Schulze, et al.), focusing on a Charge organized around five major questions: a) the survey respondents' understanding of groundwater resources; b) selection of the best method for estimating non-use values from the survey responses; c) use of the Box-Cox econometric procedure to address large bids; d) the problems of embedding, nonbids, and scenario rejection; and e) the applicability of the valuations obtained in this study as a basis for EPA to determine the non-use values of groundwater.

The Committee commends EPA staff for supporting exploratory research of this nature. There is little doubt that this study represents a substantive contribution, extending our understanding of the issues associated with contingent valuation estimation of nonmarket values. Addressing the last, but most encompassing element of the Charge first, the Committee can not endorse the McClelland et al. study as a means of generating valid and reliable estimates of the nonuse values associated with cleaning up contaminated groundwater. Specifically, the Committee has no confidence that the respondents were clear about what it is they were being asked to value. Although the study was innovative in a number of respects, this most basic failing gives the Committee no choice but to question the validity of the findings.

Addressing other aspects of the Charge: a) The Committee does not believe that the pre-testing and survey design techniques offer convincing evidence that a well-defined groundwater commodity was understood properly by all the respondents; b) The Committee does not believe that any of the three possible methods for separating the non-use or passive use values from total values can be established as preferred at this time; c) the Committee deems it impossible to judge whether the Box-Cox econometric estimates alone provide an acceptable and defensible method for dealing with the scenarios and the large bids associated with them; and d) the Committee does not believe that the approaches for treating embedding, scenario rejection, and the potential effects of non-bidding responses can be assessed for their reliability on the basis of the information provided in the report. The EEAC feels that the problems in using the study results to meet the needs of the RIA effort arise from requirements imposed on the research by the EPA, including the need for separate estimate of nonuse value and for a method that abstracted from the specific features of the local conditions associated with each specific case of groundwater contamination. The approaches taken to deal with these requirements have no basis in the theory of non-market valuation, nor precedent in practice, and were never subjected to peer review.

The Committee's report offers specific suggestions for further research to help resolve the questions raised by this study, including the criteria for deciding which households would be among the groups demanding increases in the amount available of specific commodities or values and study of the sensitivity of CV outcomes to the survey methods used.

A copy of the SAB-EEAC report (PDF, 36pp, 132K) can be obtained from the National Service Center for Environmental Publications (NSCEP) and the Science Advisory Board's website.

This report is part of the  Environmental Economics Research Inventory.

• Methods for Measuring Non-use Values: A Contingent Valuation Study of Groundwater Cleanup (1992) (PDF)(332 pp, 2 MB, 10/01/1992, EE-0013A)
  This study focused on methodological issues in measuring non-use values for groundwater cleanup using contingent valuation. An immediate purpose was to provide information for estimating the economic benefits of groundwater cleanup.
• Additional Explication of Methods for Measuring Non-use Values: A Contingent Valuation Study of Groundwater Cleanup: Memorandum to the Science Advisory Board Environmental Economics Advisory Committee (1993) (PDF)(104 pp, 899 K, 06/29/1993, EE-0013B)
  This memo is written in response to a number of remaining questions raised both by the Environmental Economics advisory Committee (EEAC) as part of its review of the McClelland et al. report listed above on the benefits of groundwater cleanup and by reviewers.