Date(s): October 13, 2011, 10:30-12:00pm

Location: Room 4144 EPA West Building, 1301 Constitution Ave., NW, Washington, DC

Contact: Carl Pasurka, 202-566-2275

Presenter(s): Rob Johnston (Department of Economics and George Perkins Marsh Institute, Clark University)

Description: Many recent studies apply stated preference (SP) valuation to quantify willingness to pay (WTP) for policies affecting the ecology of aquatic systems. The validity of resulting welfare estimates is conditional on a wide array of methodological considerations, including accurate representation of ecosystem change within survey scenarios. The integration of ecological information within SP methods, however, is often limited. Among relevant limitations is minimal attention given to distinctions between intermediate and final ecosystem outcomes, leading to the potential for welfare estimates that overlook, misrepresent or double count associated welfare effects. Here, final outcomes are defined as ecosystem outputs that directly enhance utility, providing use and/or nonuse benefits. Intermediate outcomes, in contrast, are inputs into the biophysical production of final outcomes. Many ecosystem functions provide both intermediate and final outcomes simultaneously, further complicating welfare estimation.

The relevance of such distinctions for welfare estimation and aggregation are well established. Stated preference (SP) surveys, however, typically fail to distinguish between intermediate and final outcomes. Resulting welfare measures may be biased for at least two reasons. First, respondents asked to value changes in an intermediate input may not be aware of resulting impacts on final ecosystem outcomes, leading to statements of WTP that do not fully reflect welfare contributions of the intermediate outcome. Second, even if respondents recognize a relationship between an intermediate and final outcome, they may have an incorrect understanding of the ecological relationships that link the two. Resulting WTP estimates will be based at least in part on these incorrect assumptions, again leading to the potential for bias.

This paper presents a practical approach for the disentanglement of intermediate and final ecosystem outcomes within choice experiments and illustrates the potential biases that may result when such distinction are overlooked. The approach relies on a structured use of ecological indicators within survey scenarios that both specifies relevant intermediate and final outcomes and clarifies associated ecological relationships (or ecological production functions). This may include the use of multimetric ecological indicators to quantify ‘holistic’ ecosystem outcomes such as overall ecosystem condition that may be a significant source of nonuse benefits, but are commonly overlooked in SP welfare estimation. We illustrate the approach and its usefulness through an application to migratory fish passage restoration in Rhode Island’s Pawtuxet Watershed. Results suggest that the use of more carefully structured ecological indicators within SP valuation can both enhance the validity of responses by promoting improved respondent understanding of ecological changes, as well as provide mechanisms to estimate values for ecosystem services that might otherwise remain obscured or estimated only with substantial bias. Results also highlight the risks of the more ad hoc uses of ecological indicators ubiquitous in published valuation research.

Acknowledgment: This research was supported by the EPA Science to Achieve Results (STAR) program grants RD 83242001 and 83242002. Opinions are those of the authors and do not imply endorsement of the funding agency.

Seminar Category: Environmental Economics