Lesson 9 - Natural Resource Values From Secondary Sources

We have studied various methods to estimate the values of benefits in cost-benefit analysis (CBA). The cost and time involved in estimating economic benefits is huge, whether you are working with market commodities or non-market commodities. A typical study to estimate benefits for a recreation study could take 1 year or more. Valuation studies alone often result in an M.S. thesis or Ph.D dissertation.

Sometimes you need a quicker, cheaper solution. A possibility is the use of secondary sources or so-called plug-ins. The literature can be the source of estimates of benefit values. In fact there are some publications that have collected benefit estimates for particular commodities/resources. Some are collected and analyzed as a part of "meta" analyses.

Meta-analysis is a set of statistical procedures designed to accumulate experimental and correlational results across independent studies that address a related set of research questions. Unlike traditional research methods, meta-analysis uses the summary statistics from individual studies as the data points. A key assumption of this analysis is that each study provides a differing estimate of the underlying relationship within the population. By accumulating results across studies, one can gain a more accurate representation of the population relationship than is provided by the individual study estimators. For more on meta analysis see:

[see: http://www.mnsinc.com/solomon/MetaA/MApage2.html]

An example of from natural resources of meta analysis is found in: Loomis and White. 1996. Meta Analysis: Economic benefits of rare and endangered species: summary and meta analysis, Ecological Economics, 18: 197-206.

Loomis suggests that meta analysis can facilitate a quick, if crude, CBA This study conducted a meta analysis of 25 contingent valuation surveys of willingness-to-pay per household for the preservation of various endangered wildlife species. The study used the results of the 25 past studies as data to estimate an aggregate (meta) regression model. The endangered species were; whooping crane, bald eagle, shiner, bighorn sheep, gray wolf, etc, various types of freshwater fish, mammals, marine mammals and birds. The model was:

WTP($) = a + B1ChangeSize + B2PayFrequency + B3CVForm + B4Visitor + B5Fish + B6Marine +B7Bird + B8ResponseRate + B9StudyYear

PayFreq - one-time or lifetime payment (0,1)

CVForm - dichotomous, open-ended, or payment card.

Visitor - visitor or household (0,1)

Fish, Marine mammals, Bird - (0,1)

Response Rate - response rate

StudyYear - study year

Loomis suggests that meta analysis can facilitate a quick CBA. For example, if you know what the proposed cost per household of protecting a species is, then you can use the meta equation to estimate the approximate benefits per household. Crude, but quick.

Chapter 12 in Boardman, et al reviews some sources of values for certain items. Some of these do not seem to have much relevance to natural resource/environmental issues (e.g., cost of crime, cost of automobile crashes). However, others may be tangential yet perhaps relevant, so we will look at them briefly.

These data are used for CBA when human life is potentially at risk. Much of this work has been done for legal purposes. Some has been done for EPA-initiated risk analysis. A relevant quote from: de Steiguer, 1997, "The Age of Environmentalism," McGraw-Hill:

Value-of-Life studies use revealed preference and contingent valuation methods (CVM) to estimate the implicit price of life. There are 4 assumptions/techniques for obtaining implicit measures of V-O-L (i.e., willingness-to-pay (WTP) x prob. of death by that cause = minimum V-O-L):

1. The wage premiums for risky jobs

2. WTP for safety features (seat belts, smoke detectors)

3. Premiums for houses in less polluted areas

4. Life insurance subscription rates

5. but do not account for pain and suffering, unhappiness,

6. nor for property losses, court costs.

Summary of V-O-L studies:

Study done for the U.S. Congress by Rice and MacKenzie looked at the cost of injury from different causes. Their estimates included: 1) medical & rehabilitation direct financial costs, 2) forgone earnings, 3) but not pain and suffering, unhappiness, 4) and not property losses, court costs. Thus, these are very conservative estimates.

Rice-MacKenzie results, avg. cost of injury per person per type (1985$):

1. motor vehicle - $9,062

2. falls - $3,033

3. firearm - $53,831

4. poisonings - $5,015

5. fire injuries - $2,619

6. drownings - $64,993

Time spent traveling causes a potential loss of time that individuals would be WTP to avoid. Waters provided a review of value of travel time savings (VTTS) studies conducted from 1974 to 1990. The 56 studies used revealed preference and CVM methods. Revealed preference approaches were:

1. comparison of route choices to save travel time using toll vs. non-toll

2. travel mode decisions (bus or car vs. more costly, faster airline)

3. speed choices (where speed costs more)

4. location (Hedonic) housing choices (pay a premium to live closer to work)

VTTS results are stated as a fraction of hourly wages. Studies generally recommend that opportunity cost of travel time be valued at 40 - 60% of the person's wage rate. Also, the VTTS increases with personal income, but only as the square root of personal income (e.g., as income increases 4x, the value of travel time increases 2x)

For natural resources, the USDA Forest Service has provided a summary of values which can be very useful for CBA. These values were generated as a part of the Forest Service's Renewable Resource Planning Act (RPA) activities. Following is a summary of some of the RPA values. These represent consumers surplus except for the grazing and water values.

RPA Values - Table of Values, Part I

RPA Values - Table of Values, Part II

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