Measuring the total economic value of restoring ecosystemservices in an impaired river basin: results from a contingent
valuation survey
John Loomis a,*, Paula Kent b, Liz Strange c, Kurt Fausch c, Alan Covich c
a Department of Agricultural and Resource Economics, Colorado State Uni6ersity, Fort Collins, CO 80523-1172, USAb Northwest Economics Associates, Vancou6er, WA, USA
c Department of Fish and Wildlife Biology, Colorado State Uni6ersity, Fort Collins, CO 80523-1172, USA
Received 2 April 1999; received in revised form 9 August 1999; accepted 23 September 1999
Keywords: Ecosystem services; Willingness to pay; Total economic value; Contingent valuation method
www.elsevier.com/locate/ecolecon
1. Importance and controversy of ecosystemvaluation
Valuation of ecosystem services is controversialbecause of the potential importance such valuesmay have in influencing public opinion and policydecisions. As noted by Costanza et al. (1998), p.
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68; ‘to say that we should not do valuation ofecosystems is to deny the reality that we alreadydo, always have and cannot avoid doing so in thefuture’. Failure to quantify ecosystem values incommensurate terms with opportunity costs oftenresults in an implicit value of zero being placed onecosystem services. In most cases, ecosystem ser-vices have values larger than zero (Dailey, 1997).
Attempts at valuing ecosystem services go backseveral decades. Notable early examples includeenergy-based approaches of Costanza (1981) andOdum (1983). Ecological Economics ran a specialissue on the topic in 1995. A recent effort byCostanza et al. (1997) published in Nature toestimate the value of the world’s ecosystem ser-vices has focused a great deal of attention on thistopic (see the 1998 special issue of EcologicalEconomics on ‘The value of ecosystem services’for some of this debate). This ambitious effort byCostanza et al. (1997) was partly a challenge‘..that ecosystem services are ‘big potatoes’ andwe had better get busy and pay more attention tothem from many different conceptual andmethodological perspectives at once’ (Costanza etal., 1998, p. 69).
There were several critiques in this recent spe-cial issue of Ecological Economics of the analysisby Costanza et al. (1997). One commentator wasconcerned that adding up estimates from separatestudies on the value of various individual ecosys-tem services might result in some double countingof benefits (El Serafy, 1998, p. 25). However,there can be potentially more than double count-ing when adding up independently derived esti-mates of willingness to pay, as substitution effectsand budget constraints are often incompletely ac-counted for, leading to over-valuation even inabsence of double counting (Hoehn and Randall,1989). In addition, Toman (1998) p. 58, notes thatfor ecosystem valuations to provide more usefulinformation to decision makers faced with trade-offs, that ‘one needs a specified baseline, a spe-cified measure of changes…’
Our approach attempts to rise to the challengeposed by Costanza et al. (1998) and these com-mentators by addressing all three of the abovesuggestions. First by eliciting a comprehensivevalue from the public for a set of ecosystem
services and thereby reducing the possibility fordouble counting as well as avoiding the indepen-dent valuation and summation problem noted byHoehn and Randall (1989). Further we providerespondents a specified baseline and specifiedmeasure of change as suggested by Toman (1998).This is done by adapting the contingent valuationmethod (Mitchell and Carson, 1989) to the valua-tion of ecosystem services. Such comprehensivevaluation critically depends on communicatingthe nature of ecosystem services to the respon-dent. This paper reports on an interdisciplinaryeffort to develop visual aids and text that commu-nicates the ecosystem services of a Great Plainsriver and the results of nearly 100 in-person inter-views with those visual aids. As is obvious, thisrefinement in ecosystem valuation is far less ambi-tious than Costanza’s et al. (1997) effort in boththe number of services that were relevant to valuein this ecosystem and the geographic scope of theanalysis. We believe future efforts may be able toapply our approach to larger ecosystems with abroader range of the ecosystem services to bevalued.
2. Specific ecosystem services of a Plains river
Rivers can provide many services to humans,including water supply for municipal, industrialand agricultural users, fish habitat and recreation.With excess demand by historic uses resulting inan over appropriated river basin, these uses arecompetitive. A dynamic society requires monitor-ing and adjusting the mix of these ecosystemservices as society’s priorities change (Bromley,1997) to insure that the highest valued mix ofservices is produced. Since uses like fish habitatand recreation are not priced, this presents achallenge to water managers.
Like many river basins throughout the world,the South Platte, near Denver, CO, has beenmodified by diversions, adjacent land use andpollution to the point where the river’s ecosystem,including its fishes, are severely imperiled. Todaythe river is operated as a plumbing system withabout 500 irrigation ditches and 70% of waterwithdrawals for agriculture (Strange et al., 1999).
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Much of the river’s remaining flows are irrigationreturn flows, with additional inflows from thesewage treatment plant in Denver. Due in part tothe lack of riparian vegetation to filter irrigationreturn flows and feedlot run-off, the South Platteranks first in contamination by ammonia andnitrates of 20 major rivers in the US and it rankssecond among the 20 major rivers in contamina-tion by phosphorous (Strange et al., 1999). Inaddition to polluted water, erosion of the stream-banks, irrigation return flows, and reduction ofinstream water by agriculture use has greatly di-minished the natural ecosystem of the SouthPlatte river. As a result of these changes in flowregime, habitat, and water quality, six of theremaining native fish species are at risk and arebeing considered for the endangered species list.Due to the unnatural hydrograph resulting fromwaterflows timed for irrigation, non-native Rus-sian olive trees are encroaching upon and replac-ing native cottonwoods. Birds prefer thecottonwood for nesting and the higher abundanceof insects. As the number of cottonwoods de-crease, bird species are expected to decrease by athird of their present number.
In essence, one ecosystem service from the wa-tershed, irrigation water supply, along with ‘edgeto edge’ agriculture has greatly diminished otherecosystem services such as:� natural purification of water;� erosion control;� habitat for fish and wildlife;� dilution of wastewater;� recreation use.
Of course there would be opportunity costs toirrigated agriculture from reducing diversions andreplacing cropping and grazing at the river’s edgewith native vegetation. The question that mustoften be answered is what are these non-marketedecosystems worth? It is to answering that questionthat we now turn.
3. What are the economic values of ecosystemservices?
Ecosystem services provide many benefits topeople. Dilution of wastewater, as well as erosion
control and water purification effects from ripar-ian vegetation and wetlands improves water qual-ity. Increased water quality reduces watertreatment costs to downstream cities (Moore andMcCarl, 1987), increases the aesthetics of waterfor visitors and supports native fish and wildlifethat different people like to view or harvest orsimply know exist. Since all of these uses of cleanwater benefit people, and are scarce, these serviceshave an economic value.
These ecosystem services have characteristics of‘public goods’. Specifically, it is difficult to ex-clude downstream users from receiving thebenefits of improved water quality and many ofthe benefits are non-rival in nature. Many individ-uals can view the same wildlife or enjoy knowingthey exist without precluding others from doingthe same thing. Given these public good charac-teristics, it is difficult for the private sector tomarket or sell these ecosystem services.
While these ecosystem services are often with-out prices, they do contribute utility to individualsand therefore have value. This value is monetizedas the individual’s net willingness to pay (WTP)or consumer surplus. It is represented by the areaunder the individual’s demand curve but aboveany cost to the user of the ecosystem service.
4. Techniques to measure economic value ofecosystem services
There are several techniques that can be used tovalue the benefits of improved water quality orstream restoration. If restoration of water qualityor recreation occurs in an urban setting wherethere are residences nearby the river, the hedonicproperty method may be applied. The hedonicproperty method isolates the property value dif-ferential paid by a household for having a homealong a river with improved water quality ascompared to degraded water quality.
If the primary gain in ecosystem services isrecreation, the variation in visitors travel costs tothe river can be used to trace out the demandcurve for recreation at the river. From this de-mand curve the consumer surplus of recreationwith improved water quality can be estimated(Loomis and Walsh, 1997).
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When river restoration and water quality im-provements result in both on-site recreation andincreases in populations of rare or endangeredfish, there will often be an existence and bequestvalue (Krutilla, 1967; Loomis and White, 1996).By ‘existence value’ we mean the amount anindividual would pay to know that a particularnative fish exists in its natural habitat. By ‘bequestvalue’ we mean the amount an individual wouldpay for preservation today, so that future genera-tions will have native fish in their natural habitat.Collectively, existence and bequest values aresometimes called non-use or passive use values.While these benefits are often quite small perperson, the non-rival nature of these public goodbenefits results in simultaneous enjoyment by mil-lions of people. Therefore, the total social benefitscan be quite large.
The only methods currently capable of measur-ing these passive use values of ecosystem servicesare conjoint, choice experiments and the contin-gent valuation method (CVM). CVM uses a ques-tionnaire or interview to create a realistic buthypothetical market or referendum, which allowsrespondents to indicate their WTP (Mitchell andCarson, 1989). The first part of the survey con-veys the description of the resource under currentconditions, as well as proposed conditions if therespondent pays. Then respondents are told themeans by which they would pay for these pro-posed changes, e.g. in a higher water bill or taxes.Finally, the respondents are asked whether theywould pay a certain dollar amount, which variesrandomly across respondents.
The concern with this method is the reliabilityand validity of the responses. Would these indi-viduals really pay the amount stated in the inter-view? This question has been subjected to a greatdeal of empirical testing. A literature analysis byCarson et al. (1996), finds that the majority ofCVM WTP estimates for use values pass the testof the validity involving comparisons of valuesderived from actual behavior methods such astravel cost recreation demand model. All the pub-lished studies to date have shown CVM-derivedresponses of WTP for both use and passive usevalues to be reliable in test–retest studies(Loomis, 1989; Carson et al., 1997). CVM has
been recommended by federal agencies for per-forming benefit–cost analysis (US water resourcesCouncil, 1983) and valuing natural resource dam-ages (Interior, 1986, 1994). The CVM has beenupheld by a federal court (Appeals, 1989) and wasrecommended as being reliable enough to provideinitial estimates of passive use values by a blueribbon panel co-chaired by two Nobel laureateeconomists (Arrow et al., 1993). Nonetheless,CVM-derived estimates of public good valuessuch as existence and bequest values may over-state actual cash WTP by a factor of two–ten insome cases (Brown et al., 1996). Some CVMexperiments have shown overstatement of WTPeven with deliverable goods (Cummings et al.,1997; Loomis et al., 1997). Recent efforts at cali-brating stated WTP values show promise at pro-ducing equality of stated and actual cash WTP(Champ et al., 1997).
The only previous application of CVM to theSouth Platte river involved an in-person survey of200 residents of Denver and Fort Collins, CO, in1976 by Greenley et al. (1982). Individuals wereasked to pay a higher water bill to reduce heavymetal pollution in the South Platte river. Theaverage household would pay $4.50 per month in1976 dollars or $12.50 in 1996 dollars. About halfthe value was recreation use, with the other halfbeing existence and bequest values.
5. Survey design
Obtaining accurate benefit estimates usingCVM requires detailed descriptions of the re-source being valued. This is evident from thename of the method, which produces values, con-tingent upon, the description of the good andmethod of payment. Therefore a great deal ofeffort was expended to carefully define and clearlydisplay the current and proposed levels of ecosys-tem services to respondents.
During the first year, three ecologists workedwith two economists to define what ecosystemservices were being provided by the South Platteriver and how these could be conveyed in wordsand figures. Background data was acquired fromUS geological survey and US fish and wildlife
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service on water quality and fish/wildlife concerns,respectively. Study team members toured the sitewith a US fish and wildlife service biologist. Theecologists have summarized this background anal-ysis of the South Platte in Strange et al. (1999).The study section of the South Platte river wasalso selected based on an actual policy proposal(e.g. the centennial land trust). This rural stretchof river extends from Kersey to Fort Morgan,CO. The first step was definition of ecosystemservices that could be provided by the SouthPlatte river: dilution of wastewater, natural purifi-cation of water, erosion control, habitat for fishand wildlife and recreation.
Once the key ecosystem services were identified,we developed management actions necessary toincrease the level of ecosystem services. Thesemanagement actions included: a ten-mile wideconservation easement along 45 miles of theSouth Platte river, downstream of Greeley. Thisarea is 300 000 acres in size. Next, restoring nativevegetation along the river in the form of bufferstrips and eliminating cropland and cattle grazingin the buffer strip area. Livestock grazing wouldbe allowed in the remainder of the conservationeasement. Finally, water diversions to agriculturewere reduced from their current 75 to 50% of thetotal flow with the corresponding increase in in-stream flow from 17 to 42%. In terms of acre feetof water, this is an annual gain of 37 820 acre feetof water for instream flow, wastewater dilution,and aquatic habitat. The payment mechanism wasan increase in household water bill.
The interdisciplinary team worked jointly todevelop drawings and narrative that conveyed theconcept of increased ecosystem services. An initialset of drawings illustrating a natural level ofecosystem services as compared to the currentcondition of degraded ecosystem service wasprepared.
6. Focus groups
To test the validity of these drawings and nar-rative to convey the desired concepts, we pre-sented them at three focus groups in the studyarea. The individuals attending the focus groups
were asked to write down their description ofwhat each diagram indicated. We asked them topoint out any elements that were not clear. Aftereach focus group, we made modifications to thediagrams and the narrative wording. We foundthat including a summary diagram that was acomposite of all of the ecosystem services pre-sented individually helped to improvecomprehension.
7. Pre-testing of in-person surveys
After further revisions following the focusgroups, an entire survey script and revised set ofdiagrams were prepared and pre-tested. We pre-tested the entire script and drawings on fourindividuals, two of whom served as interviewertraining. Further changes were made and we be-lieve we have a fairly effective script and diagramsto elicit household willingness to pay for increas-ing ecosystem services in the South Platte river.
8. Synopsis of ecosystem services being valued insurvey
Respondents were first handed a card thatlisted the four key ecosystem services that a re-stored plains river such as the Platte river couldprovide. These were listed and described as:1. Dilution of wastewater : adequate river flows
are important for diluting fertilizer and pesti-cides that run off from farm fields, wastewaterdischarges from treatment plants and pollu-tants in urban stormwater. This dilution in-sures the river is not toxic to fish and is safefor water-based recreation such as boating.They were then handed a color drawing thatillustrated the lack of dilution along a hypo-thetical section of the Platte river.
2. Natural purification of water : one of the mostimportant services of streamside vegetationand wetlands is the natural purification ofwater. Run-off from city streets and agricul-tural fields contain various pollutants such asoil, pesticides, and fertilizer as well as excesssoil. These pollutants are absorbed by the
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plants and broken down by plants and bacte-ria to less harmful substances. Pollutants at-tached to suspended soil particles are filteredout by grasses and other plants and depositedin floodplains. This process helps improve wa-ter quality.Respondants were then handed acolor drawing contrasting the current condi-tion in the upper half of the diagram to thenatural purification process in the lower partof the diagram. This diagram is illustrated inblack and white in Fig. 1.
3. Erosion control : streamside vegetation alsoplays a role in the control of erosion. Plantsand their roots hold stream banks and filterwater. The results in clear, clean water re-quired by fish (point to blue water and fish onthe left diagram; not shown here). In the ab-
sence of vegetation, rain and melting snowerodes the stream banks and rainfall washessoil from fields directly into river. This erodedsoil fills the river bottom with mud. The resultis muddy water and shallow rivers that do notprovide healthy habitat for fish (point tobrown water on right hand side diagram; notshown here). As noted in the above text, acolor diagram contrasting presence and ab-sence of the erosion control service was pre-sented to the respondent.
4. Habitat for fish and wildlife : on the left side ofthe diagram (not shown) you can see the vari-ety of vegetation along the river provides habi-tat for a wide range of wildlife includingwoodpeckers, ducks, shorebirds and deer.Trees and shrubs in floodplains offer shelterand areas for nesting and roosting of manybird species. In addition the vegetation shadesthe stream keeping the water cool for fish andreducing algae growth which is detrimental tofish. Streamside corridors also are importantfor animal migration.
After the current state and restored level ofeach individual ecosystem service was describedand illustrated, we then showed composite figuresfor current management (shown in Fig. 2) andincreased ecosystem service (shown in Fig. 3).This helped to bring together all of the individualecosystem services into what the overall ecosystemwould look and function like under the currentcondition and restoration. Note, all of the figuresused in the interviews were in color to betterillustrate the change in water quality.
9. Mechanisms for restoring ecosystem services
Next we described the means by which ecosys-tem services could be restored from their currentlevel.1. Restoring vegetation buffer strips along
streams to increase ecosystem services such aserosion control, water quality, fish and wildlifehabitat along with limited recreationopportunities.
2. Leaving more water in the South Platte river:this shift in water use was illustrated by com-Fig. 1. Example of individual ecosystem service diagram.
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Fig. 2. Diagram of current condition.
paring two pie charts shown to respondents.The top pie chart presented ‘current water use’where 75% of water supply is now primarilyfor agriculture. Respondents were told thatadditional instream flows in the river can beobtained by:2.1. purchasing water rights from agricultural
users;2.2. paying farmers to grow crops that use
less water;
2.3. convert cropland away from the riverinto fenced pastureland. Farmers wouldmake at least as much income, if notmore, from selling the water and growingless water intensive crops or switching tolivestock. Respondents were then directedto the lower pie chart that illustrated 50%of the water being used by irrigated agri-culture and instream flow increasing from17 to 42% of the water.
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Fig. 3. Diagram of increased ecosystem services.
3. Changing land management: land manage-ment actions necessary to restore ecosystemservices were illustrated on a schematic map ofthe study area. Along 45 river miles of theSouth Platte river shown on the map, thegovernment would purchase conservationeasements on both sides of the river over a10-year period from willing farmers (5 mileson either side for a total of 300 000 acresshown on the map). Respondents were toldconservation easements keep the land in pri-
vate ownership but would pay farmers to man-age this land to improve wildlife habitat andwater quality. For example, cows would befenced out of the area along the river banks sovegetation could regrow and the stream bankscould be stabilized. This area will be restoredto natural vegetation such as grasslands, wet-lands and streamside trees (see Fig. 3). Someareas would be replanted with native vegeta-tion. The revegetated streamside would: reduceerosion; increase natural water purification by
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plants; improve water quality and river habi-tat; help increase native fish populations sothey will not go extinct; provide public accessto restored natural areas for wildlife viewingincluding 5 miles of hiking trails.
10. Wording of WTP question
The specific wording of the WTP scenario readto respondents was:
‘‘The purchase of water and 300 000 acres ofconservation easements along 45 miles of theSouth Platte river from willing farmers as wellas restoring these areas in natural vegetationcosts a great deal of money. To fund theseactions a South Platte river restoration fundhas been proposed. All citizens along the frontrange from Denver to Fort Collins would beasked to pay an increased water bill (or rent ifwater is included in your rent) to: (1) purchasewater from farmers to increase water for fishand wildlife from 17% shown in the top piechart to 42% as shown on the lower pie chart(point to); (2) to manage the South Platte riveras shown in the increased ecosystem services(point to Fig. 3) along the 45 miles of the SouthPlatte river shown on the map (point to area).The funds collected can only be used to restorenatural vegetation along 45 miles of the SouthPlatte river and purchase water from willingfarmers to increase instream flow to improvehabitat for six native fish so they are not indanger of extinction.
If the majority of households vote in favor ofthe South Platte river restoration fund the 45miles of river would look like the Fig. 3 In-creased ecosystem services with increased waterquality and fish and wildlife (point to increasedecosystem service; Fig. 3).
If a majority vote against, these 45 miles ofthe South Platte river would remain as they aretoday, as illustrated in current management(point to current management; Fig. 2).
If the South Platte river restoration fundwas on the ballot in the next election and it
cost your household $– each month in ahigher water bill would you vote in favor oragainst?
–I would vote No’’–I would vote Yes
The $– was randomly filled in with one of 12dollar amounts ($1, 2, 3, 5, 8, 10, 12, 20, 30, 40,50, 100). These dollar amounts were chosen basedon results from the focus group and pretest aswell as the mean willingness to pay amounts fromthe past Platte river water quality CVM of Green-ley et al. (1982)
11. Statistical model of WTP
Given that individuals simply respond with a‘yes’ or ‘no’ response to a single dollar amount,the probability they would pay a given dollaramount is statistically estimated using a qualita-tive choice model such as a logit model (Hane-mann, 1984).
The basic relationship is:
Probability (Yes)=1−{1+exp[B0−B1($X)]}−1
(1)
where B ’s are co-efficients to be estimated usingeither logit or probit statistical techniques and $Xis the dollar amount the household was asked topay. At a minimum, the co-efficients include thebid amount the individual is asked to pay. Addi-tional co-efficients may include responses to atti-tude questions or the respondent’s demographicinformation such as age, education, membershipin environmental organizations, etc.
From Eq. (1), Hanemann (1989) providesa formula to calculate the expected value ofWTP if WTP must be greater than or equal tozero (as is logical for an improvement). The for-mula is:
Mean WTP= (1/B1) � ln(1+eBo) (2)
where B1 is the co-efficient estimate on the bidamount and Bo is either the estimated constant (ifno other independent variables are included) orthe grand constant calculated as the sum of theestimated constant plus the product of the other
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Table 1Disposition of initial contacts and response rates
Number PercentageCategory
Letters mailed 462 10089 19.3Moved out of area, undeliver-
able373 81Net sample size
18.887No answer after repeated callsSample contacted 286 62Ineligible due to illness, lan- 11.754
guage131 28.4Refusals (no time, lack of trust,
etc.)55No shows
96Accepted and interviewed41.4Response rate of those con-
tacted and eligible33.6Response rate of those con-
tacted25.7Response rate of net sample
near the river and towns along the river (FortLupton, Fort Morgan, Greeley, Longmont, andPlatteville). To increase the chances for a com-pleted interview, we reminded the participantswith a phone call shortly before the interview. Asa result, only five people or 5% failed to show forthe interview. Two individuals conducted the in-terviews in the respondent’s home.1 The disposi-tion of these mailings is indicated in Table 1 alongwith three different estimates of the response rate.Depending on whether one calculates the responserate on just those that were contacted by phone orall residents, the response rate varies from a lowof 25.7 to a high of 41%. The low response rate isdue in part to losing some individuals at each ofthe many contacts made. While the low responserate does not influence the illustration of how weportrayed ecosystem services, it certainly has im-plications for generalizing the dollar value of re-sults to the population. We address theimplications of this low response rate in the latersection.
Table 2 presents the number and percent ‘yes’responses at each bid amount. As can be seen it isa fairly, although not perfectly, well behaved dis-tribution. At the two lowest dollar amounts, 100%indicated they would pay. With the exception ofthree bid amounts, the percentage of ‘yes’ re-sponses decrease as the bid increases. It is notperfectly monotonic, but some of this is morethan likely due to the small sample sizes in theindividual cells.
independent variables times their respectivemeans. Confidence intervals around mean WTPwere calculated using the variance-covariance ma-trix and a simulation approach of Park et al.(1991).
12. Pilot survey implementation
Sufficient funds were available to allow for asmall sample using in-person interviews of about100 individuals during the spring and summer of1998. The sample frame were individuals living intowns nearby or along the portions of the SouthPlatte river under study. From February to July1998, we mailed 462 introductory letters to house-holds in the South Platte river basin in the follow-ing locations: two suburbs of northern Denver
1 While two interviewers were used, we tested whether thisresulted in different responses. Using a dummy variable in thelogit regression of WTP we found no statistically significanteffect.
Table 2Responses at each bid amount
$3$2$1 $100Bid $50$40$30$20$12$10$8$5
5 4 0 2 3 111Yes 9 8 9 5 30 0No 3484355120
0503305063385090%Yes 80100100
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13. Statistical results
A full statistical model including all surveydemographic and attitude variables was initiallyestimated. To conserve space, only the model withindependent variables significant at the 0.05 levelor better were retained. Demographic variablessuch as income, education or age were consis-tently insignificant and these were not included inthe final model.
The final statistical model was:
[log(yes)/(1−yes)]
=Bo−B1(bid)−B2(unlimited water)
+B3(government purchase)
+B4 (environmentalist)
−B5 (average water bill)+B6 (urban) (3)
where ‘yes’ is the dependent variable and recordsif a person was or wasn’t willing to pay theamount asked during the interview. The number 1records a yes vote, and 0 records a no vote.
Bid, specifies the increase in water bill the per-son was asked to pay.
Unlimited water, ‘do you agree or disagree withthe statement; farmers should be allowed to use asmuch water as they are entitled to even if ittemporarily dries up portions of streams?’ (agree,1 and disagree, 0).
Government purchase: ‘do you agree or dis-agree with the statement; Government purchaseof land along the South Platte river to increasefish and wildlife is something I would support?’(agree, 1 and disagree, 0).
Environmentalist: are you a member of a con-servation or environmental organization? (yes, 1and no, 0).
Average water bill: the average indoor usemonthly water bill for each community.
Urban equals one if lives in urban/suburbanarea, equals zero if live in rural/farm area.
14. Interpretation of the regression results
Table 3 presents the final statistical model.
Table 3Logit regression model of probability would pay increasedwater bill
0.452−2.01**Unlimited water −1.4850.781.846Government 2.46**
purchase2.868***3.383 0.189Environmental-
ist−2.05**−0.063 35.80Average water
bill1.803Urban 2.55** 0.7470.45McFadden R2
** Significant at the 0.05 level.*** Significant at the 0.01 level.
14.1. Bid
The ‘bid’ is statistically significant at the 1%level. The negative sign denotes that the higherthe dollar amount the respondent was asked topay, the lower the probability that the respondentwould vote for restoration of ecosystem services.
14.2. Unlimited water
This variable’s co-efficient is negative indicatingthose that agreed with the right of farmers to usetheir entire water right even if it dries up thestream, were less likely to agree to pay for restora-tion of ecosystem services. The variable is signifi-cant at the 5% level.
14.3. Go6ernment purchase
Respondents supporting government purchaseof land along the Platte river were more likely tovote for a higher water bill to carry out such aprogram. This variable is significant at the 5%level.
14.4. En6ironmentalist
Respondents belonging to an environmentalgroup were more likely to agree to pay the higherwater bill. This variable was significant at the 1%level.
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14.5. A6erage water bill
The negative sign suggests the higher the house-hold’s average water bill the more likely they wereto vote against an increase in their water bill forthis project. This variable was significant at the5% level.
14.6. Urban
Suburban and urban residents were more likelyto vote in favor of this program than rural orfarm residents. This variable was significant at the5% level.
15. Economic benefit estimates
Using the formula in Eq. (2), mean WTP wascalculated at the mean of the other independentvariables. The resulting mean monthly willingnessto pay per household was $21 per month with a95% confidence interval of $20.50–21.65, for theincrease in ecosystem services on this 45-milestretch of the South Platte river.2 The resultinglogit curve is well balanced and does not exhibitany ‘fat tail’ at the high bid amount. This isevidenced by median WTP being $20.72 nearlyequal to the mean. This value is about 1.5 timesthe inflation adjusted value of what Greenley etal. (1982) estimated for the benefits of improvingjust water quality in the South Platte river in1976. While there is always a lingering concernwhether households would actually pay the meanWTP estimated from CVM responses, the respon-dents indicated they were quite certain of theirWTP responses. In particular, we adopted the 10point scale used by Champ et al. (1997) to assessvalidity of CVM WTP versus cash donations. Theaverage score in our sample was 8.5 with a me-dian of 9. This is in the range that Champ et al.
(1997), found indicated criterion validity withcash donations. This score is also significantlyabove the level of certainty found in a mail surveyof households toward the Mexican spotted owl(Loomis and Ekstrand, 1998). This higher level ofcertainty may be due to the extensive use of highquality visual aids and the in-person interviews.However this higher certainty and mean WTPmay also be influenced upward by proximity ofinterviewed households to the river. That is, oursample design emphasized towns and suburbscloser to the river. Thus when the $21 monthlypayment is converted to an annual payment the$252 is certainly a substantial sum. However, thisis not out of line with other river or lake preserva-tion studies such as Desvousges et al. (1983) studyof the Monogehela river ($196 annual WTP in1997 dollars), Hanemann et al. (1991) study ofWTP to increase salmon in the San Joaquin River($415 using an annual payment vehicle) andLoomis (1987) for Mono Lake ecosystem preser-vation ($526 using a monthly payment vehicle).
We make three expansions of these benefits tothe population of regional households living alongthe South Platte river. The first treats our meanWTP as the best estimate of what the averagehousehold would pay. The second is a more con-servative estimate that accounts for the 59% ofhouseholds that when contacted, declined to par-ticipate or respond to the survey. The proportionof households that refused to be interviewed re-garding the South Platte river are conservativelytreated as having zero WTP. Finally, a lowerbound is calculated that uses the most conserva-tive estimate of the response rate and assumingthe remaining 74% of the population that we wereunable to contact have a zero WTP. The countiesof the cities interviewed were determined to be thepertinent areas to which the preservation benefitspertain. These counties include: Adams, Boulder,Weld and Morgan. For the upper bound estimate,mean willingness to pay per household was multi-plied by the number of households in this area ofthe South Platte river basin whereas the otherestimates applied the mean only to the proportionof households that responded to the survey (Table4).
2 These confidence intervals are unusually tight for a singlebounded dichotomous choice model. In part this tightness isdue to the relatively high goodness of fit from the addition ofthe covariates. Without the covariates the confidence intervalswere $20–38 which is more typical of the dichotomous choicemodel.
J. Loomis et al. / Ecological Economics 33 (2000) 103–117 115
Table 4Annual benefits per household and along the river
Annual (millions)Household Number of householdsScenario
Monthly WTP Annual WTP
281 531$252$21Apply mean to all households $71.148$21 $252Apply mean to only 41% of households 115 427 $29.171$21 $18.54Apply mean to only 26% of households $252 73 381
16. Comparison of benefits and costs of restoringecosystem services
The annual WTP can be compared to the costof the conservation easements and water rentalnecessary to deliver the ecosystem managementpractices in the study area. The US Departmentof Agriculture’s conservation reserve program(CRP) pays farmers to idle their farmland toreduce erosion and improve water quality. Rentalrates in north-eastern Colorado average $41 peracre (Page and Skold, 1996).3 Given the 300 000acres of easements in our ecosystem managementscenario, $12.3 million would be required.4 Sinceeven the most conservative estimate of theamount responding households would pay is$18.54 million, households could pay the CRPrental rate to farmers and have $6.24 millionremaining annually to rent the 37 820 acre feet ofwater needed to increase instream flow, dilutionof pollution and aquatic habitat as well as payany one-time on-site restoration costs such asfencing and replanting native vegetation. Brown
(1991) shows market transactions for instreamflow in California and Nevada that give annualaverage values of $9.75 (in 1996 dollars) per acrefoot. More recently, Landry (1998) summarizedannual lease prices of water for instream flow inthe west at $30. Using the more recent higher costof $30 per acre foot, the annual water leasing costwould be $1.13 million per year. Thus total costswould be $13.23 million, substantially less thaneven our most conservative estimate of WTP andhalf the next most conservative estimate of WTP.Thus, at least $5 million per year could be spentfor on-site restoration with native vegetation, ri-parian improvements and fencing. Therefore, it isclear that willingness to pay of responding house-holds along the South Platte river exceeds thetypical costs of the conservation easement andleasing the water rights. If one were to include allthe households living in the entire South Platteriver watershed, WTP would exceed the costs byan order of magnitude.
17. Conclusion
Mean WTP to increase five ecosystem services(dilution of wastewater, natural purification ofwater, erosion control, habitat for fish andwildlife, and recreation) along 45 miles of theSouth Platte river was $21 per month in a higherwater bill. When the $21 is generalized to house-holds living along the river, this is sufficient topay for the conservation easements on agricul-tural land along the river and the leasing of waterfor instream flow. Thus, the policy to increaseecosystem services meets the economic efficiencycriteria that the gaining public could compensate
3 As pointed out by a reviewer, the $41 could be an underes-timate of the cost per acre since CRP emphasizes marginalfarmland and erodable soils. Land adjacent to riparian areasmay be more productive and require higher payments. As canbe seen from the example, it would take a large increase in thepayment to farmers before the ecosystem restoration becameuneconomic.
4 Rather than requiring additional idling of farmland andpayments, the non-market values of ecosystem services couldbe used to better target farmland that should be enrolled inCRP. Thus, riparian lands along the South Platte river wouldlikely be high priority areas. See Feather et al. (1999) for adiscussion of how to use non-market valuation to betteridentify lands best suited to include in CRP. We appreciate areviewer pointing out this possibility to us.
J. Loomis et al. / Ecological Economics 33 (2000) 103–117116
the farmers and ranchers for the conservationeasement and water and still come out ahead.
Areas for further improvement include system-atically varying the number of ecosystem servicesto be valued and the level of each ecosystemservice to be provided. This can be done usingmultiple scenarios within a contingent valuationsurvey or through the use of contingent choice orconjoint analysis (Adamowicz et al., 1997). In thisway the incremental value of specific ecosystemservices could be valued and compared to the costof providing that ecosystem service or higher levelof ecosystem service.
Acknowledgements
This research was funded by the US Environ-mental Protection Agency, ecosystem valuationgrant. Lucas Bair conducted about one-third ofthe interviews used in this analysis.
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