Reed College Canyon
Valuing the Benefits of Ecosystem Services Generated by the Reed Canyon Restoration Project: 1999-2009
3. Benefit Transfer and Nonmarket Valuation
Many environmental goods and services, such as clean air and recreation sites, are not traded on a market, so “prices” for these goods and services must be estimated using statistical techniques developed by environmental and natural resource economists. These “nonmarket” valuation methods include contingent valuation surveys, the hedonic price method, and travel cost method.
Conducting primary nonmarket valuation research on the Reed Canyon was not feasible because of temporal and financial constraints, so our report uses the benefit transfer technique to derive values for the change in ecosystem goods and services provided by the restoration of the Reed Canyon. Benefit transfers allow researchers to generate proxy values for environmental goods and services at a specific place they are interested in, called the policy site, by transferring values from other valuation studies conducted at other sites, called the study site (Evans 2004).
When transferring estimates researchers try to ensure that the policy site and the study site are similar enough that the estimates from the study site will act as valid measures for the policy site. The major factors that are considered in a benefit transfer include: the quality of the research conducted at the policy site, the characteristics of the environmental goods or services at the policy and study sites, the qualities of the population and stakeholders at both sites, the baseline measures and quantities of change measures for the environmental goods or services, and the different valuation methods used in the initial study at the policy site (Evans 2004). If the study site is found to be incomparable with the policy site, researchers can dismiss certain policy site studies completely or attempt to adjust the values generated at the policy site to account for the differences between the two sites.
In our report, the studies we rely on to derive benefit estimates use an array of nonmarket valuation techniques: hedonic price method, contingent valuation survey and the travel cost method. All studies were evaluated using the benefit transfer criteria described by Evans (2004).
The hedonic method is a statistical technique that uses the sale price of a marketed good, such as a house, to estimate the marginal willingness to pay for an environmental good or service. This is achieved by controlling for all other characteristics that influence the sale price of a house such as structural characteristics (number of bedrooms, lot square footage, etc.) and location. Key studies include Mahan et al.’s (2000) analysis of wetland type in Portland, Oregon and an analysis by Streiner and Loomis (1996) of restoration sites in California.
Another nonmarket valuation technique is the contingent valuation method. This approach uses surveys that include hypothetical, but realistic scenarios about a change in environmental quality. Survey respondents are asked if they would be willing to pay (or willing to accept) a certain amount of money for a change in environmental quality. Relevant studies for our analysis include Woodward and Wui’s (2001) analysis of the value of wetlands and La Rouche’s (2006) valuation of wildlife watching.
The third nonmarket valuation technique that was used in our analysis is the travel cost method. The minimum value individuals place on a site can be estimated using the cost of traveling to that site. These costs include the opportunity cost of time as well as any expenses incurred as a result of the trip, such as transportation costs or lodging costs. The Zonal travel cost method assumes that as distance from site increases, travel costs to visit the site will increase, and that consumer willingness-to-pay is higher to reflect those increased costs. Data collected from visitors to the site can be sorted into a set of predetermined travel zones in decreasing proximity to the evaluated site. A willingness-to-pay regression model can then be constructed, incorporating numbers of visits from different zones and the specific costs of travel from those zones to estimate a value for the site.
Studies using the avoided costs method are also used in our analysis. Under this approach researchers estimate costs avoided from a change in environmental quality. A very common example is avoided health care costs. Researchers can estimate a value for clean air by estimating the costs associated with dirty air, including cases of asthma that require doctor visits, medicine, and potentially, emergency trips to the hospital, that are not incurred as a result of a certain level of air quality. An example of this kind of study is by Evans (2004) that estimated the benefit of clean air by calculating the reduction of costs associated with air quality improvement for those with upper respiratory diseases. In this way researchers can estimate a value for a certain level of environmental quality.
There are many other forms on nonmarket techniques used by economists to estimate the value of environmental goods and services. For further information, we suggest two excellent sources: ecosystemvalution.org, a website maintained by King and Mazzotta, and A Primer on Nonmarket Valuation, a book by Champ, Boyle, and Brown.