Environmental Economics

Valuing Water Quality in Midwestern Lake Ecosystems: Temporal Stability and the Role of Information in Value Formation

  • Abstract
    In this project, economists and ecologists will assemble an extensive panel data set of revealed and stated preferences concerning Iowa lakes in conjunction with an ongoing ecological effort to collect detailed water quality data on these same lakes in overlapping years. The data collected will contain the information needed to estimate both stated and revealed preference models that can be used in turn to value changes in lake water quality. Objective: By gathering recreational use and stated preferences over a four year period from the same individuals, we will generate a unique panel data set to investigate the responsiveness of use patterns to objective and subjective measures of water quality and to test to the consistency of values over time. Variations in the information set provided to survey respondents will also allow us to test the role of expected future information in a subject's willingness-to-pay (WTP) and how it relates to the individual's compensating variation. Approach: Using this data, we will develop and estimate time series mixed logit models (Train, Herriges and Phaneuf) to test both the temporal stability of parameters and to investigate the relationship between objective water quality variables (as collected by ecologists) and usage of the resource. The ability of the mixed logit model to capture individual preference heterogeneity is of significant value in modeling multiple year observations from the same individual. This feature is further exploited in the model used here by explicitly incorporating changing information sets over time into preference formation. Stability of preferences over time and the accuracy of predictions from single-year static models and contingent behavior responses will be assessed in this framework as well. The same set of surveys will collect stated preference information to test hypotheses about the dynamic formation of values, particularly as these values related to information and the ability to delay and/or reverse the decisions. Stated preference questions that reveal differing amounts and quality of information to respondents will be administered to stratified samples to form the basis for hypothesis testing. By identifying the wedge between the stated WTP and a subject's expected compensating variation, the testing results will aid us in designing surveys that convey appropriate information and in estimating the expected compensating variation from the SP data. Expected Results: The expected results of this research include: (1) improved understanding of the factors causing wide gaps between WTP and WTA measures of environmental quality, (2) the degree to which recreation demand parameters and preferences are stable across time, (3) improved understanding of how perceptions of water quality relate to physical measures of water clarity and the general health of ecosystems, and (4) how information provided to survey respondents affects their perceptions of water quality and recreational behavior. Supplemental Keywords: ecosystems, nonmarket valuation, recreation demand, stated preference surveys, water quality, freshwater lakes, dynamic environment values.
  • Metadata
    Principal Investigators:
    Herriges, Joseph A.
    Kling, Catherine L.
    Zhao, Jinhua
    Downing, John
    Technical Liaison:
    Research Organization:
    Iowa State University
    Funding Agency/Program:
    Grant Year:
    Project Period:
    September 15. 2002 to September 14, 2005
    Cost to Funding Agency:
  • Project Reports

  • Project Status Reports


    Objective 1

    To analyze panel data on the value and recreational use of Iowa Lakes in conjunction with extensive ecosystem quality measures to: (1) test the temporal stability of preferences in recreation demand models; (2) test the effects of observed changes in water quality on the usage of lake ecosystems to assess the accuracy of predictions from static recreation demand models and the accuracy of stated preference behavioral questions; (3) investigate the relationship between the physical measures of water quality and the attributes of water quality as perceived by users of the resource; and (4) investigate the effect of changing information sets over time on use and value of freshwater lake ecosystems in the context of a dynamic behavioral model.

    Objective 2

    To develop and empirically test a dynamic model of the formation of stated preference willingness-to-pay values that focuses explicitly on the role of information and uncertainty. We will use the results to: (1) estimate the magnitude of commitment costs and thus the importance of dynamic consideration in valuation studies; (2) estimate subjects’ expected CV of the lakes when commitment costs arise; and (3) investigate survey designs that eliminate or reduce commitment costs.

    Objective 3

    To provide information on the value of water quality improvements in Iowa to state and federal policymakers.

    Progress Summary:
    The Iowa Lakes Valuation Project is an economic study of the use and value Iowan’s place on water quality in Iowa lakes. The data for this study are being collected over a 4-year period through the implementation of annual surveys to a random sample of Iowa residents. The first 2 years of data collection are now complete. To gather the first 2 years of data for the Iowa Lakes Survey Project, we administered two surveys entitled “Iowa Lakes Survey 2002” and “Iowa Lakes Survey 2003” to a large sample of Iowans (we have over 9,500 completed surveys from the 2 years combined).

    The first year survey of the Iowa Lakes Project gathered recreation behavior for 129 of Iowa’s principal lakes and indicates that a large percentage (about 60%) of the respondents reported taking, or planning, at least one trip during 2002 to a lake in Iowa. The average number of trips taken (or planned) to Iowa lakes is approximately eight trips for all 3 years, while the number of trips to the Mississippi and Missouri Rivers is slightly less than two trips each year. These data were combined with extensive physical water quality measures from the same set of lakes gathered by the Iowa State University Limnology Lab.

    The researchers' analysis employing the repeated mixed logit framework shows individuals are responsive to physical water quality measures, and it is possible to base willingness to pay calculations on improvements in these physical measures. In particular we considered three improvement scenarios, with the results suggesting Iowans more highly value a few lakes with superior water quality rather than all recreational lakes at an adequate level, as determined by being listed as an impaired lake by the U.S. Environmental Protection Agency.

    A number of important practical findings come directly from this work. Limnologists and other water quality researchers should be interested in the results of this work, since the general belief is that visitors care about water clarity as measured by secchi depth (how many meters beneath the surface of the water a secchi dish is visible) or water quality. By estimating the partial effects of a list of physical measures, we have determined which significantly affect recreationists’ behavior. Limnologists and water resource managers can then use this information about what physical lake attributes visitors’ trip behaviors respond to in designing projects for water quality improvements. Our results indicate water clarity is very important as evidenced by the secchi dish and suspended solids parameters. Nutrients in general are found to decrease recreation trips.

    The findings from this study have direct relevance for environmental protection managers and citizens concerned with the water quality. They can be used to prioritize clean-up activities to generate the greatest recreation benefits for a given expenditure. Not only can the findings be used to determine which lakes and in what order to clean them, but also the most efficient levels of improvement.

    Future Activities:
    The completed surveys are the first two in a series of four annual surveys that will be used to gather recreational usage data, opinion data, and information about how Iowans value lakes in the state. The next 2 years of the project will be spent designing and implementing the final two surveys and analyzing results from the data as they are collected. No changes in the project schedule are expected at this time.

    Supplemental Keywords:
    ecosystems, nonmarket valuation, recreation demand, stated preference surveys, water quality, freshwater lakes, dynamic environment values, , Economic, Social, & Behavioral Science Research Program, Geographic Area, RFA, Scientific Discipline, Ecology and Ecosystems, Economics, Economics & Decision Making, Midwest, Social Science, State, decision-making, IOWA (IA), aquatic ecosystems, decision making, economic benefits, economic incentives, ecosystem valuation, stated preference, valuation, valuing environmental quality, water quality value

    Relevant Websites:
    http://www.card.iastate.edu/environment/exit EPA

    http://www.card.iastate.edu/lakes/exit EPA

    http://www.card.iastate.edu/environment/nonmarket/current.aspxexit EPA