Environmental Economics

Additional Explication of Methods for Measuring Non-use Values: A Contingent Valuation Study of Groundwater Cleanup: Memorandum to the Science Advisory Board Environmental Economics Advisory Committee

This memo is written in response to a number of remaining questions raised both by the Environmental Economics advisory Committee (EEAC) as part of its review of the McClelland et al. report listed above on the benefits of groundwater cleanup and by reviewers. The motivating question the groundwater study was designed to address is simply: Do any non-use benefits derive from corrective actions regarding groundwater contamination and if so, how large might they be?
The contingent valuation study of the benefits of groundwater cleanup undertaken by the research team at the University of Colorado followed naturally from prior contingent valuation studies. These previous studies were undertaken to examine methodological issues in using contingent valuation to measure the benefits from improving visibility in the Eastern United States. Results from these prior studies indicated, among other things, that 1) for a familiar commodity such as visibility, information had little effect on total values and 2) that embedding posed serious problems for disaggregating and interpreting respondent’s stated values. Groundwater presented a more challenging commodity for valuation in that, as shown in pre-testing by Mitchell and Carson (1989), people know very little about groundwater and people reject an existence value scenario where groundwater would never be used i.e., they did not believe that clean groundwater would not be used (“... it is too difficult to overcome people’s beliefs about future use by others to design a scenario that would only capture stewardship [existence] values.”, p.85, Mitchell and Carson (1989)
The authors of the memo state that this scenario rejection problem severely limited the types of scenarios they could consider. For example, they say, it would have been desirable to use a scenario in which groundwater was already contaminated and other surface water sources had been substituted. This would have allowed the authors to ask for existence values for cleanup of groundwater directly. However, the problem with this scenario is that as soon as cleanup occurs, many respondents would assume that the water would be available for immediate use and include use values in their valuation. Again note, the authors state, that Mitchell and Carson (1989)
were unable to convince pretest respondents that clean groundwater would not be used (“.. many participants are unwilling to believe that there is no likelihood of future use in the relatively near future, despite specific assurances to the contrary.”, p. 54, Mitchell and Carson (1989). Given this problem, the ability of the CVM to estimate non-use values as a separate category from use values becomes difficult. However, groundwater does provide an excellent commodity to test the methodological limits of contingent valuation. Thus, the authors believe that their study should be viewed as exploratory in nature. Both the office of Solid Waste and the Office of Policy, Planning and Evaluation recognized the experimental nature of the study and gave the authors complete intellectual freedom in its conduct.
This memorandum discusses these methodological and empirical issues in depth, focusing on the definition of the commodity in this study, and the applicability of the results to estimating national benefits.
The memorandum can be downloaded from this database, but has been divided into two separate files to facilitate downloading. File 1 contains the report’s introductory material, Chapter 1 - Introduction, Chapter 2 - Commodity Definition, Chapter 3 - Issues in the Use of the Benefit Estimates, and Chapter 4 - Conclusions. File 2 contains References and Appendices - Post-Test Question on Temporal Aspects of Valuation, Viewgraphs Used by Professor William D. Schulze, and Viewgraphs Used by Professor Gary H. McClelland.