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JOURNAL OF ThE AMERICAN WATER RESOURCES ASSOCIATION VOL. 34, NO.5 AMERICAN WATER RESOURCES ASSOCIATION OCTOBER 1998 ESTIMATING THE PUBLIC'S VALUES FOR INSTREAM FLOW: ECONOMIC TECHNIQUES AND DOLLAR VALUES' John B. Loomis2 ABSTRACT: Sound water resource management requires compari- son of benefits and costs. Many of the perceived benefits of water relate to providing instream flow for recreation and endangered fish. These uses have value but no prices to guide resource alloca- tion. Techniques to estimate the dollar values of environmental benefits are presented and illustrated with several case studies. The results of the case studies show that emphasis on minimum instream flow allocates far less than the economically optimum amount of water to instream uses. Studies in Idaho demonstrated that optimum flows that balance benefits and costs can be ten times greater than minimum flows. The economic benefits of pre- serving public trust resources outweighed the replacement cost of water and power by a factor of fifty in California. While it is impor- tant to incorporate public preferences in water resource manage- ment, these economic survey techniques provide water managers with information not just on preference but how much the public is willing to pay for as well. This facilitates comparison of the public costs and benefits of instream flows. (KEY TERMS: water policy; water management; economics; social.) ECONOMIC EFFICIENCY GAINS FROM GOING WITH THE FLOW Reallocating natural resources from old, low-valued uses to new, higher-valued uses in response to chang- ing citizen demand is the hallmark of responsive soci- ety. Democratic governments coupled with free enterprise economies have been thriving because of their ability to shift resources from goods in declining demand (e.g., record players and cast-iron skillets) and increase production of goods in increasing demand (e.g., CD players and microwave ovens). A major exception to this principle is the allocation of water, particularly in the western U.S. Despite substantial economic shifts away from an agrarian economy and toward a society that has heightened concerns for outdoor recreation and environmental quality, water largely continues to be allocated as it was in the 1890s or 1920s. Irrigated agriculture diverts upwards of 90 percent of the water in most western states of the U.S. The "first in time, first in right" doctrine of prior appropriation and the reluc- tance of many irrigation districts to allow water to be traded outside the district to other uses, literally casts in concrete a water use pattern increasingly at vari- ance with current social values. In particular it is at variance with a society that values fishing, rafting and protection of endangered species. Even in the Spring of 1997, one western water district was subsi- dizing delivery costs of transmountain water to pro- vide water at no cost to its members "to avoid losing excess water down the Colorado River" (NCWCD, 1997). The fact that there are endangered fish on those stretches of the Colorado River, commercial rafting and millions of people living in the lower Col- orado Basin suggests the "use it or lose it" mentality continues today. Providing water at "no charge" almost assures water being employed in low valued uses at the expense of higher valued uses elsewhere. As noted by a prominent economist "Dynamic economies require the ability to alter institutional arrangements . . . Economic efficiency demands that the rule structures change in response to new techni- cal opportunities, to new price and cost structures, to new shared perceptions about externalities and other social costs. . .." (Bromley, 1997, pg. 53). Some water managers continue to provide cast-iron skillets despite the fact that people want microwaves. 'Paper No. 97148 of the Journal of the American Water Resources Association. Discussions are open until June 1, 1999. 2Professor, Department of Agricultural and Resource Economics, Colorado State University, Fort Collins, Colorado 80523 (E-Mail: [email protected]). JOURNAL OF THE AMERICAN WATER RESOURCES AssociATioN 1007 JAWRA

ESTIMATING THE PUBLIC'S VALUES FOR INSTREAM FLOW: ECONOMIC TECHNIQUES AND DOLLAR VALUES

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JOURNAL OF ThE AMERICAN WATER RESOURCES ASSOCIATIONVOL. 34, NO.5 AMERICAN WATER RESOURCES ASSOCIATION OCTOBER 1998

ESTIMATING THE PUBLIC'S VALUES FOR INSTREAM FLOW:ECONOMIC TECHNIQUES AND DOLLAR VALUES'

John B. Loomis2

ABSTRACT: Sound water resource management requires compari-son of benefits and costs. Many of the perceived benefits of waterrelate to providing instream flow for recreation and endangeredfish. These uses have value but no prices to guide resource alloca-tion. Techniques to estimate the dollar values of environmentalbenefits are presented and illustrated with several case studies.The results of the case studies show that emphasis on minimuminstream flow allocates far less than the economically optimumamount of water to instream uses. Studies in Idaho demonstratedthat optimum flows that balance benefits and costs can be tentimes greater than minimum flows. The economic benefits of pre-serving public trust resources outweighed the replacement cost ofwater and power by a factor of fifty in California. While it is impor-tant to incorporate public preferences in water resource manage-ment, these economic survey techniques provide water managerswith information not just on preference but how much the public iswilling to pay for as well. This facilitates comparison of the publiccosts and benefits of instream flows.(KEY TERMS: water policy; water management; economics; social.)

ECONOMIC EFFICIENCY GAINSFROM GOING WITH THE FLOW

Reallocating natural resources from old, low-valueduses to new, higher-valued uses in response to chang-ing citizen demand is the hallmark of responsive soci-ety. Democratic governments coupled with freeenterprise economies have been thriving because oftheir ability to shift resources from goods in decliningdemand (e.g., record players and cast-iron skillets)and increase production of goods in increasingdemand (e.g., CD players and microwave ovens). Amajor exception to this principle is the allocationof water, particularly in the western U.S. Despitesubstantial economic shifts away from an agrarian

economy and toward a society that has heightenedconcerns for outdoor recreation and environmentalquality, water largely continues to be allocated as itwas in the 1890s or 1920s. Irrigated agriculturediverts upwards of 90 percent of the water in mostwestern states of the U.S. The "first in time, first inright" doctrine of prior appropriation and the reluc-tance of many irrigation districts to allow water to betraded outside the district to other uses, literally castsin concrete a water use pattern increasingly at vari-ance with current social values. In particular it is atvariance with a society that values fishing, raftingand protection of endangered species. Even in theSpring of 1997, one western water district was subsi-dizing delivery costs of transmountain water to pro-vide water at no cost to its members "to avoid losingexcess water down the Colorado River" (NCWCD,1997). The fact that there are endangered fish onthose stretches of the Colorado River, commercialrafting and millions of people living in the lower Col-orado Basin suggests the "use it or lose it" mentalitycontinues today. Providing water at "no charge"almost assures water being employed in low valueduses at the expense of higher valued uses elsewhere.As noted by a prominent economist "Dynamiceconomies require the ability to alter institutionalarrangements . . . Economic efficiency demands thatthe rule structures change in response to new techni-cal opportunities, to new price and cost structures, tonew shared perceptions about externalities and othersocial costs. . .." (Bromley, 1997, pg. 53). Some watermanagers continue to provide cast-iron skilletsdespite the fact that people want microwaves.

'Paper No. 97148 of the Journal of the American Water Resources Association. Discussions are open until June 1, 1999.2Professor, Department of Agricultural and Resource Economics, Colorado State University, Fort Collins, Colorado 80523 (E-Mail:

[email protected]).

JOURNAL OF THE AMERICAN WATER RESOURCES AssociATioN 1007 JAWRA

CHALLENGE OF INCORPORATINGPUBLIC VALUES FOR WATER

Because municipal and industrial uses of waterhave market prices, cities can determine what variouswater using customers will pay for additional water.The large disparities in what urban areas will pay forwater and what agricultural water users earn from anacre foot of water is a signal of the relative economicvalue of water in these two uses. While the mechanicsof water pricing, drought year water markets andwater transfers are messy, the prices are a reasonable(although not perfect) indicator of the value of waterin the two alternative uses.

However, one of the fastest growing publicdemands for water has no market price. The valuethat anglers and recreational boaters place on havingwater in stream is not priced in any market. Yet therancorous fights over instream flow standards belowhydroelectric facilities suggests such flows do have asubstantial economic value. The demands for waterdriven by the Endangered Species Act is a reflectionof broad public concern, not just that of recreationists.To date, the debate has focused on minimum instreamflow. The mindset of arguing over minimum flows isindicative of the resistance to allow water to be allo-cated to newly emerging high-valued uses. Why notinstead ask, what is the minimum electricity thathouseholds need? Why don't we all live in the mini-mum size house and eat the minimum size diet tosustain life? This is what we are asking the fish to do.The standard we apply to ourselves is one of opti-mum: balancing the benefits and costs of a largerhouse. Maximum net benefits are attained by increas-ing flows until the value of another acre foot equalsthe opportunity cost of foregone agriculture orhydropower. Why is the public so unsatisfied withminimum instream flows? They want what makeseconomic sense: optimum flows.

HOW CAN THESE PUBLIC NON-MARKETDEMANDS BE COMPARED TO COSTS?

Because the public cannot directly purchaseinstream flow from dam operators or irrigators, theeconomic value the public receives is less visible thanthe obvious market values of hydropower or agricul-tural commodities. But economists have become excel-lent detectives at translating the public demands intowhat the public would pay if they had the opportunityto purchase instream flow. Knowing what the publicwould sacrifice in higher water bills, electricity prices,or higher taxes provides a much more useful indicator

Loomis

of public concern than the number of letters receivedfor and against a proposal. Water managers havelegitimate skepticism over water demands of groupswho will bear none of the costs of their desires formaximum fishery flows. Asking the amount thatanglers, rafters, or households would pay, forcesinstream water users to balance the benefits of addedflow with the costs to themselves. These "willingnessto pay" (WTP) estimates are similar to "shadowprices" often used in engineering economics or derivedfrom optimization models. Shadow prices reflect theeconomic value to individuals that would emerge ifthere was a competitive market for the resource inquestion (Sassone and Shaffer, 1978).

Instream flow is also a public, as opposed to privategood. Consumptive use of water in irrigated agricul-ture is a private good, because it is rival in consump-tion. Once a farmer's crop absorbs an acre foot ofwater, it is not available to another user. However,instream flow, particularly when it supports protec-tion of an endangered species, simultaneously pro-vides benefits to millions of people. While the valueper person may be less than the value per farmer, thenon-rival nature of instream flow, means the instreamflow value per person is multiplied by millions ofhouseholds.

Expressing the public's values in dollar termsallows a balancing of the recreational and environ-mental benefits of instream flow with the costs. Whilethe approach of Flug et al. (1990) — who created azero-to-one index to reflect the relative value of recre-ation as a function of flow — is clever, the resultingindex values are not comparable to costs.

Communicating economic values of water in com-peting uses provides comparability among the differ-ing uses of water and helps to avoid the "us andthem" mentality so frequent in water debates. Largedifferences in the value of water for instream versusirrigated agriculture suggests gains from trade. Thepublic, through its state government agencies, canoffer to purchase the consumptive use portion ofwater from farmers so as to augment instream flows.Water leasing in drought years opens up the possibili-ty that blue ribbon trout streams need not go dry togrow low value crops. Drought year waterbanks haveworked quite successfully in California to move morethan 800,000 acre feet of water from agriculture toother uses in a matter of months (Loomis, 1992) withfarmers gaining and "relatively low" third-partyeffects (Howitt, 1992).

Expressing public preferences in economic termshas been helpful in settling public trust issues aswell. Most states recognize the public trust in fishand wildlife: the animals are not the property of thelandowner but of the state. The state regulates the

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Estimating the Public's Values for Instream Flow: Economic Techniques and Dollar Values

taking of these animals. Several states recognize pub-lic trust uses of water as well. Perhaps the most wellknown public trust water case was Mono Lake in Cal-ifornia. Here the California Supreme Court ruled thatthe State must balance its authority to grant waterrights with its responsibility to protect the publictrust uses of Mono Lake. An economic approach tothis balancing suggests reallocating water from oneuse (Los Angeles) to the Mono Lake ecosystem untilthe value of the last acre foot is equalized between thetwo uses. While water to Los Angeles has a marketprice, the value of the water to support birds andrecreation at Mono Lake did not. As described below,surveys were used to measure what California citi-zens would pay to have the water in Mono Lake.Rather than being unproductively viewed as an all-or-nothing trade-off, incremental adjustments in wateruse can be made with this information on relative val-ues of water in the two uses.

When relicensing hydroelectric dams, the FederalEnergy Regulatory Commission has a legal require-ment in the Electric Consumers Protection Act of1986 to give equal consideration to environmental andpower considerations. If fisheries biologists andanglers are asked their preferences, the resultingflows are the maximum needed by fish. Just as mini-mum flows are likely not optimum (i.e., benefits ofadditional flows outweigh the costs), neither are max-imum flows optimal (i.e., benefits of added flows areless than costs). One interpretation of equal consider-ation is a balancing of the incremental benefits andincremental costs, until the incremental values areequalized. The example below illustrates how thisoptimum was determined for flows over a scenicwaterfall on the Upper Snake River in Idaho.

TECHNIQUES FOR QUANTIFYINGECONOMIC VALUES OF INSTREAM FLOW

Recreation values associated with fishing and boat-ing can be quantified using a demand estimatingtechnique called the travel cost method (TCM). Whilethere is usually no on-site cost to fish along a publicriver, the travel to the river is often expensive interms of time and money. Using the variation in trav-el costs and number of trips taken by anglers living atdifferent distances from the river, a demand curve forfishing can be statistically estimated. From thedemand curve, the dollar amount an angler wouldpay, in excess of the current trip costs, can be calcu-lated. The additional amount locals would pay fortheir first few trips can be calculated by observingwhat anglers who live at great distance from the sitepaid in higher travel costs. The higher travel costs of

more distant users sets an upper limit on what localusers would have paid for the first trip, the secondtrip, and so forth. While the actual implementationinvolves statistical techniques such as multipleregression, the approach is similar to cross-sectionregression analyses commonly used to estimate thedemand for more common goods and services.

By observing how the maximum distance traveledand the number of trips increase when instream flowis increased, the additional willingness to pay (WTP)for added flows can also be calculated. From this, theincremental WTP for an additional cfs or acre foot ofwater can be calculated and compared to the economicvalue of foregone out-of-stream water uses. For anexample of the application of travel cost method toinstream flow see Ward (1987).

Another commonly applied technique to estimateboth the recreational value of in stream flow and thegeneral public's benefits of preserving flows forendangered fish involves the use of a "constructedmarket" or "simulated referenda." This approach isknown as the Contingent Valuation Method (Mitchelland Carson, 1989). Essentially, a hypothetical marketis constructed which allows anglers or the public tobuy higher levels of instream flow. They are told theywould pay through higher electricity costs, a higherwater bill, or in some cases through higher taxes. Thespecific details of the market are clearly spelled outusing hydrographs, written descriptions or photos(Loomis and Feldman, 1995). In a constructed marketthe individual can either be asked the maximum theywould pay or whether they would pay a given amountthat varies across respondents. In the simulated ref-erenda, households are asked if they would vote infavor of the specific increase in instream flow at aparticular dollar amount that varies across house-holds. By measuring the percentage of people that"buy" or vote yes at each dollar amount, a demand-curve-like relationship can be statistically estimated.From this equation, the expected value or mean WTPcan be calculated. Much of the motivation of non-visit-ing households willingness to pay for instream flow isrelated to their "existence" value from knowing thatthe species will continue to exist in its natural habitatand a "bequest" value from knowing that preservationtoday provides future generations with these species.

Of course one concern with the hypothetical marketapproach is whether individuals would actually paythe dollar amount they state in the survey. This issueof validity can be tested for recreation visitors by com-parison of stated WTP to WTP calculated from travelcost models for the same site. In more than a hundredsuch comparisons for activities as diverse as hunting,fishing, camping, swimming, and boating, Carson etal. (1996) found no statistical difference in valuesfrom the two techniques. On net, Carson et al. (1996)

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found that the stated values in the surveys slightlyunderestimated the WTP from the travel cost models.

When non-visiting households are asked to pay forinstream flows to protect endangered species, thevalidity is less than for recreation. In a series of cashexperiments, the actual cash WTP ranged from one-half to one-eighth of the stated WTP. Recent innova-tions have suggested a "certainty of response"question to calibrate stated WTP to increase its corre-spondence with actual WTP (Champ et al., 1997).This technique shows promise for improving the accu-racy of stated WTP in constructed markets and simu-lated referenda. Nonetheless, if the true WTP forpreservation of instream flows is one-half the statedWTP, the fact that millions of households throughoutthe U.S. would pay to maintain instream flow for fishand wildlife (Loomis, 1996; Welsh et al., 1995) sug-gests even the calibrated magnitude of benefits wouldbe in the hundreds of millions of dollars due to itsnon-rival nature.

While use of surveys to monetize public values isnot without controversy, the techniques involved havebeen recommended by a blue ribbon panel chaired bytwo Nobel Laurets in economics (Arrow et al., 1993)and used by several federal agencies (U.S. Depart-ment of Interior, 1996; National Oceanic and Atmo-spheric Administration, 1996; U.S. Water ResourcesCouncil, 1979, 1983).

CASE STUDIES OF USING NON-MARKETVALUATION TO ATPAIN BALANCED

WATER ALLOCATIONS

Mono Lake

One of the first studies to measure the recreationuse, existence, and bequest values that citizens havefor public trust resources was a survey of Californiahouseholds regarding willingness to pay for morewater flows into Mono Lake. The initial academicstudy involved a mail survey of California households.They were asked whether they would pay an extraamount on their water bill to purchase higher costreplacement water supplies so that a greater portionof the natural flows could once again go into MonoLake. They were told that biologists indicated a high-er lake level was needed to maintain food supply fornesting and migratory birds. Using a repeat mailingapproach, the survey attained a 44 percent responserate. The mean WTP was $13 per month, translatinginto $156 per year. When multiplied by the number ofhouseholds in California, the total benefits exceededthe replacement costs of $26 million per year by a

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factor of 50 (Loomis, 1987). Using a follow-up surveynine months later, the reliability of the WTP respons-es was established using the test-retest method(Loomis, 1989). One impact of the survey results wasto change the nature of the debate over Mono Lakefrom "300 fish or 30,000 people?" to one of recognizingpeople cared about the fish and birds as well as aboutinexpensive water in Los Angeles.

The State of California determined that informa-tion on the general public's WTP for Mono Lake wouldbe an important part of the economic analysis of thewater allocation decision. The consulting firm hired toprepare the Environmental Impact Report wasrequired to perform a more detailed contingent valua-tion survey. The survey involved use of photosimula-tion of what the lake would look like at alternativelake levels as well as detailed information abouteffects on different bird species. In addition, thisstudy cast the decision as a referenda on Mono Lake.The study also used a phone interview of people whowere mailed an information booklet with the mapsand photosimulations. This study also showed thatthe benefits of a moderately high (but not the highest)lake level, were greater than the costs (Jones andStokes Associates, 1993). While one cannot claim theeconomic analysis was a deciding factor, the Califor-nia Water Resources Control Board did reduce LosAngeles' water right in half, from 100,000 acre feet toabout 50,000 acre feet so as to allow more flows intoMono Lake (Loomis, 1995).

Water Over the Falls?

Typical of many Federal Energy Regulatory Com-mission (FERC) licensing decisions was the issue ofhow much water to require the utility company toallow to flow over the falls at a recreation area versushow much to divert through the pen stocks. The previ-ous license required only 50 cfs as a minimuminstream flow. This reduced the flow over the falls toliterally a trickle. Increasing the flows over the fallshad a direct opportunity cost in terms of hydropowerforegone. As always the key question was just howmuch water over the falls is justified.

To answer this question a survey of visitors to thefalls was developed. The survey showed pictures ofthe falls at four different flow levels. Visitors weremailed the survey that contained the photos and aseries of economic questions. The key questions relat-ed to how much more they would pay to visit the fallswith each flow level depicted in the photo and howmany times they would visit each year at the four dif-ferent flow levels. Given that both visitation andvalue per day was sensitive to flow, a total recreationbenefit function was statistically estimated. From this

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total recreation benefit function, the incrementalvalue of additional flow in each month could be calcu-lated and compared to the foregone hydropower. Theeconomic optimum flow level during the summermonths when visitation was the highest was 500 cfs,ten times larger than the current minimum instreamflow (Loomis and Feldman, 1995, pg. 107).

Re-Regulation of Glen Canyon Dam

One of the highest profile uses of the contingentvaluation method in water resources managementhas been the re-regulation of Glen Canyon dam. Inthe early 1980s it became clear that continued opera-tion of the dam for peaking power was adverselyaffecting the downstream ecosystem in the GrandCanyon and significantly detracting from the rafting.As always, the million dollar question was "just howmuch is this recreation worth" as compared to marketvalues of the peaking power. Thus, the first studiescarried out used CVM to quantify how the value ofrafting in the Grand Canyon changed with more evenbase flows as compared to peaking power flows. TheBureau of Reclamation and National Park Serviceworked with a consulting firm to develop a surveyinstrument to estimate how the value of raftingchanged with different flows in the Grand Canyon.The economic effects were substantial, representingchanges of $2 million annually (Bishop et al., 1989).The impact of this analysis was far more than themagnitude of the values, as it helped change the per-spective of the discussion. Rather than recreation ver-sus hydropower, it was now finding a release patternthat increased the economic value of all the multiplepurposes. For a variety of reasons, more even flowswere put in place while the final environmentalimpact studies took place. Congress formalized theseflows when it passed the Grand Canyon ProtectionAct of 1992.

The impact of the recreation study was sufficient toresult in one of the first, major Federal agency-fundedexistence and bequest value studies being added tothe economic analysis. As it became clear that morethan recreation was at stake in re-regulation of thedam, it also became more obvious that citizensthroughout the U.S. cared about how dam operationsaffected the natural resources of the Grand Canyon.In particular, people were concerned about Threat-ened and Endangered (T&E) fish, erosion, native veg-etation, and birds, which were all being adverselyaffected by unnatural flows and a lack of high springflows. The Bureau of Reclamation funded a majornon-use value study of households throughout theU.S. to estimate their WTP for flow regimes thatwould protect the natural resources in the Grand

Canyon. These results showed strong support for amore natural flow regime. While it is difficult to pointto any one study as definitively affecting the manage-ment of Glen Canyon dam, the public support com-bined with concerns over T and E fish have resultedin substantial changes in the management of thedam. For example, recall the large spills during thespring of 1995 to emulate the natural high springflows.

Economic Value of Threatened and Endangered Fish

This case study also uses CVM to quantify publiceconomic value for preserving 2,465 river miles ofcritical habitat units (CHUs) for nine species of fishthat are listed as threatened or endangered in sixrivers of the four corners states. The impact of havingcritical habitat designated is that river flows areaffected through instream flow requirements andaltering the management of hydropower facilities.

The CVM survey followed a standard three-ele-ment design: (a) portrayal of the resource to be val-ued, (b) description of the particular mechanism to beused to pay for the resource, and (c) the question for-mat used to elicit the respondent's dollar amount ofWTP. Survey respondents were provided detailedmaps with the CHUs highlighted. Protection involvedhabitat improvements such as fish passageways aswell as bypass releases of water from dams to imitatenatural water flows needed by fish.

Households were told that some State and Federalofficials thought the costs of the habitat improve-ments and the restrictions on hydropower were toocostly and proposals for eliminating CHUs had beenput forward. Then the description of the particularmechanism to be used to pay for the resource was pro-vided. They were told that the current program couldbe paid for by the establishment of a Four CornersRegion Threatened and Endangered Fish Trust Fund.Efforts to raise funds would involve all U.S. taxpayerscontributing to this fund. If a majority of householdsvote in favor, the fund would maintain CHUs for thenine Threatened and Endangered fish species to avoidextinction. This would be accomplished through waterreleases from Federal dams timed to benefit fish andthe purchase of water rights to maintain instreamflows. The survey stated that within the next 15years, three fish species would increase in populationto the point they would no longer be listed as aThreatened Species.

However, if a majority of households in the U.S.voted not to approve the fund, then the CHUs shownon the enclosed map would be eliminated. That wouldmean water diversion activities and maximum powerproduction would occur, reducing the amount of

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habitat for these nine fish species. Respondents weretold that biologists estimate that if this occurred itwas very likely that four of the nine fish specieswould become extinct in 15 years.

This information was followed by the question for-mat used to elicit the respondent's dollar amount ofWTP. Each household was asked how they would vote,considering the cost to their household. This referen-dum format is recommended by the "blue ribbonpanel" on CVM (Arrow et al., 1993). The exact word-ing on the questionnaire was:

Suppose a proposal to establish a Four CornersRegion Threatened and Endangered Fish TrustFund was on the ballot in the next nationwideelection. How would you vote on this proposal?Remember, by law, the funds could only be usedto improve habitat for fish. If the Four CornersRegion Threatened and Endangered Fish TrustFund was the only issue on the next ballot and itwould cost your household $ every year,would you vote in favor of it?

(Please circle one.) YES NO

The dollar amount, which is blank in this example,was filled in with one of 14 amounts ranging from $1to $350, randomly assigned. to survey respondents.The range was picked such that at the low end, any-one that valued preserving the fish would very likelyindicate they would pay $1-3, while almost no onewas expected to pay $350 per year.

The questionnaire was sent to a random sample of800 households in the four corner states of Arizona,Colorado, New Mexico and Utah (with the proportionsbased on the states' relative populations) and an addi-tional 800 households in the rest of the U.S. Wereceived 718 responses. After deleting undeliverablesurveys and deceased, this yielded a response rate of53.9 percent.

The mean WTP was estimated to be $265 perhousehold. This is the value for protecting all ninefish in the six rivers. In particular, the WTP is toavoid the extinction of four fish species and increasethe population of three species so they can be delisted.Our values appear to pass an informal test of scale bycomparing them to the $28.73 value estimated byBarrens et al. (1996) for just the Rio Grande silveryminnow in New Mexico (one of the nine fish species inour study).

For the purpose of policy decisions, this studyshowed there are significant values to protectingthese nine T and E fish species. A water resourcemanager can recognize that if there are close to 100million households in the U.S., the economic benefit ofprotecting these habitats is substantial. Even taking

Loomis

the most extreme calibration of the model and benefitestimates that have been shown to have some claim tomeeting criterion validity, the national benefit esti-mate would be about $1 billion, even assuming non-respondents have zero WTP. This is well in excess ofthe costs. In fact one study of the costs suggests thatthe current allocation of water to some low-valuedupper basin uses at the expense of higher-valuedlower basin uses results in an overall economic bene-fit from increasing instream flows for fish (Brookshireet al., 1994).

Elwha Dam Removal for Salmon

As more and more anadromous fish species havebeen added to the Endangered Species list, seriousconsideration has been given to complete removal ofdams blocking salmon migration. The first dams toreceive a formal environmental impact analysis forremoval are Elwha and Glines dams on the ElwhaRiver on the Olympic Peninsula in Washington. These200 foot high, very old dams have no fish ladders.Given the age of the dams and the fact that they blockmigration of fish to 70 miles of pristine spawninggrounds in Olympic National Park, their removalwould more than triple salmon populations on theElwha River.

However, being biologically effective is not thesame as being economically effective. The cost toremove the dams and remove the 50 years of sedi-ment build-up was estimated to cost in the neighbor-hood of $100-$125 million. Therefore a contingentvaluation survey was developed that would estimatethe existence and bequest values. The survey askedhouseholds if they would vote in favor of removing thedams and restoring the river to triple salmon popula-tions (illustrated using a bar chart) at an annual costthat varied across households. Besides surveyinghouseholds in the State of Washington, householdsthroughout the U.S. were also surveyed. Theestimated economic values per household ranged from$73 for Washington households (90 percent confidenceinterval of $60-$99) to $68 for rest of U.S. households(90 percent confidence interval of $56-$92). Even justconsidering Washington residents, the $73 per house-hold times the number of households in Washingtonwould nearly cover the cost of removing the dams andrestoring the river. Given the 86 million households inthe rest of the U.S., national willingness to pay was inexcess of $1 billion dollars. Thus, even if there is anupward bias to the CVM estimates of willingness topay, the national benefits are far in excess of thecosts.

These results were included in the draft and finalEnvironmental Impact Statement (EIS) prepared by

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Estimating the Public's Values for Instream Flow: Economic Techniques and Dollar Values

the National Park Service on dam removal. The rec-ommendation in both the draft and final EIS was toremove both dams and restore the Elwha River. Thisis consistent with the economic analysis, althoughmany factors contributed to the National Park Ser-vice's recommendation. The Clinton Administrationhas included in their budget request to Congress themoney to purchase the dams from the private owners,with the intent to request funds for dam removal andrestoration in subsequent fiscal years.

CONCLUSION

What can we conclude from these examples? Sur-veys asking the public what they would sacrifice toincrease instream flow have the advantage of provid-ing "disciplined" preferences to decision makers.Rather than being unconstrained desires, asking citi-zens what they would pay for increases in instreamflow provides more realistic answers. In addition, ittranslates preferences into dollars that can be com-pared to the costs of purchasing water or reduced out-put of commodities.

A decentralized and somewhat self-regulatingmeans to obtain approximately optimum instreamflows would be to price conflicting water uses at theirreplacement and opportunity cost. The opportunitycost would reflect the foregone economic benefits ofinstream flows such as fishing, rafting, wildlife view-ing and endangered species (if present). This higherprice of water would cause farmers, industries andhouseholds to divert less water and use what theydivert more efficiently. Fewer stretches of river wouldbe dewatered between the point of diversion and thepoint of return flows. More flows would remain inriver, rather than being run down furrows or city gut-ters. At present, water is priced based on average his-toric costs that do not reflect replacement costs noropportunity costs. Irrigation water from many govern-ment projects do not even reflect the full historic capi-tal or interest costs. This underpricing of waterincreases the quantity of water demanded for with-drawal, reducing instream flows below what is opti-mal if water users had to pay the full cost.

While the dollar values that households say theywould pay may seem quite large, results of past actu-al voter referenda corroborate the magnitude of thesedollar values. In 1987, California voters passed Propo-sition 70, taxing themselves $700 million to purchaselands for parks, wildlife habitat, and open space. In1996, California voters passed Proposition 204 inwhich they taxed themselves nearly $500 million toimprove water quality in the Sacramento Delta andSan Francisco Bay. Voters in Colorado twice voted

that all net proceeds from the state lottery would goto the purchase of lands for parks, open space andwildlife habitat.

Whether from surveys or from actual votes, itseems clear that if water could move in response torelative economic values, society would benefit in atleast two ways: (a) our finite water resources wouldbe able to provide a more valuable mix of good s/services than the current mix, and (b) we would spenda lot less time in court arguing over water and moretime providing financial incentives to use water moreefficiently. Providing what the public is willing to payfor is likely to make everyone better off in the longrun.

ACKNOWLEDGMENTS:

Some of the empirical results reported in this paper draws uponjoint work with Earl Ekstrand of the U.S. Bureau of Reclamationand Kelly Giraud of Colorado State University. Grant Cardon andMarshall Frasier, Colorado State University, as well as two review-ers, provided valuable suggestions for improving the clarity andlogic of the paper. Partial support for this research came from theAgricultural Experiment Station Regional Research project W-190.

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