Valuing Ground Water Economic Concepts and Approaches (1997) / Chapter Skim
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3: A Framework for the Valuation of Ground Water
3: A Framework for the Valuation of Ground Water
Pages 47-67
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From page 47... ...
The "correct" or economically efficient allocation of a scarce resource such as ground water among competing uses depends in part on how the service flows are valued from each use of the resource. The framework proposed in this chapter is based on an overall economic valuation approach that integrates the hydrological and physical components of the valuation problem.
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From page 48... ...
Thus in the economist's jargon the total economic value of a given resource asset includes the summation of its use and nonuse values across all service flows. The notion of total economic value is fundamental to ground water valuation and should enter into management decisions regarding use of water resources.
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From page 49... ...
49 and more units are traded, the marginal value continues to decrease, as represented by a negatively sloped demand curve for the good in question. But the total value, represented by the area under the demand curve out to the quantity demanded increases.
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From page 50... ...
The examples in Chapter 6 illustrate the noncomprehensive approach to valuing a ground water resource, where the focus has been primarily on valuing ground water resources in their direct use purposes. Finally, there are no restrictions on why someone values a good.
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From page 51... ...
Identifying this efficient allocation depends on measuring the incremental value of water in alternative uses and the incremental value of improvements in water quality. When there are large gaps between these incremental values across uses, then economic well-being is enhanced by altering the allocation.
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From page 52... ...
It is initially very high, since some plants and trees and degree of green is highly valued, but as more and more water is used in this fashion, the additional value that can be obtained falls. Similarly, the incremental value for ecological services is initially very high, since some water in streams sustains basic biological functions, but it, too, falls as more water is allocated to this purpose.
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From page 53... ...
The relevant value is the incremental value of enhanced water quality, shown by the line increasing to the right in Figure 3.3. The efficient quality decision lies at quality level qe.
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The difficulty comes in deciding how these should be aggregated across people. Because services exist across time, an appropriate discount rate must be used to determine the present value of this stream of annual service values.
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From page 55... ...
Using the notion of discounting, we can determine an economically efficient allocation of a resource over time: an allocation of a resource across n periods is efficient if it maximizes the present value of net benefits that could be received from all possible ways of allocating the resource over the n periods. For water managers, the challenge is to balance the current and subsequent uses of the ground water stocks by maximizing the present value of the net benefits derived from the limited resource.
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From page 56... ...
In Sustaining Our Water Resources (NRC, 1993a) , Brown Weiss notes that: ".
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From page 57... ...
Contamination of an aquifer may lead to surface water contamination, and depletion may change wetlands, affect water tables, cause land subsidence, and so on. A host of effects greatly complicate the valuation problem; additional examples are in Chapter 2.
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From page 58... ...
Second, an increase in pumping today increases the pumping costs for all users. SERVICES PROVIDED BY GROUND WATER This section offers a brief overview of the different services that ground water resources typically provide (see also Tables 1.4 and 1.5~.
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From page 59... ...
, ecological services are a subcategory of in situ services. Understanding of the linkages among ground water resources, wetlands, and lake and stream levels is a complex task for hydrologists, geologists, and aquatic biologists.
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From page 60... ...
Since surface water supplies can fluctuate, ground water acts as important insurance to smooth overall supplies. In times of low surface supply, ground water can be extracted relatively more heavily to augment total supply, and in times of abundant surface supply ground water extractions can fall, allowing the stock to replenish by recharge.
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From page 61... ...
Each individual's welfare depends upon the consumption of private goods and services as well as the consumption of goods and services provided by the government and the consumption of nonmarket goods and services. The latter might include service flows from resources, such as opportunities for outdoor recreation, maintaining wildlife habitat, and visual amenities.
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From page 62... ...
The economic values of the service flows from an aquifer can be viewed as the outcome of three sets of functional relationships; these are functional representations of the flow diagram (Figure 3.1~. The first relates some measure of ground water quality/quantity sensitivity to the human interventions that affect it, the second relates the use of the ground water resource and the quality/quantity of the resource, and the third relationship describes government policies and a management plan (Figure 3.4~.
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From page 63... ...
. This shows that benefits from in situ services are determined by the status of the ground water stock, background variables, institutions, and random events such as salt water intrusion or subsidence events as well as fluctuations in rainfall.
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From page 64... ...
This stage represents a crucial input in estimating the economic value of the stock and makes explicit the role of natural sciences in the valuation process. The second stage maps changes in ground water resources into changes in the service flows from the use of the resource.
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From page 65... ...
indicate, "Economic valuation of ground water therefore requires that progress be made on two fronts: establishing formal linkages between ground water policies and changes in the biophysical condition of ground water and developing these linkages in a manner that allows for the estimation of policy-relevant economic values." While each of the stages in Figure 3.4 can be associated with specific disciplines, one cannot overemphasize the need for interactions and cooperation among economists, other scientists, and water managers to value ground water resources. Relationship to Benefit-Cost Analysis The framework proposed in this chapter for valuing ground water could just as well be termed a framework for measuring the economic benefits of ground water.
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From page 66... ...
1993a. Sustaining Our Water Resources.
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From page 67... ...
1991. The buffer value of ground water with stochastic surface water supplies.
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