SOME ISSUES IN CONTINUOUS - AND DISCRETE - RESPONSE CONTINGENT VALUATION STUDIES

Resource /Energy Economics and Policy,

California’s Flawed Surface Water Rights

California sprang into existence following the discovery of gold in 1848. Aside from domestic use, the first major use of water in California was in mining. The first mining consisted of placer mining of alluvial deposits in stream beds throughout the Sierra foothills. As those deposits were depleted, hydraulic mining arose, in which high-pressure jets of water were used to remove overlying earth from upland gold- bearing deposits. That type of mining, first employed in 1853, required substantial water diversions. When California entered the Union in 1850, the English common law was adopted as the “rule of decision” in courts, including the doctrine of riparian rights for surface water1 (it was also the governing doctrine in the rest of the Union). Riparian rights entitle the owner of land bordering a surface water body (“riparian” land) to use the water on his or her riparian land. This is a right to use water, not a right of ownership, and it inheres only in riparian lands. Riparian rights remain with the riparian land regardless of changes in ownership. Water under a riparian right cannot be used on nonriparian land.2 The right is shared equally among all riparians: they own access to the stream as “tenants in common.” They can divert water as long as this does not impair the rights of other riparians. No specific quantity attaches to a riparian right. If a riparian originally applied X, this does not preclude him from applying 5X later. Nonuse does not terminate the right. There is no recording of the volume diverted. No institution administers the ripar- ian right. Disputes are resolved through litigation among riparians. The riparian doctrine was logical where it originated, in a humid region with plentiful streamflow. Streamflow is treated as a common pool to be shared among all riparian landowners. But in an arid region like California, where rivers can run dry by the late summer and annual streamflow can vary by an order of magnitude, there needs to be a specific mechanism for allocating limited streamflow. The riparian right lacks this

Torts and the Protection of "Legally Recognized" Interests

The law of torts plays an important role in completing the legal property rights system by defining the extent to which property is protected from harm. It does this by defining the kinds of interests that will be recognized and protected from harm by the courts, the duty of care owed these recognized interests by others, and the manner in which they will be protected through monetary compensation, restitution, or injunction. Together, these three elements of torts define a right in the “bundle of rights” that constitute property. In this paper, we develop a systematic approach to formalizing the nature of the property rights protected by tort law. We use this approach to reexamine the literature on compensation for nonpecuniary damages. This reexamination demonstrates how recognizing tort’s role in defining property rights and having a way of formalizing these rights can provide deeper insight into old questions torts scholarship.torts, property rights, liability, compensation, damages, insurance

Do Consumers React to the Shape of Supply? Water Demand under Heterogeneous Price Structures

Urban water pricing provides an opportunity to examine whether consumers react to the shape of supply functions. We carry out an empirical analysis of the influence of price and price structure on residential water demand, using the most price-diverse, detailed, household-level water demand data yet available for this purpose. We adapt the Hausman model of labor supply under progressive income taxation to estimate water demand under non-linear prices. Ours is the first analysis to address both the simultaneous determination of marginal price and water demand under block pricing and the possibility of endogenous price structures in the cross section. In order to examine the possibility that consumers facing block prices are more price-responsive, all else equal, we test for price elasticity differences across price structures. We find that households facing block prices are more sensitive to price increases than households facing uniform marginal prices. Tests for endogenous price structures cannot rule out a behavioral response to the shape of supply, but suggest that observed differences in price elasticity under supply curves of varying shapes may result, in part, from underlying heterogeneity among utility service areas.Non-linear pricing, water demand, price elasticity

The Rise and Fall of the Ebro Water Transfer

This article analyzes the Ebro inter-basin transfer, which was the main project of the Spanish National Hydrological Plan. The Ebro transfer was prompted by pervasive pressures, scarcity and degradation of Southeastern basins in Spain. The heated policy debate on the Ebro transfer, highlights the difficulties of achieving a sustainable water management, because of the conflicting interests of stakeholders and regions. Alternatives to the Ebro transfer show that, acceptable outcomes combine demand and supply measures. Nevertheless, implementation could be difficult and requires compensation to farmers, otherwise an excessive burden on farmers would be met by social opposition leading to the failure of measures

A Nested Logit Model of Recreational Fishing Demand in Alaska

Travel cost analysis, bioeconomic modeling, Public Economics, Research Methods/ Statistical Methods, Q26, Q22, C35,

The Downside Risk of Climate Change in California’s Central Valley Agricultural Sector

Downscaled climate change projections for California, when translated into changes in irrigation water delivery and then into profit from agriculture in the Central Valley, show an increase in conventional measures of variability such as the variance. However, these increases are modest and mask a more pronounced increase in downside risk, defined as the probability of unfavorable outcomes of water supply or profit. This paper describes the concept of downside risk and measures it as it applies to outcomes for Central Valley agriculture projected under four climate change scenarios. We compare the effect of downside risk aversion versus conventional risk aversion or risk neutrality when assessing the impact of climate change on the profitability of Central Valley agriculture. We find that, when downside risk is considered, the assessment of losses due to climate change increases substantially

Was the NOAA Panel Correct About Contingent Valuation?

The past few years have seen a highly charged debate about whether contingent valuation (CV) surveys can provide valid economic measures of people's values for environmental resources. In an effort to appraise the validity of CV measures of economic value, a distinguished panel of social scientists, chaired by two Nobel laureates, was established by NOAA, to critically evaluate the validity of CV measures of nonuse value. The Panel provided an extensive set of guidelines for CV survey construction, administration, and analysis, and distinguished a subset of items from their guidelines for special emphasis and described them as burden of proof requirements. Of particular interest was the Panel's requirement that CV surveys demonstrate "responsiveness to the scope of the environmental insult." That demonstration has come to be called a scope test. The paper reports the findings from the first CV study that adheres to the NOAA Panel's guidelines and includes a formal scope test.

Referendum Design and Contingent Valuation: The NOAA Panel's No-Vote Recommendation

In 1992 the National Oceanic and Atmospheric Administration (NOAA) convened a panel of prominent social scientists to assess the reliability of natural resource damage estimates derived from contingent valuation (CV). The product of the Panel's deliberations was a report that laid out a set of recommended guidelines for CV survey design, administration, and data analysis. One of the Panel's recommendations was that CV surveys should employ a referendum approach. This method describes a choice mechanism that asks each respondent how they would vote if faced with a particular program and the prospect of paying for the program through some means, such as higher taxes. The Panel also recommended that CV referendum questions which commonly use only "for" or "against" answers should be expanded to explicitly offer an "I would-not-vote" response. The purpose of this paper is to consider the effects of such a "would-not-vote" option. In developing the test, we followed the important elements of the NOAA Panel guidelines for the design and administration of a CV survey and use what was acknowledged(by the Panel) as the most carefully developed CV questionnaire to that time, that is, the State of Alaska's study of the Exxon Valdez oil spill. Our findings suggest that when those selecting the "would-not-vote" response are treated as having voted "against" the offered program, offering the option does not alter: (a) the distribution of "for" and "against" responses, (b) the estimates of WTP derived from these choices, or (c) the construct validity of the results.