Wednesday, June 17, 2009

Passive Values and Policy

The concept of valuation and willingness-to-pay is receiving greater attention in the classroom. I recently ran across a paper discussing the importance of passive or existence values, where people value things even though they will not directly use them. We may receive pleasure knowing salmon can breed naturally as they have been doing for thousands of years, even if we will never visit those areas.

This paper, Importance of Including Use and Passive Use Values of River and Lake Restoration, by John Loomis, also illustated political meddling in economic valuation.

Great for teaching!

The COE originally planned to include a nonuse
value question in its economic analysis, but
intervention by then Washington Senator Slade
Gorton (who supported dam retention) resulted
in the question being removed from the survey.
Calculation of the non-use value for salmon and
free flowing rivers was done using benefit transfer
from existing non-use valuation studies. Using a
variety of benefit transfer protocols, the passive use
value of salmon was estimated for the dam removal
alternative at between $22.8 and $310.5 million
(U.S. Army Corps of Engineers 2002: 42). The
passive use value of restoring the free flowing river
was estimated at $420 million (U.S. Army Corps of
Engineers 2002: 42).

As shown by including the passive use values
of the free-flowing river and salmon restoration,
this would make dam removal economically
efficient, which yields the highest net benefits.
The omission of the passive use values may have
contributed to the Corps of Engineers decision to
keep the dams in place.