**Environmental Valuation: Damage Schedules**[^1]

Jack L. Knetsch

Simon Fraser University

Many environmental economic and management issues centre on means of
aligning incentives and restraints -- allocating resources, assessing
damages, weighing trade-offs, and generally getting "prices" right --
that are consistent with community preferences and objectives. Much
attention has consequently focused on valuations, and in particularly on
assessing non-pecuniary as well as pecuniary values in monetary terms.

Among the numerous methods and techniques proposed to take account of
people's environmental preferences and objectives, the alternative of
basing assessments on a pre-established fixed schedule has received what
may be far too limited attention, relative to other means, of providing
socially useful guidance to environmental management and damage
assessment (Knetsch, 1994). To the extent that damage schedules can be
made to reflect community preferences, they may offer most of the
benefits of more limited and problematic monetary valuations with
minimal sacrifice.

Particularly in the assessments of losses, schedules could offer
significant advantages over current methods and procedures. Schedules
would provide predictability and enforceability by specifying payments
or other sanctions in advance rather than waiting for damages of become
evident. This should also reduce the large transactions costs now
typically associated with post-incident assessments, and greater
certainty and advance knowledge of consequences of causing environmental
losses should provide socially desirable deterrence incentives
(Rutherford, et. al, 1998). Schedules may also offer a realistic means
to mitigate the serious distortions inherent in the reliance of
currently used valuation methods on willingness-to-pay assessments of
losses rather than the more appropriate willingness-to-accept measure.

Perhaps importantly, schedules are also fairly transparent and easily
understood, and have an intuitive appeal to most people that is lacking
in many alternatives. They are already familiar and appear to provide a
widely accepted basis for actions in various circumstances in which
monetary values or other indices of community values are not readily
apparent, costly to produce, or intractable. One common area of their
use, that has some similarities to environmental issues, is in workers'
compensation schemes. Typically no assessment of the value of a
particular injury is made and employees are guaranteed "no-fault"
administrative recovery of compensation for a loss, including pain and
suffering, that varies with the severity as specified in a predetermined
schedule. While the damage awards do not represent, nor are they
purported to represent, the value of actual losses, they can provide
similar incentives and restraints in encouraging cost justified
preventative actions and the objective determinations and equal
treatment of individuals increases their fairness and wide acceptance by
affected parties.

Schedules aimed at standardizing assessments and reducing costs for
minor losses have also been used on a limited scale for environmental
damages. However, for the most part these have been limited to minor oil
spills and the like, and have been based on replacement or restoration
costs alone or have been anchored on an openly arbitrary monetary sum.

To some considerable degree the efficacy and advantage of widespread use
of damage schedules may be dependent on the extent to which the
sanctions or incentives incorporated in them clearly reflect changes in
social well-being associated with the loss or change in environmental
quality. This might well be expected to be greater if consistent
judgments of environmental importance can be elicited that provide more
accurate and acceptable signals of community preferences.

Indicators of community preferences and choices might be formulated in
several ways. One relatively simple means which at this point seems most
promising, and provides a high degree of transparency, is to elicit
scales of relative importance of environmental changes by means of
paired comparison surveys. This well-established method for ordering
preferences among elements of a set, presents binary choices of all
possible pairs to each respondent and the relative number of times each
element is judged as being preferred (or being more important) over all
of the sample provides an interval scale of the collective judgment of
the relative importance of the differing elements being compared.

The results of a small exploratory study of the relative importance of
oil spills impacting on four different environments illustrate the
procedures. Each respondent judged one of each pair of habitats as being
most adversely effected by a spill. On the basis of their choices, a 0
to 100 scale was developed indicating that this group of respondents
rated the relative importance of a specified spill as 91 if occurring in
a productive marsh area, 57 in a deep bay, 48 on an ocean beach, and 4
if on an outer continental shelf (Rutherford, et. al, 1998). Such scale
values might then be used as the basis for a range of policy responses
or sanctions. These might be wholly monetary damage amounts, or perhaps
more usefully could involve a range of responses including regulatory
controls and prohibitions as well as monetary penalties and awards. Such
a mapping might be schematically represented as follows:

Relative Importance Policy Response/Sanction

Prohibitions

Marsh 91

Restrictions

\$XXXX

Deep Bay 57

Ocean Beach 48 \$XXX

\$XX

Outer Shelf 4 \$X

The mapping of scales of relative importance from, for example, a paired
comparison survey, is, like workers' compensation award schedules, not
an automatic translation nor without the need for somewhat arbitrary
assignments -- though in practice this might well be less so than
current resolutions. However, like reliably assessed monetary values if
such were obtainable, the importance scale based schedule does impose
more severe sanctions on what are widely judged to be more serious harms
and lesser sanctions on less important losses. Attainment of this level
of discernment and the guidance this provides should, in most cases, be
relatively easy and inexpensive.

The schedule represents only approximations of cardinal measures of the
social worth of environmental resources, but it does allow policy
responses, incentives, and compensation remedies to be tied to
internally consistent community judgments of the relative costs or
importance of different changes. Further, in much the same way as
workers' compensation schedules are developed, more extensive schedules
can be developed over time by establishing the relative importance of
subsequent changes as they are encountered by interpolation and
extrapolation from scale values of those previously assessed.

The practical feasibility of the damage schedule alternative would be
increased by the ability of respondents to readily choose between pairs
of environmental changes. Inhibitions may, for example, stem from
feelings of incommensurability between different kinds of changes.
However, people do seem to make choices over wide ranges of possible
changes, not only in their daily lives but in paired comparison surveys.
In one test of this, different groups of respondents were faced with:
(1) pairs of disparate environmental losses, (2) pairs of personal
injuries, and (3) pairs that included both environmental losses and
personal injuries. The evidence suggested that respondents in the third
group had little or no more difficulty in choosing between pairs than
the other two groups (Gorter, et.al, 1998).

Another concern with the use of paired comparison surveys to assess
community scalings of importance, is the ability of actual resource
users, as opposed to resource managers or other experts or university
graduates, to provide consistent choices. This worry has recently been
tested using samples of shrimp farmers, fishers, tourism facilty
employees, and others living in two coastal communities in southern
Thailand. Each of these groups were able to provide consistent scale
values for a range of coastal resource changes and activities affecting
such resources. Further, their judgments of relative importance did not
differ significantly from those of a group of professional resource
managers (Chuenpagdee, et.al, 1998).

The use of damage schedules based on people's judgments of relative
importance of environmental changes is unlikely to lead to optimal
deterrence and maximum efficiency in the allocation of environmental
resources. But the alternative is not one that provides this. And for
many purposes, including providing socially useful incentives and the
main purposes of compensation, this is not a necessity, as long as
sanctions and incentives are in accord with the relative importance of
changes. Schedules appear, on present evidence, to provide at least
reasonable potential for significant improvement over current practice
(and probably to warrant a bit more even-handed recognition and support
for research in this area -- which has been so woefully unrepresentative
of importance and potentials in the past).

[References]{.underline}

Chuenpagdee, Ratana, Jack L. Knetsch, and Thomas C. Brown, (in process),
"Damage Schedules and Scales of Importance of Losses: Judgments of
Coastal Resource Users in Thailand", 1998.

Gorter, Robert B., Thomas C. Brown, and Jack L. Knetsch, (in process),
"Scaling the Importace of Losses: The Paired Comparisons Method", 1998.

Knetsch, Jack L., (1995), "Environmental Valuation: Some Problems of
Wrong Questions and Misleading Answers", *Environmental Values*,
3:351-368.

Rutherford, Murray B., Jack L. Knetsch, and Thomas C. Brown, (1998),
"Assessing Environmental losses: Judgments of Importance and Damage
Schedules", *Harvard Environmental Law Review*, 22:51-101.

[^1]: ^\*^ This draws on work of, and with, Tom Brown, Ratana
    Chuenpagdee, Rob Gorter, and Murray Rutherford; which has, in part,
    been supported by the U. S. Forest Service and the Economy and
    Environment Program for Southeast Asia.