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Valuing Ground Water: Economic Concepts and 

Approaches 

Committee on Valuing Ground Water, National 

Research Council 
PREFACE i

Valuing

Ground Water

Economic Concepts and Approaches

Committee on Valuing Ground Water

Water Science and Technology Board

Commission on Geosciences, Environment, and Resources

National Research Council

NATIONAL ACADEMY PRESS

Washington, D.C. 1997

Copyright © National Academy of Sciences. All rights reserved.

Valuing Ground Water: Economic Concepts and Approaches

http://www.nap.edu/catalog/5498.html
NATIONAL ACADEMY PRESS • 2101 Constitution Avenue, NW • Washington, DC 20418

NOTICE: The project that is the subject of this report was approved by the Governing Board of the

National Research Council, whose members are drawn from the councils of the National Academy of

Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the

committee responsible for the report were chosen for their special competences and with regard for

appropriate balance.

This report has been reviewed by a group other than the authors according to procedures

approved by a Report Review Committee consisting of members of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine.

Support for this project was provided by the U.S. Department of Energy, U.S. Environmental

Protection Agency Grant No. C-R-823279-01-3, U.S. Department of Defense/Defense Supply Service Grant No. DASW01-95-M-6159, and the National Water Research Institute.

Library of Congress Cataloging-in-Publication Data

Valuing ground water : economic concepts and approaches / Committee on Valuing Ground Water,

Water Science and Technology Board, Commission on Geosciences, Environment, and

Resources, National Research Council.

p. cm.

Includes bibliographical references and index.

ISBN 0-309-05640-3

1. Groundwater—Valuation. I. National Research Council (U.S.). Committee on Valuing

Ground Water.

HD1691.V35 1997

333.91′04—dc21 97-4837

Valuing Ground Water: Economic Concepts and Approaches is available from the National Academy

Press, 2101 Constitution Ave., NW, Box 285, Washington, DC 204185 (1-800-824-6242; http://

www.nap.edu).

Cover art by Y. David Chung. Chung is a graduate of the Corcoran School of Art in Washington,

D.C. He has exhibited his work throughout the country, including the Whitney Museum in New

York, the Washington Project for the Arts in Washington, D.C., and the Williams College Museum of

Art in Williamstown, Massachusetts.

Copyright 1997 by the National Academy of Sciences. All rights reserved.

Printed in the United States of America

Copyright © National Academy of Sciences. All rights reserved.

Valuing Ground Water: Economic Concepts and Approaches

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iii

COMMITTEE ON VALUING GROUND WATER

LARRY W. CANTER, Chair, University of Oklahoma, Norman

CHARLES W. ABDALLA, Pennsylvania State University, University Park

RICHARD M. ADAMS, Oregon State University, Corvallis

J. DAVID AIKEN, University of Nebraska, Lincoln

SANDRA O. ARCHIBALD, Hubert H. Humphrey Institute of Public Affairs,

Minneapolis, Minnesota

SUSAN CAPALBO, Montana State University, Bozeman

PATRICK A. DOMENICO, Texas A&M University, College Station (from

September 1994 to November 1995)

PETER G. HUBBELL, Water Resources Associates, Inc., Tampa, Florida

KATHARINE L. JACOBS, Arizona Department of Water Resources, Tucson

AARON MILLS, University of Virginia, Charlottesville

WILLIAM R. MILLS, JR., Orange County Water District, Fountain Valley,

California

PAUL ROBERTS, Stanford University, California

THOMAS C. SCHELLING, University of Maryland, College Park

THEODORE TOMASI, University of Delaware, Newark

WSTB Liaison

HENRY J. VAUX, JR., University of California, Riverside

Staff

STEPHEN D. PARKER, Study Director (September 1994 through January

1996)

SHEILA D. DAVID, Study Director (January 1996 through April 1997)

ETAN GUMERMAN, Project Coordinator (September 1994 through October

1996)

MARY BETH MORRIS, Senior Project Assistant (September 1994 through

July 1996)

ELLEN A. DE GUZMAN, Project Assistant (July 1996 through April 1997)

Consultant

JOEL DARMSTADTER, Resources for the Future (September 1994 through

June 1996)

Copyright © National Academy of Sciences. All rights reserved.

Valuing Ground Water: Economic Concepts and Approaches

http://www.nap.edu/catalog/5498.html
iv PREFACE

iv

WATER SCIENCE AND TECHNOLOGY BOARD

DAVID L. FREYBERG, Chair, Stanford University, California

BRUCE E. RITTMANN, Vice Chair, Northwestern University, Evanston,

Illinois

LINDA ABRIOLA, University of Michigan, Ann Arbor

JOHN BRISCOE, The World Bank, Washington, D.C.

WILLIAM M. EICHBAUM, The World Wildlife Fund, Washington, D.C.

WILFORD R. GARDNER, University of California, Berkeley

EVILLE GORHAM, University of Minnesota, St. Paul

THOMAS M. HELLMAN, Bristol-Myers Squibb Company, New York, New

York

CHARLES D. D. HOWARD, Charles Howard and Associates, Ltd., Victoria,

British Columbia

CAROL A. JOHNSTON, University of Minnesota, Duluth

WILLIAM M. LEWIS, JR., University of Colorado, Boulder

JOHN W. MORRIS, J.W. Morris, Ltd., Arlington, Virginia

CHARLES R. O’MELIA, The Johns Hopkins University, Baltimore, Maryland

REBECCA T. PARKIN, American Public Health Association, Washington,

D.C.

IGNACIO RODRIGUEZ-ITURBE, Texas A&M University, College Station

FRANK W. SCHWARTZ, Ohio State University, Columbus

HENRY J. VAUX, JR., University of California, Riverside

Staff

STEPHEN D. PARKER, Director

SHEILA D. DAVID, Senior Staff Officer

CHRIS ELFRING, Senior Staff Officer

JACQUELINE A. MACDONALD, Senior Staff Officer

GARY D. KRAUSS, Staff Officer

JEANNE AQUILINO, Administrative Associate

ANITA A. HALL, Administrative Assistant

ANGELA F. BRUBAKER, Research Assistant

ELLEN A. DE GUZMAN, Project Assistant

Copyright © National Academy of Sciences. All rights reserved.

Valuing Ground Water: Economic Concepts and Approaches

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PREFACE v

v

COMMISSION ON GEOSCIENCES, ENVIRONMENT, AND

RESOURCES

GEORGE M. HORNBERGER, Chair, University of Virginia, Charlottesville

PATRICK R. ATKINS, Aluminum Company of America, Pittsburgh,

Pennsylvania

JAMES P. BRUCE, Canadian Climate Program Board, Ottawa, Ontario

WILLIAM L. FISHER, University of Texas, Austin

JERRY F. FRANKLIN, University of Washington, Seattle

THOMAS E. GRAEDEL, Yale University, New Haven, Connecticut

DEBRA KNOPMAN, Progressive Foundation, Washington, D.C.

KAI N. LEE, Williams College, Williamstown, Massachusetts

PERRY L. McCARTY, Stanford University, California

JUDITH E. McDOWELL, Woods Hole Oceanographic Institution,

Massachusetts

RICHARD A. MESERVE, Covington & Burling, Washington, D.C.

S. GEORGE PHILANDER, Princeton University, New Jersey

RAYMOND A. PRICE, Queen’s University at Kingston, Ontario

THOMAS C. SCHELLING, University of Maryland, College Park

ELLEN SILBERGELD, University of Maryland Medical School, Baltimore

VICTORIA J. TSCHINKEL, Landers and Parsons, Tallahassee, Florida

E-AN ZEN, University of Maryland, College Park

Staff

STEPHEN RATTIEN, Executive Director

STEPHEN D. PARKER, Associate Executive Director

MORGAN GOPNIK, Assistant Executive Director

GREGORY SYMMES, Reports Officer

SANDI FITZPATRICK, Administrative Associate

MARQUITA SMITH, Administrative Assistant/Technology Analyst

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vi

The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research,

dedicated to the furtherance of science and technology and to their use for the

general welfare. Upon the authority of the charter granted to it by the Congress in

1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Bruce M. Alberts is president of the

National Academy of Sciences.

The National Academy of Engineering was established in 1964, under the

charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of

its members, sharing with the National Academy of Sciences the responsibility

for advising the federal government. The National Academy of Engineering also

sponsors engineering programs aimed at meeting national needs, encourages

education and research, and recognizes the superior achievements of engineers.

Dr. William A. Wulf is president of the National Academy of Engineering.

The Institute of Medicine was established in 1970 by the National Academy

of Sciences to secure the services of eminent members of appropriate professions

in the examination of policy matters pertaining to the health of the public. The

Institute acts under the responsibility given to the National Academy of Sciences

by its congressional charter to be an adviser to the federal government and, upon

its own initiative, to identify issues of medical care, research, and education. Dr.

Kenneth I. Shine is president of the Institute of Medicine.

The National Research Council was organized by the National Academy of

Sciences in 1916 to associate the broad community of science and technology

with the Academy’s purposes of furthering knowledge and advising the federal

government. Functioning in accordance with general policies determined by the

Academy, the Council has become the principal operating agency of both the

National Academy of Sciences and the National Academy of Engineering in

providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the

Institute of Medicine. Dr. Bruce M. Alberts and Dr. William A. Wulf are chairman and vice chairman, respectively, of the National Research Council.

Copyright © National Academy of Sciences. All rights reserved.

Valuing Ground Water: Economic Concepts and Approaches

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Preface

vii

Ground water, while providing much of the nation’s supplies of water for

domestic, industrial, and agricultural purposes, is surprisingly underappreciated

and usually undervalued. Water managers at various levels of government are

faced with an array of decisions involving development, protection, and/or

remediation of ground water resources. Examples of questions basic to such

decisions at the local level include:

(1) Should ground water be used singly or in conjunction with surface water

supplies to meet increasing water usage requirements?

(2) Should a comprehensive water conservation program be implemented in

order to extend the availability of ground water and minimize or preclude ground

water depletion?

Examples of questions basic to decisions at the state or federal level include:

(1) Are the benefits of ground water protection programs greater than their

costs, and how should such wellhead protection efforts be funded?

(2) How should ground water remediation projects be prioritized given that

the costs of remedial actions typically far exceed available funding? Should the

value of ground water resources be considered in deciding if remediation efforts

should be undertaken at a site?

Valuation of ground water resources is critical in determining an efficient

outcome in each of these examples as well as many other ground water development, protection, and/or remediation projects, programs, or policy decisions.

However, the ground water resource, a non-market good, is difficult to value;

Copyright © National Academy of Sciences. All rights reserved.

Valuing Ground Water: Economic Concepts and Approaches

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viii PREFACE

and, as a result, economic valuation and future considerations have historically

played almost no part in decision making.

The fundamental need to value natural resources was recognized in a 1990

report of the Science Advisory Board (SAB) of the U.S. Environmental Protection Agency (EPA, 1990). Based on the review of comparative risk assessments

of environmental problems, a committee of 39 distinguished scientists, engineers, and other experts drawn from academia, state government, industry, and

public interest groups developed ten recommendations; of relevance to this report

is Recommendation 10—EPA should develop improved methods to value natural

resources and to account for long-term environmental effects in its economic

analyses (EPA, 1990).

In 1994 the U.S. Environmental Protection Agency requested that the National Research Council (NRC) appoint a committee to study approaches to assessing the future economic value of ground water, and the economic impact of

the contamination or depletion of these resources. This committee was appointed

in 1994 under the auspices of the NRC’s Water Science and Technology Board.

The committee was charged to:

(1) review and critique various approaches for estimating the future value of

uncontaminated ground water in both practice and in theory;

(2) identify areas in which existing approaches require further development

and promising new approaches which might be developed;

(3) delineate the circumstances under which various approaches would be

preferred in practice for various applications of decision making regarding longterm resource use and management;

(4) outline legislative and policy considerations in connection with the use and

implementation of recommended approaches, and related research needs; and

(5) illustrate, through real or hypothetical case examples, how recommended

procedures would be applied in practice for representative applications.

Due to the relevance of the committee charge to other public interest groups

and agencies, three other sponsors provided financial support for this NRC study

in addition to EPA: the National Water Research Institute, the U.S. Department

of Defense, and the U.S. Department of Energy.

The focus of the study on ground water valuation and the composition of the

committee established the need for economists to work with ground water experts. Disciplines represented on the committee included agricultural economics,

environmental engineering, hydrogeology, microbiology, public policy, resource

economics, and water law. The members were drawn from academia, private

consultants, and water management positions in local government.

While the assignment was challenging, the committee quickly agreed on

three matters that provided its starting points. First, an interdisciplinary approach

is necessary for ground water valuation studies. Second, when valuing ground

water, the in situ and ecological services must be recognized along with the more

Copyright © National Academy of Sciences. All rights reserved.

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PREFACE ix

obvious extractive services. Finally, it was recognized that common terminology

was not available as a foundation for this study. Thus concepts and principles

from environmental economics and ground water management had to be appropriately integrated to provide a basis for the work of the committee.

The committee has completed its task and, in so doing, has received considerable assistance from the NRC staff. Accordingly, on behalf of the committee,

I wish to express our thanks to the following persons: Sheila David, Study Director; Etan Gumerman, Project Coordinator; Mary Beth Morris, Project Assistant;

Ellen de Guzman, Project Assistant; Joel Darmstadter, Consultant; and Steve

Parker, Director of the Water Science and Technology Board (WSTB). In addition, Henry Vaux, WSTB member and liaison to this committee, provided both

helpful guidance and technical input.

Finally, I wish to express my appreciation to all committee members for their

willingness to discuss new concepts from an interdisciplinary perspective, to

prepare and revise materials for this report, and to strive for consensus-building

on key issues. We have all learned from this process!

Larry W. Canter,

Chairman

Reference

U.S. EPA. 1990. Reducing Risk: Setting Priorities and Strategies for Environmental Protection,

Science Advisory Board, Relative Risk Reduction Strategies Committee, U.S. EPA, Washington, D.C.

Copyright © National Academy of Sciences. All rights reserved.

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xx ACKNOWLEDGMENTS PREFACE

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PREFACE xi

Contents

xi

EXECUTIVE SUMMARY 1

1 INTRODUCTION AND BACKGROUND 13

The Ground Water Valuation Dilemma in Brief, 13

Context for Ground Water Valuation, 14

The Role of the NRC, 28

References, 29

2 GROUND WATER RESOURCES: HYDROLOGY,

ECOLOGY, AND ECONOMICS 31

Hydrological Concepts, 31

The Economics of Ground Water Use, 37

Ground Water Quality, 41

Recommendations, 45

References, 46

3 A FRAMEWORK FOR THE VALUATION OF GROUND WATER 47

Some Preliminaries, 48

Services Provided by Ground Water, 58

The Conceptual Framework, 60

Recommendations, 65

References, 66

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xii CONTENTS

4 ECONOMIC VALUATION OF GROUND WATER 68

History of Economic Valuation of Natural/Environmental Resources, 68

The Economic Approach to Valuation, 70

Methods for Estimating the Economic Value of Natural/Environmental

Resources, 73

Current Knowledge of Ground Water Values, 86

Conclusions and Recommendations, 99

References, 101

5 LEGAL CONSIDERATIONS, VALUATION, AND GROUND

WATER POLICY 105

Valuation and Ground Water Allocation, 106

Valuation and Ground Water Quality Protection, 114

Changing Environmental Priorities: Policy Dimensions of

Ground Water Valuation, 118

Legal Issues in Redefining Ground Water Rights, 121

Reducing Risk and Valuing Ground Water, 122

Research Needs, 122

Recommendations, 125

References, 125

6 CASE STUDIES 127

Challenges in Water Quality Management, Treasure Valley,

Oregon, 130

Competing Uses of an Aquifer, Laurel Ridge, Pennsylvania, 133

The Buffer Value of Ground Water, Albuquerque, New Mexico, 136

The Buffer Value of Ground Water, Arvin-Edison Water Storage

District, Southern California, 140

The Value of Averting Sea Water Intrusion, Orange County,

California, 142

Incorporating the Value of Ground Water in Superfund

Decision-Making, Woburn, Massachusetts, 149

Applying Ground Water Valuation Techniques, Tucson, Arizona, 153

Lessons Learned, 164

APPENDIXES

A GLOSSARY 169

B A PORTION OF A SAMPLE CONTINGENT VALUE

METHOD QUESTIONNAIRE 174

C BIOGRAPHICAL SKETCHES OF COMMITTEE MEMBERS 177

INDEX 183

Copyright © National Academy of Sciences. All rights reserved.

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Valuing

Ground Water

Copyright © National Academy of Sciences. All rights reserved.

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Valuing Ground Water: Economic Concepts and Approaches

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EXECUTIVE SUMMARY 1

1

5

5

Executive Summary

Ground water in the United States is usually considered as either an invaluable good or as a “free” good. At one extreme, the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA or Superfund) implies

a very high value for ground water by requiring restoration of contaminated water

sources to drinking water quality. Billions of dollars have been spent to clean up

contaminated ground water with little comparison of costs or technological difficulty to future benefits. At sites where cleanup is technically infeasible, the

Superfund law essentially assigns an infinite value to the resource.

At the other extreme, historically, ground water has been priced well below

its value and, as a consequence, misallocated. In many states and localities, no

charge is imposed for water withdrawn, and the consumer, whether a public

water supply entity, an individual, or a firm regards the cost as being confined to

the energy used for pumping and the amortization of well construction and the

costs of the treatment and distribution system. As a result, depletion and pollution continue largely because it is not recognized that ground water has a high or

long-term value. Further, the Environmental Protection Agency’s Science Advisory Board (SAB) report Reducing Risk (1990) has been perceived as not properly valuing ground water. The report neglects the uniqueness of the ground

water resource and the often irreversible nature of ground water depletion and

pollution, implying that declines in ground water quality and quantity need not be

major concerns.

Such undervaluation of ground water fosters misallocation of resources in

two ways: (1) the ground water resource is not efficiently allocated relative to

alternative current and future uses; and (2) authorities responsible for resource

Copyright © National Academy of Sciences. All rights reserved.

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2 VALUING GROUND WATER

management and protection devote inadequate attention and funding to maintaining ground water quality.

In 1994, recognizing the need for better methods and informed decisionmaking in this area, the U.S. Environmental Protection Agency, the National

Water Research Institute, the U.S. Department of Energy, and the U.S. Department of Defense requested that the National Research Council undertake this

study. This study examines approaches to assessing the future economic value of

ground water as well as the economic impact of contaminating or depleting this

resource. Key points addressed include the minimal historical attention given to

ground water valuation in general, and specific methods that can be used to

perform such valuation studies.

Until the last few decades, attention, even in natural resource and environmental economics, has been given primarily to the effects of exploiting natural

resource assets such as extractive minerals, land and timber, ocean fisheries, and

surface water resources. The economic value of unique natural and environmental resources, such as wetlands and other ecosystems, has more recently been

considered. Most ground water studies to date have focused only on the valuation of limited production-related services provided by ground water, and not on

a more comprehensive view of production and ecological services.

A fundamental step in valuing a ground water resource is recognizing and

quantifying the resource’s total economic value (TEV). Knowing the resource’s

TEV is crucial for determining the net benefits of policies and management

actions. For purposes of this study, ground water services have been divided into

two basic categories: extractive services and in situ services. Each of these has an

economic value, and these values can be summed to yield TEV as follows:

TEV = extractive value + in situ value

The most familiar of these two components are the extractive values, which are

derived from the municipal, industrial, commercial, and agricultural demands

met by ground water. The in situ services (i.e., services or values that occur or

exist as a consequence of water remaining in place within the aquifer) include, for

example, the capacity of ground water to (1) buffer against periodic shortages in

surface water supplies; (2) prevent or minimize subsidence of the land surface

from ground water withdrawals; (3) protect against sea water intrusion; (4) protect water quality by maintaining the capacity to dilute and assimilate ground

water contaminants; (5) facilitate habitat and ecological diversity; and (6) provide discharge to support recreational activities. The committee’s calculation of

TEV as the sum of extractive and in situ values can also be expressed by using

concepts which often appear in the environmental economics literature. The

relationship between those concepts and the ones in this report has been defined

in Chapter 1. The committee developed the taxonomy in Chapter 1 so that its use

will lead to greater potential for interdisciplinary work on the neglected service

areas.

Copyright © National Academy of Sciences. All rights reserved.

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EXECUTIVE SUMMARY 3

It is important to recognize the TEV of ground water even when one cannot

develop specific quantitative separations of the various components. In fact,

delineations of what can and cannot be quantified can be useful both to decisionmakers for either development or remediation projects, and to researchers seeking to advance conceptual and methodological approaches. Descriptive information or surrogate quantitative measures that are not monetized may be the only

information that can be assembled on some TEV components.

In many circumstances even a partial or inexact measurement of TEV can

greatly aid decision-making by providing insight into how TEV changes with a

policy or management decision. In some cases, the measurement of use values

alone, or extractive services alone, can reveal substantial information on how the

resource’s TEV would be affected by a policy decision. In other circumstances,

these limited measures may fail if they provide only a small portion of the

components of TEV that would be altered.

GROUND WATER RESOURCES:

HYDROLOGY, ECOLOGY, AND ECONOMICS

Valuation of the extractive and in situ services of ground water requires an

understanding of the hydrology and ecology of the ground water source. Hydrologic information includes numerous factors such as rainfall, runoff, infiltration,

and water balance data; depth to ground water; whether the water-bearing zone is

confined or unconfined; ground water flow rates and direction; and type of vadose and water-bearing zone materials. The contribution of ground water to

stream base flow and the relationships between ground water and wetland and

lake ecosystems are also important.

Knowing natural recharge rates and spatial locations, along with ground

water usage rates and trends, is also necessary in water balance calculations and

the consideration of ground water depletion. Depending upon the location, relationships between sea water or saline water intrusion and ground water use may

also need to be established. Land subsidence can occur in some areas if ground

water use is excessive, causing major problems with infrastructure components

such as building foundations, roads, sewers, and water and utility lines. The

effect of subsidence on flooding (especially) in coastal areas may also be significant. All these should be considered in valuing a ground water resource.

Some ground water supplies can be viewed as nonrenewable because of the

long time-frame required to replenish them. Depletion of ground water (including overdrafting and mining) in deep aquifers, for instance, is essentially irreversible. Therefore, because ground water is a unique and potentially exhaustible

resource vital to future generations, the costs of valuation studies may be recovered by assisting in the protection of ground water. Without planning and protection of ground water, the resource may not be available to support future generations.

Copyright © National Academy of Sciences. All rights reserved.

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4 VALUING GROUND WATER

In other circumstances ground water overdraft can be economically efficient

and socially beneficial in the short term. For all aquifers, a “steady state” should

eventually be reached in which withdrawals are limited to recharge. The level at

which this steady state is to be maintained is a matter of choice. During times of

drought when surface supplies are scarce, temporary overdraft may be justified,

with a subsequent reduction in use of the aquifer to let it recharge. The level

would then fluctuate around some average steady state condition.

The tendency for ground water to be treated as an “open access” resource

when it is exploited underscores the importance of well-defined, clearly enforceable rights to extract or obligations to protect ground water. In instances where

these rights are not defined and enforceable, the availability of ground water is

subject to the “law of capture,” in which whoever gets to the water first gets first

rights to it. If ground water is subject to the law of capture, then the benefits of

protection, remediation, and enhancement investments will also be subject to the

law of capture. This results in less than optimal investment in the preservation

and enhancement of ground water quality, since those investing in such measures

cannot reap all of the benefits. (Associated legal and institutional questions are

discussed beginning on page 10.)

Treating environmental systems as economic assets that provide goods and

services has become an established approach in environmental economics.

Ground water systems create ecological services by providing discharge for the

maintenance of stream flows and to wetlands and lakes. These discharges support general ecological functions that provide their own services of economic

value. For example, discharge to aquatic ecosystems may aid preservation of

threatened or endangered species and support downstream uses of water for

drinking or irrigation. (Many flowing streams in the southwest U.S., for example,

have gone dry after nearby aquifers were drawn on too heavily.) Ground water

provides a “derived” value through its contributions to the larger environment.

While the valuation of a given ground water resource may be complex,

several simple principles may be applied to almost any valuation problem:

• Because ground water resources are finite, decision-makers should

take a long-term view in all decisions regarding valuation and use of these

resources, proceeding very cautiously with any actions that would lead to an

irreversible situation regarding ground water use and management. Ground

water depletion, for instance, is often irreversible. Some aquifers do not

recharge quickly. Moreover, overdrafting can sometimes lead to a collapse

of the geologic formation, permanently reducing the aquifer’s storage capacity.

• Decision-makers should also be cautious regarding contamination of

ground water. Restoration of contaminated aquifers, even when feasible, is

resource-intensive and time-consuming. Restoration methods are uncertain

and unlikely to improve significantly in the near future. As a result, it is

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EXECUTIVE SUMMARY 5

almost always less expensive to prevent ground water contamination than to

clean it up.

• Ground water often makes significant contributions to valuable ecological services. For example, in the Southwest, many flowing streams have

been eliminated by overpumping. Because the ground water processes that

affect ecosystems and base stream flow are not well understood, combined

hydrologic/ecologic research should be pursued to clarify these connections

and better define the extent to which changes in ground water quality or

quantity contribute to the change in ecologic values.

• Ground water management entities should consider appropriate policies such as pump taxes or quotas to ensure that the cost of using the water

now rather than later is accurately accounted for by competing pumpers.

VALUATION FRAMEWORK

One of the major challenges in valuing ground water is how to integrate the

hydrologic and physical components of ground water resources into a valuation

scheme. An appropriate conceptual basis for valuation identifies service flows as

the central link between economic valuation and ground water quality and quantity.

Every generation should be concerned about the supply and quality of fresh

water, and about who has access to it, at what cost. Defining the best long-term

management of the resource requires balancing the needs of the present with

those of the future. In theory, the balancing is done everyday by markets as

reflected in the discount rate. However, many citizens, policy-makers, and scientists believe that the discount rate does not adequately consider the value of

goods or services for future generations.

Discounting is a procedure that adjusts for future values of a particular good

by accounting for time preferences. Higher discount rates, which give less weight

to future net benefits, encourage present use and deter present investments. The

market rate of interest will also influence individual and corporate decisions

regarding resource extraction. Public entities can choose the discount rate they

prefer, and much has been written about these choices. The discount rate a water

utility employs when valuing ground water reflects perceptions of risk, returns,

and possibly intergenerational equity. A high discount rate implicitly places a

low value on the water’s value to future generations. A low rate implies the

opposite.

A valuation framework must take into account how time, institutions, water

quality and quantity, hydrologic factors, and services interact to affect the

resource’s value. This necessity has several important implications:

• As noted earlier, some knowledge of a resource’s TEV is vital to the

work of water managers, and in the development of policies dealing with

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6 VALUING GROUND WATER

allocation of ground water and surface water resources. For many purposes, the full TEV need not be measured, but in all cases where a substantial portion of the TEV will be altered by a decision or policy, that portion

should be measured.

• Policy-makers must recognize the impact that a utility’s choice of a

discount rate can have on ground water management decisions. Ideally, the

discount rate should give adequate weight to long-term considerations.

• An interdisciplinary approach, such as the conceptual model presented in Chapter 3, is useful in conducting a ground water value assessment. The approach should incorporate knowledge from the economic,

hydrologic, health, and other social, biological, and physical sciences. Assessments should be site specific and integrate information on water demands with information on recharge and other hydrologic concerns, and to

the extent possible should reflect the uncertainties in both the economic

estimates of the demand for ground water and in the hydrologic and biophysical relationships.

VALUATION METHODS

Ground water services are difficult to value because much of the information

needed for valuation is not readily available. Market trades can provide data

useful in valuation, for instance, but most of the services provided by ground

water are not traded on markets. However, techniques do exist for valuing

nonmarket goods.

Economic value is not a fixed, inherent attribute of a good or service but rather

depends on time, circumstances, and individual preferences. The economic value

of a good or service can be inferred either from someone’s willingness to pay

(WTP) or willingness to accept compensation (WTA) for giving it up.

Several taxonomies have been developed to categorize the types of economic values associated with natural resources, such as a ground water system.

One taxonomy distinguishes between use values, which are determined by the

contribution of a resource to current or future production and consumption, and

nonuse values, which typically refers to aesthetic or contemplative values arising

from goods and services. The critical distinction for decision-making is between

goods and services whose economic values are fully captured in market prices

and those whose value is not thus captured.

Applicability of Valuation Methods

One prominent technique that attempts to measure total value, including use

and nonuse values, is the contingent valuation method (CVM). CVM values are

elicited directly from individuals (via interviews or questionnaires (see Appendix

B)) in the form of statements of maximum WTP or minimum WTA compensaCopyright © National Academy of Sciences. All rights reserved.

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EXECUTIVE SUMMARY 7

tion for hypothetical changes in environmental goods, such as ground water

quantity or quality. The CVM can be applied to both ground water use and

nonuse values. There are numerous methodological controversies associated

with application of CVM, including how the hypothetical ground water change

that people are being asked to value is to be specified, the elicitation format for

asking valuation questions, the appropriate measure to be elicited (i.e., WTP or

WTA), and various types of response biases.

The advantage of the contingent valuation method, however, is that it allows

analysts to focus precisely on the total resource attribute (e.g., quantity or quality

changes) to be valued. CVM provides reliable estimates of value when an individual has a close connection to the resource being valued. When there is a large

nonuse component to the TEV being elicited, application of CVM is difficult,

making it one of the most controversial areas in the valuation literature. CVM

practitioners believe that it is the only method capable of capturing a substantial

part of value when nonuse value is a large part of the TEV. However, the

continuing controversy over both the theoretical validity and the practicality of

CVM-based studies of nonuse values raises questions regarding its use in natural

resource damage assessments and litigation situations. Table 1.6 in Chapter 1

and Table 4.5 in Chapter 4 compare the advantages and disadvantages of CVM

along with other valuation methods.

In contrast to direct elicitation via CVM or some other stated preference

technique, economists also have developed indirect methods (e.g., hedonic price

models), which infer values from other behaviors associated with the good. A

strength of indirect methods is that they rely on observed behaviors of producers

and consumers. Examples of observed behaviors, such as how much water is

applied in irrigation or as drinking water at a given cost, expenditures on water

purification systems, or how much people will spend to travel to a recreational

resource, help to establish a water resource’s value. However, because indirect

approaches generally measure only one component of the TEV (use value) and in

some cases require large amounts of data, care must be taken when employing

them.

In any case, for valid and reliable results to be obtained, the valuation method

must be well-matched to the context and the ground water function/service of

interest. (Chapter 4, Table 4.5 provides a summary of potential matches.) Methods for valuing the quality of drinking water include cost of illness, averting

behavior, contingent valuation, and conjoint analysis (e.g., contingent ranking or

behavior).

Uncertainty

The decision-maker attempting to value ground water faces significant uncertainties regarding hydrologic, institutional, economic, and human health aspects of ground water management. One source of uncertainty lies with the

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8 VALUING GROUND WATER

problem of predicting the consequences of environmental policies and actions. A

related set of challenges stems from the difficulty of assessing ground water

benefits in the future and the irreversible nature of some present ground water

management decisions and impacts. Economic uncertainties regarding nonmarket

goods and services are even more substantial because there is no accurate documentation of monetary values when markets are absent.

The notion of risk contrasts with uncertainty. Risk characterizes situations

about which there are a known set of probabilities. By contrast, uncertainty

characterizes situations in which the probabilities are incompletely known or

unknown. Techniques of risk analysis can be customarily applied to characterize

risky situations analytically. One method of accounting for risk involves addition

of “risk premiums” to the discount rate. The size of the “risk premium” varies

directly with the degree of risk. The concept of risk is extremely important in

analyzing the potential costs associated with degraded water quality.

A careful consideration of these valuation factors leads to several conclusions:

• For valid and reliable results to be obtained, the valuation method

must be well-matched to the context and the ground water function or service of interest.

• It is hard to make generalizations about the validity and reliability of

specific valuation approaches in the abstract. The validity of the approach

depends on the valuation context and the type of ground water services that

are of interest. Different approaches are needed to value different services;

care must be taken not to double-count values associated with different

services.

• Previous ground water valuation studies have focused primarily on a

small part of the known ground water functions and services (identified in

Chapter 3). Thus, the current empirical knowledge of the values of ground

water is quite limited and concentrated in a few areas, such as extractive

values related to drinking water use.

• The contingent valuation method (CVM), when used correctly, has

the potential for producing reliable estimates of ground water use values in

certain contexts. CVM has the advantage of allowing analysts to focus precisely on the total value of a resource attribute, compared to the results from

other indirect approaches that generally fail to capture total economic value.

However, few, if any, studies to date meet the stringent conditions, as established by a NOAA panel of Nobel-Laureate economists, that are required to

produce defensible estimates of nonuse values. More research is needed to

compare use values from CVM with those of other methods to determine

whether CVM will consistently yield reliable estimates.

• Given the problems in using CVM to measure ground water values,

EPA and other appropriate government agencies should encourage ways of

enhancing the utility of CVM. For example, contingent ranking or behavior

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EXECUTIVE SUMMARY 9

methods may be useful in improving the robustness of CVM estimates and

may expand the potential for transferring existing CVM estimates to other

empirical settings.

• If data are available and critical assumptions are met, indirect valuation methods (e.g., travel cost method (TCM), hedonic price method (HPM),

averting behavior) can produce reliable estimates of the use value of ground

water.

• The EPA, and other federal agencies as appropriate, should develop

and test other valuation methods for addressing the use and nonuse values of

ground water, especially the ecological services provided by ground water.

• Technical, economic, and institutional uncertainties should be considered and their potential influence delineated in ground water valuation

studies. Research is needed to articulate such uncertainties and their potential influence on valuation study results.

• Ground water values obtained from both indirect and direct methods

are dependent on the specific ground water management context. Attempts

to generalize about or transfer values from one context to another should be

pursued with caution.

• If data are available and critical assumptions are accurate, traditional valuation methods such as cost of illness, demand analysis, and production cost can be used for many ground water management decisions that

involve use values. Such methods offer defensible estimates of what are

likely to be the major benefits of ground water services.

• The pervasiveness and magnitude of nonuse values for ground water

is uncertain. Few and limited studies have been conducted, and little reliable

evidence exists from which to draw conclusions about the importance of

nonuse values for ground water. Additional research is needed to document

the occurrence and size of nonuse values for ground water systems.

• What is most relevant for decision-making regarding ground water

policies or management is knowledge of how the TEV of ground water will

be affected by a decision. Pending documentation of large and pervasive

nonuse values for ground water, it is likely that in many, but not all, circumstances, measurement of use values or extractive values alone will provide a

substantial portion of the change in TEV relevant for decision-making.

• In some circumstances the TEV is likely to be largely composed of

nonuse values. At the current time, pending documentation of large and

pervasive nonuse values for ground water systems, this appears to be most

likely when ground water has a strong connection to surface water and a

decision will substantially alter these service flows. In these situations, focusing on use values alone could seriously mismeasure changes in TEV and

will ill serve decision-making. Decision-makers should approach valuation

with a careful regard for measurement of TEV using direct techniques that

can incorporate nonuse values.

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10 VALUING GROUND WATER

LEGAL CONSIDERATIONS, VALUATION, AND

GROUND WATER POLICY

The last two decades have brought changes in emphases in both technical

and institutional issues related to ground water management. Due to society’s

misplaced perceptions of ground water’s “pure” natural quality, there has been

overemphasis over several decades on ground water quantity issues rather than

quality issues. This has included the magnitude of water supplies being developed and associated costs. Quality considerations were mainly related to chlorides, nitrates, and the need for disinfection prior to human consumption. Since

the mid-1970s increasing attention has been given to deteriorations in ground

water quality. With ground water issues becoming more complex, the incorporation of economic valuation of ground water and other natural resources in decision-making takes on more urgency. This is especially true where a resource

supports an ecosystem of national significance that not all citizens may be in

contact with but still want protected (e.g., the Everglades or the Grand Canyon).

Sixteen federal laws relate directly or indirectly to ground water management. Key laws include the Clean Water Act (CWA), Safe Drinking Water Act

(SDWA), Resource Conservation and Recovery Act (RCRA), Comprehensive

Environmental Response, Compensation, and Liability Act (CERCLA, or

Superfund), and Superfund Amendments and Reauthorization Act (SARA). The

SDWA addresses the quality of public drinking water supplies and ground water

protection. The CWA addresses pollution control, while RCRA relates to waste

disposal sites and underground storage tanks. Soil and ground water remediation

are the subjects of the Superfund laws (CERCLA and SARA). Numerous state

and local laws also address ground water usage (quantity allocations) and quality

via numerical standards or descriptive criteria. These multiple laws and regulatory agency overlaps can create conflicts regarding ground water usage, quality

protection, and/or remediation responsibility.

Command-and-control approaches have historically dominated pollution

control in environmental quality laws. More recently, market-based considerations, incentives for pollution prevention, and risk management have been advanced as additional components in environmental management, including the

management of ground water. Many of these recent environmental management

approaches include consideration of some economic issues, including program or

project costs and benefits.

Water marketing (the buying and selling of water rights) has emerged as a

valuable policy alternative for allowing water allocation laws to efficiently respond to all water use demands. Theory suggests that where price reflects the

TEV, reliance on water marketing is a more efficient way to allocate scarce

resources.

On a national level, regulatory impact assessment has been used to address

some economic issues. For example, President Reagan initiated a formal balancing of the benefits of environmental protection and regulatory compliance costs

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EXECUTIVE SUMMARY 11

through Executive Order 12291, which required EPA and other agencies to prepare benefit-cost analyses for any proposed regulations imposing public and

private costs of at least $100 million annually. Presidents Bush and Clinton

issued similar Executive Orders. Current congressional interests include expanded use of risk assessments coupled with economic evaluations for both programs and projects.

At times, specific legislative mandates or principles may take precedence

over the consideration of economic valuation information or benefit-cost analyses. Most federal environmental, health, and safety programs contain program

requirements that are unfunded mandates. Accurate information regarding ground

water values would make unfunded mandate regulatory reviews better relative to

evaluation of the economic and environmental trade-offs involved in ground

water protection policies. Historical ground water allocation schemes and water

rights laws are examples, as is the concern over human health effects and their

immediate reduction in the near-term requirements of the Superfund laws.

These institutional considerations suggest several areas of governmental action:

• Federal, state, and local agencies should give consideration to the

TEV of ground water in their deliberations on new or amended legislation or

regulations related to ground water management.

• States should consider the authorization and promotion of water

marketing, including transfer of ground water rights when appropriate.

Although a transition to a market that adequately captures the full value of

the resource may be difficult, water markets provide flexibility in water use

and more efficient allocation of water among uses. Water markets also provide real world prices of water for current use values, and their prices aid

decision-makers in valuing ground water.

• States should be encouraged to develop clear and enforceable rights

to ground water where such rights are either lacking or absent. A system of

clear and enforceable extractive rights to ground water is a prerequisite to

economically efficient use of that water. Without such rights, users lack the

incentive to value ground water appropriately (consideration of the full TEV)

either now or in the future.

• EPA and other pertinent agencies should plan and implement an

integrated and comprehensive research effort on ground water valuation.

Federal agencies should conduct research and develop case studies in ground

water valuation that includes a range of environmental conditions and economic circumstances. In addition, governmental agencies should sponsor

further research jointly with private institutions to develop valuation methods that quantify ecological services and values. The results of such research

will assist states in managing and protecting their ground water resources

and could help to demonstrate improvements that valuation can bring to

decision-making.

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12 VALUING GROUND WATER

CASE STUDY OBSERVATIONS

Chapter 6 contains brief synopses of seven case studies in which ground

water valuation has been or could be used to enhance problem analysis and the

decision-making process. The case studies illustrate different themes associated

with the integration of hydrogeological, ground water usage and economic valuation information in real-world decision contexts. The Treasure Valley, Oregon,

case illustrates the role of ground water in ecological services and how valuation

can be incorporated in the allocation of scarce water supplies. The Laurel Ridge,

Pennsylvania, study focuses on institutional fragmentation and the need for a

watershed approach in ground water valuation and management. A study of

Albuquerque, New Mexico examines the importance of hydrological information

and the interaction of ground and surface waters in developing a long-term sustainable ground water policy. The Arvin-Edson, California, study illustrates the

buffer value of ground water relative to extractive services in an area subject to

surface water drought conditions. The Orange County, California, case study

emphasizes the value of artificial recharge as a means of averting the loss of a

ground water supply due to sea water intrusion. A Woburn, Massachusetts,

example describes the use of benefit-cost analysis to integrate valuation information in a Superfund remediation dilemma. Finally a water supply study for

Tucson, Arizona illustrates planning considerations associated with the valuation

framework in Chapter 3, the methods illustrated in Chapter 4, and the importance

of substitute water supplies.

These case studies offer several lessons, with most of them supportive of

earlier conclusions. Among other things, they show that TEV provides a useful

context for the qualitative recognition and/or quantitative valuation of ground

water services. At the same time, each study is unique, thus limiting opportunities for subsequent benefits transfer analysis; and highlighting the technical, economic, institutional, and political uncertainties characterize the current state-ofthe-art of ground water valuation.

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INTRODUCTION AND BACKGROUND 13

13

1

5

Introduction and Background

THE GROUND WATER VALUATION DILEMMA IN BRIEF

Typically, water in the United States has not been traded in markets. Because of this, there are no market-generated prices or meaningful estimates of the

value that markets would assign to water, if in fact water were a traded good.

This undetermined value for water is most apparent in the case of ground water.

Whatever might have been the historic circumstances, there is no basis today for

our practice of judging the value of ground water to be negligible. All scarce

resources, commodities, and services have value. Ground water is often a scarce

resource, whether judged by the direct use people make of it (for example, as

drinking water) or by its less obvious ecological functions, such as wetlands

maintenance and its contribution to stream flow; or the prevention of land subsidence.

The longer we ignore or distort ground water’s value, the more overused,

degraded, and misallocated the resource becomes. Without price signals or other

indicators of value to help guide policy, we tend to devote too little attention and

funding for resource management and protection of ground water.

Goods or services that are generally not “owned” in the same sense as other

property are often not traded in well-functioning markets. Without such markets,

determining the value of these goods and services becomes more complicated,

and analytical efforts must be made to estimate values. In the case of ground

water, that estimate must account for both the cost of pumping and delivery and

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14 VALUING GROUND WATER

the inherent value of the resource, reflecting its multiple services, the “goods” it

provides and the “costs or hardships” it protects against. In many states and

localities, however, the charge to the user is confined to out-of-pocket costs such

as energy for pumping and amortization of investments in well construction and

costs of treatment and distribution systems. These are necessary components of

the value of ground water. But undervaluation of the resource is inevitable,

principally because there is no widely accepted means of recording users’ or

society’s valuation of those broader use and nonuse attributes.

Improved ground water valuation techniques and estimates could assist water resource management and policy-making in many important ways. For example, an improved ability to weigh alternative water sources or protection strategies should lead to better allocation of scarce Superfund dollars. There is

general agreement that water resource decision-making has focused mainly on an

evaluation of alternative projects primarily by the costs of these projects. However, improved techniques would facilitate the decision-making for cleanup and

protection based on a better standard, one that compares values and benefits of

different ground water sites.

The valuation principles described in this report can be a critical input to but

are distinct from cost-benefit analysis. That is because the estimation of costs

(for example, the infrastructural investment requirements of a municipal water

system) is of secondary concern here. To be sure, certain nonmarket values at

risk on the cost side, such as subsidence, increased salinity from excessive ground

water mining, wetland degradation, and destruction of riparian habitat are relevant. The principal emphasis here is on methods that value the benefits of

ground water.

Ground water valuation concepts and challenges discussed in the following

chapters cut across numerous valuation dilemmas in the natural resources-environmental arena. An example of such similarity and overlap is the problem of

assigning values to surface water. Of course, surface water and its management

provide some unique services (e.g., navigation, power, and flood control) not

applicable to ground water, but many services are common to both surface and

ground water (household use, irrigation, and joint ecological benefits, such as

wetlands maintenance). Moreover, ground and surface water are hydrologically

linked, so that the contamination of one body can migrate to the other. There is

no way to divide up benefits neatly and analyze value simply.

CONTEXT FOR GROUND WATER VALUATION

Trends in Ground Water Use and Protection

Tables 1.1 and 1.2 and Figure 1.1 provide quantitative highlights of trends in

U.S. water use. The growth of withdrawals of ground or surface water from 1950

to 1990, occurred largely during the first 25 years of that time span, substantially

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INTRODUCTION AND BACKGROUND 15

exceeding U.S. population growth in that period. Since 1975 water use has

remained essentially flat. The U. S. Geological Survey (USGS) singles out three

factors to account for that level trend. First, higher energy prices and declines in

farm commodity prices in the 1980s reduced the demand for irrigation water and

spurred the introduction of more efficient pumping technologies. In addition,

pollution control regulations encouraged recycling and reduced discharge of pollutants, thereby decreasing water requirements in the industrial sector. And more

generally, the public became increasingly concerned about conservation (Solley

et al., 1993). No doubt the slowdown in development of new hydroelectric

capacity in the United States contributed as well. However, the USGS does not

identify water pricing as a factor in the deceleration of water use, though higher

energy prices would have constituted an indirect disincentive to consumption.

Ground water is the predominant source of water supply for rural areas in the

United States, primarily for agriculture and domestic use. In 1985 ground water

provided drinking water for more than half the U.S. population and 97% of the

rural population (Moody, 1990). As Table 1.1 indicates, agriculture (irrigation

TABLE 1.1 Withdrawals of Water, by Type and Category of Use, 1990

Percent of

Million gals. per day Total U.S. Ground or Surface

U.S. Total 408,000 100.0

Ground water, total 80,620 19.8 100.0

Public supply 15,100 3.7 18.7

Domestic 3,260 0.8 4.0

Commercial 908 0.2 1.1

Irrigation 51,000 12.5 63.3

Livestock 2,690 0.7 3.3

Industrial 3,960 1.0 4.9

Mining 3,230 0.8 4.0

Thermoelectric 525 0.1 0.7

Surface water, total 327,000 80.1 100.0

 Public supply 23,500 5.8 7.2

 Domestic 132 0.0 0.0

 Commercial 1,480 0.4 0.5

 Irrigation 85,500 21.0 26.1

 Livestock 1,800 0.4 0.6

 Industrial 18,600 4.6 5.7

 Mining 1,718 0.4 0.5

 Thermoelectric 194,500 47.7 59.5

SOURCE: Compiled from Solley et al., 1993. Because of rounding, individual items may not add

precisely to totals.

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16 VALUING GROUND WATER TABLE 1.2 Trends of Estimated Water Use in the U.S., 1950-90 Average annual % rate of change 1950 1955 1960 1965 1970 1975 1980 1985 1990 1950-75 1975-90 Population (mill.) 150.7 164.0 179.3 193.8 205.9 216.4 229.6 242.4 252.3 1.5 1.0 Withdrawals (bill. gals. per day) 180 240 270 310 370 420 440 399 408 3.4 −0.2 Ground 34 48 50 60 69 83 84 74 81 3.6 −0.2 Surface 150 198 221 253 303 329 361 325 327 3.2 −0.0 SOURCE: Compiled from Solley et al. (1993). Because total withdrawals were rounded off, the ground and surface numbers do not add precisely to totals.

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INTRODUCTION AND BACKGROUND 17

and livestock) uses approximately two-thirds of the total ground water withdrawn

in the United States, with public supply (including domestic withdrawals) accounting for nearly a quarter of the total.

In the late 1970s and early 1980s, the U.S. Environmental Protection Agency

(EPA) began to direct attention toward ground water pollution studies, emphasizing the identification and evaluation of pollution sources and source categories

and subsurface transport and fate processes for both inorganic and synthetic

organic chemicals. Also in the early 1980s, the inception of the Superfund

program brought attention to the need to clean up contaminated soil and ground

water and led to major remediation programs by EPA and the Departments of

Defense and Energy. In 1984 EPA adopted a ground water protection strategy

that focused on land use planning, engineering control measures, and management practices that could be used to prevent ground water contamination and thus

protect ground water quality.

The Safe Water Drinking Act of 1986 included a wellhead protection program to further encourage such pollution prevention efforts by state and local

governments. EPA has continued to promulgate policies and related guidance to

stress the importance of protecting renewable ground water resources from contamination and thus minimize the need for remediation efforts (U.S. EPA, 1991).

Ground Water Valuation Terminology

The inherently interdisciplinary nature of the ground water valuation problem becomes obvious in the confusion about terminology used to describe it.

There is no commonly used ground water valuation terminology and no one set

that is obviously superior. Two different sets of valuation terminology are displayed in Table 1.3. The first is based upon the physical state of the ground water

from which value is derived. The primary distinction is between extractive

values, which occur as a result of the extraction of ground water and subsequent

consumptive use, and in situ values, which occur as a consequence of leaving the

water in the aquifer. Extractive values include municipal, agricultural, and industrial uses of water, uses that nearly always include a sizable component of consumptive use. In situ values are derived from the services provided by leaving

water in the aquifer and typically do not involve consumptive transformation of

the water. In situ values include ecological values, buffer values, values associated with the avoidance of subsidence, recreational values, existence values, and

bequest values.

The second set of terminology comes from the economic literature or the

valuation of ground water resources which classifies ground water values in

terms of use values and nonuse values. This distinction acknowledges that use

values are associated with both consumptive and nonconsumptive uses of water,

including ecological uses, buffering, subsidence avoidance, and recreation. By

contrast, nonuse values, including existence and bequest value, may occur when

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18 VALUING GROUND WATER WA OR ID MTWYCO UT CA NV AZ NM TX OK MO IL WI MNIA ND SDNEKS ARLA MS TNAL VANC WV KY IN OH NJ MD DL PA NY VTNH MA CTME SC GA FL MI RI 0 – 2,000 2,000 – 5,000 5,000 – 10,000 10,000 – 20,000 20,000 – 48,000 ALASKA HAWAII VIRGIN ISLANDS PUERTO RICO Water withdrawals, in million gallons per day TOTAL WITHDRAWALS

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INTRODUCTION AND BACKGROUND 19 FIGURE 1.1 Total water withdrawals by source and state, 1990. SOURCE: Solley et al., 1993 SURFACE-WATER WITHDRAWALS GROUND-WATER WITHDRAWALS

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20 VALUING GROUND WATER

the ground water is not devoted to any use. The relationship between these two

different sets of taxonomies is also depicted in Table 1.3. The terminology used

in the remainder of this report follows these two taxonomies and the relationship

between stocks and flows of ground water. It is important to recognize that it is

sometimes difficult to draw a distinct line between use and nonuse values. For

example, in southern California ground water in the aquifer has a value in protecting against sea water intrusion. Sea water intrusion can affect both the use

values of ground water, by increasing the cost of drinking water supplies, and the

nonuse values, through contamination of the aquifer even if it was never to be

used as source of water for human consumption.

Unless care is taken in definition and use, both sets of terminology may mask

or confuse the important distinction between values which are associated with a

flow or stream of goods and services and values which are associated with stocks

or assets which create those streams. Flows or streams of value, such as use

values which come from extraction, recur over time and contrast with stock

values which are the value of an asset (or liability) which yields flows of value

over time. Flow values and stock values are linked because a stream of values

(costs or benefits) can be converted into an asset value by calculating the present

discounted value of the flow. Failure to distinguish between the value of flows

and the value of a stock or asset may result in double counting or other errors.

The last two columns of Table 1.3 indicate whether the various categories of

physical state or economic values are commonly treated as flows or stocks or as

both. In instances where values are commonly expressed as either stocks or

flows, it is important to specify whether the value is a flow value or a stock (asset

value).

▼

▼

TABLE 1.3 Taxonomy of Ground Water Valuation Terminology

Economic Accounting Terminology

Physical State Terminology Terminology Stocks Flows

A. Extractive values

1. Municipal use values *

2. Industrial use values *

3. Agricultural use values *

4. Other extractive use values *

B. In situ values Use Values

1. Ecological values * *

2. Buffer values * *

3. Subsidence avoidance values * *

4. Recreational values *

5. Sea water intrusion values * *

6. Existence values Nonuse *

7. Bequest values Values *

xxx

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INTRODUCTION AND BACKGROUND 21

Services Provided by Ground Water

Tables 1.4 and 1.5 encapsulate some of the major services ground water

provides that give rise to economic value. (Detailed discussion of the approaches

used to determine quantitative estimates of value is in Chapter 4.) Although

many people already appreciate or may have intuitively accepted the nature of

these services and the importance of assigning value to them, they have not

engaged in widespread action to more effectively conserve, protect, and allocate

these resources. Part of the problem no doubt arises from the technically demanding nature of the problem, for example, the complex behavior and properties of aquifers. In particular it is challenging to evaluate from an economic

perspective the ecological services rendered by ground water since such services

are not traded in markets and are viewed in a highly subjective way.

Table 1.6 (also in Chapter 4 as Table 4.5) presents an overview of the

alternative valuation methods for addressing selected ground water functions/

services. These economic valuation methods and existing applications are discussed in more detail in Chapter 4.

Ground water problems are receiving more attention for a number of reasons. Increased withdrawals are causing problems such as subsidence, salt water

intrusion, and destruction of wildlife habitat. Public water supply systems dependent on ground water can be found in every state (Solley et al., 1993). Also, the

importance of ground water as a buffer, or emergency supply, is beginning to be

more widely recognized. This value was illustrated in California during the

drought in the early 1990s, when demands for surface water far outstripped the

available supplies. Agricultural and municipal ground water use increased dramatically, causing concerns about whether ground water protection regulations

were adequate.

The importance of ground water has also changed in the context of conjunctive use. Recharge of surface water in Florida and use of effluent to replenish

ground water is now common in southern California. In this context the ground

water aquifer becomes an actively managed storage facility, with ground water

supplies replenished by flood flows, imported surface water, and treated effluent.

Water is cycled through the aquifer materials on a relatively short term basis and

provides a buffer against shortages of surface water.

The environmental values associated with ground water are also becoming

more widely recognized. Just as the ecosystem concept is gaining more recognition in habitat management to protect animal species, the role of ground water in

the support of surface water supplies, wetlands, and riparian habitat is more

clearly understood.

Management/Regulatory Decisions Related to Valuation

Most decisions regarding ground water development, use, or protection are

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22 VALUING GROUND WATER

TABLE 1.4 Potential Service Flows and Effects of Those Services for

Ground Water Stored in an Aquifer

Service Provided Effect on Value

Potable water for residential use Change in Availability of Potable Water

Change in Human Health or Health Risks

Landscape and turf irrigation Change in Cost of Maintaining Public or Private

 Property

Agricultural crop irrigation Change in Value of Crops or Production Costs

Change in Human Health or Health Risks

Livestock watering Change in Value of Livestock Products or

Production Costs

Change in Human Health or Health Risks

Food product processing Change in Value of Food Products or Production

 Costs

Change in Human Health or Health Risks

Other manufacturing processes Change in Value of Manufactured Goods or

 Production Costs

Heated water for geothermal power Change in Cost of Electricity Generation

 plants

Cooling water for other power plants Change in Cost of Electricity Generation

Prevention of land subsidence Change in Cost of Maintaining Public or Private

 Property

Erosion and flood control through Change in Cost of Maintaining Public or Private

absorption of surface water Property

runoff

Medium for wastes and other Change in Human Health or Health Risks

by-products of human ecomic Attributable to Change in Ground Water Quality

activity Change in Animal Health or Health Risks

Attributable to Change in Ground Water Quality

Change in Economic Output Attributable to Use of

 Ground Water Resources as “Sink” for Wastes

Improved water quality through Change in Human Health or Health Risks 

support of living organisms Attributable to Change in Ground Water Quality

Change in Animal Health or Health Risks

 Attributable to Change in Ground Water Quality

Change in Economic Output or Production Costs

 Attributable to Use of Ground Water Resources

as “Sink” for Wastes

Nonuse services (e.g., existence or Change in Personal Utility

bequest motivations)

SOURCE: Modified from Boyle and Bergstrom, 1994.

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INTRODUCTION AND BACKGROUND 23

TABLE 1.5 Potential Service Flows and Effects of Those Services for

Surface Water and Wetland Surfaces Attributable to Ground Water Reserves

Service Provided Effect on Value

Surface water supplies for drinking Change in Availability of Potable Water

water Change in Human Health or Health Risks

Surface water supplies for landscape Change in Cost of Maintaining Public or Private

and turf irrigation Property

Surface water supplies for agricultural Change in Value of Crops or Production Costs

 crop irrigation Change in Human Health or Health Risks

Surface water supplies for watering Change in Value of Livestock Products or

livestock Production Costs

Change in Human Health or Health Risks

Surface water supplies of food product Change in Value of Food Products or Production 

processing Costs

Change in Human Health or Health Risks

Surface water supplies for Change in Value of Manufactured Goods or 

manufacturing processes Production Costs

Surface water supplies for power plants Change in Cost of Electricity Generation

Erosion flood and storm protection Change in Cost of Maintaining Public or Private

Property

Changes in Human Health or Health Risks through

Personal Injury Protection

Transport and treatment of wastes and Change in Human Health or Health Risks

 other by-products of human Attributable to Change in Surface Water Quality

 economic activity through surface Change in Animal Health or Health Risks

 water supplies Attributable to Change in Surface Water Quality

Change in Economic Output or Production Costs

Attributable to Use of Surface Water Resources

for Disposing of Wastes

Recreational swimming, boating, Change in Quality or Quantity of Recreational 

fishing, hunting, trapping, and plant Activities

gathering Change in Human Health or Health Risks

Commercial fishing, hunting, trapping, Change in Value of Commercial Harvest or Costs

and plant gathering supported by Change in Human Health or Health Risks

ground water discharges

On-site observation or study of fish, Change in Quantity or Quality of On-Site

wildlife, and plants purposes Observation or Study Activities

supported by ground water

discharges for leisure, educational,

or scientific purposes

(continued)

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24 VALUING GROUND WATER

made with inadequate attention to the value of ground water as a source of

consumptive use and for the in situ services it provides. For example, although

many states require permits to drill a new high-capacity well, they tend to grant

such permits on a routine basis, neglecting the broad range of values at stake.

Management decisions have traditionally been made by comparing the direct

financial costs of various alternatives, without taking into account the impacts on

the full set of values of ground water. This tendency to consider only financial

costs limits the usefulness of the underlying calculations for cost-benefit analysis.

As a result, ground water (which should be a renewable resource) tends to be

rationally managed only where problems of depletion or pollution are apparent or

have become critical. In most areas of the country, the ground water management

policy may be aptly characterized as out of sight, out of mind.

Superfund: Prevention vs. Remediation

In some cases ground water quality degradation may be irreversible. In such

situations it becomes especially important that the resource is properly valued. If

TABLE 1.5 (continued)

Service Provided Effect on Value

Indirect, off-site fish, wildlife, and Change in Quality or Quantity of Indirect Off-Site

plant uses (e.g., viewing wildlife Activities

photos)

Improved water quality resulting from Change in Human Health or Health Risks

living organisms related to ground Attributable to Change in Air Quality

water discharges Change in Animal Health or Health Risks

Attributable to Change in Air Quality

Change in Value of Economic Output or Production

Costs Attributable to Change in Air Quality

Regulation of climate through support Change in Human Health or Health Risks

of plants Attributable to Change in Climate

Change in Animal Health or Health Risks

Attributable to Change in Climate

Change in Value of Economic Output or Production

Costs Attributable to Change in Climate

Provision of nonuse services (e.g., Change in Personal Utility or Satisfaction

existence services) associated with

surface water bodies or wetlands

environments or ecosystems

supported by ground water discharges

SOURCE: Modified from Boyle and Bergstrom, 1994.

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INTRODUCTION AND BACKGROUND 25

TABLE 1.6 A General Matrix of Ground Water Functions/Services and

Applicable Valuation Methods

Ground Water Function/Service Flow Applicable Valuation Method

A. Extractive values

1. Municipal use (drinking water)

a) Human health - morbidity

b) Human health - mortality

2. Agricultural water use

3. Industrial water use

B. In situ values

1. Ecological values

2. Buffer value

3. Subsidence avoidance

4. Recreation

5. Existence value

6. Bequest value

SOURCE: Adapted from Freeman, 1993. (Reprinted with permission from Resources for the Future,

1993. Copyright 1993 by Resources for the Future.)

Cost of illness

Averting behavior

Contingent valuation

Contingent ranking/behavior

Averting behavior

Contingent valuation

Contingent ranking/behavior

Derived demand/production cost

Derived demand/production cost

Production cost techniques

Contingent valuation

Contingent ranking/behavior

Dynamic optimization

Contingent valuation

Contingent ranking/behavior

Production cost

Hedonic pricing model

Contingent valuation

Contingent ranking/behavior

Travel cost method

Contingent valuation

Contingent ranking/behavior

Contingent valuation

Contingent ranking/behavior

Contingent valuation

Contingent ranking/behavior

ground water of suitable quality becomes increasingly scarce owing to pollution

and if substitute sources are unavailable, then the resource’s value may rise

abruptly. Conversely, a contaminated aquifer that poses little threat to its ambient surroundings and possesses few prized attributes not available from substitutes would rate no such premium.

At both the federal and state levels, there have been prodigious efforts in

recent years to remediate the subsurface environment for purposes of ground

water quality protection and restoration. Current estimates of the total costs of

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26 VALUING GROUND WATER

remediation, through Superfund and analogous programs in the Departments of

Energy and Defense as well as state and local efforts, amount to hundreds of

billions of dollars. Consideration of this enormous expense has led the regulated

community and some decision-makers to question the benefit-cost balance of

mandated subsurface remediation programs.

The Committee on Ground Water Cleanup Alternatives of the National Research Council (NRC) has recently reviewed the technical means to restore ground

water quality (NRC, 1994). The committee found that there is no panacea for

treating ground water contaminated by hazardous wastes. Especially in cases

with heterogeneous hydrogeologic conditions and complex chemical behavior, it

may prove infeasible to restore ground water to its “pristine” state. In such

instances it may be necessary to revert to strategies that aim to contain, or isolate,

the contamination to the extent possible, thus alleviating the endangerment of

surrounding ground water supplies. However, even the less ambitious objective

of containment implies the obligation indefinitely to monitor the quality of the

adjacent threatened ground water, as well as to remove the maximum feasible

mass of contaminants in order to minimize the consequences of possible failure

of the containment measures. For now, the debate continues as to whether a

comprehensively implemented containment strategy will prove less expensive in

the long term than the current policy of complete cleanup.

Valuation, including consideration of alternative uses of an affected site, and

the costs of alternative sources of water, would not only be a useful tool to guide

decisions on whether to pursue containment or remediation but is also worthwhile for clarifying various tradeoffs to contamination prevention action. Increasing awareness of the need to prevent contamination of ground water supplies, on top of mounting costs of remediation, point to the importance of

coordinated and comprehensive land and water use decision-making. Only within

such a broad framework will it be possible to inject ground water valuation into

strategies for containment, remediation, or alternatives for safeguarding the welfare of the community.

Management Issues

Water managers make decisions within a particular sociopolitical and technical context. They are constrained by technical considerations such as capacity of

various conveyance facilities, recharge capability of an aquifer, physical availability of surface water supplies, and environmental or resource impacts of supply development. They are also limited by the institutional environment in which

they operate, including federal, state, and local regulations and court-decreed

rights and uses of ground water, and legislated or adjudicated mandates are not

always in accord with economically optimal outcomes. Financial constraints can

greatly aggravate the political landscape; the impact that a particular course of

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INTRODUCTION AND BACKGROUND 27

action has on local water rates and taxes is frequently the controlling factor in a

water management decision.

The public has become progressively more involved in water-related decision-making in the past few decades. Because of the pervasive importance of

water availability in virtually all types of activity (in households, commercial

development, industry, and agriculture) water issues are commonly linked with

concerns about economic growth. Water management decisions are often infused with local or regional politics and burdened with a heavy overlay of social

values. As a result, the degree of autonomy of local and regional water providers

varies greatly among and within states.

History of Economic Valuation of Natural Resources

The principles for valuing natural assets such as energy and mineral deposits,

forests, and aquifers were set forth more than 60 years ago. This research established a relationship between the value of the asset and the present value of the

services it provides. Some of the earliest attempts to value nonmarketed goods

and services focused on environmental and natural resource assets. One of the

first such efforts involved the development of value measures for water resources

used in irrigated agriculture in the western United States. Linear programming

models and other techniques were used to estimate the value of both surface and

ground water by examining how the profitability of farm enterprises changed as

water became more or less available. These techniques worked well in assigning

economic value to water use in agriculture since water is an input to the production processes of firms whose products are sold in reasonably well functioning

markets. These early methods, which highlighted the valuation of nonmarketed

inputs, were not well adapted for measuring the value of nonmarketed outputs

that are consumed directly.

Principles for measuring the consumptive value of water for household use

were set forth a century ago. The idea of using a demand curve to measure the

value of a good as the area under the demand curve (consumer surplus) was

articulated in the late 19th century, and applied methods for doing so have been

developed ever since. Hewitt and Hanemann (1995) provide a sophisticated

example of an application to urban water.

Two techniques were developed specifically for the estimation of

nonmarketed outputs: the travel cost method (TCM) and the contingent valuation

method (CVM). The first, created to value visits to national parks, is an example

of an indirect methodology to infer values of nonmarketed goods and services by

examining ancillary evidence such as expenditures on travel. Refinements in the

TCM and the development of other indirect techniques have enhanced the ability

of economists to value a wide range of natural resource and environmental services, including improvements in air and water quality. These indirect techCopyright © National Academy of Sciences. All rights reserved.

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28 VALUING GROUND WATER

niques, however, are sometimes based on questionable assumptions and often

require the resolution of difficult and complex problems in statistical estimation.

Using an earlier suggestion by Ciriacy-Wantrup; Davis in 1963 undertook

the first application of stated-preference approaches to valuing a natural asset

(Ciriacy-Wantrup, 1952; Davis, 1963). These CVM techniques rely on carefully

structured interviews with consumers and potential consumers to elicit measures

of economic value (see Appendix B). Such direct techniques have proved useful

in measuring the value of a wide range of goods and services not traded in a

market. In particular CVM techniques have been used to estimate nonuse values.

Nevertheless, direct valuation techniques, like their indirect counterparts, are

subject to both conceptual and practical difficulties.

Although nonmarket valuation techniques have been helpful in valuing individual environmental commodities, policy and regulatory attention has increasingly focused on the management of ecosystems. The need to value complex

hydrologic or ecological functions and the associated range of service flows

raises a number of issues in nonmarket valuation. Part of the difficulty in valuing

ecosystem services is that ecologists cannot define and measure unambiguously

the performance of ecosystems and boundaries of successional trajectories. Other

problems arise from the inability of economists to measure the consequences of

complex phenomena over the long run. Further problems grow out of differences

in disciplinary perspectives, which complicate the interdisciplinary task of integrating the physical relationships required for bioeconomic assessments.

THE ROLE OF THE NRC

The Environmental Protection Agency requested that the NRC appoint a

committee to study approaches to assessing the future economic value of ground

water and the economic impact of the contamination or depletion of these resources. In 1994 the NRC appointed a committee to conduct this study under the

auspices of the NRC’s Water Science and Technology Board. The committee

was charged to:

(1) review and critique various approaches for estimating the future value of

uncontaminated ground water in both practice and theory (addressed in Chapters

2, 3, and 4);

(2) identify areas in which existing approaches require further development

and promising new approaches might be developed (addressed in Chapters 3 and 4);

(3) delineate the circumstances under which various approaches would be

preferred in deciding long-term resource use and management (addressed in Chapters 4 and 6);

(4) outline legislative and policy considerations in connection with the use

and implementation of recommended approaches and related research needs (addressed in Chapter 5); and

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INTRODUCTION AND BACKGROUND 29

(5) illustrate, through real or hypothetical case examples, how recommended

procedures would be applied in practice for representative applications (addressed

in Chapter 6).

The committee’s report is organized into six chapters. Chapter 2 addresses

ground water hydrology, ecology, and economic concepts relevant to valuation

studies. Chapter 3 highlights the relationship between time, institutional, and

hydrologic constraints and ground water services; it goes on to explain extractive

and in situ services. Also included is a conceptual framework for calculating

economic value based on services, modified from Boyle and Bergstrom (1994).

The central concept of total economic value and the role of time/discounting and

uncertainty round out Chapter 3.

A critique of valuation methods, for example, the contingent valuation

method, the travel cost method, and the hedonic pricing method, as applied in

ground water-related studies is the focus of Chapter 4. Advantages and limitations of such methods are described along with their application in delineating

use and nonuse values for ground water resources. The available evidence from

existing ground water valuation studies is compared with the possible range of

extractive and in situ values identified in earlier chapters. Chapter 5 explores

how various institutional issues such as ground water law and allocation methods

can both affect and be improved by valuation study results. The last chapter

contains brief synopses of seven case studies in which ground water valuation has

been or could be used to enhance problem analysis and the decision-making

process.

This report blends both resource depletion (ground water mining) issues with

quality deterioration issues as they relate to valuation. Further, there are relationships between depletion and quality which need to be recognized. Finally, the

reader should be aware that these issues and relationships are, of necessity, intertwined throughout the report.

REFERENCES

Boyle, K. J., and J. C. Bergstrom. 1994. A Framework for Measuring the Economic Benefits of

Ground Water. Department of Agricultural and Resource Economics Staff Paper. Orono:

University of Maine.

Ciriacy-Wantrup, S. V. 1952. Resource Conservation. Berkeley: University of California.

Davis, R. 1963. The Value of Outdoor Recreation: An Economic Study of the Maui Woods. Ph.D.

dissertation, Harvard University.

Hewitt, J. A., and W. M. Hanemann. 1995. A discrete/continuous choice approach to residential

water demand under block-rate pricing. Land Economics 71(2):173-192.

Freeman, A. M., III. 1993. The Measurement of Environmental and Resource Values: Theory and

Methods. Washington, D.C.: Resources for the Future Press.

Moody, D. W. 1990. Ground water contamination in the United States. Journal of Soil and Water

Conservation 45(2):170-179.

Copyright © National Academy of Sciences. All rights reserved.

Valuing Ground Water: Economic Concepts and Approaches

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30 VALUING GROUND WATER

National Research Council. 1994. Alternatives for Ground Water Cleanup. Washington, D.C.:

National Academy Press.

Solley, W. B., R. R. Pierce, and H. A. Perlman. 1993. Estimated Use of Water in the United States

in 1990. U.S. Geological Survey Circular 1081. Washington, D.C.: U.S. GPO.

U.S. Environmental Protection Agency. 1991. Preliminary Risk Assessment for Bacteria in Municipal Sewage Sludge Applied to Land. EPA/600/6-91/006. Cincinnati: U.S. Environmental

Protection Agency.

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GROUND WATER RESOURCES: HYDROLOGY, ECOLOGY, AND ECONOMICS 31

31

2

5

Ground Water Resources: Hydrology,

Ecology, and Economics

The use value of ground water depends fundamentally on the costs of producing or obtaining the water and its value in the uses to which it is ultimately

put. The costs of producing ground water typically include the costs of extraction

and delivery as well as the opportunity cost of using the water right away rather

than leaving it in storage for later use. The value in alternative uses can be

expressed by the willingness of users to pay for the water. Willingness to pay

depends in turn upon a number of factors, including the quality of the water. The

quality of ground water should be thought of in terms of its acceptability for

certain uses. Thus the quality of a given source of ground water may not be

acceptable for potable uses but may be sufficient for a wide variety of nonpotable

uses. Because extraction and delivery costs are related to the quantity of ground

water, the real question is, What is the availability of ground water that possesses

some desired quality? Ground water quality and the costs of extraction depend

on the geologic and hydrologic characteristics of a given aquifer as well as the

economic circumstances that characterize the particular uses to which ground

water is devoted. Both the current and future values of ground water, then, are

determined jointly by the interaction of geologic/hydrologic factors and economic factors.

HYDROLOGICAL CONCEPTS

Ground water is usually found in subsurface formations known as aquifers,

which may be a significant hydrological component of watersheds and basins.

Basins and watersheds are similar in that all of the collected water within them

drains through a single exit point. Basins differ from watersheds only in the

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32 VALUING GROUND WATER

perception of their size, with basins being much larger than watersheds and

typically composed of many watersheds. In the United States, “basin” is often

used to mean a large riverine drainage system. Within a watershed or basin,

water moves both on and below the surface. Aquifers are generally bounded by

subsurface divides similar to surface features that separate watersheds. Often the

boundaries of basins are not as obvious as those of watersheds, and aquifers may

underlie and be common to several surface watersheds. Geologic strata that are

tilted counter to the topography can conduct water in the opposite direction from

topographic surface slopes. Large, confined aquifers may underlie smaller, unconfined zones that conform more closely to the surface topography. Because

aquifers may be connected, the availability and quality of the ground water within

them may be regional issues, defined by both surface and subsurface topography.

The three-dimensional nature of aquifers is not generally well understood and is

rarely considered in modeling for management applications. The condition and

characteristics of a given aquifer are determined by the hydrologic cycle and by

anthropogenic modifications in the hydrologic cycle.

The Hydrologic Cycle

The hydrologic cycle can be usefully depicted on both global and basinwide

scales. In the global hydrologic cycle, water can be transferred from one location

to another and transformed among the solid, liquid, and gaseous phases, but the

total amount of water remains the same. From a basinwide perspective, the fact

that water can be transferred from one basin to another means that specific basins

can experience gains and losses in the total amount of water. This is an important

concept in that the quantity of water in a basin can be depleted, whereas the total

amount of water remains the same as it cycles among the various basins. The

hydrologic cycle is depicted from a basin perspective in Figure 2.1. Precipitation

is the pathway by which water enters the basin. Evaporation and transpiration,

along with stream flows, are the principal pathways by which it leaves. Runoff,

which is overland flow, can be augmented by interflow, which operates below the

surface but above the water table, and by base flow, which refers to the discharge

to streams from the saturated portion of the system. Infiltration of water into the

subsurface is the ultimate source of both interflow and recharge to the ground

water. Ground water recharge, defined as the portion of infiltration water that

reaches the ground water, represents the replenishment of ground water supply.

Ground Water Balance: Recharge and Depletion

The quantity of water stored in an aquifer can be characterized over time by

accounting for inflows and outflows according to the following expression:

Change in storage = recharge − depletion

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GROUND WATER RESOURCES: HYDROLOGY, ECOLOGY, AND ECONOMICS 33

Recharge occurs whenever precipitation or surface water infiltrates downward

through the soil to the water table. Recharge can also result from subsurface

lateral flows that reach the aquifer. Recharge may occur naturally, and natural

recharge can be augmented by artificial recharges ( as outlined in a recent study,

National Research Council, 1994a). Surface water is usually viewed as a renewable resource, since it derives from rainfall and snowmelt, which recur

periodically. Natural ground water supplies may be either renewable or nonrenewable, depending upon whether recharge occurs at rates similar to those of

withdrawal.

The rate of recharge may be influenced to a large extent by whether the

aquifer is confined or unconfined. Aquifers may have upper and lower boundaries, termed “confining layers.” These boundaries normally comprise layers of

unconsolidated material or rock that have a much lower permeability than the

material lying immediately above or below. Confined aquifers have a confining

layer both above and below, while an unconfined aquifer has no confining layer

on top. Since unconfined aquifers tend to be found uppermost in a ground water

system, they are frequently called surficial aquifers. Unconfined aquifers are the

first to receive water infiltrating from the surface. This means that the depth to

water or the water table frequently fluctuates in such aquifers. It also means that

such aquifers tend to contain higher concentrations of dissolved materials of

anthropogenic origin than do lowerlying, confined aquifers. Indeed, water contained in many shallow, unconfined aquifers is often not used for drinking because of contamination.

Confined aquifers are protected to some degree by the presence of a confining,

low-permeability zone between the surface (and the source of recharge water) and

the ground water itself. While an unconfined aquifer is characterized by a water

table or the depth to ground water, a confined aquifer is characterized by a piezometric, or potentiometric, surface, which results because the height of the upper

surface of the aquifer is constrained by the confining layer. The potentiometric

surface represents the height of rise of the water due to hydrostatic pressure when

the constraint of the confining layer is removed, as illustrated in Figure 2.2.

FIGURE 2.1 The hydrologic cycle as applied to basins.

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34 VALUING GROUND WATER

Water found in deep aquifers may have been stored over millions of years

and is sometimes referred to as “fossil water.” The natural rates of recharge to

these deep aquifers, when recharge occurs at all, are quite low (Lloyd and Farag,

1978). Fetter (1994) notes that for practical purposes such aquifers are not

recharged and any extractions are irreversible. The extraction and use of water

from such aquifers is analogous to the mining of resources such as minerals that

do not recur periodically on anything less than geologic time scales. Aquifers in

arid regions are frequently characterized by very small rates of recharge that

range from a few hundredths of a millimeter per year to perhaps 200 mm/yr

(Heath, 1983). Aquifers characterized by either the total absence of recharge or

by very low rates of recharge cannot be relied upon as a sustainable source of

water supply. The Ogallala aquifer underlying parts of Texas, Oklahoma, and

New Mexico is a good example of such an aquifer. The relatively high rates of

extraction and use of water from the Ogallala aquifer for agricultural purposes

over the past four decades has resulted in progressive increases in pumping

depths. In many places the depth to ground water is so great that it is no longer

economical to pump. In these areas irrigated agriculture that historically relied

on waters from the Ogallala must be converted to dry land farming or other land

uses.

FIGURE 2.2 Unconfined aquifer and its water table; confined aquifer and its potentiometric surface.

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GROUND WATER RESOURCES: HYDROLOGY, ECOLOGY, AND ECONOMICS 35

Ground water depletions occur when water is discharged from aquifers naturally via seeps and springs, from direct uptake by plants where the water table is

in the root zone, and from extractions through wells. The manner in which a

ground water basin responds to pumping depends upon whether the aquifer is

confined or unconfined. For a confined aquifer, a cone of depression, which

originates at the point that water is actually extracted by pumps, will move

rapidly through the aquifer. Thus remote parts of the aquifer will be affected and

some of the natural discharge will be captured. For unconfined systems, the cone

spreads too slowly to affect distant points of natural discharge so that most of the

water removed comes from storage. The ease of pumping is related to the

capacity of the aquifer to conduct water, its hydraulic conductivity. Aquifers

with low conductivities will pass water only very slowly so that wells must be

deep to produce adequate supply. The increased depth requires increases in

pumping lifts, which translate directly to increased pumping (extraction) costs.

In aquifers that are undisturbed by human activity, recharge tends to be

balanced by natural ground water discharge or extractions. This means that water

tables in unconfined aquifers and the potentiometric surfaces in confined aquifers

remain stable. When this steady state is disturbed by ground water pumping or

diversion of customary sources of recharge, water tables and potentiometric surfaces respond accordingly. Thus, for example, in unconfined aquifers the water

table rises when the rate of recharge exceeds the rate of extraction and discharge.

Conversely, if extractions exceed recharge, water tables will fall, as will surface

discharges such as base flow in streams (Figure 2.3). As a general rule, however,

rising or falling water tables cannot be sustained indefinitely, and the aquifer will

always tend toward a steady-state condition where the rates of extraction and

discharge are equal to the rate of recharge. For this reason, the sustainable or safe

yield of any aquifer is equal to the long-run average rate of recharge.

Conjunctive Use of Surface and Ground Water

Conjunctive use of surface and ground water may be defined as any integrated plan that capitalizes on the combination of surface and ground water

resources to achieve a greater beneficial use than if the interaction were ignored

(Morel-Seytoux, 1985). Interactions of this kind occur naturally in alluvial valleys and flood plains, but under present circumstances prudent watershed management often necessitates engineered approaches to enhance the natural processes. Such management of overall water resources often takes the form of

storing surface water underground in times of surplus by recharging natural

ground water aquifers, thus saving the enormous cost of above-ground storage

reservoirs and aqueducts.

Moreover, long-term storage in and passage through a ground water aquifer

generally improve water quality by filtering out pathogenic microbes and many,

although by no means all, other contaminants (NRC, 1994b). Ground water

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36 VALUING GROUND WATER

supplies generally are far superior to surface water sources (American Water

Works Association, 1990). Indeed, where available, ground water basins

afford benefits of storage, conveyance, and treatment that often render the ground

water resource preferable to surface water alternatives from the standpoint of

health protection, technical simplicity, economy, and public acceptance.

FIGURE 2.3 The effect of pumping on service flows provided by a hypothetical aquifer.

With regard to this inventory, the following points are worth noting: (1) Prior to pumping

the aquifer, natural recharge equaled natural discharge, and the ground water basin was in

a steady state. (2) With the addition of pumping and in the course of withdrawals from

storage, net recharge to the aquifer from stream flow increased and reached some maximum value (i.e., part of the stream flow was captured by pumping the aquifer), whereas

discharge by evapotranspiration decreased and approached some minimum value (i.e., the

amount of plant-viable water was reduced). (3) During the course of the withdrawals, the

basin was in a transient state where water was continually being withdrawn from storage.

Although not shown, this results in a continual decline in water levels. A new steady state

could be achieved by reducing pumping to about 3.8 ́107 m3 yr-1, but the steady state

would include the reduced stream flow and evapotranspiration. Data for this figure were

taken from Domenico and Schwartz, 1990. (Reprinted with permission from John Wiley

& Sons, Inc., 1990. Copyright 1990 by John Wiley & Sons, Inc.)

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GROUND WATER RESOURCES: HYDROLOGY, ECOLOGY, AND ECONOMICS 37

THE ECONOMICS OF GROUND WATER USE

There is a significant and varied literature on the economics of ground water

use (see, for example, Burt, 1970; Cummings, 1970; Burness and Martin, 1988;

and Provencher and Burt, 1993). Several common principles emerge from this

literature, perhaps the most important of which is that ground water is used most

efficiently when it is extracted at rates that maximize net benefits (total benefits

net of total costs) over time. Costs include the cost of extracting and delivering

the ground water and the opportunity, or user, cost. The benefits are determined

by the uses to which the water is put.

The costs of extraction are primarily a function of pumping technology (or

pump efficiency), the depth from which the ground water must be pumped, and

the costs of energy. These costs increase with pumping depth and the cost of

energy and decrease as pump efficiency is improved. The cost of extraction also

includes the value of the opportunity foregone by extracting and using the water

immediately rather than at some time in the future. The user cost is a measure of

the economic consequences of pumping now and thereby lowering the water

table and increasing costs of extraction for all future periods. The extraction rate

in the current period will be efficient only if the potentially higher costs of

pumping in the future periods are appropriately estimated. Much economic

literature on ground water resources emphasizes that when ground water is

pumped in an individually competitive fashion, pumpers have strong incentives

to ignore the user cost. In these circumstances pumpers tend to treat ground

water as an open access resource, with the result that rates of extraction exceed

the economically efficient rate.

The tendency to consider ground water an open access resource when it is

exploited competitively underscores the importance of well-defined, clearly enforceable rights to extract ground water. These rights may be assigned to individuals or the citizens of a political entity. They may also be permanent or time

limited and subject to change. In instances where rights are not effectively

defined and enforceable, the availability of ground water is determined by and

subject to the law of capture: whoever taps the ground water first gets to use it.

Pumpers have an incentive to extract as much water as possible, subject to the

constraints imposed by pumping costs. Incentives to conserve voluntarily are

absent, since water not pumped is available to competing users and will not

necessarily be conserved for future periods. Thus, competitive pumpers often

ignore user costs both because they believe that self-discipline will not effectively conserve supplies for the future and because they believe that the impact of

their own pumping on the water table will be small. When the user cost is

ignored, the costs of ground water extractions are undervalued and water is

extracted too quickly. This contrasts with situations in which ground water is

extracted by a single pumper. The single pumper accounts for the user cost

simply because he or she will have to bear all of the additional costs of pumping

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from a lowered water table in the future. In competitive situations regulatory

measures can be used to ensure that pumpers account for the user cost. Two

common measures are the imposition of a pump tax equivalent to the user cost or

the imposition of pumping quotas to ensure that the aquifer is not exploited too

quickly (Nether, 1990). Such measures can be imposed by ground water management agencies, and where taxes are employed, the revenues could be used to

defray the costs of managing the ground water basin, should that be the most

efficient use of the funds.

Defining and enforcing ground water extraction rights and ensuring that

rates of extraction are efficient are equally important in decisions to invest in the

protection of ground water quality, as well as in programs to remediate or enhance ground water quality. If ground water is subject to the law of capture, then

the benefits of protection, remediation, and enhancement investments will similarly be subject to the law of capture. This results in less than optimal investment

in the preservation and enhancement of ground water quality, since those investing in such measures cannot be sure they will capture all of the benefits. This fact

underscores the necessity of establishing clear and enforceable systems of extraction rights and appropriate regulatory measures before investing in the protection

and enhancement of ground water quality.

In the long run, rates of ground water extraction cannot exceed rates of

recharge. That is, over time, rates of extraction and recharge will be brought into

steady-state equilibrium. When overdrafting occurs persistently, water tables are

lowered and pumping costs increase. Finally a point is reached where the costs of

extracting ground water exceed the benefits that can be obtained from its use;

then pumpers stop extracting and the decline in the ground water table is arrested.

Because ground water is extracted and used only when it is profitable to do so,

overdraft will be self-terminating and rates of extraction will ultimately be exactly equivalent to the rates of recharge.

It is important to recognize, nevertheless, that ground water overdraft may be

economically efficient in some instances. When the benefits of use are quite high

in relation to the costs of extraction (including the user cost), overdraft may be

efficient for some period of time. In periods of drought, for example, when

surface water supplies may be absent or scarcer than normal, overdraft may be

efficient. However, even in situations where overdraft is efficient, it will ultimately be self-terminating. Moreover, in assessing the economic desirability of

overdraft, we must account for certain adverse impacts, such as land subsidence,

salt water intrusion, and deleterious effects on surface water and aquatic habitats

The geological substrate of aquifers differs from location to location, with

materials ranging from coarse sediments to fractured rock. Substrates that consist of fine grained sediments such as clays tend to compact when water is

removed, resulting in elimination of the pore spaces that previously contained

water. Thus removing water reduces the aquifer’s water-holding capacity. In

addition the land surface may sink when compaction occurs in such aquifers.

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GROUND WATER RESOURCES: HYDROLOGY, ECOLOGY, AND ECONOMICS 39

This may cause severe disruption of utilities such as sewer and water lines and

damage to structures and roads. Subsidence can also cause flooding, particularly

in coastal areas. Between 1906 and 1987, land in the Houston/Baytown region of

Texas subsided by between 1 and 10 feet, resulting in pronounced flooding of

valuable land adjacent to Galveston Bay. When policy-makers recognized the

value of remaining ground water in preventing subsidence and concomitant flooding, they formulated a plan to conserve ground water in situ by developing

sufficient surface supplies to accommodate 80 percent of the projected demand

for Houston by the year 2010 (Schoek, 1995). The most dramatic example of

subsidence is found in the San Joaquin Valley of California, where land surfaces

have fallen up to 40 feet in some areas.

A unique problem associated with subsidence caused by prolonged overdrafting has been the development of sinkholes in some areas of Florida where

natural flow patterns in limestone aquifers have been perturbed. Land subsidence

generally occurs when aquifer pressure levels are significantly lowered in basins

where the substrate is primarily fine-grained material such as clays and silts,

which are more compressible than more rigid coarse grains such as sand or

limestone and sandstone formations. Subsidence caused by the consolidation of

fine-grained material cannot be reversed by artificially injecting additional water

into the formation. Subsidence is reversible only in aquifers usually dominated

by sands, gravels, or sandstone, which can accept the additional fluids.

Saline ground water is found in aquifers throughout the United States.

Ground water depletion may cause intrusion of poorer-quality water into highquality water supplies. In some coastal regions, particularly in California and

Florida, there are serious sea water intrusion problems caused by the attenuation

of fresh ground water flows toward the ocean. The in situ value of ground water

in these cases derives from providing a barrier to salt water intrusion. Overdrafting

can depressurize confined aquifers, leading to the intrusion of salt water into

portions of the aquifer that formerly contained high-quality water (see Figure

2.4). Salt water intrusion problems are not limited to coastal areas. Problems

with saline ground water have been documented in 41 states (Atkinson et al.,

1986). A number of methods are available to combat salt water intrusions,

including artificial recharge, reductions in extractions, establishment of a pumping trough along the coast, formation of pressure ridges through artificial water

injection, and installation of subsurface barriers.

Discharges from unconfined aquifers are the source of about 30 percent of

the nation’s stream flow (Frederick, 1995). This source of surface water is

especially important in sustaining stream flow during dry periods, the so-called

base flow. Ground water levels have a direct impact on lake levels and on the

amount of freshwater flowing through estuaries to the oceans. Reductions in

surface water flows can have adverse impacts on the aesthetic values, recreational potential, and use of surface waterways for transportation.

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40 VALUING GROUND WATER

Surface water flows originating from ground water also support riparian

vegetation and play a major role in maintaining wetlands (NRC, 1995). Such

support constitutes a vital ecological service. Ground water depletions are known

to have eliminated surface water flows altogether in some areas. Many of the

flowing streams in Arizona have disappeared because of the overpumping of

ground water. High water tables may also support riparian species in areas where

surface flows are ephemeral. The ecological services of ground water are particularly dramatic in cases where ground water supports habitat for endangered

species. (An example of how ground water drawdown can affect stream flow

appears in Figure 2.3.)

The availability of ground water is thus determined by the interaction of

geological, hydrologic, and economic factors. The quantities of water available

now and in the future depend upon the interaction of recharge and extraction.

The cost of obtaining ground water is determined by pumping depths, energy

costs, and the cost assigned to the opportunity foregone as a consequence of

extracting ground water now rather than later. The value of ground water depends upon both the cost of obtaining it and the willingness of users to pay, and

willingness to pay depends crucially on the quality of the water.

FIGURE 2.4 Salt water intrusion into a confined aquifer.

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GROUND WATER RESOURCES: HYDROLOGY, ECOLOGY, AND ECONOMICS 41

GROUND WATER QUALITY

Contamination

Because ground water exists in an environment that includes a mineral matrix and perhaps some organic matter (even living organisms), the quality of the

water is controlled by the physical, chemical, and biological processes that interact in the aquifer. Ground water exists in a variety of geological settings, ranging

from tiny cracks in otherwise solid rock to the (relatively) large voids between

grains of coarse sand or gravel. Geological formations that constitute aquifers

differ widely in the rocks and minerals they contain. Some contaminants occur

naturally, whereas others are derived from human activities: landfills, agriculture

wastes, industrial spillage, and many others (see Table 2.1).

In many areas the greatest threat to the potability of ground water is from

contamination by microorganisms such as bacteria and by disease-causing virus

particles. The presence of potentially pathogenic microbes (expanding the definition of microbes to include viruses) represents the most serious drinking water

contamination problem. The organisms of concern in potential ground water

contamination are those that are shed in fecal material, including bacteria, viruses, and protozoan parasites. These organisms are spread via the fecal-oral

route. Ingestion of organisms can occur through consumption of contaminated

food or water or by direct contact. Organic contaminants are wide ranging and

include chlorinated hydrocarbons (e.g., trichloroethylene, carbon tetrachloride),

fuel hydrocarbons (e.g., benzene, toluene, xylene), oxygenated compounds (e.g.,

phthalates and phenols), polynuclear aromatic hydrocarbons (PAHs, e.g.,

arochlor). Many times the contaminants are mixtures, e.g., gasoline, diesel fuel,

and creosote. In some cases, contaminant plumes may cover many square miles

of aquifer material (NRC, 1994b).

One of the major differences between surface water and ground water is the

time frame for contamination. Contamination in ground water develops slowly,

based on migration and flow rates. In addition, once contaminated, ground water

takes far more time to assimilate and recover than does surface water. Surface

water is generally contaminated rather quickly and has the ability to purge the

contaminant in a short period of time. Both natural and artificial cleanup of

ground water are lengthy processes because of slower flow rates, slower dilution,

and reduced capacity for reoxygenation.

Remediation: An Economic Outlook

Policy-makers cannot select an appropriate treatment technology until they

define the final use or disposal location of the water. As they evaluate possible

treatment, then, they must consider the water-quality objectives for the receiving

waters. They should identify feasible disposal options. Although most areas

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42 VALUING GROUND WATER

favor beneficial use of treated ground water, in certain instances disposal would

be cost-effective. Disposal options include placement in evaporation ponds (probably limited to the southwestern United States), deep-well injection, and ocean

discharge (limited to coastal areas).

As indicated, appropriate treatment depends on both the types of contaminants and the intended beneficial uses of the renovated ground water. Treatment

technologies commonly in use today and their effectiveness for removing specific contaminants and their associated costs appear in Table 2.2. The costs

TABLE 2.1 Sources of Ground Water Contamination

Category I Category II Category III

Sources designed to

discharge substances

Subsurface percolation (e.g.,

septic tanks and

cesspools)

Injection wells

Land application

Category IV

Sources discharging as

consequence of other

planned activities

Irrigation practice

Pesticide application

Fertilizer applications

Animal feeding operations

De-icing salt applications

Urban runoff

Percolation of atmospheric

pollutants

Mining and mine drainage

SOURCE: Office of Technology Assessment, 1984.

Sources designed to store,

treat, and/or dispose of

substances; discharged

through unplanned

release

Landfills

Open dumps

Surface impoundments

Waste tailings

Waste piles

Materials stockpiles

Aboveground storage tanks

Underground storage tanks

Radioactive disposal sites

Category V

Sources providing conduit

or inducing discharge

through altered flow

patterns

Production wells

Other wells (nonwaste)

Construction excavation

Sources designed to retain

substances during

transport or

transmission

Pipelines

Material transport and

transfer

Category VI

Naturally occurring

sources whose discharge

is created and/or

exacerbated by human

activity

Ground water-surface water

interactions

Natural leaching

Salt water intrusion, brackish

water

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GROUND WATER RESOURCES: HYDROLOGY, ECOLOGY, AND ECONOMICS 43 TABLE 2.2 Effectiveness and Typical Costs of Treatment for Water Containing Various Classes of Contaminants Inorganic Compounds Organic Compounds Facility Treatment Volatile Nonvolatile Cost Range Capacity Range Process TDS NO3

-, SO42- (TCE, PCE) (DBCP) ($/acre-foot) (MGD)

GAC −− − + 150-110 2-12

Air stripping −− + − 130-50 0.5-7

Ion exchange −+ − − 130-60 1-15

Reverse osmosis ++ − − 400-250 1-6

In situ

bioremediation −− + − Varies Varies

SOURCE: Orange County Water District, 1996.

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shown are only for the indicated treatment process, that is, the costs do not

include costs of extraction wells and collection systems or conveyance and disposal costs. Note that the cost for each treatment process depends upon the size

of the facility. Thus the unit treatment cost will decrease as the size of the facility

increases. Bioremediation is not included in Table 2.2 because the costs are

controlled by the site at which the technology is being employed.

Aquifer Remediation

A recently published National Research Council study dealt with the cleanup

of contaminated aquifers and ground water (NRC, 1994b). That study was motivated by the need to assess critically the feasibility of restoring ground water

quality at hazardous waste contamination sites, considering the limitations of

present technology as well as foreseeable advances in methodology. The need

for such an assessment stemmed in turn from disappointment in the slow rate of

progress in hazardous waste site remediation and its burgeoning cost.

The NRC committee found that the general frustration with the slow progress

and rising costs in hazardous waste site (sometimes referred to as Superfund site)

remediation is indeed justified. Only a very few sites have, in fact, been renovated

successfully, while efforts at many others have been hampered by inept planning,

unrealistic objectives, ponderous decision-making processes, and conflicts among

the various stakeholders. Nonetheless, at the bottom of the problem are intrinsic

technical difficulties that would be hard to counter even with near-perfect planning

procedures in an ideal institutional setting. Where complete restoration remains

elusive, it may be prudent simply to contain the contamination after removing the

portion of the contaminant mass that is amenable to cleanup.

In the face of these newly perceived difficulties, the task of restoring ground

water quality seems considerably more daunting than when the Resource Conservation and Recovery Act (RCRA) and Comprehensive Environmental Response,

Compensation, and Liability Act (CERCLA) programs were instituted. Estimates of total costs of cleanup in the range of hundreds of billions of dollars raise

the question of whether all contaminated ground water can and should be

remediated to the strictest criteria: that is, pristine conditions or health-based

standards. This in turn raises the question of the long-term economic and resource

impacts of permitting ground water resources to deteriorate in quality. Furthermore, it is necessary to take into consideration the observed tendency of subsurface contamination to become more intractable the longer it is left in place, so

that long-term contamination may be virtually irreversible.

Hydrologic Uncertainty

Hydrologic uncertainty results from the heterogeneity of natural systems and

from data inadequate to characterize and model the systems accurately. UncerCopyright © National Academy of Sciences. All rights reserved.

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tainty arises regarding both the quantity and quality of ground water systems.

Uncertainties related to ground water flow include insufficient or erroneous data

from imprecise measurements and observations, sampling errors, or statistical

errors; inappropriate model assumptions; and inadequate characterization of subsurface hydrology. Uncertainty regarding quality arises from lack of information

on both the fate of the contaminants in the subsurface, and their health effects.

Additional uncertainties concern the role of ground water in providing ecological services. Ground water supports microbial habitats in the subsurface and

surface flows that sustain riparian habitats. Connections between ground and

surface waters are better defined in theory than in application.

Mathematical models of ground water systems have been under development for decades, but data are rarely if ever adequate to allow accurate prediction

of subsurface dynamics in three dimensions. Model uncertainty stems from

shortcomings in current theory or failure of models to incorporate the elements of

current theory, scarcity of field data for model calibration, inadequacies of computer capacity for modeling complex systems, and failure to incorporate operational constraints into models (Anderson and Burt, 1985).

RECOMMENDATIONS

This review of hydrological concepts, ground water quality, the influence of

societal activities on ground water quantity and quality, and ground water treatment scenarios suggests the following conclusions regarding implications for

ground water valuation.

• Decision-makers should proceed very cautiously with any actions that

might lead to an irreversible situation regarding ground water use and management. Ground water depletion, for instance, may often be irreversible.

Some aquifers (e.g., the southern edge of the Ogallala) do not recharge in

useful time scales, and thus any extractions constitute a form of mining. In

other cases the length of time needed for natural recharge of deep aquifers

where ground water removal rates are high leads to a continual reduction in

stock that will not be replenished in short time frames. Moreover,

overdrafting can sometimes lead to a collapse of the formation permanently

reducing the aquifer’s storage capacity.

• Decision-makers should also be cautious regarding contamination of

ground water. Restoration of contaminated aquifers, even when feasible, is

resource intensive and time consuming. Restoration methods are uncertain

and unlikely to improve significantly in the near future. As a result, it is

almost always less expensive to prevent ground water contamination than to

clean up the water.

• Ground water often makes significant contributions to valuable ecological services. For example, in the Southwest, many flowing streams have

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46 VALUING GROUND WATER

been eliminated by overpumping. Because the ground water processes that

affect ecosystems and base stream flow are not well understood, combined

hydrologic/ecologic research should be pursued to clarify these connections

and better define the extent to which changes in ground water quality or

quantity contribute to changes in ecologic values.

• Ground water management entities should consider appropriate policies such as pump taxes or quotas to ensure that cost of using the water now

rather than later is accurately accounted for by competing pumpers.

• Because ground water resources are finite, decision-makers should take

a long-term view in all decisions regarding valuation and use of the resources.

REFERENCES

American Water Works Association. 1990. Water Quality and Treatment. Blacklick, Ohio:

McGraw-Hill.

Anderson, M. G., and T. P. Burt. 1985. Hydrologic Forecasting. New York: John Wiley and Sons.

Atkinson, S. F., G. D. Miller, D. S. Curry, and S. D. Lee. 1986. Salt Water Intrusion: Status and

Potential in the Contiguous United States. Chelsea, Mich.: Lewis Publishers.

Burness, H. S., and W. E. Martin. 1988. Management of a tributary aquifer. Water Resources

Research 5(24):1339-1344.

Burt, O. R. 1970. Groundwater storage control under institutional restrictions. Water Resources

Research 6(6):1540-1548.

Cummings, R. G. 1970. Some extensions of the economic theory of exhaustible resources. Western

Journal of Economics 7(3):201-210.

Domenico, P. A., and F. W. Schwartz. 1990. Physical and Chemical Hydrogeology. New York:

John Wiley and Sons.

Fetter, C. W. 1994. Applied Hydrogeology. New York: Macmillan College Publishing.

Frederick, K. D. 1995. America’s water supply: Status and prospects for the future. Consequences

1(1):14-23.

Heath, R. C. 1983. Basic ground-water hydrology. Water-Supply Paper 2220. U. S. Geological

Survey.

Lloyd, J. W., and M. H. Farag. 1978. Fossil ground water gradients in and regional sedimentary

basins. Ground Water 16:388-398.

Morel-Seytoux, H. J. 1985. Conjunctive use of surface and ground water. Pp. 35-67 In Artificial

Recharge of Ground Water. T. Asano, ed. Chapter 3. Boston: Butterworths Publishers.

National Research Council. 1994a. Ground Water Recharge Using Waters of Impaired Quality.

Washington D.C.: National Academy Press.

National Research Council. 1994b. Alternatives for Ground Water Cleanup. Washington, D.C.:

National Academy Press.

National Research Council. 1995. Wetlands: Characteristics and Boundaries. Washington, D.C.:

National Academy Press.

Nether, P. A. 1990. Natural Resource Economics: Conservation and Exploitation. New York:

Cambridge University Press.

Office of Technology Assessment. 1984. Protecting the Nation’s Groundwater from Contamination, OTA-O-233. Washington, D.C.: U.S. Congress.

Provencher, B., and O. R. Burt. 1993. The externalities associated with common property exploitation of groundwater. Journal of Environmental Economics and Management 24(2):139-158.

Schoek, J. M., ed. 1995. City cuts use of depleted ground water. The Ground Water Newsletter

24(12):6.

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A FRAMEWORK FOR THE VALUATION OF GROUND WATER 47

47

3

5

A Framework for the

Valuation of Ground Water

This chapter provides a conceptual framework for valuing ground water

resources that in turn provides a basis for evaluating the tradeoffs that occur

whenever there are competing uses for the ground water resources. For example,

continued use of ground water as an input into agricultural production implies

that less ground water is available for municipal purposes. 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. More specifically, the framework links changes in the

physical characteristics (quantity and quality) of ground water resources to

changes in the level of services or uses of the resources and finally, to how

society values the changes in the services or uses. It is in establishing the

connections among the changes in quantity/quality of ground water and the

changes in service flows that collaboration among researchers (e.g., engineers,

hydrogeologists, and economists) is most essential. How society values the

changes in service flows or uses is primarily an economic valuation problem; its

outcome is influenced by institutions and individual tastes and preferences.

The steps involved in developing this integrative framework, delineated in

the following sections, highlight the needed input from both economics as well as

other relevant disciplines. Variations of this interdisciplinary framework have

been utilized for the valuation of other resources or resource-related assets, including agricultural land resources, air quality, recreational resources, and wetCopyright © National Academy of Sciences. All rights reserved.

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48 VALUING GROUND WATER

lands. Boyle and Bergstrom (1994) proposed a similar framework for measuring the economic benefits of ground water in a report prepared for the U.S.

Environmental Protection Agency. While the impetus for Boyle and Bergstrom’s

report was the need to incorporate the value of ground water resources when

conducting regulatory impact analyses, the framework they developed and the

variation of that framework outlined here are applicable to other policies and

programs that affect ground water resources.

SOME PRELIMINARIES

Ground Water as a Natural Asset

Ground water can be considered a natural asset. The value of such an asset

resides in its ability to create flows of services over time. As discussed in Chapter

1, there are two broad categories of resource services provided by ground water:

extractive and in situ. The relationships among these are illustrated in the schematic diagram shown in Figure 3.1.

In each time period depicted in Figure 3.1, a ground water stock provides

each of the services and is subjected to various influences that affect its quality.

Of course extraction and/or addition of water today affects the quantity and

quality of stocks tomorrow, and it is critical to incorporate this intertemporal

element into the analysis of the valuation problem. Intertemporal issues are

related to each of these service flows, and understanding them is fundamental to

understanding the overall valuation problem.

The Concept of Total Economic Value

The total economic value (TEV) of ground water is a summation of its values

across all of its uses. Sources of values have been classified into use values

(sometimes called direct use values) and nonuse values (also known as passive

use values, existence values). The use values arise from the direct use of a good

or asset by consuming it or its services. For ground water, these would include

consumption of drinking water and other municipal or commercial uses. Nonuse

values arise irrespective of such direct use. 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. Valuation is a useful tool if the values can

help inform decision-makers. The relevant issue is how the TEV of ground water

will change when a policy or management decision is implemented.

Prices are often used as a proxy for values. In settings where goods or

services (for example, eggs and haircuts) are traded through markets, prices are a

good proxy for the value of the last, or the marginal, unit that is traded. As more

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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.

Several important points about value have particular relevance to ground

water valuation. Values are specified at an individual level, and defining a social

value for ground water requires aggregating individual values. There are many

possible ways to weight individuals in forming such aggregates, including using

unweighted dollar-for-dollar sums. Assigning equal weights across all individuals (i.e., a dollar-for-dollar summation) is a common procedure in benefit-cost

analyses of public policies. Use of such a procedure assumes that the current or

existing distribution of incomes is socially acceptable. All values derive ultiFIGURE 3.1 Ground water services.

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mately from services to consumers, whether these services are consumed directly

or through produced goods. In this way ground water, ecosystems, and other

environmental resources generate value either directly or indirectly.

Economic valuation methods have concentrated on techniques for assessing

particular pieces of the total value puzzle. The easier pieces to value are those

associated with identifiable uses such as agriculture, municipal water supply, and

other commercial or industrial uses. 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. Economic

values are anthropocentric notions and are based on situations of choice. The

mechanism of choice might be a market or a negotiated explicit or implicit

contract or a public referendum. Because this valuation is based on human

choices, it does rule out some of what concerns some ecologists and environmentalists who believe that nature inherently has “rights.” Therefore the concept of

economic valuation does have some limitations in discourse about natural resource policy where the “rights” of nonhuman entities are given significant weight

compared to human use values.

Nonuse values are more controversial than use values when it comes to

measuring and validating them. Some of the techniques presented in Chapter 4

suggest ways to quantify the nonuse values as part of measuring the total economic value. The issue of how to model and measure nonuse values cannot be

totally separated from the measurement of use values. And as Freeman (1993b:

161-162) indicates:

economic theory gives unambiguous guidance only on defining total values as

compensating income changes for changes in a resource. The question of

whether non-use values, however defined, are positive takes on meaning only

after some decision has been made about what use values measure, since nonuse values are simply total value minus whatever has been called use value...

Ultimately we want to be able to measure total value. Any distinction between

use and non-use values is itself useful only if it helps in the task of measuring

total value.

Although there is no a priori agreement on when nonuse values are likely to

be significant, economists often suggest that one factor would be whether the

resource in question is sufficiently unique, has no close substitutes, and has a low

price elasticity of demand. In certain locations ground water could satisfy these

requirements, particularly if it is valued as a source of “pristine” water. Even in

situations where the ground water by itself does not produce much in the way of

nonuse value, it may contribute to habitat for endangered species, which has

significant nonuse value. In such a case, the derived value of the ground water

will include this value as well.

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Institutions and Decisions

The value of ground water, that is, its ability to produce valuable service

flows to people, is increased when any given amount of water is allocated efficiently across potential water uses. Water is efficiently allocated when the increment to value that could be obtained from using a little more water in any one

way (called the marginal value of water in that use) is the same across all uses of

water. To understand this concept, assume that such a balance does not exist. For

example, suppose that one use (say, an industrial process) could generate $100 in

incremental value if a little more water is used there, while another use (say,

agricultural production) would lose only $50 in value if a little water is removed

from that use. Then transferring a unit of water from the agriculture to the

industrial use increases the total value of water services by $50.

Any inefficiencies in the allocation of ground water across uses or quality

will lower the value of the ground water. Poor quality will also reduce its value

to users. The value of ground water, then, is intimately tied to institutions that

govern how it is allocated (or misallocated) and protected in the current period,

through time, and according to its quality. That is why, in Figure 3.1, institutions

are depicted as a set of overarching influences that govern the value of ground

water.

One possible institution for allocating ground water is a set of private water

markets. Economists have shown that if these markets are organized in a particular fashion, then the allocation of water among uses will be efficient. Of course

the conditions underlying this result would be difficult to meet. Instead of a

market system, there presently exists a complex web of water resource institutions that vary from jurisdiction to jurisdiction. These institutions are described

in more detail in Chapter 5. The analysis of how these institutions promote or

mitigate inefficient water allocations is an important but difficult task that is

beyond the scope of this committee’s investigation.

The total value of ground water is increased if it is efficiently allocated.

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. If the incremental costs and benefits of changing water quality are greatly different, then economic well-being is enhanced by improving water quality or perhaps by allowing

a lower level of water quality for some uses.

Consider first the allocation decision. In Figure 3.2 the horizontal axis

shows the quantity of water that can be allocated to either of two uses: in-stream

flows, which provide ecological services; or landscaping, which provides aesthetic values that can also be considered a part of ecological services. At the right

edge of the diagram, at point Q, all water is allocated to in-stream flows, and none

goes to landscaping. The vertical axis measures incremental values. The line

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sloping downward to the right depicts the additional value one could obtain from

having more water for landscaping. 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.

The efficient allocation of ground water balances incremental values across

the two uses. This is shown at a point qe in Figure 3.2. At point q1, more water

should be allocated to landscaping, while at point q2, stream flows should be

increased.

Currently, there is minimal information on the value of ground water in

many of its alternative uses. Much has been written regarding municipal, agricultural, and industrial uses and the inefficient institutions that artificially depress

the value of ground water in agricultural uses in the American West. The idea is

that there are large gaps between incremental values of water across these uses.

Although extractive uses have been widely studied, almost nothing is known

FIGURE 3.2 Allocation decisions.

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about in situ ground water services and their values. Even the incremental value

of many municipal water uses, such as landscaping, is not well understood.

Consider now the quality decision. Figure 3.3 on quality decisions shows a

diagram similar to the last one but with a different interpretation. Suppose a

remediation decision is to be made. The horizontal axis shows the degree of

contamination of a ground water stock, with increasing contamination to the

right. The contaminated stock is at quality Q. Improving ground water quality

via treatment is, as explained in Chapter 2, a costly process. The incremental

costs are shown as moving upward to the left. Information is available about the

cost of alternative technologies for cleaning up ground water; for example, a

recent NRC report, Alternatives for Ground Water Cleanup (NRC, 1994), is

directed to this issue. However, this information does not address whether or

how much to remediate or treat.

The decision process requires value information. 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. Treatment levels between Q and qe such as q2 (Figure 3.3) represent less than ecoFIGURE 3.3 Quality decisions.

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nomically optimal treatment since the benefits from additional treatment outweigh the costs. If water is left untreated (point Q), gains from treatment

outweigh costs up to a quality level qe . Treatment to achieve qualities greater

than that at qe (as, for example, to q1) is excessive since benefits are outweighed

by the costs.

These simple examples depict how valuation measures can be used in decision-making. Obviously, these are highly stylized. In practice these nice smooth

curves do not exist, and there are lumpy, nonincremental decisions to reach. But

the basic point remains. The valuation framework described later in this chapter

is of interest not in its own right as an academic exercise but rather as part of a

decision-making process. One set of relevant decisions involves ground water

management decisions within a given institutional structure. Values can also be

used for institutional reform, to reduce systematic inefficiencies.

A major question concerns the availability of value information for use in

decision-making. When assets and their services are exchanged in organized

markets, there is an observable link between the asset’s value and the values of

the services that the asset provides (Kopp and Smith, 1993). For example, the

current value of a commercial building (an asset) can be determined in the real

estate market. Its value can also be appraised by examining the present discounted value of the stream of net incomes realized over time (as a result of

annual rentals), plus any residual value. If the building is damaged, the value of

the asset is reduced precisely because the present discounted value of the stream

of net rental incomes is reduced. In this case the existence of organized markets

provides information on how society values the asset.

In the case of ground water, however, other nonmarket institutions govern its

use. Neither the asset nor its services are traded on well-organized markets.

Thus, no ready source of information automatically provides a connection from

service values to asset values that would be similar to the information the market

provides.

The valuation process that managers and policy-makers undertake should, in

theory, be similar to the valuation process the market provides. One needs to

know the time stream of services ground water supplies, and the values that

society places on these services. These values are not straightforward for two

reasons. First, there are many services for which information on individual

values is not readily obtained. For example, because ecological services fall

outside of markets, they call for specialized valuation techniques. Second, values

are defined and measured at the individual level. 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. This is

rather like the problem of adding up values across people: now we need a way to

add up value across people alive at different points in time. The market rate of

interest serves as an approach for money assets, but things are not quite so simple

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for natural assets provided through public institutions. This is a complex question

tied to issues of intergenerational equity.

The next step in the process is creating a link between the management

decision to be implemented and the resulting changes in the time path of services

the ground water stock will provide. Considerations must go beyond mere description of the services already used in one state of the world; they must also

involve predictions of future services.

Allocation over Time and Discounting

The provision of benefits or services over time requires that consumers and

other users “trade off” benefits (or costs) in one period, such as the present,

against benefits in a different time period. In other words, consumers/users of the

resource must balance the desire for current consumption against a desire for

consumption in the future. All else being equal, people would rather consume a

unit of a good today rather than wait to consume it in the future, say in a year’s

time. Having a unit of income today is worth more than having the same unit of

income a year in the future.

As indicated earlier, ground water is considered to be a common limited

resource that can be used at different rates over time. Water managers must be

concerned with the preferences society has for using that limited resource and the

manner in which the ground water will be mined under alternative institutional

arrangements. Both of these concerns lead to notions of intertemporal use and

discounting.

The traditional criterion used to address the problem of use rates over time is

to compare the net benefits (benefits minus the costs) received in one period with

the net benefits received in another period. The concept that allows for making

this comparison is called present value, which explicitly incorporates the time

value of money. The present value of a onetime net benefit received a year from

now is computed as

(net benefits in year 1)/ (1 + r),

where r is the appropriate interest rate. This process of calculating present value

is known as discounting, and r is referred to as the discount rate.

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. Knowing the total economic value of the ground

water is crucial for determining the net benefits.

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Scarcity imposes an opportunity cost, which economists refer to as a marginal user cost. Greater use of the resource today diminishes future opportunities

for use, so the marginal user cost is the present value of these foregone opportunities. Using ground water for watering lawns and agricultural purposes may not

be appropriate under conditions where drinking water supplies to future generations are denied but may be wholly appropriate in situations with sufficient

supplies of water. Failure to take higher scarcity value of water into account will

lead to extra costs to society by imposing extra scarcity on the future. Conversely, overconservation in areas with sufficient supplies will impose additional

costs on society today.

Allocation of the ground water resource over time is affected by the discount

rate. The higher the discount rate, the greater the amount of the resource that will

be allocated to the earlier periods. Higher discount rates skew consumption and

use toward the present because they give less weight to future net benefits. The

methodology for choosing an appropriate discount rate is a matter of continuing

debate: “after a lot of time trying to discover an unassailable definition of the

social rate of discount, economists are beginning to decide that a totally satisfactory definition does not exist” (Page, 1977). The proper rate depends, in part, on

the context of the decision being analyzed (Lind, 1990) but the role of the discount rate is to ensure that scarce resources are allocated efficiently over time.

Issues of whether resources are allocated fairly over time are different, albeit

important, issues. In Sustaining Our Water Resources (NRC, 1993a), Brown

Weiss notes that: “. . . the withdrawal of ground water in excess of recharge rates

to supply potable drinking water or rapid withdrawal of water from nonrechargeable aquifers, will cause conflicts between immediate satisfaction of needs and

long-term maintenance of the resources.” Brown Weiss notes further that in

these cases “means need to be developed to reconcile intergenerational concerns

with the demands of the living generation.”

Issues of whether allocations over time are fair are difficult to address through

the selection of a discount rate. Recent literature has raised questions about the

applicability of cost-benefit analysis as currently practiced to deal with intergenerational issues. Smith (1988) suggests that many resource problems we face

today, including depletion of ground water resources, “stretch the conceptual

basis for benefit-cost analysis well beyond the bounds for what it was intended—

a single generation borrowing from itself.” Page (1988) suggest a fundamental

change in how economists evaluate allocation issues that span many generations.

In his view the question is not simply one of selecting the appropriate rate of

discount, but of basing policy decisions on an intergenerational social choice

rule, according to what society considers “fair.” In his earlier writings, Page

(1977) argues for preserving the opportunities for future generations as a common sense minimal notion of intergenerational justice. Preserving these opportunities is critical in settings where there are irreversibilities and a large degree of

uncertainty with respect to both the size of the resource stock and the future

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demands on the resource. These issues of fairness are distinct from issues of

allocative efficiency and, in general, selection of discount rates should be guided

by considerations of efficiency while issues of fairness should be resolved in

other ways.

Role of Economic Uncertainty

Economic uncertainties occur at both micro and macro scales. The value of

a particular ground water supply that supports an extractive use may be influenced by events at local, regional, national, or international levels. For example,

the prices of water-intensive commodities such as cotton or copper are affected

by price supports and international markets. Changes in commodity prices affect

the value of the ground water used to produce those commodities. Farm policies

also have an impact on ground water use.

Economic uncertainty is commonly related to lack of data with which to

predict human behavior across time and space. Economic uncertainties relative

to nonmarket goods and services are even more substantial, because outside of a

market there is no documentation of monetary value. Various techniques have

been developed to estimate monetary value, but certain values may remain hidden, and there are multiple sources of error in these techniques as well. These

techniques and their flaws are discussed in greater detail in Chapter 4.

Externalities and Ground Water

The valuation of ground water involves considerations of external effects

inflicted upon ground water, such as the ecosystem side effects incurred when

ground water is extracted or contaminated, and the effects that ground water

extraction decisions have on ground water availability and cost.

The decisions of any number of consumers and firms may alter ground water

quality in unintended ways. Some of these result from point sources of pollution,

where a known, identified source is contributing to the problem. We can, at least

in principle, measure the quantity of emissions from point sources. Standard

approaches for controlling these problems are available, as will be discussed

below. Nonpoint source pollution is generated from farms, residences, and urban

runoff—a diffuse set of sources such that measurement of emissions from any

single source is impractical.

Ground water contributes services to the aquatic ecosystem that individual

extractors are not likely to take into account. 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.

Certain externalities arise when one firm’s pumping causes other firms’

situations to change. These open access resource problems have basically two

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types of effects. First, pumping may decrease pressure in the aquifer, implying

that the total amount of ground water available to all users is reduced. 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). It also discusses

information required to establish the values of such services and how they are

affected by changes in ground water policy and/or management.

Extractive Uses

Extraction in excess of net recharge in the current period, as depicted in

Figure 3.1 by arrow A, will reduce ground water stocks in the future. Water

managers need information to assess how the cost of extraction and distribution is

altered by changes in ground water stocks and hydrogeological information to

assess how given pumping rates will alter the pressure head in the future. Of

course the influence of pumping on future stocks and their quality is a complex

issue of hydrogeology and chemistry, since recharge rates, the quality of the

recharged water, and aquifer capacity all are involved.

The extractive services consist of municipal, agricultural, and industrial uses

of water. Clearly, the efficient allocation of water to alternative uses requires

information on relative values in these uses. The municipal uses include direct

human consumption, for which strict quality criteria must be met, and a host of

other uses with lesser demands on water quality, such as street cleaning, washing

cars, and water used for landscaping private residences, parks, and golf courses.

Deciding how to value changes in the quantity or price of water for these municipal uses is fairly difficult. Data exist with which to value water for total household use, but how do people value green lawns relative to other uses? Are

watered fairways on public golf courses of high or low priority? Further, the

supply of water is one issue, the reliability of this supply another. Many ground

water development projects are in fact directed to the latter, thus policy-makers

need to give attention to valuing changes in the reliability of the water supply

along with valuing changes in the quantity of water supplied period by period.

Of greater methodological difficulty is understanding how quality changes

alter value, particularly if deteriorated conditions preclude future uses requiring

higher quality standards. What demands are placed on water quality by alternative uses? Economists have devoted considerable attention to determining the

value of protecting the quality of drinking water from various contaminants. This

research is not without controversy, and the committee addresses some of the

issues below. But experts also disagree on the health implications of ground

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water contamination, and the public’s perception of the state of this knowledge is

even more variable.

Agricultural and industrial uses have a wide variety of water-quality needs

attached to them, and the relevant issue is the cost of supplying a sufficient

quantity of ground water of suitable quality. The values are fairly straightforward

to measure conceptually: the use of ground water contributes to the making of

products, and the incremental contribution of water to the value of production

measures ground water value in these uses. But of course policy-makers need

information from various sources to undergird these measurements. In particular, industrial process engineers or agricultural production specialists might help

determine how water quality and quantity changes will affect production. Alternatively, water managers might employ a statistical approach. Arrow B in Figure

3.1 involves interaction between economic and engineering information and,

regarding human uses, may involve input from psychometricians (a person skilled

in the administration and interpretation of psychological tests), and health experts, as well.

It should also be noted that ground water extraction can be influenced by

return flows and their associated quantity and quality. Naturally, this depends on

the uses to which ground water is put and on a host of biological, chemical, and

hydrological factors. Thus several types of information are needed to elucidate

Arrow C in Figure 3.1; such information could be based on input from hydrologists, chemists, soil scientists, and so on.

Further, ground water is subject to pollution from waste disposal and efforts

to mitigate such effects. These influences, represented by Arrows D and E in

Figure 3.1, are the province of all the current work on ground water contamination, fate and transport of pollutants, movement of pollution within aquifers,

effectiveness of alternative remediation or containment efforts, and so on.

Ground water systems are interrelated with surface water systems. Therefore, in the taxonomy defined in this report (see Table 1.3), 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. This information is needed to

determine the magnitudes of effects depicted by Arrow F in Figure 3.1. Surface

water provides a number of ecological functions, including filtering and processing of pollutants and providing habitat for a wide variety of species, both directly

aquatic and terrestrial. The importance of chemists and ecologists is self-evident.

Establishing the connections indicated by Arrows F and G in Figure 3.1 is thus a

multidisciplinary task.

Ground water contributes notably to many surface water services (see Table

1.5), notably, recreational services. Water in parks makes them more valuable,

and swimming, fishing, boating, bird-watching, and a host of other activities

either require water or are enhanced by it. There are a variety of methods for

measuring recreational values.

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In Situ Services

The mere presence of ground water in an aquifer provides a number of

services referred to as in situ services. First, to some extent, waste products can

be added to ground water and their potentially harmful impacts can be mitigated.

This assimilative capacity can be thought of in terms of reductions in the cost of

other forms of waste disposal or treatment. Obviously, chemists and biologists

would determine the capacity of ground water to provide these services (Arrow F

in Figure 3.1), and economists and engineers would determine the cost savings

implied (Arrow G).

Second, ground water provides structure to the geologic environment. If

ground water is extracted, subsidence can occur. The degree to which this happens in any given circumstance is the province of geologists and geotechnical

engineers. Civil engineers can assess resulting effects on buildings and infrastructure by direct damage or flooding. The primary economic measure of loss is

the dollar value of damage in lost property value or replacement cost for infrastructure. To the extent that the exact degree of subsidence and associated damage is uncertain for given amounts of extraction, economists must assist in analyzing plans for ground water extraction (Tsur and Zemel, 1995).

Very similar to subsidence is the role of ground water stocks in coastal areas

in avoiding salt water intrusion. At low levels of stock, reduced hydraulic pressure can allow salt water to invade a coastal aquifer. The extent to which this

might happen and at what level of stock is uncertain, but hydrogeologists or

engineers can supply some information. The loss in services of ground water is

then a matter of the resultant changes in the salinity of ground water. Tsur and

Zemel (1995) offer an economic analysis of optimal response to uncertainties in

this area.

Ground water also provides a buffer, or insurance service, when managed

conjunctively with surface water stocks. 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. Tsur and Graham-Tomasi (1991) have found that this buffer value can be significant. In one

example, buffer value constituted 84 percent of the total value of the ground

water stock, meaning that if this value were ignored, ground water would be

seriously undervalued.

THE CONCEPTUAL FRAMEWORK

This section summarizes the steps involved in an economic analysis of

ground water value, noting both the limitations of economic techniques and the

inherent uncertainties associated with this task.

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Measuring “Values”

Any empirical analysis requires that some preliminary decisions be made

regarding the scope of the research. For the ground water valuation problem, this

means deciding what value to quantify. The economic concept of value, introduced earlier in this chapter, is the cornerstone of this conceptual framework and

is grounded in neoclassical welfare economics. The basic premises of welfare

economics are that all economic activity is aimed at increasing the welfare of the

individuals in society and that individuals are the best judges of their own welfare. 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. Thus it follows

that the basis for deriving measures of the economic value of changes in a natural

resource, such as ground water, is its effect on human welfare.

The economic theory for measuring changes in human welfare was initially

developed for goods and services exchanged in private commodity markets, using observed prices and quantities. Over the past few decades, the theory of

measuring economic values has been extended to include nonmarket goods and

services. The basis for extending the theory to goods and services that are not

traded through private markets is that individuals do substitute among markets as

well as use nonmarket goods and services, and this process of substituting reveals

something about the values placed on these goods. The value measures are

commonly expressed in terms of willingness to pay (WTP) or willingness to

accept (WTA) compensation, either of which can be defined in terms of the

quantities of a good an individual is willing to substitute for the good or service

being valued or in terms of monetary units. (See Freeman, 1993a for a complete

discussion of WTP and WTA measures.) The approaches to measuring values

discussed in Chapter 4 are attempts to measure either WTP or WTA, when the

ground water service flows are not purchased in perfectly functioning markets

and have public good characteristics.

A Simple Conceptual Model

Although measuring values involves the use of techniques based on economics, these values must be determined in conjunction with knowledge from

other disciplines. For example, estimates of the value of a ground water aquifer

in sustaining wildlife habitat must incorporate knowledge of the ecological and

hydrological links among the water level of the aquifer, recharge, and the exploited fish and animal species. Estimates of the value of ground water as a

source of municipal water depends upon the availability of substitutes, recharge,

and other information that water scientists can supply. Lack of knowledge conCopyright © National Academy of Sciences. All rights reserved.

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cerning these physical, biological, and/or hydrological relationships is a major

limitation to obtaining valid empirical estimates of value of the ground water

resource. The conceptual framework presented herein is an attempt to (1) emphasize the importance of economics in valuing ground water resources and (2) make

clear that the economic technique and resulting values depend on the underlying

relationships that determine the quantity and quality of ground water service flows.

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).

The first relationship can be represented as

(1) S (t + 1) = S [S(t), A(t), z],

where S(t) represents a quantifiable measure of the ground water resource (a

combination of quality and stock of water), A(t) represents actions taken by

people, such as extraction pollution events and remediation, and z represents

some random uncontrolled disturbances such as hydrologic events related to net

recharge of the aquifer. This relationship shows how the future state of the

ground water resource depends on its current state and what is done to it in the

meantime. This relationship summarizes a set of purely physical outcomes.

The second functional relationship can be written as

(2) A(t) = A[S(t), G(t), Y(S), I(t)],

where A(t) is as defined above, representing the set of human activities. G(t)

represents a set of governmental policies or management plans. Y represents

other background variables, such as the costs of inputs into the production process including labor, capital, and materials that also depend on S, income levels,

population, etc. and I(t) is a set of institutional factors that show how decisions

are reached and actions taken. This second relationship can be viewed as a

decision function that maps the milieu within which ground water decisions are

made (government policies, prices of goods and services, income levels, population, the ground water resource, and institutions) into actions (pumping rates,

remediation, waste disposal). This shows how changes in any of these factors

will alter how ground water is used.

The third set of functional relationships gives the economic value as a function of the uses or service flows. The first relationship in this set shows how the

dollar values of the services provided by ground water in any given period depend on those flows and other variables. First, regarding the extractive values, B.

(3a) BEX(t) = BEX(A(t), S(t), Y, I(t), z),

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which shows that the extractive benefits in the current period depend on the

actions taken, the status of the ground water stock, background variables, institutions, and random events, such as rainfall.

Second, regarding in situ services, the benefits achieved are given by

(3b) BIS(t) = BIS(S(t), Y, I(t), z).

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.

The TEV of the ground water’s services in the current period is the sum of

the extractive and in situ values. Thus, we have

(3c) TEV (S(t)) = BEX(t) + BIS(t).

FIGURE 3.4 Conceptual framework for ground water valuation.

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64 VALUING GROUND WATER

And finally, the value of the ground water stock itself, specified as the

present value of the benefits conferred by the service flows that the stock generates can be addressed. Discounting issues and the valuation of the ground water

asset will be further discussed in Chapter 4. Here, it can be noted that

T B(t) (3d) Value of Ground Water = V(S(t)) = Σt (l + r)t

The importance of the discount rate is obvious here.

The set of relationships represented by equations 1 and 2 above are noneconomic in nature and involve a variety of physical, biological, and hydrological

processes. The set of relationships represented by equations 3 above depict the

integration of the physical and economic sciences. Economists must work closely

with other scientists, for an essential input to valuation of in situ and ecological

services is the magnitude of those service flows.

The three stages in Figure 3.4 correspond to the three sets of relationships

discussed above. Stage 1 involves an assessment of the current quantity and

quality of the ground water resources in a particular area and an assessment of

how events or circumstances might alter the baseline quantity and quality. This

alteration could come about through underlying economic and social forces, such

as increased population, or arise from some explicit decision, such as a change in

management or policy or institutional structures. 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. Stage 3 represents the formal

economic analysis, equivalent to the third set of relationships. This third stage

quantifies the value of services and how these values are affected by changes in

service flows.

Each of the stages in Figure 3.4 requires in-depth research and is accompanied by its own levels of uncertainty. The uncertainty with respect to the estimates of the biophysical impacts on the quantity or quality of the resource will be

carried through the valuation process and will be compounded by the uncertainties in the economic valuation methods. For example, the National Research

Council’s Ground Water Vulnerability Assessment (NRC, 1993b) attests to the

importance as well as the difficulties and uncertainties present in current vulnerability assessment methods available to predict changes in the quality and quantity of ground water resources.

The conceptual framework involves the research of economists, building

upon the hydrological and biophysical analyses that preceded it. The uncertainties and challenges associated with economic valuation techniques as they pertain

to valuing ground water assets are discussed in Chapter 4. The hydrological,

.

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physical, and biological principles relevant to the economic valuation procedures

were discussed in Chapter 2.

As Boyle and Bergstrom (1994) 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. Information obtained from an analysis of the benefits of ground water

would be used in a full fledged benefit-cost analysis (BCA) of regulatory actions

or management decisions affecting ground water quantity and quality.

Benefit-cost analysis has had a long history relating to water resources. The

U.S. Bureau of Reclamation and the U.S. Army Corps of Engineers initially

developed BCA to evaluate surface water investments. The overall objective was

to provide a picture of the costs and gains associated with investments in surface

water development projects.

In more recent years, BCA has been applied to environmental and resource

regulations. (For details see Kneese, 1984.) In these applications BCA should not

be used as a simple decision rule but rather as a framework and a set of procedures to help organize available information and evaluate tradeoffs. Viewed in

this way, the framework proposed in this chapter is an approach to quantifying

the benefits of current and proposed management practices affecting ground

water. If this information were to be used in a decision-making framework, it

would need to be matched with information on the costs of alternative management strategies.

RECOMMENDATIONS

• As noted earlier, some knowledge of a resource’s TEV is vital to the

work of water managers, and in the development of policies dealing with

allocation of ground water and surface water resources. For many purposes, the full TEV need not be measured, but in all cases where a substantial portion of the TEV will be altered by a decision or policy, that portion

should be measured.

• Policy-makers must recognize the role of the discount rate in ensurCopyright © National Academy of Sciences. All rights reserved.

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66 VALUING GROUND WATER

ing the efficient allocation of resources over time. As such, the discount rate

should reflect the opportunity cost of financing ground water projects. Issues of equity or fairness should be addressed directly and not through

adjustments to the discount rate.

• An interdisciplinary approach, such as the conceptual model presented in Chapter 3, is useful in conducting a ground water value assessment. The approach should incorporate knowledge from the economic,

hydrologic, health and other social, biological, and physical sciences. Every

assessment should be site specific and integrate information on water demands with information on recharge and other hydrologic concerns, and to

the extent possible, should reflect the uncertainties in both the economic

estimates of the demand for ground water and in the hydrologic and biophysical relationships.

• There are many research needs related to natural resource valuation

concepts and methods. Research is needed to:

a. determine the general circumstances under which nonuse values

are likely to be significant;

b. provide a clearer understanding of how changes in water quality

alter value; and,

c. develop better methodologies for linking ground water policy and

changes in the biophysical properties of aquifers. Such research must be

multidisciplinary.

REFERENCES

Boyle, K. J., and J. C. Bergstrom. 1994. A framework for measuring the economic benefits of

ground water. Department of Agricultural and Resource Economics Staff Paper. Orono: University of Maine.

Freeman, A. M. III. 1993a. The Measurement of Environmental and Resource Values: Theory and

Methods. Washington, D.C.: Resources for the Future.

Freeman, A. M. III. 1993b. Non-use values in natural resource damage assessments. Pp. 161-162 in

Valuing Natural Assets, the Economics of Natural Resource Damage Assessment, Kopp and

Smith, eds. Washington, D.C.: Resources for the Future.

Kneese, A. V. 1984. Measuring the Benefits of Clean Air and Water. Washington, D.C.: Resources

for the Future.

Kopp, R. J., and V. K. Smith, eds. 1993. Valuing Natural Assets, The Economics of Natural

Resources Damage Assessment: Washington, D.C.: Resources for the Future.

Lind, R. C. 1990. Reassessing the government’s discount rate policy in light of new theory and data

in a world with a high degree of capital mobility. Journal of Environmental Economics and

Management 18(2):S8-S28.

National Research Council. 1993a. Sustaining Our Water Resources. Washington, D.C.: National

Academy Press.

National Research Council. 1993b. Ground Water Vulnerability Assessment. Washington, D.C.:

National Academy Press.

National Research Council. 1994. Alternatives for Ground Water Cleanup. Washington, D.C.: National Academy Press.

Copyright © National Academy of Sciences. All rights reserved.

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A FRAMEWORK FOR THE VALUATION OF GROUND WATER 67

Page, T. 1977. Conservation and Economic Efficiency. Baltimore, Md.: Johns Hopkins University

Press.

Page, T. 1988. Intergenerational equity and the social rate of discount. Pp. 71-89 In Environmental

Resources and Applied Welfare Economics: Essays in Honour of John V. Krutilla, V. K.

Smith, ed. Baltimore: Resources for the Future Press.

Smith, V. K., ed. 1988. Environmental Resources and Applied Welfare Economics: Essays in

Honour of John V. Krutilla. Baltimore: Resources for the Future Press.

Tsur, Y., and T. Graham-Tomasi. 1991. The buffer value of ground water with stochastic surface

water supplies. Journal of Environmental Economics and Management 21: 201-224.

Tsur, Y., and A. Zemel. 1995. Uncertainty and irreversibility in ground water resource management. Journal of Environmental Economics and Management 29(2):149.

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68 VALUING GROUND WATER

68

4

5

Economic Valuation of Ground Water

Chapter 3 presented an integrative framework for valuing ground water resources. This chapter examines the key economic principles and methods used to

value various ground water services identified in the previous chapter. It is

divided into five major sections. The first offers a brief history of the science and

art of economic valuation of natural/environmental resources, including the role

of these methods in public policy development. This is followed by a review of

the methods for estimating the value of environmental amenities. The approaches

are discussed in terms of their relevance for the categories of service flows

generated from the integrative framework in Chapter 3. The fourth section reviews selected ground water valuation studies with the aim of drawing conclusions about the state of current knowledge of the value of ground water resources.

Finally, recommendations are made for using elements of the integrative framework from Chapter 3 and the economic concepts and methods presented here to

estimate the value of ground water in specific contexts. The application of these

methods to a range of ground water services is explored in a series of case studies

in Chapter 6.

HISTORY OF ECONOMIC VALUATION OF

NATURAL/ENVIRONMENTAL RESOURCES

Since the 1960s economists have developed a variety of techniques for assessing the value of nonmarket goods and services, not priced and traded in

markets. While most applications are to natural resources and environmental

assets, the concepts and methods of nonmarket valuation extend to a range of

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goods not usually traded in markets. The ability to assign values to such goods

and services has improved the accuracy of benefit-cost analysis. Inclusion of

economic values for some important (and previously ignored) classes of environmental services enables benefit-cost assessments to reflect more fully the consequences of natural resource policies and regulations.

Some of the earliest attempts to value a nonmarketed natural resource involved the value of water to agriculture in the western United States. Since water

has traditionally been allocated to farmers and other users according to the prior

appropriation doctrine (“first in time, first in use”), information was not available

on the user’s willingness to pay for water. To estimate (impute) a value for

irrigation water, economists used models and techniques borrowed from studies

of the behavior of firms, such as profit-maximizing models of farm behavior cast

as linear or other programming models. Specifically, economists had to infer

value by examining changes in returns to the farm associated with changes in the

amount of water applied. In this way they could estimate the value of both

surface and ground water.

These early water resource valuations used conceptual models and estimation techniques that had been developed and used primarily for analyzing marketrelated issues. These techniques worked well in assigning an economic value to

water use in agriculture, given that water is simply an input into the farm’s

production process and that abundant cost data (on other inputs) and revenue

information for farm operations existed.

The first application of techniques developed specifically for valuing nonmarketed commodities involved the travel cost method (TCM), Hotelling proposed in 1946 as a means of valuing visits to national parks. The travel cost

method, in its numerous variants, has been used extensively to assess the value of

a commodity used directly by the consumer, namely outdoor recreation. Refinements of the travel cost method and the development of new techniques, such as

the contingent valuation method (CVM) and hedonic price method (HPM),

enhanced the ability of economists to value a wider range of use values for

environmental commodities, including improvements in air and water quality.

Within the past decade, attention has shifted to estimating nonuse values, such as

what individuals are willing to pay to ensure the existence of species or unique

natural settings. The values elicited with these techniques for specific environmental goods and services are being used in an increasing array of settings;

however, their use is not without controversy, as discussed later in this chapter.

The development of nonmarket valuation techniques enabled economists to

place values on individual environmental commodities. However, policy and

regulatory attention is now increasingly focused on the management of ecosystems. Valuing complex hydrologic or ecological functions and the associated

range of service flows is relatively uncharted territory and raises a number of

conceptual and practical issues. For instance, natural scientists cannot unambiguously define and measure ecosystem performance and endpoints. Other

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problems arise from the inability of economic science to measure adequately the

consequences of long-term and complex phenomena. A related problem is the

difference in disciplinary perspectives between economists and scientists from

other fields who provide knowledge about physical relationships required for

bioeconomic assessments, such as how a change in aquifer flow will alter surface

stream flow and how a change in stream flow will, in turn, affect items people

value, such as recreational fish catch. These issues and challenges affect the

ability of economists to assess the full range of service flows from ground water;

these challenges are discussed in the case studies in Chapter 6.

THE ECONOMIC APPROACH TO VALUATION

Economic values are only one type of assigned values (Brown, 1984). They

indicate human preferences for a good or service and are not inherent in the good

or service itself. Further, economic values are exchange values; they reflect the

terms of trade, dollars for services. Decision criteria which are based on economic values, such as efficiency and benefit-cost analysis, demonstrate a utilitarian philosophical perspective. Recognizing and using economic values does not

deny the existence or validity of alternative perspectives of value; however, the

foundations of economic analysis offer the only unifying approach in making

some types of private and public choices.

The Role of Time in Economic Valuation

Ground water services, like the services arising from many natural resources,

frequently occur over multiple time periods. The rate of conversion of value

between time periods is called a rate of time preference. The rate of time preference is defined at the individual level, and is a feature of people’s desires. If an

individual’s rate of time preference is positive (greater than 0 percent), then the

individual prefers a dollar today to a dollar a year from today because the dollar

(or the consumption that dollar could purchase) in one year is worth less to the

individual than the value of a dollar (and its level of consumption) today.

To account for this, some economists like to discount the future values of

assets in order to compare them accurately to present assets. Discounting converts future values to present ones. The present value (V) is related to a future

value (FV) received t years hence by the rule

(1) V = FV/(1+r)t

in which r is the role of time preference. Discounting thus reduces the future

value of an asset by a percentage equal to the rate of time preference. Note that

the two concepts of a rate of time preference and a bank rate of interest are

distinct. They are, of course, related to one another in a market system. (Indeed,

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bank interest is an implicit recognition that people value a dollar more today than

the same dollar tomorrow.)

The role of changes in productivity, as discussed in the following section, is

also important in determining the appropriate discount rate. The following two

examples demonstrate how the concepts of rate of time preference, discounting,

and present value are used in measuring economic values over time. The examples include calculation of the value of an asset and the optimal rate of extraction of a resource over time. Both examples are relevant to the valuation of

ground water services.

The Value of an Asset

An asset, such as a piece of machinery or a ground water aquifer, is valuable

because of its contribution to producing a product of value (e.g., agricultural

crops or clean drinking water). The relationship between the value of the product

produced and the value of the machine or an aquifer is important. Suppose that a

machine or an aquifer lasts forever and that it contributes an increment to production each year that the firm values at $R. Suppose further that the bank rate of

interest is i percent. Then value (V) of the asset is

(2) V = R + R/(1+i) + R/(1+i)2 + R/(1+i)3 + ....

(3) = R/i.

The value of the asset today is thus equal to the sum of the annual incremental

contributions the asset will make to production during its life, less an appropriately discounted percentage for each year. This is the value (V) of the machine or

aquifer to the firm; and the firm would be willing to pay up to this amount (but no

more) today for the asset. In short, the value of any productive asset is the present

value of the increment to the owner’s objectives that it will generate. The relationship in (3) holds exactly only for infinitely lived assets that do not depreciate,

but the same idea holds in general. In this special case, we can see that the

machine’s value is such that the yearly increment to the value of production, R,

(called the rental value of the machine, for that is what the company would be

willing to pay to use the asset for one year) is the interest rate times the value of

the asset.

The Dynamic Price of Water

The example above shows one way of placing a value on the services provided by a ground water aquifer that produces a finite stream of benefits. A

somewhat more complex dynamic decision involves the optimal time rate of use

(exploitation) of a natural resource. Optimizing involves balancing marginal gains

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against marginal costs. Suppose a single private firm owns an aquifer. For now,

suppose further that the aquifer is confined, with no recharge. Thus it is a finite

exhaustible resource, like a mineral deposit. The stock of water contained in the

aquifer is known to be S (for stock) gallons initially. After t years of extraction,

there are S(t) units of water left in the aquifer. The firm extracts an amount E (an

action corresponding to extraction) of water; in year t, this amount is E(t). Suppose this extracted water can be sold for a price of $P per unit. The dollar cost of

pumping and distribution depends on both the amount extracted and the size of

the stock. A larger stock means lower pumping costs. To capture this idea, let

C(S) be the unit cost of pumping and distributing water when the stock size S

gallons; total cost is E(t)C(S(t)).

The objective of a private water supply company is to maximize the present

value of extraction. To do so, the firm will balance the benefits of an additional

(marginal) unit of extraction against the (rising) costs of removal; that benefit

will be P, the price the unit sells for. The marginal costs of extraction will be of

three kinds. First there is the marginal pumping and distribution cost C(S).

Second, there is the opportunity cost of current extraction: that is, the loss of the

option to extract that unit of water later. Third, pumping water today increases

the cost of pumping at all future times. Thus there is a “dynamic” cost of

pumping water that includes not just the usual cost of extraction and distribution

but opportunity costs and the “cost” of driving up future pumping costs.

The dynamic cost of water increases as the ground water is depleted. Let

R(t) be the dynamic cost at year t. Balancing price and marginal extraction cost

will involve accounting for both the unit cost of pumping (C(S)) and the dynamic

cost (R(t)) as in

(4) P = C(S) + R(t).

As extraction continues, C(S) rises while S declines. In the market, the price of

water will rise. The dynamic term R(t) also increases over time to reflect increasing scarcity of water.

If there is recharge, the details of the model change, but not its fundamental

lessons. There still is a dynamic price of water, R(t), but its behavior over time is

modified to reflect recharge. At some point the aquifer may enter a steady state,

in which the amount of extraction and the amount of recharge are equal and no

net change in the stock takes place. Then, assuming energy and other costs

remain stable, the price of water becomes a constant as well, equal to the stable

extraction and dynamic costs C(S) + R. It should be noted that in circumstances

where aquifers discharge naturally to a stream, assuming that extraction does not

affect future uses or users, and the level of the water table is unaffected—then

ground water is not scarce and R(t) equals zero.

The term R(t), the dynamic cost of the additional water, is also the rental

value of the ground water stock. It is the amount the firm would pay for another

unit of ground water stock. As such, it measures the value in the market of having

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another unit of ground water in terms of the extra value the ground water will

produce either as a consumption good or as an input to the production of other

goods. This is the value the marketplace places on additional ground water

resources. This may or may not correspond to the best thing for society, depending on society’s objectives.

The dynamic price of water, R(t), gives the value of having another unit of

stock. It is also a price for balancing the (dynamic) supply of water against the

demands for water, present and future. Obviously, its magnitude depends on

several things. First, R(t) depends on the stock of water. If all else is equal, as the

stock goes up, R(t) goes down and vice versa. In instances where ground water is

not scarce, it commands no rental value and R(t) is zero. What is relevant to

proper water pricing in a market is the size of the stock relative to demand for it.

Anything that increases the demand for the ground water stocks (e.g., population

growth or increased allocation of water to produce environmental services) increases R(t). And conversely, decreases in demand (by water conservation or

development of substitute sources) will reduce the efficient water price.

Contamination events also will drive up the dynamic water price, R(t) by

reducing usable supply. This allows a method for determining the social cost of

contamination. If contamination makes ground water useless for some purpose

(e.g., drinking) but it leaves it acceptable for another (e.g., irrigation), the stock

relative to the second demand will increase. This will automatically be built into

changes in the dynamic price.

METHODS FOR ESTIMATING THE ECONOMIC VALUE OF

NATURAL/ENVIRONMENTAL RESOURCES

The preceding section provided a brief introduction to economic concepts

and constructs central to the measurement of benefits and costs. Applied economic analysis uses these theoretical concepts and constructs in combination

with models and quantitative techniques, to answer questions involving private

and public choice. Specifically, theories of firm and consumer behavior are used

to develop testable hypotheses and as a guide to model specification. Quantitative methods, such as econometric and operations research techniques, provide a

means of testing the hypotheses and models against real-world data. This combination of models and techniques has been successfully used for decades to address a wide range of economic issues, including the estimation of values for

nonmarketed commodities.

The place to start any valuation effort is to look for situations where prices

for natural/environmental resources are already revealed as a result of competitive market or simulated exchange arrangements (Freeman, 1993). Many natural

resources are sold in markets and therefore the prices that result offer opportunities for valuing natural resources. These markets must be well-functioning and

competitive in order for the prices to reveal reliable information. It should be

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74 VALUING GROUND WATER

remembered that prices represent only a marginal value and steps must be taken

to calculate the total value by estimating the demand for the good (see Chapter 3).

Nonuse values cannot be captured through this approach.

Recent developments in negotiated land transactions also offer an opportunity to gain some important information about the value of a natural resource.

For example, some municipalities in the West bought up agricultural land in

order to obtain water rights. These negotiated transactions over water rights

provide evidence of the value of ground water in these areas.

Nonmarket valuation techniques consist of two basic types. Indirect approaches rely on observed behavior to infer values. Direct approaches use survey-based techniques to directly elicit preferences for nonmarket goods and services. Both sets of techniques share a foundation in welfare economics, where

measures of willingness to pay (WTP) and willingness to accept (WTA) compensation are taken as basic data for individual benefits and costs.

Indirect Valuation Approaches

Indirect approaches, sometimes referred to as revealed preferences approaches, rely on observed behavior to infer values. This section begins with an

overview of two general classes of indirect methods: derived demand and production cost techniques, which impute the value of a nonmarketed environmental

input, such as ground water, into a production process; and the opportunity cost

approach, which quantifies the economic losses associated with the impacts environmental degradation has on human health. The discussion then turns to more

detailed presentations of three techniques that are commonly labeled as indirect

methods: the averting behavior method, the hedonic price method, and the travel

cost method. These methods depend upon the ability of individuals to discern

changes in environmental quality and adjust their behavior in response to these

changes. Recent summaries of indirect approaches can be found in Braden and

Kolstad, 1991; Mendelsohn and Markstrom, 1988; Peterson et al., 1992; Smith,

1989, 1993; and Freeman, 1993. A summary of the advantages and disadvantages of the indirect as well as direct methods is given in Table 4.1.

Derived Demand/Production Cost Estimation Techniques

Where water is an important component of a production process and a firm’s

cost structure is known, the water’s implicit value can be calculated by measuring

water’s contribution to the firm’s profit. If water supply is unrestricted, a firm

will continue to use units of water up to the point where the contribution to profit

of the last unit is just equal to its cost to the firm. Even if water is “free,” there

will be costs to the firm associated with water use (including pumping and delivery costs). If water supply is restricted (for example, by quotas or water rights),

the firm may cease use of water before the equality is met.

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ECONOMIC VALUATION OF GROUND WATER 75

TABLE 4.1 Advantages and Disadvantages of Selected Valuation Methods

Method Advantages Disadvantages

Not possible to measure in

situ or nonuse values.

Understates WTP.

Omits the disutility

associated with illness.

Understates WTP because it

overlooks averting costs.

Limited to assessment of the

current situation.

Need for easily observable

behavior.

Limited to resource use

situations including travel.

Ex post analysis; limited to

assessment of the current

situation.

Does not measure nonuse

values.

Possible sample selection

problems and other

complications relate to

estimate consumer

surplus.

Estimates do not capture full

losses from environmental

degradation.

Several key assumptions

must be met to obtain

reliable estimates.

Need for easily observable

behavior on averting

behaviors or expenditures.

Ex post analysis; limited to

assessment of current

situation.

Does not estimate nonuse

values.

Difficulty in detecting small,

or insignificant, effects of

environmental-quality

factors on housing prices.

Derived demand/production

cost estimation techniques

Cost-of-illness method

Travel cost method (TCM)

Averting behavior method

Hedonic pricing method

(HPM)

Based on observable data

from firms using water

as an input or from

household consumption.

Firmly grounded in

microeconomic theory.

Relatively inexpensive.

Relatively inexpensive.

Based on observable data

from actual behavior and

choices.

Relatively inexpensive.

Based on observable data

from actual behavior and

choices.

Relatively inexpensive.

Provides a lower bound

WTP if certain

assumptions are met.

Based on observable and

readily available data

from actual behavior and

choices.

continued

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76 VALUING GROUND WATER

TABLE 4.1 Continued

Method Advantages Disadvantages

Hedonic pricing method

(HPM)

Market prices or negotiated

transactions

Contingent valuation

method (CVM)

Based on observable data

from actual choices in

markets or other

negotiated exchanges.

Ex ante technique: it can

be used to measure the

value of anything without

need for observable

behavior (data).

Only method to measure

existence or bequest

values.

Technique is not generally

difficult to understand.

Connection between

implicit prices and value

measures is technically

complex and sometimes

empirically unobtainable.

Does not provide total

values (including nonuse values) ex post in

nature, limited to assessment of current situation. Potential for

market distortions to

bias values.

Since hypothetical, not

actual, market transactions or decisions are the

focus of CVM, various

sources of errors (i.e.,

incentives to misrepresent values, implied

value cues, and scenario

misrepresentation) may

be introduced.

Expensive due to the need

for thorough survey

development and pretesting.

Concerns about reliability

for calculating nonuse

values (particularly for

such calculations to

support natural resource

damage assessments for

use in litigation).

Controversial, especially

for nonuse value

applications.

xxx

The level of water use at varying costs to the firm defines a “derived”

demand relationship, given that the demand for the input (water) is derived from

the demand for the output (e.g., agricultural commodities). Simple budgeting or

more complex linear programming and other optimization methods have been

applied to calculate use value and derived demand for ground water in agriculCopyright © National Academy of Sciences. All rights reserved.

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ECONOMIC VALUATION OF GROUND WATER 77

tural production to gauge efficiency of water allocation or to manage ground

water extraction rates (Snyder, 1954; Ciriacy-Wantrup, 1956; Burt, 1964, 1966;

Bain et al., 1966; Kelso et al., 1973).

Production/cost techniques have also been applied to municipal water delivery and use (Teeples and Glyer, 1987). A related and important category of

research on water values focuses on the demand for municipal water. Such

studies do not use indirect techniques or processes to impute water value; rather,

they combine concepts from the theory of consumer behavior with econometric

(statistical) procedures to estimate the demand for water. This line of inquiry has

documented consumers’ willingness to pay for water under a range of prices and

delivery systems (e.g., Wong, 1972; Berry and Bonen, 1974; Foster and Beattie,

1979; Cochrane and Cotton, 1985). These types of studies have also been helpful

in understanding the “price-responsiveness” or price elasticity of water demand

(Martin and Wilder, 1992; Renzetti, 1992). Application of these techniques to

measure demand for (and value of) water requires sufficient variation in water

prices across time and/or space to elicit statistically robust results. This condition

is often lacking in municipal water pricing, where consumers or households often

face a fixed price, regardless of quantity consumed.

Some of these input-oriented valuation techniques are conceptually similar

to the averting behavior approach discussed in the next section, in that a lower

bound on the value of water is indicated by what a firm spends to acquire water of

acceptable quality. For agriculture, this expenditure may be for energy to pump

ground water or for delivery systems to transport water to the site of use.

This general class of techniques can also be used to assess buffer value and

other dynamic functions of an aquifer, such as the value of a ground water supply

to supplement surface water during times of drought. Tsur and Graham-Tomasi

(1991) used dynamic programming methods to estimate the buffer value of ground

water to wheat growers in southern Israel’s Negev region. Using certain assumptions, they found that buffer values were positive and in some scenarios were a

significant component (up to 84 percent) of the total value of ground water. This

application also highlighted the potential for uncertainty in surface water availability, acting through the buffer role of ground water, in influencing ground

water extraction over time. This influence is a function of size of the aquifer

stock, its extraction cost, and uncertainty. Moreover, differences in the magnitude of the buffer value of ground water have important implications for the

dynamic behavior of ground water extraction (Tsur and Graham-Tomasi, 1991).

Using this class of static and dynamic optimization techniques requires detailed production and cost data. Such data are most likely to be associated with

the production of marketed goods, such as agricultural production. Since the

majority of potential ground water services do not fall into this use class (of

inputs used in the production of marketed goods), the use of these techniques is

restricted to some of the potentially less important ground water services.

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Using Opportunity Costs to Value Health Losses (Cost-of-Illness Method)

Human health effects are a prime concern in ground water contamination

incidents. Exposure to unsafe levels of substances in water through ingestion in

drinking water or other routes (e.g., skin absorption) can lead to increased morbidity or mortality. In most cases contaminant levels are not high enough to

produce acute health effects. Rather, consumption of relatively low levels of

harmful substances in water may lead to long-term or chronic illnesses, such as

cancer, and possibly to premature death. In addition to mortality losses, contamination of ground water creates losses due to increased morbidity, such as the

costs of medical treatment and care, loss of leisure-time activities, and pain and

suffering associated with illnesses (Spofford et al., 1989). The theory underlying

WTP approaches to valuing mortality is summarized in Freeman (1993).

The two main approaches economists have used to value morbidity are based

on either individual preferences (WTP or required compensation) or the resource or

opportunity cost approach (Freeman, 1993). In the latter, known as the cost-ofillness (COI) approach, the analyst attempts to measure benefits of pollution reduction by estimating the possible savings in direct out-of-pocket expenses resulting

from the illness (e.g., medicine, and doctor and hospital bills) and opportunity costs

(e.g., lost earnings associated with the sickness). For example, the costs per illness

or losses in wages per day associated with cancer caused by drinking water containing a volatile organic chemical would be multiplied by the number of days of illness

in the population to arrive at an aggregate benefit figure.

The cost-of-illness approach has several important limitations. First, it does

not consider the actual disutility of those afflicted with illnesses. Second, it

overlooks that individuals faced with pollution undertake defensive or averting

expenditures to protect themselves. Harrington and Portney (1987) demonstrated

theoretically under a set of plausible assumptions that without the inclusion of

expenditures on averting behaviors, the COI benefit estimation method will underestimate true willingness to pay for a reduction in pollution.

Averting Behavior Method

Actions taken to avoid or reduce damages from exposure to ground water

contaminants are another category of economic losses. Theoretical explanations

of averting expenditures are based on the household production function theory

of consumer behavior. In the context of averting behavior models, the household

produces consumption goods using various inputs, some of which are subject to

degradation by pollution. The household may respond to increased degradation

of these inputs in various ways that are generally referred to as averting or

defensive behaviors.

The adverse impacts of ground water contaminants can be avoided in at least

three ways: (1) buying durable goods (e.g., point-of-use treatment system); (2)

buying nondurables (e.g., bottled water); and (3) changing daily routines to avoid

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ECONOMIC VALUATION OF GROUND WATER 79

exposure to the contaminant, such as (a) boiling water for cooking and drinking

or (b) reducing frequency or length of showers if a volatile organic chemical were

present (Dickie and Gerking, 1988). Households, businesses, and other organizations may undertake averting actions to protect individuals from exposure to

contaminants.

Several theoretical analyses (Courant and Porter, 1981; Bartik, 1988) of the

averting behavior methods have concluded that under certain conditions such

expenditures can provide a lower bound estimate of the true cost of increased

pollution. Averting expenditures and true benefits of a pollution reduction differ

because such expenditures do not measure all the costs related to pollution that

affect household utility. While this approach measures household production

costs, it fails to capture direct utility losses related to pollution (Musser et al.,

1992). Courant and Porter (1981) found that when the level of ambient environmental quality conditions is valued directly by individuals, it is uncertain whether

averting expenditures are not necessarily an accurate lower bound estimate of

pollution reduction benefits. Bartik (1988) concluded that theoretically correct

measures of WTP can be estimated using averting expenditures for both marginal

and nonmarginal pollution changes. The ability of this valuation approach to

provide a lower bound to WTP depends on the following assumptions: averting

inputs should not serve in the production for only one output that is valued by the

household (i.e., no jointness in household production); households should not

obtain direct utility from the averting behavior; no income effects occur as a

result of loss of work through illness; and the purchases of durable goods do not

lower costs. In many ground water contamination situations, at least one of these

assumptions is not likely to hold. Care must be taken in interpreting averting

expenditures alone as a lower bound estimate of the value of a ground water

function or service. In most cases information from averting cost studies will

need to be coupled with and in some cases compared to results from studies using

other valuation techniques to arrive at a complete measure of value of the ground

water (Abdalla, 1994).

Hedonic Price Method

The hedonic pricing method (HPM) is based on the premise that people

value a good because of the attributes of that good rather than the good itself. For

example, the decision to purchase a particular house may be influenced by the

attributes of that house (number of bedrooms, square footage, view, quality of the

neighborhood, etc.). If one of those attributes is an environmental commodity,

such as clean air, comparison of the price consumers pay for houses in areas of

“clean air” (all other attributes of the house being equal) may provide information

on the value of clean air.

Hedonic price models encompass both land (housing) price models and wage

models that account for variations due to environmental attributes (e.g., air and

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80 VALUING GROUND WATER

water quality, noise, aesthetics, and environmental hazards). Wage models can

be used to infer values for environmental attributes by examining the relationship

between wage rates and the quality of the environmental attributes across jobs

and locations. Hedonic models can only measure use values. The measurement

of use values is based on one fairly strong assumption (weak complementarity),

which holds that the purchase of some market good is associated with consumption of an environmental good or service, and when consumption of the market

good is zero, then demand for the environmental good or service is also zero

(Adamowicz, 1991).

The hedonic technique, like other indirect nonmarket valuation methods,

depends on observable data resulting from the actual behavior of individuals. An

advantage of the HPM is that market data on property sales and associated characteristics are readily available from county or municipal sources (e.g., assessor’s

office) as well as from private real estate services. These data can usually be

linked to other secondary sources of data for the same geographical area (e.g.,

data on water quality, air quality, or a range of physical attributes). These secondary sources of data can be used to construct indices of environmental quality

for use in a statistical analysis.

Despite the advantage of readily available data, several problems limit the

use of the HPM in many settings. One problem is that the effect of an environmental attribute or characteristic on price may be small and hard to detect statistically or to disentangle from the effects of all other variables. Another problem

with the technique is that it is difficult to derive value measures from the estimated hedonic price function (the basic first-stage equation where the sale price

of a house is regressed on the set of attributes of that house). Derivation of the

value of an attribute requires a second-stage procedure to obtain a demand or

WTP function built around market segmentation (to address an estimation problem known as identification). To date, few empirical studies have successfully

completed the second stage. Thus most studies report only the results from the

hedonic price function, which gives an estimate of the marginal effect of an

environmental variable on price.

A brief hypothetical example illustrates the use of an indirect approach to

measuring nonmarket value. The HPM can be applied to housing prices to

estimate the value of environmental attributes, such as well (drinking) water or

proximity to wetlands, which vary across a region. It is assumed that variations

in housing prices can be linked to real or perceived variations in these environmental attributes (controlling for a variety of other statistical determinants). In

practice the approach involves collection of cross-sectional data on house sales

(or possibly assessed values) and information on a menu of potential determinants of value (lot size, number of bedrooms, etc.). These factors would include

one or more indices of environmental attributes or services. Through multivariate statistical techniques, analysts can infer the marginal value of either positive

or negative environmental externalities. For example, a researcher might find

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ECONOMIC VALUATION OF GROUND WATER 81

that the average homeowner in a particular county would pay $X to be Y yards

closer to an open-water wetland and would require a reduction in price of $Z to

purchase a house in an area of contaminated ground water.

There have been few hedonic price studies on ground water contamination

problems and the results have not been conclusive. While they have found

statistical differences for industrial sites (due to cleanup costs and liability concerns), researchers have been less successful in isolating the effect of contaminated ground water upon residential property values (Malone and Barrows, 1990;

Page and Rabinowitz, 1993).

Travel Cost Method

Travel cost methods (TCM) encompass a variety of models, ranging from

the simple single-site travel cost model to regional and generalized models that

incorporate quality indices and account for substitution across sites. The basic

premise behind all versions of the travel cost model is that the travel costs incurred in traveling to a site can be regarded as the price of access to the site.

Changes in the travel cost to a site can then be viewed as having the same effect

on visits to the site as would a change in an access fee or a price. Under a set of

assumptions involving opportunity cost of travel time, purpose of the trip, availability of substitute site, and time spent at the site, it is possible to derive the

individuals’ demand for visits to a site as a function of the price of admission

using the simple or basic travel cost model.

In many situations the analyst is interested in understanding the effect of

substitute sites on demand for a given site or the effect of changes in quality of

certain site attributes on visits to the site. These types of concerns can be addressed using more complex versions of the travel cost model. For example, the

role of substitute sites on visitation can be addressed with multiple-site travel cost

models or with discrete-choice travel cost models. Changes in site quality, such

as improvements in water quality, fish catch, and so forth, can be estimated using

the generalized travel cost model, the hedonic travel cost model, or similar specifications. Because of the flexibility of travel cost methods and the relative ease of

collecting data necessary for estimation, researchers have relied extensively on

these methods in deriving use values for a wide range of recreational activities.

Since most extractive uses of ground water do not involve travel, TCM has

limited applications to valuing these uses. However, ground water can provide in

situ services, such as recharging surface water and wetlands and dilution of

contaminants that may support recreational services. Since many ground water

aquifers are a source of recharge into surface water and wetlands, ground water

may support a number of recreational services. The TCM could conceivably be

employed to value such services, although its use may be limited because of the

difficulty of determining the share of recreational value attributable to ground

water.

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82 VALUING GROUND WATER

Direct Valuation Approaches

Direct approaches to nonmarket valuation use survey-based techniques to

directly elicit preferences. The hypothetical nature of these experiments requires

that markets be “constructed” to convey a set of changes to be valued. While

there are a number of variants on these constructed markets, the most common is

the contingent valuation method (CVM). CVM is a survey-based procedure

designed to elicit a respondent’s WTP or WTA for an environmental change (see

Appendix B).

A method related to CVM is conjoint analysis, which includes contingent

ranking of behavior. Conjoint analysis refers to a general approach marketing

researchers employ to predict behavior based on studies of consumers, using

contingent comparisons of product attributes, including price. Federal decisionmakers concerned with valuation issues as well as environmental economists are

giving greater attention to conjoint analysis. For example, a recent statement by

the National Oceanic and Atmospheric Administration (NOAA) recommends the

use of conjoint analysis, indicating that attributes may be valued in terms of price

and if replacement costs were used would provide decision-makers the ability to

compare alternative service flows (NOAA, 1995). Environmental economists

are exploring several variants of this approach, including contingent ranking and

contingent behavior, as a way to improve upon the CVM. These survey-based

techniques derive information about an individual’s preferences between alternatives with varying levels of environmental attributes. The contingent ranking

method goes beyond the simple yes/no of a referendum format and asks individuals to reveal more information about their preferences by asking them to rank the

hypothetical alternatives. If one attribute of the good is measured in monetary

terms, subsequent statistical analysis allows the calculation of the WTP for

changes in the attribute. A disadvantage of contingent ranking is that it is timeconsuming and potentially difficult for a respondent to rank several goods and

multiple attributes.

The contingent behavior (or activity) method involves the use of hypothetical questions about activities related to environmental goods or services. The

main use of contingent behavior surveys has been to support other valuation

analysis. For example, it can be used to support a TCM study of benefits by

assessing how participation in recreational activity changes as environmental

quality changes. Such contingent choice information can then be used to estimate

a shift in the demand curve for recreational visits (Freeman, 1993).

An Introduction to the Contingent Valuation Method

The contingent valuation method (CVM) can be viewed as a highly structured conversation (Smith, 1993) that provides respondents with background

information concerning the available choices of specific increments or decreCopyright © National Academy of Sciences. All rights reserved.

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ECONOMIC VALUATION OF GROUND WATER 83

ments in environmental goods. Values are elicited directly in the form of statements of maximum WTP or minimum WTA compensation for hypothetical

changes in environmental goods. Typically, multivariate statistical techniques

are used to model a WTP function. Such models allow the analyst to control for

variation in the personal characteristics of the respondents, check for consistency

of results with economic theory, and possibly estimate an entire WTP response

across varying levels of environmental goods.

The contingent valuation method is applied when calculating for both use

and nonuse values. The flexibility it provides in constructing hypothetical markets accounts for much of the technique’s popularity. There are numerous methodological issues associated with application of CVM including how the hypothetical environmental change is to be specified, how valuation questions are

formulated, the appropriate welfare measure to be elicited (i.e., WTP or WTA),

and various types of response biases. Randall (1991) argues that because of the

importance of nonuse values, CVM is likely to be the primary tool for measuring

the environmental benefits of biodiversity. The CVM is also capable of measuring the disutility associated with some types of environmental degradation that

indirect methods are unable to capture. Recent summaries of CVM can be found

in Mitchell and Carson, 1989; Carson, 1991; Portney, 1994; Hanemann, 1994;

and Diamond and Hausman, 1994.

CVM for Estimating Use and Nonuse Values

The contingent valuation method is a direct valuation technique: researchers

ask people about their willingness to make certain trades and use the answers to

estimate willingness to pay. Its appeal is that it is the only method that (in

principle) can be used to estimate nonuse values for goods that do not yet exist or

quality changes for goods that are outside the bounds of experience. It can also

help estimate use values for goods traded on markets (in which it is called marketing research) or nonmarket goods such as ground water quality or recreation

sites.

Three important classes of errors can bias the results of CVM studies (Freeman, 1993). First, participants may have an incentive to misrepresent their value

for the hypothetical environmental good or service. For example, some respondents may state low values in order to reduce their obligation to pay for the goods

or service even if they value it (i.e., free-rider behavior). Others may overstate

the actual value if they believe the bid will affect the level of provision and the

good is desired. A second category is implied value cues. This bias is particularly troublesome for unfamiliar goods or ones for which the respondent has not

yet developed clear preferences. In such cases, the respondent may look for clues

regarding a “correct” choice or value from the information provided by the researcher. When such “value cues” are present, they are likely to systematically

bias the values elicited. One type of this problem is known as “starting point”

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84 VALUING GROUND WATER

bias. However, this bias can be overcome by using a referendum or voting

approach to the bid question. Another form of bias, called “yea saying,” may

even exist in the voting format (Mitchell and Carson, 1989). A third category of

possible error in CVM studies comes from mispecification of the scenario. This

causes the respondent to have a different definition of the environmental good or

service than the researcher intended.

Researchers have employed many versions of the CVM, but CVM practitioners now agree on certain best practices. The basic idea is to have an individual

vote yes or no on a public program which provides a change in the provision of

some good, such as air quality, and that will cost households like theirs $X. The

amount X is then varied across the sample. If a person votes yes, then WTP>X,

while if they vote no, then WTP<X. Statistical techniques are then used to

uncover willingness to pay. Sometimes, a follow-up question is asked: “If you

vote yes at X, how would you vote at X+c, or if you vote no at X, how would you

vote at X−c?” These “double-bounded” estimators provide more information on

WTP.

This voting approach is called a dichotomous choice format. Most CVM

studies use some form or adaptation of an open-ended question such as: “How

much would you be willing to pay in increased fees, taxes, or prices, for q?” The

voting approach has some desirable properties. First, it gives incentives to tell

the truth. Second, people are familiar with voting on public programs, at least in

many places: we do not purchase education; we vote on property tax increases. A

disadvantage of this format is that it makes inefficient use of a sample and thus

increases cost. However, this disadvantage can be at least partly overcome by

asking respondents follow-up questions (Freeman, 1993).

A sound CVM study requires careful attention to development of the questionnaire (see Appendix B). Advances in psychology have enabled researchers to

recognize circumstances in which individuals who say they intend to do something (e.g., vote yes on a public program) actually will do so. This intendedactual behavior link is what CVM attempts to establish: if respondents say they

would pay $t for the program and were actually faced with the choice, they really

would pay.

In addition, people must understand exactly the good on which they are

voting and that they are voting only on that good. This can be difficult, since

people are aware that we have only a limited understanding of how elements of

the environment are interconnected. Thus statements that something does not

now and never will do something else may not be plausible. Further, care must be

taken that one program is not symbolic of a larger, implied program. Second,

respondents must have some confidence that the program will actually supply the

good. They should be considering the change in environmental quality, not

whether there is some better means to provide that change than the proposed

program. And third, respondents must search their preferences, taking the matter

seriously and comparing a payment for this good to other things they can do with

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ECONOMIC VALUATION OF GROUND WATER 85

their money: both other public programs (education, crime fighting, etc.) as well

as their own consumption.

To ensure these things, researchers must conduct qualitative research via

focus groups and one-on-one interviews. Researchers need to make sure that the

language they used in the final survey conveys exactly what they intend, and this

can be a formidable task. Therefore, investigators must spend time with people,

talking through “What were you thinking when I asked why?” and uncovering

the impact of alternative approaches.

When the survey deals with past events, such as ground water contamination,

the researcher must decide what type of program to present. One possibility is a

hypothetical prevention program that would have protected the ground water if it

had been in place before the contamination; another is an accelerated recovery/

restoration program. The former is more what the investigator would like to sell,

since it captures the whole event, but the latter may be more believable and easier

to describe.

Much more can be said about CVM studies of particular types of issues, but

such a detailed review is beyond the scope of this chapter. A large amount of

research has been done on CVM over the past 25 years, and our understanding of

it has expanded dramatically. It is clear that many CVM studies have produced

meaningless WTP estimates and that adding a CVM question to the end of a

telephone or mail survey without benefit of qualitative research to test the question is bad practice. It also seems clear that careful CVM research can generate

reliable results, at least for some types of goods and values (e.g., use values).

While most economists accept CVM for direct use values, its application to

measure nonuse values has been very controversial. Exactly how far CVM

reliability can be extended to encompass unfamiliar goods and nonuse values has

become the key issue. The feasibility of using CVM to measure some types of

ground water services therefore remains in question.

A Special Problem: Estimation of Nonuse Values

Nonuse values are the most difficult to measure of TEV components. The

contingent valuation method is the only technique available for assessing these

values. The topic of existence values for environmental assets is one of the most

controversial in environmental economics (Bishop and Welsh, 1992; Edwards,

1988; Kopp, 1992; Rosenthal and Nelson, 1992; McFadden, 1994; Hausman,

1993).

Examples of some of the ambiguities in existence value estimation can be

seen in a CVM study on bald eagles, wild turkeys, and Atlantic salmon in New

England. While Stevens (1991) found substantial economic benefit from protection and restoration programs, the results also indicated that in a setting of potential irreversibility, existence values were difficult to quantify and sensitive to how

the species were aggregated. Further, a majority of respondents viewed species

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86 VALUING GROUND WATER

protection as important but were unwilling to pay for such programs. Follow-up

questions indicated that many respondents were uncertain of their values or protected the WTP question for ethical reasons.

Much of the recent controversy over CVM and its use in eliciting nonuse

values has been stimulated by questions surrounding natural resource damage

assessment (NRDA) and liability cases. Sparked by the government’s use of

CVM in the Exxon Valdez oil spill case, the debate has focused on whether CVM

can provide plausible estimates of value for individuals who may not be familiar

with the good in question (i.e., individuals whose total value is made up entirely

or largely of nonuse values). In 1992 NOAA, part of the U.S. Department of

Commerce, convened a panel of blue-ribbon economists to provide guidance

concerning the potential use of CVM in measuring lost nonuse values in promulgating regulations, pursuant to the Oil Pollution Control Act of 1990. The NOAA

panel essentially reaffirmed application of CVM, provided rigorous guidelines

are followed (Arrow et al., 1993). The panel recommended high-quality survey

research (e.g., appropriate sampling and thorough pre-testing of instruments,

etc.) and concentrating on more specific concerns related to CVM. The overall

effect of the NOAA panel report is to make CVM very expensive and limit its

application in many settings. A litigation-quality study conducted by a consulting firm for an NRDA in accord with the NOAA guidelines could cost several

million dollars. Perhaps because of the increased cost of CVM studies and the

continuing controversy surrounding the theoretical basis of CVM-based measurement of nonuse values, NOAA proposed new rules for assessing natural

resource damages under the Oil Pollution Control Act of 1990 (NOAA, 1995).

The new proposed rules eliminate “compensable values” in natural resource damage claims and instead focus on actions to restore natural resource services. The

proposed rules thus downplay valuation of resources (including nonuse values).

Values, including those from CVM studies, may still be used in making restoration decisions.

Not all CVM studies need be done with the exacting care required for NRDA

litigation. One of the open questions in this area is the reliability of less expensive

CVM studies (done via mail rather than by in-person surveys, for example)

regarding goods familiar to people (like water availability).

CURRENT KNOWLEDGE OF GROUND WATER VALUES

Chapters 2 and 3 of this report discussed the interdisciplinary nature of the

ground water valuation process. Each discipline has made significant progress in

understanding and modeling components of this valuation process. To obtain an

accurate accounting of the value of ground water resources, we must combine

these components into an assessment framework. This in turn means that each

discipline must understand what information the other disciplines need in the

assessment process.

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ECONOMIC VALUATION OF GROUND WATER 87

For the economic component of the assessment framework, we need reliable

and valid estimates of the benefits to society of ground water protection. This

requires correct application of economic valuation techniques. This section reviews selected studies of ground water valuation, with emphasis on two categories of studies: those based on CVM and those that use averting behavior approaches. At the outset, we should note that past ground water valuation studies

have focused primarily on a small part of the known ground water functions and

services identified in Chapter 3. Thus our current empirical knowledge of the

values of ground water is quite limited.

Results of Indirect Approaches

Relatively few empirical studies of ground water values have been conducted employing indirect methods. Of the studies that focus on services related

to ground water quality, the averting behavior approach has been most commonly

used.

Ground Water Studies Using the Averting Behavior Method

At least five studies have used the averting behavior approach to measure

household-level costs associated with ground water contamination. As noted

earlier, depending upon whether key assumptions are met, the results of such

studies may not accurately represent lower bound estimates of WTP for ground

water services. Also, values obtained from averting behavior methods must be

combined with estimates of other ground water services to get an estimate of the

total value of ground water. Despite these limits, results from carefully done

averting behavior studies can provide important information needed for policymaking. For example, as a lower bound estimate of benefits of ground water

protection, they can be used as an initial screening step in comparing benefits and

costs of protection alternatives and in helping to decide if more in-depth valuation efforts are needed (Abdalla, 1994). The results of five averting behavior

studies are highlighted below. Additional information on the studies can be

found in Table 4.2.

Smith and Desvouges (1986) found in a sample taken in the Boston area that

bottled water and water filters were purchased for the sole purpose of avoiding

hazardous waste by 30 and 7 percent of households, respectively. Losses due to

water quality degradation were not estimated, however, since they lacked detailed data on household averting behaviors and their costs.

Abdalla (1990) and Abdalla, Roach, and Epp (1992) documented averting

expenditures of households served by public water systems in two Pennsylvania

communities that had organic chemicals in their water supplies. At a central

Pennsylvania site, 96 percent of the households were aware of water contamination and 76 percent of those with such knowledge undertook averting behaviors.

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88 VALUING GROUND WATER

Author(s)

Publication Date(s)

Smith and

Desvouges, 1986

Abdalla, 1990

Abdalla, Roach, and

Epp, 1992; Roach,

1990

Powell, 1991

Collins and

Steinbeck, 1993

Study Location

Suburban Boston

Township in Centre

County,

Pennsylvania

Borough in Bucks

County,

Pennsylvania

Selected

communities in New

York, Pennsylvania,

and Massachusetts

West Virginia

(statewide)

Current Ground

Water Condition

Uncertain—one

town had

experienced several

prior episodes of

contamination of

drinking water by

hazardous wastes

Contaminant in

water for 26 weeks

before new source

provided. 96%

knew of drinking

water contamination

Contaminant in

water for 88

weeks—43% knew

of drinking water

contamination

7 Communities

experienced

contamination in

past 10 years.

16% of households

knew of

contamination

within last 10 years

Private individual

well owners with

contamination

problems that agree

to survey

Type of

Contamination

Hazardous waste

Perchloroethylene

No drinking water

standard in effect at

time of

contamination

Trichlorethylene

Drinking water

standard exceeded

Trichlorethylene in

6 communities;

diesel fuel in one

community (NY)

Bacteria, minerals,

organics

TABLE 4.2 Summary Information on Averting Behavior Studies

aPercent of households taking averting actions of those aware of contamination

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ECONOMIC VALUATION OF GROUND WATER 89

Source of Drinking

Water

Public water supply

Public water supply

serving 1,600

households

Public water supply

serving 2,760

households

18% private wells;

82% public water

supplies

Private individual

water systems. 90%

used ground water

as source

Avoidance

Actionsa

Bottled water

Water filters

New bottled water

purchase (47.8%)

Increased bottled

water purchase

(15.2%)

Boiling water

(23.0%)

Hauling water

(29.3%)

Water filter (3.3%)

New (11.1%)

Increased (19.1%)

Boiling water

(27.8%)

Hauling water

(18.9%)

Water filter

(10.4%)

Restricted water

use (31%)

Boiled water

(26%)

Bottled water

purchase (17.5%)

Supply cutoff

(6.3%)

Clean/repair water

systems (56%)

Water treatment,

new source,

contaminant source

contol (45%)

Average Annual

Household

Avoidance Cost

NA

$252 (1987)

$123 (1989)

NA

$320 to 1090

(1990)

depending on

contaminant type

Average Annual

Household Bottled

Water Purchases

NA

$142 (1987)

$75 (1989)

$32 (1990)

NA

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90 VALUING GROUND WATER

Only 43 percent of the households in the southeast Pennsylvania site were aware

of contamination. Of those, 44 percent undertook avoidance actions. Costs

averaged $252 and $123 for each household that chose to avoid the contaminant

in the central and southeast study sites, respectively.

Powell (1991) documented household bottled water expenditures as part of a

CVM study of ground water benefits in eight “clean” and seven “contaminated”

communities in Massachusetts, New York, and Pennsylvania. Even though almost half of the communities had recent contamination problems, only 16 percent of mail survey respondents indicated that their water had been contaminated.

For those that were aware, the average household bottled water expenditure was

$32 per year, about three times that spent in uncontaminated areas. Respondents

aware of contamination were willing to pay $82 per year for increased water

supply protection compared to $56 for those that were not. Households relying

on private wells were willing to pay $14 per year more for protection than those

served by public systems.

Collins and Steinback (1993) documented responses to knowledge of water

contamination of rural households relying on individual wells in West Virginia.

Eighty-five percent of those who were informed about their household’s contamination problem were found to engage in averting activities. The most frequent actions were cleaning and repairing water systems, hauling water, and

treatment. Information from mail and telephone surveys was used to compute a

weighted average annual economic avoidance cost of $320, $357, and $1090 for

households with bacteria, minerals, and organic contamination problems, respectively.

Direct Methods: CVM Studies of Ground Water Values

CVM, given its potential ability to measure all components of economic

value, has been used in a number of studies to estimate ground water protection

benefits. Boyle (1994) compared eight CVM-based ground water valuation studies as part of a review by EPA’s Science Advisory Board of an EPA-funded study

of the national level benefits of cleaning up ground water contaminated by leaching from landfills. He compared the results of a CVM study completed in 1992

by researchers at the University of Colorado (McClelland et al., 1992) on the

national level benefits of cleaning up ground water degraded by landfill leachate

to seven other quite diverse ground water valuation studies conducted using

CVM. The national-level McClelland et al. study results were compared with

estimates from state and community-level studies in Massachusetts (Edwards,

1988); Michigan (Caudill, 1992; Caudill and Hoehn, 1992); Georgia (Jordan and

Elnagheeb, 1993); Wisconsin (Poe, 1993; Poe and Bishop, 1992); New York,

Pennsylvania, and Massachusetts (Powell, 1991; and Powell and Allee, undated);

New Hampshire (Shultz, 1989; Shultz and Lindsay, 1990; Shultz and Luloff,

1990) and Georgia (Sun, 1990; Sun et al., 1992). A more recent review of these

CVM-based estimates is provided in Crutchfield et al. (1995). These authors also

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ECONOMIC VALUATION OF GROUND WATER 91

TABLE 4.3 Summary of CVM Studies—Major Characteristics

Author(s), Dates

Study Site Contaminant Value Focus

McClelland et al., (1992)

national sample

Caudill (1992)

Caudill and Hoehn (1992)

Michigan

Doyle (1991)

Edwards (1988)

Falmouth, Woods Hole,

Mass.

Jordan and Elnagheeb (1993)

Georgia

Poe (1993)

Poe and Bishop (1992)

Portage County, Wisconsin

Powell (1991)

Powell and Allee (undated)

15 communities in N.Y.,

 Pa., Mass.

Schultz (1989)

Schultz and Lindsay (1990)

Schultz and Luloff (1990)

Dover, New Hampshire

Sun (1990)

Sun and Dorfman (1992)

Dougherty County, Georgia

Clemons et al. (1995)

Martinsburg, West Virginia

unspecified

unspecified

unspecified

nitrates

nitrates

nitrates

TCE in 6

communities

diesel fuel in 1

unspecified

nitrates and

pesticides

unspecified

option price

WTP to remediate

contamination from

landfills

option price

WTP to reduce the

probability of

contamination

WTP to remediate

contamination

option price

WTP to reduce the

probability of

contamination

option price

WTP to reduce

nitrate contamination to safe levels

option price

WTP to prevent

nitrate contamination

option price

current value of

respondents subjective perceptions of

safety

option price

WTP protect/

maintain ground

water quality

option price

WTP for a Wellhead Protection

Program

NA

NA

$114-$163/HH/yr

$815/HH/yr for 25%

reduction in risk

medians

public $65.88/HH/yr

private $88.56/HH/yr

means

public $120.84/HH/yr

private $148.56/HH/yr

NA

mean annual WTP

$81.31 Mass $42.19 PA

$40/HH/yr median

means

log model $998/HH/yr

linear model $930/HH/yr

empirical model $961/

HH/yr

median for nitrates

$21.20/HH/yr

median for VOC

$13.68/HH/yr

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92 VALUING GROUND WATER

use selected estimates from this literature to derive potential benefits of ground

water quality protection in four areas of the United States.

Table 4.3 provides a general summary of some CVM ground water valuation studies completed to date. The table is adapted from Boyle and Bergstrom

(1994) plus others studies cited above. The table, along with the following

sections, summarize what has been added to the body of knowledge of benefits

estimation using CVM. The next few pages focus on three important themes: 1)

comprehensiveness of ground water functions and services; 2) effects of information on valuation responses, essentially the commodity definition problem; and 3)

the ways that the studies have dealt with uncertainty.

Comprehensiveness of Ground Water Functions and Services

Measurement of the total value of the benefits of ground water protection

requires a succinct definition of the services that ground water offers. These

services include extractive services and in situ services (both use and non-use

values). While it is generally recognized that measuring use values can be accomplished with several methods, the challenge of measuring nonuse values for

nonmarket goods is daunting. CVM offers flexibility and the ability to measure

nonuse values of public goods whereas other nonmarket valuation techniques

such as the travel cost and hedonic pricing models are intended to measure use

values (Powell, 1991). Most studies to date have focused on the health effects of

ground water contamination, without including some other important functions

from which humans derive value.

Most studies presented information on the health effects of ground water

contamination (e.g., McClelland et al., 1992; Jordan and Elnagheeb, 1993; Poe,

1993; Sun, 1990). The others purposefully omitted references to the effect of

contamination on human health by either telling respondents that their water was

being monitored (Edwards, 1988) or eliciting respondents’ perceptions of the

safety of drinking. There is significant uncertainty as to the susceptibility of

human health to ground water contamination, compounded by the difficulties of

measuring dispersion of contaminants in ground water. Nitrate contamination

provides a good example. The EPA has established upper limits for nitrate in

drinking water because nitrates in drinking water are linked to two health problems, methemoglobinemia and gastric cancer. The incidence of illness and possibly death for the former is extremely low, and recent scientific evidence shows

that the link to the latter is not statistically significant. Isolating the dose response

effects of nitrates in drinking water is further complicated by the fact that humans

also consume nitrates from other sources (e.g., preserved meat products).

All CVM studies to date have attempted to measure option price relative to

the good’s future availability in some cases and to its safety from the human

health perspective. Option price is the maximum sum an individual would be

willing to pay to change from their present level of risk to one of no risk (FreeCopyright © National Academy of Sciences. All rights reserved.

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ECONOMIC VALUATION OF GROUND WATER 93

man, 1993). As noted above, the human health focus ignores other functions of

ground water that humans might value such as the use of ground water as a buffer

stock, its role in other ecological functions, and its importance to economic

development and agriculture. The exclusion of these other services and values

may be a function of the current state of knowledge. Few studies have attempted

to measure the value that people place on the ecological services that ground

water supplies. Some of these functions have been addressed only in the physical

sciences and measurement is complex. The time lag between a contamination

event and its effects on ground water and the services it provides varies substantially according to physical characteristics of aquifers as well as the nature of the

contaminant (Kim et al., 1993; Fleming et al., 1995). Moreover, the interplay

between site specific characteristics, ecological functions, and resultant service

flows makes possibility of benefits transfers difficult to assess.

Effects of Information on Valuation Responses

Commodity definition in CVM surveys often involves striking a compromise between a definition that is understandable and one that is technically accurate (Bishop and Heberlein, 1990). However, accurate information and definitions are essential in deriving accurate measures. When evaluating unfamiliar

commodities, the less well-defined the commodity is, the greater the potential

measurement error. Indeed, the likelihood that a respondent can even come up

with a value decreases with lack of clarity of the commodity.

In general, the descriptions of the current, reference, and subsequent ground

water conditions are quite vague in the eight studies. This vagueness makes it

difficult to establish the linkages between changes in ground water policies,

ground water conditions, services provided, and estimated values. Of particular

concern is the difficulty of ascertaining how the value estimates correspond to

actual biophysical changes in ground water resources and the resulting service

flows. (Boyle and Bergstrom, 1994)

Resolving this vagueness is problematic given the uncertainty surrounding

measurement of ground water resources and the effects of contamination levels

on human health. Reducing the uncertainty of actual biophysical changes may

not be possible given the current state of knowledge. Also, it may run contrary to

how individuals make decisions. For example, the individual may not understand

contamination in parts per billion, but instead makes decisions about willingness

to pay based upon subjective perceptions. Knowing that large portions of the

water supply do not meet federal safety requirements would affect WTP. Knowing what those requirements are does not necessarily affect preferences, just as

knowing that crossing a highway is dangerous does not require precise knowledge of the physics involved when a car meets a human or the probabilities of

serious injury. The problem with subjective perceptions is that the baseline

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94 VALUING GROUND WATER

reference condition changes for each respondent; grouping respondents into a

range of safety categories does not solve the problem since the difference between “somewhat safe” and “safe” is not the same for each respondent. Hence a

change in condition from the initial to an improved environmental state cannot be

compared nor aggregated for respondents.

There is some disagreement on what information should be presented in the

hypothetical market (Boyle, 1994; Lazo et al., 1992). Specifically, what types of

information, the quantity of information, and an appropriate presentation of technical information must be determined so that respondents provide valid and reliable valuation responses. Boyle (1994) recommends a hybrid of expert and

respondent’s subjective perceptions. The problem with this approach is that it is

still not certain whether one or the other should be the starting point, which

creates a lack of clarity regarding the effects of the different approaches on

estimated values.

The baseline ground water condition is the foundation for determining values. Since many of the studies focus on option price (McClelland et al., 1992;

Caudill, 1992; Edwards, 1988; Jordan and Elnagheeb, 1993; Poe, 1993; Poe and

Bishop, 1992; Powell, 1991; Shultz, 1989; Sun, 1990; Sun et al., 1992), it is

imperative that the baseline condition is well defined so that researchers can

determine the welfare change from the initial condition to the proposed change.

If the initial condition is not well defined, then it is questionable whether researchers are measuring what they intend to measure, and the validity of the

results are called into question.

There are two general schools of thought regarding the presumed knowledge

of respondents. The first (McClelland et al., 1992; Poe and Bishop, 1992) maintains that experts should be used to provide background information for survey

design. This approach generates more consistent estimates, but suffers from

testing bias and often results in informing respondents as to what they should

answer. This information bias decreases the validity of results by making it

difficult to generalize results from the informed sample to the general population.

A second approach (Caudill, 1992; Edwards, 1988; Powell, 1991; Shultz, 1989)

rests on the belief that consumers make decisions based on the information they

have on hand, that is, their subjective perceptions of ground water characteristics

(specifically safety). This approach may be more appealing from the standpoint

that the validity of responses may increase but the random nature of responses

about goods with which consumers have very little experience increases.

Clemons et al. (1995) show that information on nitrates does not significantly

alter value estimates, a finding contrary to those of Bergstrom and Dorfman

(1994) and Poe and Bishop (1992).

Boyle (1994) recommends testing experts’ opinions in focus groups with

sample respondents to filter out highly technical information. Poe (1993) took

steps to this end with a two-tiered study that provided respondents with water

testing kits in the first stage so as to nail down the baseline condition. This

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ECONOMIC VALUATION OF GROUND WATER 95

approach allows a more reliable and valid measurement of the change in ground

water condition from the initial condition to the new condition resulting from a

ground water protection program because the initial condition is defined precisely through self-administered tests of well water quality.

Dealing with Uncertainty

The two preceding themes suggest that uncertainty is a common feature of

existing CVM studies of ground water protection benefits. In measuring economic welfare under conditions of uncertainty, several factors must be considered when evaluating benefits estimates: future prices, future income, opportunity costs, uncertainty about future human health responses to prevent exposures,

future use, and future availability.

Uncertainty about future states is compounded by any inability to measure

present states. The studies reviewed here attempted to derive the option price or

the maximum amount an individual would be willing to pay to maintain the

option to consume the good. The conceptual model underlying the treatment of

uncertainty uses the measurement of option prices for risk changes. Caudill

(1992), Poe (1993), and Sun (1990) measured respondents’ subjective perceptions of uncertainty of future supply, while Edwards (1988) found option prices

for a range of probabilities and Powell (1991) asked respondents about their

subjective perceptions of safety. Few studies have attempted to capture quasioption value or the measurement of option price when there is a possibility of

having better information in the future.

What We Know About Ground Water Values Based on

Existing CVM Studies

The major issues of agreement and disagreement found in our review of

these diverse CVM studies are presented in the next section. The framework

established by Boyle and Bergstrom (1994) is a helpful guide to this discussion.

Useful discussions of the strengths and weaknesses of CVM studies completed to

date can be found in Boyle and Bergstrom (1994) and in Crutchfield et al. (1995).

Areas of Agreement (Strengths)

The CVM’s ability to measure use values is generally accepted in the economics profession. Its ability to capture nonuse values remains controversial,

even though the NOAA panel defined conditions under which CVM may generate reliable estimates of such values (e.g., adequate survey design and commodity

definition). Efforts towards a consensus of survey design incorporating the use

of verbal protocol and focus groups have led to the acceptance of CVM estimates

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96 VALUING GROUND WATER

in some policy settings (but not necessarily in litigation or judicial settings).

There is also significant agreement that local context factors are important (e.g.,

Poe, 1993; Powell, 1991; Sun et al., 1992). For example, site-specific information is important to respondents when faced with a contingent decision.

Areas of Disagreement (Weaknesses and Areas for Future Research)

There is still some disagreement over payment vehicles, although most studies have focused on referendum type questions. Mitchell and Carson (1989)

maintain that the chosen payment vehicle must be both realistic and neutral.

Most studies have focused on either a referendum format (to pay for a bond for

some type of protection or remediation program) or an increase in water or tax

bills. Use of the latter presents difficulties because in instances where the respondent does not own property the vehicle is not realistic. Similarly, neutrality is

problematic because a tax increase may invite scenario rejection. A referendum

valuation question asks whether respondents would vote for the referendum given

a specified cost for the referendum.

The dichotomous choice valuation question format has received considerable support (see Table 4.4). Valuation questions using dichotomous choice

appear to elicit more consistent responses than open-ended questions or bidding

games. Bishop and Heberlein’s Wisconsin Sandhill study (1990) suggests that

there is no significant difference between valuations collected from a hypothetical market using binary choice vs. actual cash transactions. At the same time,

dichotomous choice questions lead to consistently higher estimates than open

ended questions. Further research is necessary to determine the source of this

error. The literature indicates a controversy surrounding CVM survey respondents’ estimates of health risks and their comparability with expert opinion (Boyle

et al., 1995; Boyle, 1994; Lazo et al., 1992). This controversy arises not only in

the design of survey instruments but also in the use of results. It is generally

acknowledged that individuals need a full information set that includes both

general and specific information to identify their own best interests with respect

to ground water protection programs (Poe and Bishop, 1993). Overly general

information in the survey instrument appears to lead to biased estimates of willingness to pay. An illustrative example of the problems arising from differences

between expert opinion and CVM estimates is sketched in Portney’s 1992 study,

where experts believed a chemical in ground water to be harmless, whereas

citizens held the chemical responsible for above-average incidence of cancer and

were willing to pay $1,000 for what experts say will be a costly and unnecessary

treatment.

Very little empirical research has been devoted to establishing a minimum

standard of information adequacy for CVM studies (Poe and Bishop, 1993;

Powell, 1991; Boyle, 1994). The question remains as to what type of information

should be presented to respondents and how that information affects estimated

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ECONOMIC VALUATION OF GROUND WATER 97

values of the benefits of protecting ground water (Boyle, 1994). Lazo et al.

(1992) provide guidelines for reducing information biases using verbal protocols.

The increasing costs of conducting benefit studies and decreasing support for

research efforts have led to renewed efforts to minimize costs by establishing

some method for transferring benefits from study sites to policy sites. Preliminary evidence (VandenBerg et al., 1995) indicates the challenges inherent in

benefits transferability with ground water resources.

While complete transferability of benefits estimates is an impossible goal

given the site-specific nature of most ground water valuations, the debate itself is

leading to collaborative interdisciplinary efforts which may create benefits in and

of themselves.

A final area, though not specifically an area of disagreement, is the dearth of

TABLE 4.4 Summary of CVM Studies—Survey Characteristics

Response Rates

Author(s) Usable Responses

Dates (Percent) Payment Vehicle Valuation Question

McClelland et al. 60 water bill payment care

(1992) 44

Caudill (1992) 67 higher taxes dichotomous choice

Caudill and Hoehn 60

(1992)

Doyle (1991) NA bond payment card

Edwards (1988) 78 bond dichotomous choice,

58 open ended

Jordan and Elnagheeb 35 water bill payment card

(1993) 34 water purification

equipment

Poe (1993); Poe and 76-91 increased taxes, lower dichotomous choice

Bishop (1992) profits, higher prices

Powell (1991) 50 water bill payment card

Powell and Allee higher taxes

(undated)

Clemons, Collins, 64 bond dichotomous choice

and Green (1995)

SOURCE: Reprinted with permission from Boyle (1994).

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98 VALUING GROUND WATER

TABLE 4.5 A General Matrix of Ground Water Functions/

Services and Applicable Valuation Methods

Ground Water Function/Service Flow Applicable Valuation Method

A. Extractive values

1. Municipal use (drinking water)

a) Human health - morbidity

b) Human health - mortality

2. Agricultural water use

3. Industrial water use

B. In situ values

1. Ecological values

2. Buffer value

3. Subsidence avoidance

4. Recreation

5. Existence value

6. Bequest value

SOURCE: Adapted from Freeman, 1993. (Reprinted with permission from Resources

for the Future, 1993. Copyright by Resources for the Future.)

Cost of illness

Averting behavior

Contingent valuation

Contingent ranking/behavior

Averting behavior

Contingent valuation

Contingent ranking/behavior

Derived demand/production cost

Derived demand/production cost

Production cost techniques

Contingent valuation

Contingent ranking/behavior

Dynamic optimization

Contingent valuation

Contingent ranking/behavior

Production cost

Hedonic pricing model

Contingent valuation

Contingent ranking/behavior

Travel cost method

Contingent valuation

Contingent ranking/behavior

Contingent valuation

Contingent ranking/behavior

Contingent valuation

Contingent ranking/behavior

information on nonuse values of ground water. For example, only one study

(McClelland et al., 1992) has attempted to address existence value of ground water,

and the approaches used in the study have been criticized. The estimates for

existence and bequest values found in this study were smaller than use values

found from other studies using indirect or direct methods. Additional research is

needed to further document the existence and size of nonuse values for ground

water resources. Table 4.5 illustrates the applicable valuation methods for addressCopyright © National Academy of Sciences. All rights reserved.

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ECONOMIC VALUATION OF GROUND WATER 99

ing various potential ground water values. It is not an exhaustive list. Following

Table 1.3, it is organized according to extractive and in situ services of ground

water. Nonuse values are treated as a subcategory of in situ values in this scheme.

Such values can only be measured using direct methods, such as CVM or a variant.

Two cautions should be kept in mind when examining Table 4.5. In some

cases, several different methods can be used to measure the same ground water

function. This permits the potential for checking the consistency of estimates of

the same function or service. However, it also raises the potential that some

decision-makers will double-count value estimates of the same service when

attempting to arrive at a total value estimate of a particular ground water resource. Use of a comprehensive list of ground water functions and services can

serve as a guide to keep correct calculations of total values from individual

studies. Finally, the reader should recall the advantages and disadvantages of

each of the techniques (summarized in Table 4.1) when considering their use in

decision-making.

CONCLUSIONS AND RECOMMENDATIONS

• For valid and reliable results to be obtained, the valuation method

must be matched to the context and the ground water function or service of

interest.

• It is hard to make generalizations about the validity and reliability of

specific valuation approaches in the abstract. The validity of the approach

depends on the valuation context and the type of ground water services in

question. Different approaches are needed to value different services; care

must be taken not to double count values resulting from different services.

• Previous ground water valuation studies have focused primarily on a

small part of the known ground water functions and services (identified in

Chapter 3). Thus current empirical knowledge of the values of ground

water is quite limited and concentrated in a few areas, such as extractive

values related to drinking water use.

• If data are available and critical assumptions are met, indirect valuation methods (e.g., TCM, HPM averting behavior) can produce reliable estimates of the use values of ground water.

• The contingent valuation method (CVM), when used correctly, has

the potential for producing reliable estimates of ground water use values in

certain contexts. However, few, if any, studies to date meet the stringent

conditions, as established by a NOAA panel of Nobel-Laureate economists,

that are required to produce defensible estimates of nonuse values. More

research is needed to compare use values from CVM with those of other

methods to determine whether CVM will consistently yield reliable estimates. CVM does have the advantage of allowing researchers to be precise

in focusing on the total resource attribute to be valued, compared to the

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100 VALUING GROUND WATER

results from other indirect approaches that generally fail to capture total

economic value.

• The EPA, and other federal agencies as appropriate, should develop

and test valuation methods for addressing the use and nonuse values of

ground water, especially considering the ecological services provided by

ground water.

• Given the problems in using CVM to measure ground water values,

EPA and other appropriate government agencies should encourage ways of

enhancing the utility of CVM. For example, contingent ranking or behavior

methods may be useful in improving the robustness of CVM estimates and

may expand the potential for benefits transfer.

• Technical, economic, and institutional uncertainties should be considered and their potential influence delineated in ground water valuation

studies. Research is needed to articulate such uncertainties and their potential influence on valuation study results.

• Ground water values obtained from both indirect and direct methods

are dependent on the specific ground water management context. Attempts

to generalize about or transfer values from one context to another should be

pursued with caution.

• Traditional valuation methods such as cost of illness, demand/analysis, and production cost can be used for many ground water management

decisions that involve use values. Such methods offer defensible estimates of

what are likely to be the major benefits of ground water services.

• The pervasiveness and magnitude of nonuse values is uncertain. Few

and limited studies have been conducted, and little reliable evidence exists

with which to draw conclusions about the importance of nonuse values for

ground water. Additional research is needed to document the occurrence

and size of nonuse values for ground water systems.

• What is most relevant for decision-making regarding ground water

policies or management is knowledge of how the TEV of ground water will

be affected by a decision. Pending documentation of large and pervasive

nonuse values for ground water, it is likely that in many, but not all, circumstances, measurement of use values or extractive values alone will provide a

substantial portion of the change in TEV relevant for decision-making.

• In some circumstances the TEV is likely to be largely composed of

nonuse values. At the current time, pending documentation of large and

pervasive nonuse values for ground water systems, this appears to be most

likely when ground water has a strong connection to surface water and a

decision will substantially alter these service flows. In these situations, focusing on use values alone could seriously mismeasure changes in TEV and

will ill serve decision-making. Decision-makers should approach valuation

with a careful regard for measurement of TEV using direct techniques that

can incorporate nonuse values.

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ECONOMIC VALUATION OF GROUND WATER 101

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105

5

5

Legal Considerations, Valuation, and

Ground Water Policy

This chapter outlines the fixed ground water allocation and quality policies

that affect ground water valuation. The chapter also describes how new policies

are trying to balance environmental protection with the corresponding economic

consequences. It concludes with a section that addresses research needs based on

the lack of information relating valuation information to ground water management decision. American ground water policy is a combination of state, local and

federal laws dealing with ground water allocation and ground water quality protection. Ground water allocation is almost exclusively the province of state law,

whereas ground water quality protection is a mixture of state, local, and federal

laws. State ground water allocation laws date back to 19th-century court decisions (Murphy, 1991; Tarlock, 1995), while most modern ground water quality

laws date from the 1970s and 1980s (Beck, 1991).

An important ground water allocation issue is how to evaluate current versus

future use of ground water. Unfortunately, states rarely consider future ground

water uses in establishing ground water allocation policies dealing with ground

water depletion. The states that do have explicit policies to limit ground water

depletion typically simply prohibit additional ground water uses and do little to

regulate current ground water uses to extend aquifer life (Aiken, 1982). There is

unfortunately too little attention given to regulating existing ground water uses to

lengthen aquifer life, let alone any explicit quantitative evaluation of the trade-off

between current and future ground water use. Consequently, ground water valuation has historically played almost no role in state ground water allocation

policies. Ground water policies in most states could be strengthened by acknowledging ground water’s future value.

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106 VALUING GROUND WATER

Valuation has played a more significant role in ground water quality policies,

however. Under state and federal Superfund programs, valuation is a critical

factor in determining the amount of money recoverable for natural resources

damages. Valuation has also implicitly (through cost-effectiveness analyses)

become a significant factor in determining ground water remediation levels in

Superfund cleanup sites and future drinking water standards.

Valuation may become an even more important consideration in ground

water protection policy if formalized regulatory benefit-cost studies become a

more significant part of developing and selecting federal environmental regulations. Critics of current federal environmental policies contend that those policies should have as their primary objective risk reduction rather than environmental protection. Focusing environmental regulations on risk reduction and

subjecting proposed environmental regulations to regulatory benefit-cost studies

has been required administratively since the Carter administration. Proposed

federal legislation would elevate risk reduction and regulatory cost-benefit tests

to the highest environmental policy objectives, raising the policy significance of

resource valuation. Such a change would represent a fundamental shift in federal

environmental policy.

VALUATION AND GROUND WATER ALLOCATION

As stated earlier in this report, most states treat ground water as if it were a

free good: well owners are subject to few if any pumping restrictions except in

unusual circumstances. Where no use restrictions are established, ground water

tends to be undervalued. In most eastern states ground water use is subject only

to court decisions, which effectively means there are no legal constraints on

ground water development and use. Eastern and western states that require state

permits as a condition of ground water use seldom impose pumping limits that

take aquifer life into account. Only rarely are current ground water uses balanced

against future water needs.

Ground Water Allocation Law Doctrines

Ground water law in the United States is the result of a bewildering mix of

state court decisions and state statutes. While some generalization is possible,

each state’s ground water law is unique. This overview broadly categorizes state

ground water laws primarily as they relate to allocation, and briefly surveys state

and federal ground water protection policies.

Common Law States

The common law doctrines of absolute ownership, reasonable use, correlative rights, and eastern correlative rights are based on state court decisions and

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LEGAL CONSIDERATIONS, VALUATION, AND GROUND WATER POLICY 107

are implemented through litigation or private negotiation. While prior appropriation was initially adopted in a few western states by court decision, it will be

discussed separately as a statutory rather than a judicial doctrine.

Absolute Ownership. The earliest judicial theory of ground water rights is

the doctrine of absolute ownership, also referred to as the English rule. Under the

absolute ownership doctrine the landowner is, by virtue of land ownership, considered owner of the ground water in place. Thus in absolute ownership jurisdictions a landowner may pump as much ground water as possible, without regard to

the effect his pumping has on neighboring landowners.

The English rule of absolute ownership reflected 19th-century judicial observations that the movement of ground water was unknowable and thus it was

unfair to hold a landowner liable for interfering with a neighbor’s well when it

was not knowable whether the defendant’s pumping actually affected the

plaintiff’s well or not. The English rule was once quite popular in the United

States, but now only Texas among the western states remains an absolute ownership jurisdiction; although Texas now has a number of sub-state districts where

ground water use is now regulated, e.g. Houston/Galveston area, High Plains,

San Antonio. Some eastern states may still be English rule jurisdictions, but the

judicial trend is toward adoption of the eastern correlative rights doctrine.

Reasonable Use. The reasonable use rule, or American rule, was developed

in the 19th century. Under the American rule landowners are entitled to use

ground water on their own land without waste. If their use exceeds this “reasonable use,” the landowner is liable in damages. The American rule may still be

followed in a few eastern states, although it is being judicially replaced by the

eastern correlative rights doctrine. The reasonable use doctrine is part of the

ground water jurisprudence of Nebraska, Arizona, and California.

Western Correlative Rights. The California doctrine of correlative rights

also initially developed in the 19th century but has continued to develop. Under

the correlative rights doctrine, if the ground water supply is inadequate to meet

the needs of all users, each user can be judicially required to proportionally

reduce use until the overdraft is ended. The policy significance of correlative

rights is that each well owner is treated as having an equal right to ground water

regardless of when first use was initiated.

The correlative rights doctrine is part of the ground water jurisprudence of

California and Nebraska, although its sharing feature has been incorporated into

the ground water depletion statutes of a few other western states.

Eastern Correlative Rights. The eastern correlative rights doctrine, inspired

by the Second Restatement of Torts, states that when conflicts between users

occur, water will be allocated to the “most beneficial” use, giving consideration

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108 VALUING GROUND WATER

to a wide variety of factors, including priority of use. Several factors are enumerated to be considered in a judicial determination of whether a water use at issue is

“unreasonable”: (1) the purpose of the interfering use, (2) the suitability of the

interfering use to the watercourse, (3) the economic value of the interfering use,

(4) the social value of the interfering use, (5) the extent and amount of harm it

causes, (6) the practicality of avoiding the harm by adjusting the use or method

of use of one riparian proprietor or the other, (7) the practicality of adjusting the

quantity of water used by each proprietor, (8) the protection of existing values of

water uses, land, investments, and enterprises, and (9) the justice of requiring the

user causing the harm to bear the loss.

Statutory States

Permit States. A few states, including Florida, Iowa, Wisconsin, and Minnesota, require a state permit as a condition of well construction and use. Typically,

users become subject to a rationing program during periods of shortage so that

public water supplies are protected at the expense of other uses.

Appropriation States. With the exception of the major ground water using

states (e.g., Texas, Nebraska, Arizona, and California), western states apply the

doctrine of prior appropriation to ground water. This means that the right itself is

dependent upon obtaining a state permit rather than simply owning land overlying the ground water supply. Between ground water users, priority of appropriation gives the better right. This means that first in time is first in right.

Ground Water Allocation Law Issues

Ground water rights conflicts between well owners, and problems caused by

surface-ground water interference are among the issues addressed by allocation

law issues.

Ground Water Rights

In the common law states, ground water rights are based upon owning land

overlying the ground water supply and are defined by court decision. In the

statutory states, including the eastern permit states, ground water rights are based

upon obtaining a state permit and complying with its terms. In the permit and

appropriation states, state statutes generally define the extent of ground water

rights.

Common Law States. In all common law states, the right to use ground water

is based on owning land overlying the ground water supply. In absolute ownership states, pumping is not restricted to avoid harm to others or to avoid waste.

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LEGAL CONSIDERATIONS, VALUATION, AND GROUND WATER POLICY 109

(However, in Texas, malicious pumping may be judicially restrained.) In reasonable use jurisdictions there is generally no ownership interest in the ground water

itself until it has been captured. Pumping may be judicially restrained to prevent

waste or non-overlying uses. In correlative rights jurisdictions the right to use

ground water is also based on owning land overlying the ground water supply,

although in California prescriptive rights can be obtained for nonoverlying uses.

Pumping may be judicially restrained to prevent waste or to apportion an inadequate supply. In eastern correlative rights states, pumping may be judicially

restrained during shortages, although the basis upon which shortages will be

allocated is not predictable. Ground water rights are least well defined in the

eastern correlative rights statutes, since judicial notions of what may constitute

the “most beneficial” use of ground water may change over time.

Statutory States. In both eastern permit states and appropriation states, rights

to use ground water are based on obtaining and complying with the terms of a

state permit. However, most existing ground water uses were automatically

grandfathered into the permit system. Pumping rates may be limited in a permit

and further limited during shortages. In eastern permit states, public water supply

uses and domestic uses will generally be protected during shortages. In appropriation states, senior users (i.e., those with an earlier priority date, or in other

words, an older well) are protected during shortages without regard to use. A

junior user with a higher use, however, may be able to condemn a senior’s use

right during shortages and thus pump water out of priority.

Well Interference Conflicts

Well interference is where the cone of depression of one well intersects with

the cone of depression of another well, reducing the yield of both wells. In an

artesian aquifer, well interference may occur when the pumping from one well

drops the water level below the pump of another well. Well interference may

occur even when there is sufficient water available to supply all users—it may be

the result of inadequate wells rather than an inadequate supply. Most ground

water disputes have tended to be well interference disputes.

Common Law States. In absolute ownership states, a landowner is not liable

for interfering with a neighbor’s well. Thus the neighbor’s only recourse is to

drill a new well deeper than the neighbor’s well. This has been described as “the

race to the pumphouse.” In reasonable use states a landowner complaining of

well interference is entitled to relief only if the complained-of use is wasteful or

not on overlying land. Thus plaintiffs complaining of well interference have little

legal remedy in the absence of gross waste or nonoverlying uses. The courts’

definition of what constitutes a wasteful use is rather generous. Arizona courts

have defined overlying land to include only the tract of land where the well is

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110 VALUING GROUND WATER

located. Nebraska, a reasonable use state, minimizes well interference conflicts

between high-capacity wells through statutory well-spacing restrictions. In correlative rights states, competing pumpers have equal rights during shortages.

Statutory States. In eastern permit states and appropriation states, well interference conflicts may be reduced through permit conditions such as well-spacing

restrictions and pumping restrictions. Further, in eastern permit states public

water supply and domestic uses are generally protected during shortages. Otherwise, correlative rights principles will likely be applied.

Prior appropriation is primarily a surface water doctrine that has been applied rather uncritically to ground water. As ground water problems developed,

the principles of prior appropriation were modified to better apply to the ground

water context. Two modifications that were made in response to well interference conflicts are establishment of reasonable pumping depths and problem area

regulations.

Sometimes the senior or oldest wells may not be fully penetrating. To allow

senior appropriators to insist upon original pumping depths being maintained

could seriously constrain ground water development. Thus several appropriation

states do not strictly maintain priority during well interference disputes, but only

protect “reasonable pumping depths” through well permit restrictions on pumping. If a senior’s well cannot pump at that depth, typically the senior appropriator

is responsible for replacing the well.

In some appropriation states ground water development and use has resulted

in chronic well interference problems. Special pumping and development restrictions may be imposed by the state engineer in designated problem areas. Regulations can include a ban on new high-capacity wells and pumping restrictions to

maintain reasonable pumping depths and reduce interference conflicts.

Ground Water Depletion

Ground water depletion occurs when withdrawals from the aquifer exceed

recharge. This is sometimes referred to as ground water overdraft or mining.

Overdraft is significant in the Ogallala aquifer region, including Nebraska, Kansas, Colorado, Texas, and New Mexico, as well as in California, Nevada, and

Arizona.

The amount of water that can be safely withdrawn without leading to longterm aquifer depletion is sometimes referred to as the safe-yield amount.

Common Law Doctrines. Of the overlying rights doctrines, only the correlative rights doctrine addresses depletion. In absolute ownership states pumpers

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LEGAL CONSIDERATIONS, VALUATION, AND GROUND WATER POLICY 111

overlying. In eastern correlative rights states, courts can apportion water between

competing users. Florida (a permit state) is the primary eastern state with significant ground water depletion concerns.

In theory, courts in correlative rights states can limit withdrawals to an

aquifer’s safe yield, thus preventing depletion. In practice, in California safeyield adjudications are used primarily to define baseline pumping rights so that

ground water recharge agencies can charge pumpers a pumping fee for using

more than their safe-yield allocation.

Problem Area Regulations. Dealing with ground water depletion has not

been a major feature of eastern permit state ground water administration. Most

ground water shortages are seasonal rather than perennial. In appropriation

states, the most common way to deal with depletion is to establish special problem area regulations. Once the problem area has been administratively defined,

typically no new high-capacity wells may be drilled within the problem area.

Less frequently are the uses of existing appropriators limited, a significant policy

failing. Initial ground water appropriation allocations are typically generous, not

requiring a high degree of water use efficiency. Where problem area allocations

have been established, they typically are high enough to allow current irrigation

practices to be maintained with little or no change. Any increases in irrigation

efficiency typically come only as well yields decline.

Nebraska and Arizona, both reasonable use states, have adopted problem

area statutes to deal with ground water depletion. Through statute and regulation,

Arizona identified areas with depletion problems and instituted water-use reductions in phases. Nebraska’s depletion statute is a local option for natural resource

districts (NRDs). In one area the NRD has required well metering and pumping

reductions. Most NRDs, however, have opted to ignore their depletion problems.

Texas, an absolute ownership state, has a similar local option approach in which

runoff irrigation controls and education programs have been implemented by

local ground water conservation districts.

Conjunctive Use. In California, the courts have recognized the rights of

entities storing water underground to control the use of that water. As a result,

when ground water pumpers have received their safe-yield allocation through a

court adjudication, they are typically required to pay a fee to the recharge entity

pumping water stored underground, i.e., for pumping ground water in excess of

their safe yield allocation. Where both surface water and ground water are

available to ground water pumpers, the recharge entity can raise or lower ground

water pumping fees to encourage surface water use during periods of ample

surface supplies or to discourage surface water use during periods of surface

water shortage.

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112 VALUING GROUND WATER

Surface-Ground Water Interference

Where ground and surface water supplies are hydrologically connected,

courts typically have followed the “underground stream” doctrine to interrelate

surface and ground water rights of use. This means that wells will be treated as

surface diversions and governed by surface water law. Riparian rights jurisdictions basically follow a theory similar to the reasonable use doctrine of ground

water rights, although the eastern correlative rights doctrine has been applied to

both surface and ground water. Where surface water rights are appropriative,

priority would govern surface-ground water disputes.

Under the “Templeton” doctrine, the New Mexico State Engineer has required a junior ground water appropriator to purchase and retire sufficient surface

appropriations to compensate for the expected stream depletion effect of a proposed well. Colorado has an elaborate system for integrating surface appropriations and appropriations of subflow and tributary ground water. Generally junior

ground water appropriators are expected, through plans of augmentation, to compensate the stream for their expected stream depletion effects of well pumping.

Ground water pumping that reduces stream flows upon which endangered

species depend for habitat may be regulated under the federal Endangered Species Act. In Texas, the Sierra Club has sued the U.S. Fish and Wildlife Service,

arguing that well pumping from the Edwards Aquifer near San Antonio has

reduced stream flows to the detriment of endangered species. Municipal and

irrigation uses of ground water are currently under federal court order to be

reduced to meet endangered species stream flow requirements.

In some instances, prevailing ground water laws impose constraints on individuals and institutions from assigning the appropriate TEV to ground water in

operationally meaningful ways. Among the constraints that can be found in prevailing ground water law are: failures to vest clearly the right to use ground water

(i.e., provisions which allow the law of capture to prevail); prohibitions or constraints on the marketing of ground water; forfeiture provisions in which the failure

to apply the water to beneficial use may risk forfeiture of right; provisions which

encourage individual users to ignore the social costs of use; and provisions which

encourage the exploitation of ground water in a competitive fashion (virtually all of

these barriers to accurate depiction of TEV apply to surface water as well).

Water Rights Transfers

In most western states, where water supplies are short, irrigation is the predominant use. To accommodate new uses for municipal, industrial, recreational,

and environmental purposes, water rights in most western states can be bought

and used for a different purpose. Typically this involves quantifying the original

consumptive use, and allowing that amount to be transferred to another party so it

can be used for a different purpose and perhaps in a different location. Restricting

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transfers to consumptive use preserves return flows from the original use to other

appropriators on the stream.

Water marketing has been hailed as the modern, environmentally friendly

way to deal with water shortages in the arid West, as opposed to dam construction. Most water right transfers involve surface water rights. However, ground

water transfers are common in Arizona. Water markets provide flexibility in

water use and management while also providing “real world” prices for water,

which can be useful in attempting to value ground water. More states should

consider the authorization and promotion of water marketing, including transfer

of ground water rights when appropriate.

An emerging policy issue is how to deal with adverse community impacts

from transferring water from irrigation to nonagricultural uses (NRC, 1992). A

principal concern is that as water is transferred away from irrigated agriculture to

other uses, the community’s agribusiness economic base may be threatened.

A variation on the water right transfer theme is for an entity, typically referred to as a water bank, to purchase water rights from users willing to sell them,

and then resell the water to whoever needs it. Water right sales to a water bank

may be temporary, whereas most water right transfers are permanent.

Water marketing and banking are important to valuation in that such water

right transfers provide actual market values for water, which in turn provide

crucial information for valuing ground water.

Valuation and Ground Water Management

Arizona’s Ground Water Management Act of 1980 reflects a series of conscious water allocation choices to a much greater degree than most state water

allocation legislation does. Arizona’s Act mandates the goal of eliminating ground

water overdraft by the year 2025. Overdraft is to be reduced by a series of 5- and

10-year plans that apply to Arizona’s most populated areas and agricultural center. Thus Arizona’s Ground Water Management Act is a rare example of state

legislation that implicitly values ground water. Such legislation can help pave

the way for other states to use valuation studies in determining ground water’s

future economic worth. Florida also regulates ground water uses to protect public

water values, including environmental services from ground water.

The principal consequence of the law of capture ground water allocation

policy relied on by many states is that potential future uses of ground water are

not taken into account. Valuation plays no significant role in ground water

allocation policy under the law of capture. Indeed, the extent to which state water

law fails to deal effectively with ground water depletion indicates the degree to

which its policies ignore valuation.

Valuation as an analytical tool has typically been more important to water

suppliers in helping them evaluate water supply alternatives. A recent study

involving ground water valuation was prepared for the city of Albuquerque to

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help it evaluate water supply alternatives, it is described further in Chapter 6

(Brown et al., 1996).

VALUATION AND GROUND WATER QUALITY PROTECTION

Ground water quality protection law is perhaps even more fragmented than

ground water allocation law. While federal law provides a legal umbrella, no

single unifying federal ground water quality protection law exists. The federal

Clean Water Act does not establish a basic program for ground water quality

protection the way it does for surface water. Rather, federal ground water quality

protection programs are scattered throughout a variety of federal environmental

statutes.

For example, resource valuation plays a significant role in Superfund policy.

First, valuation is implicitly involved in benefit-cost analyses of Superfund

cleanup alternatives. Second, valuation is critical in recovering damages caused

to natural resources. Under the 1996 Safe Drinking Water Act amendments,

benefit-cost analysis will be used in establishing new drinking water standards.

Ground Water Quality Protection

Ground water quality protection measures generally address either point

source or non-point source pollution.

Point Source Pollution

CWA. Section 502(14) of the Clean Water Act (CWA) defined a point

source of water pollution to include “any discernible, confined and discrete conveyance. . . from which pollutants are or may be discharged.” This would include

a discharge pipe into a stream or an injection well. The CWA thoroughly regulates point discharges into waters of the United States, including streams and

wetlands. However, the CWA does not regulate point source discharges to

ground water.

SDWA. The Safe Drinking Water Act requires public water suppliers to

periodically test the quality of the drinking water they supply to their customers.

If testing reveals violations of one or more of the EPA drinking water standards

(also referred to as maximum contaminant levels or MCLs), remedial action must

be taken.

Under the 1996 SDWA amendments, new MCLs will be established by EPA

at a slower pace, and they will be subject to benefit-cost analyses and risk assessment. (More on this later.) States can grant waivers for drinking water system

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violations to communities of up to 3,300 people, and to communities up to 10,000

with EPA approval.

The SDWA has three provisions relating to ground water. First, MCLs are

used by EPA as reference points in determining Superfund ground water cleanup

standards. Second, EPA may designate aquifers as sole source aquifers for drinking water supply and prohibit federal activities adversely affecting the sole source

aquifer. Finally, underground waste injection is regulated through the SDWA

underground injection control program.

A 1996 amendment to the SDWA may further affect ground water quality

protection. The 1996 amendments provide funding for communities to enter into

source protection programs to protect the community’s drinking water quality from

contamination. Where ground water is the source of a community’s water supply,

SDWA funding will be made available for ground water quality protection.

CERCLA. The federal Superfund program of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), and the

Superfund Amendments and Reauthorization Act (SARA), requires cleanup of

ground water contaminated by waste disposal. Ground water remediation may be

required to comply with MCL standards, although less stringent cleanup standards may be approved by EPA on a case-by-case basis through a technical

waiver process.

The issue of “how clean is clean” under CERCLA is very contentious. In

addition, significant CERCLA effort is expended to receive or recoup cleanup

costs from responsible parties and potentially responsible parties. Many have

argued that a more no-fault approach would result in faster cleanup than the

current approach, which encourages litigation.

RCRA. The Resource Conservation and Recovery Act (RCRA) provides for

cradle to grave regulation of hazardous waste transport and disposal. In addition,

underground storage tanks (USTs) storing petroleum products and other hazardous chemicals, are regulated under RCRA. Cleanups from leaky underground

tanks may be paid for through state UST cleanup funds if the leaky tank complies

with cleanup eligibility requirements (which vary considerably among states).

Private Cleanup Liability. In addition to ground water cleanup liability

imposed under CERCLA and RCRA, those guilty of ground water contamination

may be liable under state cleanup statutes or court decisions for the costs of

ground water cleanup. Most states have state Superfund laws for ground water

cleanup as well as state UST cleanup funds. However, state laws vary considerably regarding the degree of financial responsibility imposed, ranging from a nofault approach to a CERCLA approach.

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Nonpoint Source Pollution

The term nonpoint source water pollution is not defined in the CWA. A draft

EPA guidance document, however, defines NPS pollution:

NPS pollution is caused by diffuse sources that are not regulated as point sources and normally is associated with agricultural, silvicultural and urban runoff,

runoff from construction activities, etc. Such pollution results in human-made

or human-induced alteration of the chemical, physical, biological, and radiological integrity of water. In practical terms, nonpoint source pollution does not

result from a discharge at a specific, single location (such as a single pipe) but

generally results from land runoff, precipitation, atmospheric deposition, or percolation. Pollution from nonpoint sources occurs when the rate at which pollutant materials entering water bodies or ground water exceeds natural levels.

The CWA does not directly regulate NPS (which can be a significant source

of ground water contamination). However, EPA encourages states to control

NPS pollution of surface and ground water through the Section 319 program

(successor to the Section 208 program). EPA also requires states to implement

NPS control strategies through the Coastal Zone Management Act (CZMA).

Many observers expected EPA NPS authorities to be expanded in the anticipated

CWA reauthorization along the lines of the CZMA NPS authorities. The CWA

will not be reauthorized before 1997 at the earliest, however, and whether EPA

NPS authorities will be extended beyond the current Section 319 program is

uncertain.

FIFRA. EPA has broad authority to regulate and prohibit pesticide use under

the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA). Most states are

also authorized by state statutes to regulate pesticide applications to protect

ground water quality. In addition, EPA, under its FIFRA Pesticides in Ground

Water Strategy, is requiring states to prepare management plans to further regulate pesticide use to protect ground water quality when EPA determines that

ground water quality will not be adequately protected by simply following pesticide label directions.

Fewer states are authorized to regulate fertilizer applications to protect

ground water quality. EPA currently lacks legal authority to regulate fertilizer

application to protect ground water quality.

Prevention of Ground Water Contamination

EPA’s principal strategy for dealing with ground water pollution is to prevent

its occurrence, due principally to the very high costs of ground water remediation.

Through grants to states, EPA can encourage ground water pollution prevention

despite EPA’s lack of a general ground water protection authority.

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Watershed Management. Under Section 319 of the CWA, EPA makes grants

to states to address surface and ground water NPS pollution on a watershed basis.

States typically make cost-sharing funds available to farmers to implement conservation measures to reduce erosion and sedimentation, and to implement agricultural chemical best management practices (BMPs).

Wellhead Protection. Under the SDWA, EPA provides some funding to

states to support local wellhead protection (WHP) programs. States help public

water suppliers identify the WHP area, typically the 20-year time of travel area

for the community’s wellfield. Once the WHP area has been identified, communities are encouraged to inventory potential contaminant sources and to use their

zoning authorities to keep incompatible land uses and practices outside of the

WHP area. Existing incompatible uses are encouraged to take extra precautions

to prevent contamination or to relocate outside the WHP area.

Planning and Zoning. Local communities and counties may exercise their

zoning authorities to regulate or limit land uses that may contaminate ground water.

Some states may use their facility licensing authority to protect ground water when

licensing the location of hazardous waste disposal and similar facilities.

Valuation and Superfund Site Cleanup

The original 1980 Superfund ground water remediation policies were cost

insensitive: cleanup cost was not heavily considered in establishing site cleanup

standards. This changed in the 1986 Superfund amendments (SARA). Under the

current federal Superfund program, remediation actions must be “cost-effective

over the period of potential exposure or contamination” (42 U.S.C.A. 9605(a)(7);

Seiver, 1996). Thus as a basic principle, ground water contamination cleanups

must be “cost effective.” Of course, cleanup standards also significantly influence cleanup costs. In addition, EPA must establish national cleanup priorities

for potential cleanup sites. Cleanup priority criteria include: (1) the affected

population, (2) the specific health risk associated with the hazardous materials to

be remediated, (3) the potential for direct human contact, (4) destruction of

sensitive ecosystems, and (5) natural resource damage affecting the human food

chain (42 U.S.C.A. (a)(8)(A)). These cleanup priority criteria suggest that some

ground water may be more valuable than other ground water based on the economic and environmental demand for the ground water.

Perhaps the most controversial Superfund issue revolves around quality objectives. Ground water, for example, is generally required to be cleaned up to

drinking water standards, regardless of the expected future use of the water.

Critics contend that such policies ignore the real, more limited risk of the contaminated costs, and drive up cleanup costs to the point that the Superfund program may face bankruptcy (NRC, 1994). EPA may, however, relax ground water

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cleanup standards for particular cleanup sites from 10-6 (i.e., the estimated health

risk is one additional cancer out of 1 million persons exposed over 70 years) to

10-4 (i.e., the estimated health risk is one additional cancer out of 10,000 persons

exposed over 70 years). Accepting the higher health risk would significantly

lower cleanup costs. The fundamental policy issue is the following: What level

of contamination represents an acceptable risk?

Valuation and Natural Resource Damages

Superfund and other federal environmental programs (Olson, 1989) authorize states and the federal government, among others, to sue (as “natural resources trustees”) polluters for damages for natural resources destroyed or injured by hazardous substance releases and oil spills. Superfund also requires

federal regulations to be developed for assessing the value of injured or destroyed

natural resources. Any natural resource damage assessments conducted by trustees and following the regulations adopted by the U.S. Department of the Interior

receive a rebuttable presumption of accuracy. Trustees may use other valuation

techniques, but the damage assessment would not enjoy a rebuttable presumption

of correctness.

The Department of the Interior adopted its natural resource damage assessment regulations in 1986 and 1987 (Copple, 1995). The damage assessment

regulations were invalidated in part in federal court in 1989. Among other things,

the court ruled that damages recovered by trustees should not be limited to the

lesser of (1) the cost of restoring or replacing the equivalent of the injured resource or (2) the lost use value of the resource. However, the court did sustain the

use of the contingent valuation method in natural resource damage assessment.

Amendments to Department of the Interior regulations on damage assessment

regulations are pending.

CHANGING ENVIRONMENTAL PRIORITIES:

POLICY DIMENSIONS OF GROUND WATER VALUATION

A fundamental environmental policy issue is whether pollution control or

other environmental regulations are health-based or technology-based. Healthbased regulations begin with the premise that once a desired level of environmental quality has been determined, polluting activities will be regulated to whatever

extent necessary to accomplish the specified environmental quality. Thus the

resulting pollution control requirements are established (1) without regard to the

availability of pollution control technology to accomplish the specified environmental standard and (2) without regard to the economic costs imposed on polluting entities. The health-based approach is favored by those placing a high priority on environmental protection. Critics, however, contend that health-based

environmental standards disregard the economic cost of environmental controls

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and are likely to result in pollution controls too costly relative to the environmental benefits they yield.

Technology-based regulation offers a different model. Under this approach

polluting entities are required to adopt currently available pollution control technology that is affordable. Whether adoption of this technology yields the desired

level of environmental quality remains secondary to technological and economic

feasibility. Technology-based regulations are favored by those subject to pollution control requirements. Critics of technology-based regulations contend they

will not reduce pollution levels sufficiently to protect human health and the

environment. Economists have also criticized the technology-based approach as

being economically inefficient: the same amount must be spent on pollution

control regardless of the actual amount of pollution being abated.

Critics of current environmental policy contend that even technology-based

regulations pay too little attention to the economic costs imposed by environmental regulations. Beginning with the Reagan administration, increasing efforts

have been made to explicitly quantify the economic and environmental costs and

benefits of proposed environmental regulations to balance those costs and benefits. Regulatory impact assessments (RIAs) of proposed EPA environmental

control regulations have been conducted to determine whether the economic and

environmental benefits of proposed regulations justify the regulations’ proposed

costs. Similar analyses are being conducted to see whether environmental regulators are focusing their attention and resources on those problems posing the

greatest risk to human health and the environment.

The RIA and similar evaluation processes require a more explicit balancing

of often competing environmental and economic objectives in the regulatory

process. Critics of current environmental policies are forcefully contending that

those policies should focus on reducing risk and should impose only those regulations that can achieve their objectives in a cost-effective way.

Regulatory Impact Assessment

One controversial environmental policy issue is the extent to which federal

pollution control requirements should balance protecting human health and the

environment with compliance costs. Most federal environmental laws are cost

insensitive, subordinating compliance costs to the protection of human health and

the environment. Only a few federal laws require formal balancing of environmental protection and compliance costs. Critics contend that the costs of many

pollution control (and similar) programs impose costs that are not commensurate

with the environmental benefits achieved; that billions of dollars are spent to

guard against relatively trivial risks.

President Reagan initiated a formal balancing of environmental protection

and regulatory compliance costs through his controversial Executive Order 12291,

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ses for proposed regulations imposing public and private costs of at least $100

million annually. Agency benefit-cost analyses were reviewed by the Office of

Management and Budget (OMB). Environmentalists opposed Executive Order

12291 as administratively imposing benefit-cost criteria on federal environmental rules when such criteria were not authorized by Congress. However, both

Presidents Bush and Clinton adopted similar Executive Orders.

The House of Representatives in 1994 adopted regulatory impact assessment

legislation, HR9, which would require RIAs for major rules imposing public and

private costs of at least $25 million annually ($50 million for small business

costs) and on Superfund cleanups costing over $5 million. The RIA requirements

would apply to all new federal environmental, health, and safety regulations,

including new regulations under existing laws.

Risk assessment refers to identifying how many lives will be saved or other

benefits achieved by the proposed regulation. Benefit-cost analysis in the RIA

context refers to determining how much it will cost per life saved under the

proposed regulation. The RIA process is intended to identify proposed regulations with “high” cost-benefit ratios.

HR9 stalled in the Senate and is unlikely to be adopted in 1997. Nonetheless,

the bill raises fundamental environmental policy issues that relate directly to

ground water valuation. The overall effect of RIA requirements would be to

discourage rules for which a positive benefit-cost analysis cannot be generated or

is marginal.

Unfunded Mandate Act of 1995

While general RIA legislation has not been enacted, elements of the HR9

RIA process were incorporated in the Unfunded Mandates Act of 1995. Federal

programs often require state and/or local governments to bear a significant portion of program implementation costs. This practice is now referred to by critics

as creating an “unfunded federal mandate.” An example of an unfunded mandate

is the Safe Drinking Water Act. Communities whose water supplies violate

SDWA standards must either treat their water to EPA levels or obtain a new

water supply. No federal funding is available to meet these costs, hence the

SDWA imposes an “unfunded mandate.”

President Clinton has signed legislation requiring that unfunded (or

underfunded) federal mandates be identified before they are adopted by Congress

(109 Stat. 48, March 22, 1995; Fort, 1995). Unfunded mandates costing states

and/or local governments at least $50 million annually are subject to a separate

vote on establishing the unfunded mandate if a vote is requested. Cost estimates

are prepared by the Congressional Budget Office. When faced with an unfunded

mandate “point of order,” Congress has several options: (1) provide the funding,

(2) delete the mandate, (3) reduce the mandate to fit the funding, or (4) approve

the unfunded mandate.

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The Unfunded Mandates Act also requires federal agencies to prepare assessments of any proposed regulations imposing more than $100 million in combined compliance costs for states, local governments, and the private sector.

Federal agencies are prohibited from issuing regulations containing federal mandates that do not (1) employ either the least costly or most cost-effective method

or (2) do not have the least burdensome effect on the governments or private

sector, unless the agency also publishes an explanation of why the more costly or

more burdensome method was adopted. These regulatory review requirements

are subject to judicial review.

The act is not retroactive but would apply when existing laws are reenacted.

Most federal environmental, health, and safety programs contain program requirements that may be considered unfunded mandates. Accurate information

regarding ground water values would make unfunded mandate regulatory reviews better relative to evaluation of the economic and environmental trade-offs

involved in ground water protection policies.

LEGAL ISSUES IN REDEFINING GROUND WATER RIGHTS

Clearly, how private rights for ground water use are legally specified affects

the value of that property right and the associated land. Changes in ground water

right specifications may threaten property values and may likely be resisted by

ground water users. Ground water users traditionally have resisted legal changes

that affect the quantity they can pump, even though these restrictions (often little

more than required improvements in ground water use efficiencies) may significantly extend aquifer life. Political barriers to reforming ground water law often

are significant, and reform efforts unfortunately are most successful in response

to a perceived ground water crisis.

One often criticized aspect of ground water rights is uncertainty. However,

the lack of specificity regarding ground water rights most often reflects a lack of

scarcity. As ground water becomes more scarce, its rights to use will become

more sharply defined through litigation and/or legislation.

Takings and Property Rights

Another legal issue is that of takings. Often when property rights are modified, for example, through environmental regulation, the takings issue is raised.

Simply stated, the U.S. Constitution requires that if government regulation of a

property interest amounts to a complete destruction of that property interest, the

property owner must be compensated or the regulation not implemented. Traditionally, states have enjoyed broad discretion to regulate property rights in the

public interest. Recently, however, federal courts have begun to consider with

more favor landowner complaints that some government regulations constitute a

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dence is hardly settled, this trend in takings law may make government agencies

less inclined to take aggressive actions to protect ground water and more amenable to negotiating policies with all stakeholders, rather than simply imposing

predetermined ground water policies. However, ground water regulations are

routinely upheld in court, and efforts to defeat ground water regulations as takings will likely fail.

REDUCING RISK AND VALUING GROUND WATER

As noted in Chapter 1, more than half of the United States depends upon

ground water as a source of drinking water, and the nation’s reliance on ground

water for drinking purposes is increasing. Moreover, ground water supplies

contribute 30 to 40 percent of the flow of the nation’s streams, an important

ecological factor. The base flow provided by ground water contributes significantly to stream flow during periods of low precipitation. During drought periods

stream flow may be entirely or largely derived from ground water discharge.

Thus even the significant 30 to 40 percent contribution of ground water to total

stream flow understates the significance of base flow. During droughts, most or

all of the water in a stream is likely to derive from ground water discharge.

Moreover, ground water plays a crucial ecological role in sustaining wetlands

(NRC, 1995)

Despite the obvious strategic importance of ground water to human health

and the environment, the EPA Science Advisory Board (SAB), in its influential

report Reducing Risk, somewhat surprisingly concluded that ground water pollution represented a relatively low risk to natural ecology and human welfare (U.S.

EPA, 1990, page 13). Despite acknowledgment that the natural recovery time

from ground water contamination was centuries (U.S. EPA, 1990), the SAB

seemed unaware of the significance of ground water both as the nation’s primary

drinking water source and as a major source of stream flow. The Board’s conclusions are inconsistent with the drinking water and ecological services provided by

ground water.

This study, on the other hand, finds that ground water is a resource critical to

the nation’s future, both as the our primary source of drinking water and as a

significant source of stream flow. Because of these crucial human welfare and

ecological functions performed by ground water, and because of the acknowledged difficulty of ground water remediation, protecting and maintaining the

quantity and quality of the nation’s ground water supplies must receive a high

priority.

RESEARCH NEEDS

The published literature related to ground water valuation is limited. The

studies on the use of valuation methods mentioned in Chapter 4 are characterized

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by a limited focus and budget (the one exception being the national study by

McClelland et al., 1992). None of the studies completely address ground water’s

TEV; rather, attention was given to the valuation of extractive services or other

specific components within the TEV. And since most of the case studies were

conducted in academia, funding was limited. Further, most of the published

literature and case studies were authored by economists and if an interdisciplinary approach was utilized, it was not documented.

Environmental economics, particularly as related to ground water valuation,

must be seen as an emerging profession. It must be based on an interdisciplinary

approach when applied to ground water development, protection, or remediation

projects. However, several barriers to such interdisciplinary efforts exist. Two of

particular significance are the absence of any standardized terminology to facilitate verbal and written communications, and internal organizational structures

within regulatory, governmental, the private, and consulting sectors that tend to

isolate economists into small groups with specific and narrow functions. Therefore, there is a need for capacity building related to professionals who can address

ground water valuation. In other words, ground water professionals who are not

trained economists should learn enough economics to be able to understand and

use another professional’s ground water valuation. As additional information

becomes available, it should be transferred to practitioners.

At present, no integrated and comprehensive research program on ground

water valuation exists. For example, comparative studies of common ground

water management decisions that could be aided by valuation have not been

completed. Likewise, for a given type of decision, such as whether or not to

initiate a remediation program, a range of solutions should be explored.

Accordingly, a fundamental recommendation resulting from this NRC study

is that the EPA, along with the National Science Foundation, DOE, DOD, and

other agencies as appropriate, should plan and implement an integrated and comprehensive research program focused on ground water valuation. Following are

suggestions of ways that this research need could be addressed:

• Pertinent federal agencies such as EPA, DOE, and DOD should jointly

sponsor a series of research and case studies that examine: (1) a range of ground

water-related decisions that could be facilitated by valuation information; and (2)

a range of hydrogeological and contamination conditions that could be used to

reflect both go/no go and prioritization decisions related to remediation. Such

studies should include the integration of remedial investigation/ feasibility studies, risk (or endangerment) assessments, impact studies, and valuation information. An additional research question that could be explored based on both

existing studies and the proposed research and case studies is exactly how the

valuation information is used in each decision context; that is, was valuation the

sole factor, an equal consideration, or a supplemental item of information?

• The appropriate composition of interdisciplinary teams to conduct ground

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water valuation research needs to be explored. Participants should include environmental economists, ground water scientists and engineers, and political scientists. The roles of such disciplines and the constraints related to interdisciplinary

endeavors need to be studied. Also, the public’s perception of the use of valuation methods and its understanding of valuation study results should be gauged.

• Attention should be given to developing and improving methods for quantifying the value of ecological services and for determining existence and bequest

values for ground water resources. These topics have so far received minimal

attention. Of particular significance is both the recognition of ecological services

and the development of integrated methods to quantify such services. Efforts

should also be focused on developing TEV information for ground water resources.

• Technical and economic uncertainties must be recognized in efforts to

develop site-specific information regarding the benefits and costs of decisions

related to development, protection, and/or remediation of ground water. For

example, in relation to remediation decisions, the stochastic modeling of the

contamination problem and the potential effectiveness of cleanup measures should

be used to develop ranges of information that can be viewed together as an

indicator of “sensitivity analysis.” The possible influences of uncertainties and

nondelineated costs and benefits (or ground water services) should also be considered in a qualitative manner.

• Finally, because we are only recently recognizing the importance of valuing ground water, there are extensive educational and technology transfer needs

for ground water professionals, environmental economists, regulators, and ground

water managers. As noted earlier, the planning and conduct of such valuation

studies requires interdisciplinary involvement. While the leadership should come

from EPA, other federal, state, and local agencies, along with appropriate professional groups such as the Association of Ground Water Scientists and Engineers

(AGWSE), American Geophysical Union (AGU), American Water Resource

Association (AWRA), and others, should jointly participate in technical and

policy conferences and in generating a body of published literature on the value

of ground water and the advantages and limitations of valuation methods. Handbooks related to planning such studies should be developed. Such efforts would

help to increase awareness of ground water’s value and to demonstrate how

valuation information could improve decision-making.

It is recognized that many of these stated research needs are broad. Such

needs could be made more specific upon the development of a research strategy

focused on ground water valuation. The strategy which should be spearheaded

by EPA, should include an overall goal, specific objectives, delineation of multiple agency involvements (e.g., EPA, USGS, Corps of Engineers, NOAA, and

nongovernmental organizations), specific problem statements on needed research

topics, and budgetary requirements and time schedule.

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LEGAL CONSIDERATIONS, VALUATION, AND GROUND WATER POLICY 125

RECOMMENDATIONS

These institutional considerations, suggest several areas of governmental

action:

• Federal, state, and local agencies should give consideration to the

TEV of ground water in their deliberations on new or amended legislation or

regulations related to ground water management.

• States should consider the authorization and promotion of water

marketing, including transfer of ground water rights when appropriate.

Although a transition to a market that adequately captures the full value of

the resource may be difficult, water markets provide flexibility in water use

and more efficient allocation of water among uses. Water markets also provide real world prices of water for current use values, and their prices aid

decision-makers in valuing ground water. Helping to drive water marketing

is the fact that the importance of ground water has changed in the context of

conjunctive use. Recharge of surface water and effluent to replenish ground

water is now common in southern California.

• States should be encouraged to develop clear and enforceable rights

to ground water where such rights are either lacking or absent. A system of

clear and enforceable extractive rights to ground water is prerequisite to

economically efficient use of that water. Without such rights users will not

have the incentive to value ground water correctly either now or in the

future.

• Because of many uncertainties related to ground water valuation as

demonstrated in both the methods chapter (Chapter 4) and this chapter,

EPA and other pertinent agencies should plan and implement an integrated

comprehensive research program on ground water valuation. Federal agencies should conduct research and develop case studies in ground water valuation that includes a range of environmental conditions and economic circumstances. In addition, federal, state, and local agencies should develop

valuation methods that quantify ecological services and bequest and existence values. Such research will help states manage and protect their ground

water resources and could help to demonstrate improvements in decisionmaking that would occur with valuation information.

REFERENCES

Aiken, J. D. 1982. Ground water mining law and policy. Colorado Law Review 53(3):505-528.

Beck, R. E. 1991. Environmental controls. Waters and Water Rights 5: Chapters 52-57.

Charlottesville, Va.: Mitchie Company.

Brown, F. L., S. C. Nunn, J. W. Shomaker, and G. Woodard. 1996. The value of water: A report to

the city of Albuquerque in response RFP95-010-SV. Albuquerque, NM: City of Albuquerque.

Copple, R. F. 1995. NOAA’s latest attempt at natural resource damages regulations: Simpler... but

better? Environmental Law Reporter 25:10671.

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126 VALUING GROUND WATER

Fort, D. D. 1995. The unfunded mandate reform act of 1995: Where will the new federalism take

environmental policy? Natural Resources Journal 35(3):727-730.

McClelland, G. H., W. D. Schulze, J. K. Lazo, D. M. Waldman, J. K. Doyle, S. R. Elliott, and J. R.

Irwin. 1992. Methods for Measuring Non-Use Values: A Contingent Valuation Study of

Groundwater Cleanup. Boulder: University of Colorado.

Murphy, E. F. 1991. Quantitative Ground Water Law. Waters and Water Rights 3: Chapters 18-24.

Charlottesville, Va.: Mitchie Company.

National Research Council. 1992. Water Transfers in the West. Washington, D.C.: National

Academy Press.

National Research Council. 1994. Ranking Hazardous Waste Sites for Remedial Action. Washington, D.C.: National Academy Press.

National Research Council. 1995. Wetlands: Characteristics and Boundaries. Washington, D.C.:

National Academy Press.

Olson, E. D. 1989. Natural resources damages in the wake of the Ohio and Colorado decisions:

Where do we go from here? Environmental Law Reporter 19:10551-10557.

Seiver, D. W. 1996. Law of chemical regulation and hazardous waste. 1:§6.06[2]. Deerfield, Ill.:

Clark Boardman Callaghan.

Tarlock, A. D. 1995. Law of Water Rights and Resources. Chapters 4, 6. Deerfield, Ill.: Clark

Boardman Callaghan.

U.S. Environmental Protection Agency Science Advisory Board. 1990. Reducing Risk: Setting

Priorities and Strategies for Environmental Protection. Washington, D.C.: Environmental Protection Agency.

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CASE STUDIES 127

127

6

5

Case Studies

This report has emphasized the importance of valuing ground water resources and suggested a framework and valuation methods that could be used to

quantify the economic values associated with a suite of ground water services.

This chapter provides brief descriptions of seven existing situations that highlight

the importance of valuing ground water resources. These case studies also include some information on applicable valuation methods. The chapter offers

some insight into the difficulties that water managers (and policy-makers in

general) face in attempting to translate recommendations regarding valuation

methods into usable estimates of ground water values. Such difficulties can

derive from institutional constraints or conflicts in specific locales; political considerations; terminology and conceptual problems related to communicating information; and uncertainties associated with technical analyses, determination of

effects, and economic assumptions.

These site-specific studies are brief and are not intended to offer solutions for

any other case. Instead, these examples demonstrate that valuing ground water

resources is not a recipe that can simply be followed at any site. The planning

and implementation of economic valuation studies requires the interdisciplinary

efforts of economists, engineers, scientists, and policy-makers. These studies

show that although a complete accounting for all components of the TEV of

ground water is often impossible to obtain, quantifying some components can

provide information to improve decision-making and increase the efficiency of

the use of scarce ground water resources. Table 6.1 summarizes the theme of

each case study.

The first case study illustrates the link between surface water use and the

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128 VALUING GROUND WATER

TABLE 6.1 Comparative Information on Seven Case Studies

Case Study Theme Comments

Illustrates importance of ground

water valuation in designing

allocative and management policies for the conjunctive use of

surface and ground water.

Illustrates need for systems approach in defining hydrogeology,

surface and ground water resources, and competing uses

within a multi-institutional framework in a local geographical area.

Includes information on both use

and nonuse value of ground water

and how this can be incorporated

in long-term water supply planning in an area where ground

water mining occurs.

Demonstrates buffer benefits of a

ground water resource in an

agricultural area.

Addresses the value of ground

water in storage as a deterrent to

sea water intrusion.

Illustrates numerous uncertainties

associated with local

hydrogeological conditions, pollutant transport, the effectiveness

of remediation strategies, and

direct and perceived health consequences of drinking contaminated

ground water.

Illustrates the variety of considerations associated with a ground

water valuation study, including

the need to incorporate engineering estimates along with valuation

methods; also focuses attention on

the importance of substitute water

supplies.

Linkage between surface water

usage for agriculture and the value

of ground water services whose

quantity and quality may be influenced by agricultural practices.

Use conflicts that may arise among

local governmental agencies coordinating various combined uses of

surface and ground water.

Development of long-term water

use strategy for a city that relies on

ground water for its water supply;

also includes buffer value of

ground water.

Buffer value of ground water in an

area subject to periodic droughts.

Use of ground water recharge in a

coastal area to avert sea water

intrusion in a viable ground water

basin.

Incorporation of the value of

ground water in deciding on

remediation for a Superfund site.

Planning for application of valuation framework to decisions for

meeting water demand; options

addressed are ground water recharge and/or surface water treatment.

Treasure Valley,

Oregon

Laurel Ridge,

Pennsylvania

Albuquerque,

New Mexico

Arvin-Edison,

California

Orange County,

California

Woburn,

Massachusetts

Tucson, Arizona

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CASE STUDIES 129

quantity and quality of ground water in the Treasure Valley area of eastern

Oregon and southwestern Idaho. In this setting, which is typical of many areas in

the West, agriculture relies primarily on surface water supplies, and ground water

is used mainly for human and industrial consumption. The presence of pollutants

from agriculture in an aquifer reduces the value of the ground water for human

consumption and poses challenges for water resource managers. Without estimates of the value of the services associated with unpolluted ground water,

managers may design allocation and management policies that could lead to

suboptimal use of both the scarce ground water and the surface water supplies.

The Laurel Ridge, Pennsylvania, case study is an example of competing uses

of an aquifer and the interplay between ground water and surface water supplies.

In this area the user conflicts are between development (mining) and tourism and

among the many fragmented local governments whose jurisdictions overlay the

watershed. Economic valuation is a crucial component to achieving a more

systematic approach to planning in this watershed.

The next two case studies deal with the buffer value of ground water. In

Albuquerque, New Mexico, ground water is the primary source for municipal

water supply, although the city also has rights to surface water from nearby

rivers. Recent concerns with both the size of the aquifer and increased population

growth along with ground water mining have initiated a series of engineering and

economic studies to assess the long-term strategies for water use. This example

provides concrete evidence of the role that economic values can play in formulating policy alternatives for water use management.

The Arvin-Edison Water Storage District in southern California is another

example of a buffer value success story, where the surplus water from wet years

is being used to recharge the aquifer. This water management system in the

Bakersfield area has been in place for nearly 30 years and by some estimates has

generated millions of dollars in net returns to agricultural interests that would

have been foregone during critically dry years.

The second California example deals with the issue of irreversibilities associated with the intrusion of seawater in the ground water basin underlying Orange

County, in southern California. Loss of the basin to sea water intrusion would

require the Orange County Water District to rely more heavily on imported water

and would preclude the use of the aquifer for water storage. Knowing the value of

the ground water was clearly an important component in the decision to construct

and operate Water Factory 21 (an advanced wastewater treatment plant) and two

water injection projects. Combinations of imported water and highly treated

municipal wastewater are recharged as a barrier to sea water intrusion.

The sixth case study, a Superfund example, illustrates the importance of

ground water valuation to federal regulations regarding remediation of contaminated aquifers. Policy decisions on the extent to which ground water remediation

should be pursued need to be based on a careful assessment of the costs and

benefits of proposed actions. The benefits of restoring the quality of a contamiCopyright © National Academy of Sciences. All rights reserved.

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130 VALUING GROUND WATER

nated aquifer will be reflected in the potential gains or value of improvements to

the ground water resource and will be site-specific.

The empirical findings of this Woburn, Massachusetts, case study refute

conventional wisdom concerning the economic efficiency of ground water

remediation at Superfund sites for the sole purpose of restoring drinking water

supplies (i.e., that the costs of remediation far outweigh the benefits). In some

cases ground water remediation can be the efficient alternative; it should not be

dismissed without conducting a cost-benefit analysis. This case study also highlights the complexities involved in conducting an empirical analysis of the value

of restoring ground water resources and the impacts of uncertainties in the economic and physical dimensions, and in potential health consequences, and the

public response to ground water usage.

The final case study concerns the potential application of the valuation framework described in Chapter 3 and some valuation methods described in Chapter 4.

Options in this Tucson, Arizona, case include ground water recharge using Central Arizona Project (CAP) water or treatment of CAP water prior to usage. This

study provides information on the types of methods that could be used to value a

complete suite of ground water services for both options.

CHALLENGES IN WATER QUALITY MANAGEMENT

Treasure Valley, Oregon

Background

The Treasure Valley of eastern Oregon and southwestern Idaho is high desert

(10 inches of precipitation on average per year) that is intensively irrigated using

surface water from the Owyhee, Malheur, and Snake Rivers. All the water of the

Owyhee and Malheur Rivers (tributaries of the Snake River) is diverted to irrigation. Stream flow below the diversions is maintained by irrigation return flows

and recharge from a shallow aquifer supported in part by irrigation recharge

(Gannett, 1990).

Crop agriculture in the area is characterized by a range of high valued crops

including potatoes, sugar beets, and onions, as well as cereal grains and hay. In

the Oregon portion of the valley, approximately 180,000 acres are in irrigated

crop production (Schneider, 1992). The primary source of water irrigation is

from federal (U.S. Bureau of Reclamation) reservoirs and distribution systems.

In terms of total agricultural sales, animal agriculture (cattle and dairy) accounts

for 36 percent of sales, onions 25 percent, potatoes 11 percent, sugar beets 9

percent, cereal grains 9 percent, and the remaining crops 10 percent.

Ground water is used largely for industrial or human consumption. Between

1983 and 1986, the Oregon Department of Environmental Quality (ODEQ) tested

water wells in the study area. Elevated nitrate levels were found in 67 percent of

the wells tested; 35 percent of the wells exceeded the federal drinking water

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CASE STUDIES 131

standard for public water supplies of 10 mg/l. In 1989 ODEQ declared Malheur

County a ground water management area and ordered that ground water nitrate

levels be 7 mg/l or less by the year 2000. The ODEQ and local water quality

management groups have identified agriculture as the primary contributor to

ground water nitrates. Pesticides (dacthal) associated with onion production have

also been found in test wells.

Valuation/Management Issues

The geohydrological link between surface water applications and ground

water quality and quantity found in Treasure Valley is typical of many ground

water situations in the West. Specifically, percolation of irrigation water serves to

recharge the ground water aquifer (and in this case surface water percolation

augments the natural flow in the aquifer). This ground water recharge/augmentation process serves a number of beneficial purposes. For example, recharge

increases seepage from the aquifer into lowlands, creating wetlands for wildlife.

Irrigation returns, whether through surface runoff or through eventual seepage of

ground water to the Snake River and its tributaries, helps to stabilize stream

flows. However, unwelcome consequences may accompany this recharge, including the elevated levels of agricultural pollutants of concern to the ODEQ.

Ground water is the primary source of water for household and industrial

uses around Ontario, Oregon, located near the center of the valley (Gannett,

1990). The presence of pollutants from agriculture, with associated health concerns, reduces the value of water for human consumption. Pollutants in ground

water also degrade water quality in streams, with possible adverse consequences

for fish and wildlife. Given present concerns about endangered salmon fisheries

in the Snake River (the U.S. Fish and Wildlife Service have listed Snake River

sockeye and chinook salmon as endangered), water quality has assumed increased

importance.

A number of strategies to reduce the amount of agricultural effluents reaching the aquifer have been proposed. A feature common to most strategies is

“better” irrigation water management, which implies less total water application

per acre and hence less deep percolation. Such practices, however, also reduce

the volume of water moving into the aquifer. This in turn affects the volume of

seepage into wetlands and return flows to rivers. Further, if irrigation water

“saved” by improved irrigation management is used to expand irrigated acreage,

the total return flow and hence stream flow may be markedly reduced. Reduction

in stream flow and wetlands will exacerbate some wildlife problems.

Assessment of the Value of Ground Water

The interplay of surface water use, ground water quality, and, ultimately,

stream flow, creates challenges for public water resource managers as they try to

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132 VALUING GROUND WATER

achieve multiple objectives. Institutional constraints, including the nature of water rights (prior appropriation doctrine) and below-cost pricing of water in public

supply projects, further complicates water management. A plan that achieved

optimal use across all water resources in the basin would likely vary dramatically

from the use pattern typically observed in such settings. Assessment of the

values from one type of water resource, such as ground water, in isolation will

lead to suboptimal resource use.

To date, the benefits of ground water quality or ground water services in

general have not been estimated for this area because of the focus on human

health issues. Specifically, federal and state regulations require that water quality

in the aquifer be brought into compliance with state water-quality standards.

Economic analysis has been limited to assessment of the consequences to farmers

of meeting the standards (Fleming et al., 1995; Connor et al., 1995). An understanding of the values of ground water could aid in comprehensive management

of water.

Against this backdrop of complex geohydrologic linkages, institutional constraints, and a regulatory mandate to improve water quality, it is instructive to

consider whether the valuation techniques discussed in Chapter 3 can be used to

estimate the value (benefits) of the ground water services provided here. The

answer is a qualified yes. For example, the value of unpolluted ground water for

household uses can be estimated through expenditures on averting behavior, such

as purchase of bottled water or purification systems. Values of stream flow for

recreational fishing can be estimated through travel cost procedures. Direct

elicitation of nonuse values to maintain or enhance a species (e.g., existence

values) could be estimated by the contingent valuation method, although the

costs of performing defensible CVM surveys are quite high. Similarly, TCM or

CVM can be used to determine the value of ground water recharge of wetlands

for both use and nonuse services the wetlands provide. A compilation of these

use and nonuse values would supply information on the trade-offs between management goals across water users, including protection of ground water services.

References

Connor, J. D., G. M. Perry, and R. M. Adams. 1995. Cost-effective abatement of multiple production externalities. Water Resources Research 31:1789-1796.

Fleming, R. A., R. M. Adams, and C. S. Kim. 1995. Regulating groundwater pollution: Effects of

geophysical response assumptions on economic efficiency. Water Resources Research 31:1069-

1076.

Gannett, M. W. 1990. Hydrogeology of the Ontario Area, Malheur County, Oregon. Ground water

Report 34. Salem: Oregon Department of Water Resources.

Schneider, G. 1992. Malheur County Agriculture. Ontario: Oregon State University Extension

Service.

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CASE STUDIES 133

COMPETING USES OF AN AQUIFER

Laurel Ridge, Pennsylvania*

Background

Laurel Ridge covers 330 square miles in southwestern Pennsylvania. The

generally forested, mountainous topography forms a distinct break with the surrounding plateau lowlands. An estimated 15 million tourists visit Laurel Ridge

each year. Recreational activities such as hunting, fishing, boating, and skiing

are supported by abundant, clean water and large holdings of public land (41

percent of the area). The dominant land uses of Laurel Ridge, such as recreation,

water supply, wildlife habitat, and forestry, contrast with those of the peripheral

lowlands, which are largely devoted to agricultural pursuits and coal mining.

While tourism is an invaluable resource to communities within the area, high

rates of unemployment and slow growth in other economic sectors persist. This

area also has the highest acidic deposition in Pennsylvania. The Allegheny and

Pottsville rock units are influenced by acid deposition and yield ground water

high in hydrogen ion concentration and dissolved aluminum. Buffering from the

Mauch Chunk/Burgoon aquifer and its discharges into area streams help support

aquatic life (Beck et al., 1975).

Pennsylvania government is fragmented. With over 2,500 minor civil divisions, the state ranks second in the nation in terms of the number of local government divisions. The Laurel Ridge region reflects this fragmentation: parts of four

counties (Somerset, Cambria, Fayette, and Westmoreland) come together along

the historic ridge-line boundary; within these counties, 22 townships and two

boroughs form an intricate web of administrative jurisdictions. Thus the natural

resources of the Laurel Ridge are not managed as a cohesive region.

Ecosystem Characteristics

The Mauch Chunk/Burgoon aquifer is the only source of high-quality ground

water in the Laurel Ridge. It supplies most of the total public and domestic water

supply and provides base flow to many of the region’s exceptional surface waters. Compliance with the 1986 amendments to the federal Safe Drinking Water

Act requires that all surface water used as drinking water for public water systems

be filtered. From 1990 to 1995, some 30 high-yield municipal water wells were

drilled in the area. The aquifer supplies high-quality upland streams through

*William Delavan, Graduate Research Assistant, and Charles Abdalla, Associate Professor, Department of Agricultural Economics and Rural Sociology, Pennsylvania State University, prepared

this case study. Information in this case study was obtained through personal interviews with faculty

at Pennsylvania State University and with Pennsylvania Department of Environmental Protection

staff.

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134 VALUING GROUND WATER

artesian head-water springs. The effect of this development on streams has raised

concerns about both the quantity of water withdrawn and the impact on water

quality. Specifically, changes in withdrawal patterns have threatened aquatic

environments that support fish and other organisms. Water quality is further

affected by a combination of geographic and geologic factors that create in one of

the highest rain acidities in the country.

Water Users and Use Conflicts

The rapid development of the aquifer, the lack of rules to allocate ground

water among competing uses, and, in most cases, the absence of local water

management and planning has led to a situation where it seems the person with

the biggest pump or deepest well wins. Currently, there is little economic incentive for users to conserve. Since regulation is likely to occur in the future, users

who establish an early claim to the resource stand to win by drilling before

regulations are developed and carried out.

There are several conflicting interests. The legacy of coal mines is prevalent

throughout Pennsylvania. On both sides of the ridge in the lowlands there is

degradation from coal mining; the aquifer is thus threatened on its boundaries.

Assigning responsibility for past damage from coal mining is problematic from

both a political and economic standpoint.

 The region is home to two destination resorts whose ground water withdrawals are generally substantial from late November to early April. The resorts

have recently established golf courses that have increased off season withdrawals. A rise in the number of second homes on the ridge (“suburbanization”) has

multiplied water demand. The impacts of the resorts’ usage are not well understood. Some parties argue that efforts to recycle runoff and sewage serve to

increase or maintain ground water levels by replacing water on the ridge, in effect

performing an environmental service. Others deny this claim and fear that the

resorts’ usage threatens water quality down slope. Furthermore, the ground water

pumping may move waters out of areas favorable toward fish stocks and recharges areas unfavorable to fish stocks, compromising wildlife habitat.

The resorts have a significant economic impact in providing employment as

well as an influx of tourist dollars. Are the benefits of development greater than

the costs in terms of resource degradation and other foregone opportunities? If,

on the other hand, development inspires resource decisions that have high costs

or are irreversible, such as ground water contamination by toxics, the

sustainability of the local economy and its ecological systems is called into

doubt. If, on the other hand, restrictive regulations or the absence of a plan to

provide for long-term water and sewer requirements inhibits development, then

attempts to attract new industry and lower the unemployment rate will be stymied.

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CASE STUDIES 135

Issues Related to Economic Valuation

Efforts to understand the physical systems of the watershed must be combined with equal efforts to measure how people value these systems. Policymakers must address four issues:

• How much water is safely available from this aquifer system, and are

there areas where the aquifer is potentially overdeveloped?

• What is the impact of ground water withdrawals on the quality and base

flow of the upland surface water systems fed by Laurel Hill Spring?

• How can economic values for different uses be measured so that decisionmakers may adequately take into account competing uses?

• Can effective watershed management increase the potential for optimizing the different uses? What is the best way to develop institutions to help carry

out comprehensive planning?

Economic Values and Decision-Making

Regional watershed organizations have stepped up to meet these challenges,

but their efforts may be insufficient to educate the public and measure and map

resources. Even armed with accurate knowledge of ground water functions,

policy-makers face complex decisions. The fragmented nature of municipal

government in Pennsylvania poses serious challenges to intercommunity communication and cooperation, challenges that may be overcome only by a more

systematic watershed approach to planning and policy implementation.

In April 1992, the Laurel Ridge Forum was created in recognition of the

region’s vast public holdings, outstanding natural resources, and recreational

opportunities. Composed of members from state and local government, business,

and water suppliers, the forum focuses on future development in the area. Water

rights conflicts between residents and second-home owners are at the center of

the development debate. Research is beginning to define the physical impact of

recreational uses and the extent of past degradation from coal and limestone

mining, brine disposal, and road salting. Economic valuation is necessary to

interpret how different members of the community value these environmental

changes. New or different institutional arrangements among the layers of government could facilitate the comprehensive and systematic management of natural resources. The Laurel Ridge Forum’s Coordinated Resource Management

Plan (CRMP) attempts to deal with governmental fragmentation.

Decision-makers must identify and study alternative policies for effectively

managing these water resources. It might make sense, for example, to manage

the watershed as well as the basin as a whole. As research defines the aquifer’s

physical limits and capabilities, stakeholders and decision-makers must continue

to ask questions about the economic value of ground water. Specifically, they

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136 VALUING GROUND WATER

need to better understand and quantify the economic benefits of protecting the

aquifer from depletion or degradation.

The Laurel Ridge area offers a unique and challenging context for ground

water valuation. Rapid development and competing interests have brought the

water issue to the forefront, forcing increased efforts to understand and measure

water resources and begin constructive public debate. Economic values will allow

local officials to make more informed decisions relative to resource use by helping

them gauge the community’s values regarding water resources and the tradeoffs

between protecting these resources and economic development. Economic valuation coupled with a comprehensive systems approach to the watershed should

guide decision-makers toward effective water resource management choices.

Reference

Beck, M, G. Cannelos, J. Clark, W. Curry, and C. Loehr. 1975. The Laural Hill Study: An Application of the Public Trust Doctrine to Pennsylvania Land Use Planning in an Area of Critical

State and Local Concern. Department of Landscape Architecture and Regional Planning. Philadelphia: University of Pennsylvania.

THE BUFFER VALUE OF GROUND WATER

Albuquerque, New Mexico

Background

The city of Albuquerque, New Mexico, like many other rapidly growing

metropolitan areas in the arid Southwest, draws much of its municipal water

supply from ground water. Unlike most other cities, however, Albuquerque does

have rights to surface water supplies from the nearby middle Rio Grande and to

waters from the Colorado River basin (San Juan and Chamba Rivers) that are

diverted to the Rio Grande basin. The city’s historical reliance on pumping

ground water in lieu of accessing available surface water reflects a mix of

geohydrological, institutional, and cultural forces. These forces are changing and

call into question the economic and physical sustainability of Albuquerque’s

water use patterns.

In response to concerns over the long-term viability of ground water pumping, the city commissioned a series of engineering and economic valuation studies to assist managers in developing sustainable management strategies (CH2MHill, 1995; Boyle Engineering, 1995; Brown et al., 1995). In addition, other

agencies involved in water issues in the area have issued or commissioned studies

pertaining to water (Middle Rio Grande Conservancy District, 1993;

EcoNorthwest, 1996). Albuquerque’s strategies for water use, as described in

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CASE STUDIES 137

these studies, provide examples of the role economic values can play in assisting

policy formation.

The middle Rio Grande valley has been inhabited and intensively farmed by

Native Americans for at least 500 years. In addition to providing a stable water

supply for irrigation, the riparian, tree-lined areas, or bosque, along the River

were important to Native Americans for wood for fuel and shelter as well as

cultural and spiritual purposes. Hence, communities (pueblos) sprang up at points

on or near the River and its tributaries. Europeans were also attracted to the

riverine environment of the Rio Grande valley and established settlements on the

sites of present-day cities such as Albuquerque.

As settlement progressed and the region grew, residents encountered new

water issues. Competition among states (Colorado, New Mexico, and Texas) and

between the United States and Mexico for the scarce surface water supplies of the

basin resulted in a series of compacts and agreements allocating water among the

parties. Albuquerque was given rights to 48,000 acre-feet of water from the Rio

Grande and 22,000 acre-feet of imported water from the Colorado River basin.

Total surface allocations in the middle Rio Grande basin exceed 350,000 acrefeet; they are used primarily for irrigated agriculture.

While agriculture relies heavily on surface water, the settlements in the

valley, including Albuquerque, have relied heavily on ground water to meet the

needs of the increasing population. Albuquerque sank deep wells as early as 1910

to secure municipal water. This use of ground water was motivated in part by the

high quality of ground water, the steady supply (even in years of drought) and the

belief that the aquifer supply was large and recharge rapid. Rapid recharge of the

aquifer from the River led city water managers to believe that they were simply

pumping their surface water allocation, albeit with a slight lag time.

Present Situation

Recent geohydrological information that challenges past assumptions, increased competition for water, continuing population pressures, and concerns

over the environmental health of riverine habitat in the middle Rio Grande valley

cast doubt on the wisdom of Albuquerque’s reliance on ground water. Perhaps

the most important development was a 1993 U.S. Geological Survey study that

revealed that the aquifer was not as large as originally believed nor is recharge

(from surface flows) as rapid as assumed. This meant that Albuquerque was not

using its surface water supplies but was instead mining or overdrafting its ground

water. Inventory information also suggested that if Albuquerque continued to

rely on the aquifer to meet its urban needs, the aquifer would be economically

exhausted by 2060. During this same time period, the U.S. Fish and Wildlife

Service (USFWS) listed the Rio Grande silvery minnow, found in the middle Rio

Grande, as an endangered species. To ensure survival, the USFWS proposed

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138 VALUING GROUND WATER

increases in instream flows and protection of riparian habitat. Meeting these

instream and other habitat needs implies changes in water use patterns.

Once city water managers understood that Albuquerque was mining ground

water and not using its surface water supplies, they reexamined the long-term

water management strategy. The city’s failure to use its surface water supplies

meant that someone else had been using those supplies. The significance of the

use issue is contained in western water law; specifically, western water law

requires that users demonstrate a beneficial use of water within a specific time

period. While cities may be treated differently from other (private) users of

water, increased competition for this water places pressure on the city to begin

actively using its allocation. However, the total water allocation (of 70,000 acrefeet) is not adequate to meet future needs. Thus some combination of policy

options, including securing alternative surface water supplies, most likely from

agriculture, and increases in urban rates to reduce consumption, will be needed if

the city wishes to develop a sustainable aquifer management policy.

Valuation Issues

The situation in Albuquerque is similar to that in many other cities in arid

regions of the West. Historical preference for use of ground water in meeting

urban needs reflects some of the advantages ground water provides, including

stability of supply, high water quality (no treatment of ground water is required in

Albuquerque), and ease of access (no collection and transport system is required,

as in the case of most surface water supplies). The value of these advantages is

typically not reflected in the “price” of ground water (the “price” that cities

charge consumers is usually set at the cost of pumping and distributing the

water). A low price for ground water encourages higher use of the resource.

If ground water were not scarce (i.e., were available in unlimited quantities),

then its price would simply be the cost of extraction. However, ground water,

like surface water, is scarce; and when water is used in one setting, such as urban

use, it is not available for another purpose, such as in riparian habitat enhancement. Ground water price should thus reflect not only extraction costs but also

foregone benefits from its use in some other setting or in the same use but at some

future time (its opportunity cost). Until recently, most cities did not include such

values in the price of water.

In the presence of mining, as is occurring in Albuquerque, potential long

term adverse effects jeopardize the flow of future services. The lost benefits

(costs) from the reduced flow of these services should be reflected in water

pricing. One of these effects is land subsidence (due to compaction of the pore

spaces in the aquifer). Subsidence may lead to damages to buildings, roads, and

other structures. Mining also affects water quality; water quality in aquifers tends

to decline as pumping depth increases. Falling water levels in the aquifer also

reduce the ability of the aquifer to maintain or support stream flows and maintain

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CASE STUDIES 139

riparian zone health. Such drawdowns of water levels also increase pumping

costs to all users. Eventually, mining eliminates the potential use of an aquifer as

a buffer against drought. In arid regions, which are typically characterized by

high annual variation in precipitation and surface water supplies, the use of

ground water to meet needs during drought may be one of the most valuable

ground water services.

Brown et al. (1995) examine a series of options or scenarios for the city to

reduce aquifer use to a long-term, sustainable level by limiting use to periods of

extended drought. Sustainability (to build up the aquifer to a level sufficient to

provide a buffer against an extended drought) requires that the city live within its

annual water budget as defined by renewable surface water supplies (again, except for periods of drought). The implications of ongoing use of the aquifer are

short-term gains, accruing primarily to present users, with costs (of overdrafting)

delayed to some future period (future generations), when the adverse effects

described above would begin. Alternative strategies imply costs to present users

but with potential long-term benefits. To weigh the benefits and costs of alternative actions requires the measurement of economic values, over time, for the

array of services under the range of options available to the city.

In planning conjunctive management of the water resources of this region,

policy-makers can benefit from an understanding of the value of water in its

various uses. As they consider alternative water strategies, they should, as is

practical, look at the full range of economic consequences associated with each

alternative. The range of services affected by each option includes the potential

for changes in both use and nonuse values. Use values in this case are as input in

production (e.g., agriculture, manufacturing) and recreation; nonuse values are

associated with the Rio Grande bosque, such as riparian habitat, endangered

species, and aesthetic or visual services. Estimates of some use values in the

region are discussed in Brown et al. (1995). Researchers have also measured

nonuse (existence) values for provision of instream flows for preservation of the

silvery minnow (Berrens et al., 1996). Thus information is available to assess

some economic trade-offs involved in moving to a sustainable aquifer management policy.

The choice among alternative policies for ground water management should

reflect, at a minimum, the opportunity costs of that decision (what is given up in

selecting that option, or the benefits foregone from some other use of the water).

A full accounting would include the willingness to pay for changes in services

associated with each option (the maximum benefit or value associated with those

services). The costs (lost benefits) are not likely to be spread uniformly or

equally across affected parties. The political and judicial process can address

some equity issues but typically does not reflect the interests of future generations. Only by achieving sustainability (by establishing a safe minimum reserve

capacity in the aquifer) can the interests of future generations be guaranteed.

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140 VALUING GROUND WATER

References

Berrens, R. P., P. Ganderton, and C. Silva. 1996. Valuing the protection of minimum instream flows

in New Mexico. Journal of Agricultural and Resource Economics. In press.

Boyle Engineering. 1995. Water Conservation Rates and Strategies. Report prepared for Albuquerque, New Mexico.

Brown, F. L., S. C. Nunn, J. W. Shomaker, and G. Woodard. 1995. The Value of Water: A report

submitted to the city of Albuquerque, New Mexico. Albuquerque, N.M.: City of Albuquerque.

CH2M-Hill. 1995. Albuquerque Water Resources Management Strategy: San Juan-Chama Options.

Report prepared for the city of Albuquerque, New Mexico.

EcoNorthwest. 1996. The Potential Economic Consequences of Designating Critical Habitat for the

Rio Grande Silver Minnow. Draft report prepared for the U.S. Fish and Wildlife Service, New

Mexico field office.

Middle Rio Grande Conservancy District. 1993. Water Policy Plan; Working Document.

THE BUFFER VALUE OF GROUND WATER

Arvin-Edison Water Storage District, Southern California

The Arvin-Edison Water Storage District is located at the southern end of

California’s Central Valley, about 20 miles south of the community of Bakersfield. The district contains approximately 132,000 acres of highly productive

agricultural land. The economy of the area is almost wholly dependent on agriculture, as there is little other industry. The value of agriculture in the district

approaches $300 million annually, and land values range from $1,600 to $2,300

per acre. The principal crops include grapes, potatoes, truck crops, cotton, citrus,

and deciduous fruit. Seventy-five percent of California’s carrot acreage is found

here. The climate is hot and arid, with average annual precipitation totaling only

8.2 inches. Almost all precipitation occurs between October and April. The

sparseness and seasonality of precipitation means that irrigation is essential. On

average growers apply 3 acre-feet of water per acre (Arvin-Edison Water Storage

District, 1996).

Development of the area began after the turn of the century, and growers

relied primarily on ground water supplemented by small and erratic flows from

minor local streams. Most growers had their own wells and were responsible for

providing their own supplies of irrigation water. As agriculture in the region

grew, ground water extractions began to exceed rates of recharge and growers

experienced declining ground water tables. Between 1950 and 1965, for example, water tables fell from an average depth of 250 feet to 450 feet. In 1965,

average annual overdraft in the district totaled 200,000 acre-feet, which accounted

for almost half the water applied districtwide. Continued overdrafting threatened

the area’s economic base.

Some years earlier local growers anticipated this situation and organized the

Arvin-Edison Water Storage District to bring supplemental surface water supCopyright © National Academy of Sciences. All rights reserved.

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CASE STUDIES 141

plies to the area to offset the overdraft. Beginning in 1966, Arvin-Edison received imported surface water from the Friant-Kern Canal, the southernmost

component of California’s Central Valley Project (CVP). The advent of significant surface water deliveries did not fully solve the area’s water supply problems,

however.

The district’s water service contract called for annual importation of 40,000

acre-feet of firm (guaranteed) supply and up to 311,675 acre-feet of interruptible

or nonfirm supply on an as-available basis. Although the district was subsequently able to increase the quantity of firm supply through an exchange arrangement, actual deliveries from 1966 to 1994 ranged from 30,000 acre-feet to almost

270,000 acre-feet. The problem lies with the significant portion of supply that is

interruptible and therefore not available in years when precipitation is below

average. This problem was resolved by percolating surplus supplies in wet years

to recharge the underlying aquifer through the district’s water-spreading facilities. Dry-year deficiencies were then offset by pumping previously percolated

waters from the aquifer and delivering them to growers through the district’s

canal system (Vaux, 1986).

Over the period 1966-1994, more than 4 million acre-feet were imported to

the district, 1 million of which were percolated to the underlying aquifer. Despite

significant withdrawals to meet demands in the dry years of 1976-1977, 1982,

and 1986-1992, net aquifer recharge has totaled 372,000 acre-feet and water table

levels have stabilized. This has provided direct use benefits in the form of

reduced pumping costs to approximately 20 percent of the growers in the district

who are not connected to the distribution system and must continue to rely on

direct ground water pumping. Perhaps more significant, the operation of ArvinEdison’s water supply system provides a clear illustration of the buffer value of

ground water (Arvin-Edison Water Storage District, 1994).

In California less-than-average precipitation occurs with a frequency of about

four years out of seven. To the extent that precipitation shortfalls are reflected in

reductions in deliveries of surface water, ground water buffering values will be

realized in each year that precipitation is less than average. The magnitude of the

value will depend upon the degree to which surface water deliveries are deficient.

In the critically dry years of 1977 and 1991, the surface water imports available to

Arvin-Edison were 22 and 26 percent of average, respectively. Yet the district

was able to make deliveries to water users that amounted to 85 and 90 percent of

average annual deliveries, respectively. Rough calculations suggest that in 1991

more than 26,000 acres would have been fallowed had water stored in the aquifer

not been available. Assuming typical cropping patterns and typical prices (in

1991 dollars) the gross value of production on this acreage exceeded $38 million.

The returns to growers net of fixed and operating costs were almost $6 million

(Arvin-Edison Water Storage District, 1994).

The use of ground water and aquifer storage capacity by the Arvin-Edison

Water Storage District has yielded both direct use benefits and buffering benefits.

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142 VALUING GROUND WATER

However, there are a number of issues that await resolution. The Metropolitan

Water District of Southern California (MWD) is considering a long-term contract

that would allow MWD to store water in the Arvin-Edison aquifer in wet years

and withdraw it in drier years to meet urban and industrial demands in the Los

Angeles area. Such a contract would increase the buffering value of the aquifer.

Growers in the district face the issue of whether to renew contracts with the

federal government for surface water supplies at prices reflecting full cost. These

increased costs of surface water imports will need to be weighed against the

present and future costs of pumping ground water as the sole source of irrigation

water. It is clear that the availability of low-cost surface water that could be used

for aquifer replenishment has sustained the agricultural economy of the ArvinEdison District on a larger scale than would have been possible if ground water

were the sole source of supply. The issue of whether the buffering value of

imported supplies will be sufficient to offset potential increases in the cost of

imported surface water remains to be resolved.

References

Arvin-Edison Water Storage District. 1994. The Arvin-Edison Water Storage District, Water Resources Management Program. Arvin, California.

Arvin-Edison Water Storage District. 1996. The Arvin-Edison Water Storage District, Water Resources Management Program. Arvin, California.

Vaux, H. J., Jr. 1986. Water scarcity and gains from trade in Kern County, California. Pp. 67-101 in

Scare Water and Institutional Change, K. D. Frederick, ed. Washington D.C.: Resources for

the Future.

THE VALUE OF AVERTING SEA WATER INTRUSION

Orange County, California

Background

The Orange County Water District (OCWD) operates and maintains a 15-

million-gallon-per-day (mgd) reclamation sea water barrier project that protects a

350-square-mile ground water basin. OCWD constructed Water Factory 21 in

1973 for the purpose of protecting the quality of the county’s extensive ground

water resources by preventing sea water intrusion.

Loss of the basin beyond any possible use would require the district to rely

on imported water for its entire water supply. However, this is not the only value

of a ground water basin: the basin also provides storage and distribution, supplying water for peak and emergency use.

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CASE STUDIES 143

Sea Water Intrusion

Sea water intrusion occurs in ground water basins located along the coast.

As overdrafting of a basin continues, the sea water front is drawn inland, threatening the ground water basin. Two fundamental conditions must exist before a

ground water basin can be intruded by sea water. First, the water-bearing materials comprising the basin must be in hydraulic continuity with the ocean; second,

the normal seaward ground water gradient must be reversed or at least too flat to

counteract the greater density of sea water.

Sea Water Intrusion in Orange County

The largest body of ground water in Orange County is the coastal basin of the

Santa Ana River, which yields most of the ground water produced in Orange

County. The Santa Ana Gap is a coastal lowland lying between the Huntington

Beach and Newport Mesas. This gap was formed by the Santa Ana River, which

begins high in the San Bernardino Mountains and flows over 100 miles southwesterly to discharge into the Pacific Ocean at Huntington Beach.

The gap is an alluvial valley about 2.5 miles in width and extends about 4.5

miles inland. Its surface elevations range from sea level at the coast to about 25

feet at its inland portions, while the adjoining mesa surfaces have elevations

ranging from 50 to 110 feet above sea level.

During the 1890s, agricultural interests were attracted to the flat fertile surface of the Santa Ana Gap, where artesian wells yielded water of excellent mineral quality. Until about 1920, water flowed freely from these wells. By the mid1920s the increased production of ground water had led to the lowering of pressure

levels in the shallow water-bearing zone to elevations below sea level. Consequently, encroachment of water from the ocean began to occur in the shallow

zone, called the Talbert aquifer.

A wet period from 1936 to 1945 replenished the ground water basin and

partially restored historic high water levels. During the period immediately

following 1945, ground water was extracted in quantities that exceeded natural

annual fresh water recharge, and a rapid decline in ground water levels ensued.

In addition, upstream diversions from the Santa Ana River were reducing the

flows to Orange County, resulting in less recharge to the basin. As the saline

waters intruded from 1930 to 1960, a number of wells tapping the zones below

the Talbert aquifer also began to experience intrusion.

The Orange County Water District

The Orange County Water District was formed in 1933 by a special act of the

California legislature. The district has a broad authorization to protect and manCopyright © National Academy of Sciences. All rights reserved.

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144 VALUING GROUND WATER

age the ground water basin in Orange County. OCWD functions as a manager of

the basin for those agencies that provide retail water service to consumers.

The district initially covered 163,000 acres inhabited by 60,000 people. Total

water use in 1933 was 150,000 acre-feet, of which 86 percent was used for

irrigation of agricultural land. Today the district covers nearly 220,000 acres and

has a population of more than 2 million. Water usage has completely reversed

since 1933, and urban use constitutes 94 percent of the district’s total water

demand. The basin supplies approximately 75 percent of northern Orange

County’s annual water demand, averaging 300,000 acre-feet. Although the basin

contains between 10 million and 40 million acre-feet of water, its usable storage

is limited by sea water intrusion and possible subsidence to approximately 1

million acre-feet.

Innovations to Prevent Seawater Intrusion

Recharging the Basin

With the importation of Colorado River water in 1940-1941 the district’s

water demands on the ground water basin were reduced. However, ground water

levels continued to drop until 1954, when imported water was used to supplement

the district’s ground water replenishment program.

In 1956, with an accumulated overdraft of 705,000 acre-feet, water levels

were at an historic low. The purchase of imported replenishment water escalated

dramatically from approximately 80,000 acre-feet in 1957 to 235,000 acre-feet in

1963. More than 1.165 million acre-feet of imported water from the Colorado

River was purchased for replenishment of the ground water basin during the

period 1956 to 1965. After 1956, water levels began to recover and rose through

1964, despite the continuing drought.

The replenishment program was a success, reducing the accumulated overdraft to approximately 15,000 acre-feet. By 1964, average water levels in the

basin were 24 feet above sea level, up from 20 feet below sea level in 1956 and

equal to the average water level in the landmark year of 1944. Because of

changes in the distribution of water in the aquifers, however, the average water

levels inland were far above 1944 levels while those along the coast were far

below what they were in 1944. Despite replenishment efforts, sea water intrusion

continued along two areas of the coast, at the Alamitos Gap and the Talbert Gap.

Intrusion Barrier Projects

Together with the Los Angeles County Flood Control District, OCWD constructed the Alamitos Barrier Project located near the mouth of the San Gabriel

River. By 1950 the ground water level in the Alamitos Gap, which straddles the

boundary between Los Angeles and Orange Counties, was 30 feet below sea

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CASE STUDIES 145

level. By the spring of 1962, sea water intrusion had proceeded more than 3

miles up Alamitos Gap. Barrier operation began in 1965 with 14 injection wells

and has expanded to 26 wells.

An average of 5,000 acre-feet of imported water purchased from MWD is

injected at the Alamitos Barrier Project each year. The barrier has halted salt

water intrusion in the Central Basin located in Los Angeles County and the

Orange County basin, protecting them from further degradation. Operation of the

barrier continues to be a joint project of the Los Angeles County Department of

Public Works and OCWD.

By the late 1960s, district officials recognized that sea water intrusion of the

Talbert Gap could not be averted solely by replenishment of the basin through its

recharge operations and began construction of the Talbert Barrier Project. To

provide a supply source for the Talbert Barrier, an advanced wastewater treatment plant, Water Factory 21, was built in 1973. The project includes a 15 mgd

advanced wastewater treatment plant and a hydraulic barrier system consisting of

23 multipoint injection wells with 81 injection points. At present, injection water

for Water Factory 21 is a blend of 14 mgd reclaimed wastewater and 9 mgd of

ground water pumped from a deep aquifer zone that is not subject to sea water

intrusion.

Water Factory 21 treats secondary effluent using lime recalcination, multimedia filtration, carbon adsorption, disinfection, and reverse osmosis. All components of the reclamation system and hydraulic barrier facilities have functioned

well since operations began in 1976. The quality of the injected water has

consistently met or exceeded all health regulatory agency requirements.

With the completion of the two sea water intrusion injection barriers, the

ground water levels in the two basins now can be safely kept below sea level,

which allows for a more efficient ground water management plan. The Alamitos

Barrier and the Talbert Barrier have effectively halted sea water intrusion in the

basin so that it can be used as a ground water storage reservoir, providing more

access to available local supplies.

The Value of Averting Sea Water Intrusion

The principal economic effects on an area where the ground water basin is

subjected to seawater intrusion are the impairment of the basin as a storage

reservoir, the degradation and loss of the potable water supply stored in the basin,

and the loss of the basin’s value as a fresh water distribution system. Each of

these functions, which can be impaired or completely destroyed by sea water

intrusion, has tremendous economic value in a large basin area such as Orange

County. If protected from intrusion, this water supply would continue to be fully

available for use.

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146 VALUING GROUND WATER

The Value of the Basin as a Storage Reservoir

The absence of precipitation during summer months reinforces the seasonal

variation in the demand for water in southern California. Furthermore, average

annual precipitation is not only modest but also highly variable. Dry years often

come in succession for a decade or more. Thus ground water basins have functioned as natural regulators of runoff and as storage reservoirs for daily, cyclical,

and seasonal peaking requirements. These requirements must be met either from

surface storage facilities or from ground water basins.

In southern California standby pump and well capacity is much more economical to develop and maintain than surface storage and distribution facilities.

When the additional sizing costs necessary to meet peaking requirements in

surface distribution facilities are considered, the critical economic importance of

ground water basins for peaking purposes in southern California becomes apparent. If ground water storage is not continuously available for peaking purposes,

alternative surface facilities would be required. Based on the present value and

scarcity of land and construction costs, these facilities would represent a cost of

hundreds of millions of dollars.

Underground storage is also preferable in several respects to storage in surface reservoirs. Water stored underground does not evaporate, as it does in surface storage and aqueducts. If the water needs to be stored for long periods,

evaporation losses can be a serious concern, especially in arid regions where

evaporation rates are high.

In addition, natural runoff that percolates into a ground water basin loses

economic value if it flows into a basin degraded by sea water. This fresh water

supply of approximately 270,000 acre-feet per year in Orange County would

become unusable as a potable source.

Value of the Fresh Water Distribution System

The ground water basin acts as a distribution system because water may be

extracted in a wide area overlying the basin. If the basin is lost, then a distribution system to deliver the alternative surface supply to the consumers must be

constructed. In addition, the abandonment of the capital investment in wells and

pumping facilities would represent a substantial economic loss.

Value of Potable Water Supply in Basin

The dependency on imported sources is becoming less desirable for southern

California. The Metropolitan Water District provides the region with two sources

of imported water. One is from northern California through the State Water

Project and the other is from the Colorado River. Environmental concerns over

the San Joaquin/Delta River system have had an impact on State Water Project

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CASE STUDIES 147

resources, and Arizona and Nevada are looking to increase their allotment of

Colorado River water. Access to Orange County’s valuable local ground water

resource decreases the district’s dependence on this more costly, less reliable

imported water supply.

Ground water is generally less expensive than imported water, primarily

because of the development and transmission costs of the imported supplies. As

seen in Figure 6.1, it is projected that the value of Orange County’s ground water

over a 20-year period will be approximately $1.39 billion, and the value of

imported water will be as high as $4.80 billion. Figure 6.1 shows the annual cost

of water for the district with and without a ground water basin and indicates that

the present value difference of the two scenarios is approximately $3.41 billion;

this is one measure of the value of the ground water basin although it presumably

represents a lower bound estimate of the true value.

Under current conditions with the ground water basin, retail producers within

the district are able to meet approximately 75 percent of their demands by pumping from the ground water basin. The price of this water is estimated at $138 per

acre-foot. which includes a pumping assessment of $85 per acre-foot and an

energy cost of $53 per acre-foot.

In 1995 approximately 300,000 acre-foot of water was pumped from the

ground water basin. Approximately 130,000 acre-foot of imported water was

purchased from MWD. Of the water purchased from MWD, approximately

100,000 acre-foot was noninterruptible treated water at a price of $426 per acrefoot. The remaining 30,000 was purchased as seasonal shift water at a price of

$286 per acre-foot. By having access to a ground water basin, retail producers

are able to participate in the MWD seasonal shift program, which allows them to

purchase imported water at a discount during the winter months.

FIGURE 6.1 Estimated annual cost of water to retail producers: With or without ground

water basin.

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148 VALUING GROUND WATER

The total cost of purchasing these three types of water (ground water, imported, and imported “seasonal shift”) by the retail producers to serve their customers was approximately $92.6 million in 1995. Alternatively, if the ground

water basin were not available, the entire 430,000 acre-foot of necessary supplies

would have to be purchased from the MWD at the rate of $426 per acre-foot. The

total cost of this water is approximately $183 million, which is roughly twice the

water supply cost when the ground water basin is available.

In addition, the savings derived from the use of the ground water basin,

compared to the cost of sea water intrusion facilities, offsets the cost of constructing and operating a barrier. For instance, capital and construction costs for Water

Factory 21 were approximately $57 million (in 1995 dollars), with an average

operation cost of $6 million per year.

Although a dollar value cannot readily be assigned to it, the value of the

ground water basin for an emergency water supply and distribution system constitutes an important justification for protection. If the surface distribution system should become unusable because of a natural or human-made emergency or

the imported supply were interrupted, reduced, or contaminated, ground water

could eliminate tremendous economic loss or even assure survival. The value of

an emergency supply would also be enormous during a period of extended

drought. The value of the basin would increase with the severity and duration of

the emergency.

Conclusion

Ground water and ground water basins are valuable resources because of the

quantity of supply and the possibility for storage and distribution. William

Blomquist stated in “Dividing the Waters,” “When a ground water basin is destroyed, water users not only lose the comparative advantages of underground

water storage and distribution, but they also suffer enormous financial costs.

Replacement of ground water storage and distribution capacity, even if feasible,

would be an economic disaster” (Blomquist, 1992).

Communities in Orange County would be forced to turn to more costly

imported water to meet their water supply needs if the ground water basin were

lost to sea water intrusion. To replace local ground water supplies in Orange

County with enough imported water from the MWD of southern California to

maintain current levels of use for a 20-year period would cost water users at least

$4.8 billion dollars.

Reference

Blomquist, W. A. 1992. Dividing the Waters: Governing Ground Water in Southern California.

San Francisco: ICS Press.

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CASE STUDIES 149

INCORPORATING THE VALUE OF GROUND WATER IN

SUPERFUND DECISION-MAKING

Woburn, Massachusetts

Background

Knowing the value of ground water is important in evaluating remediation

alternatives for Superfund sites involving ground water resources. Unlike other

case studies where the primary concerns are maintaining the quantity and/or

quality of the ground water, in the Superfund setting the ground water resource

has been contaminated and the issue is primarily one of restoring quality. Thus

the value of the ground water will be reflected in the values associated with

moving from a situation where the aquifer is not usable to situations where some

uses can be made of the aquifer.

In this section a brief overview is provided of a study on the costs and

benefits of ground water remediation for a Superfund site located in Woburn,

Massachusetts (Spofford et al., 1989). This study, conducted by Resources for the

Future (RFF), illustrates the importance of valuing ground water as a component

in a cost-benefit analysis of ground water remediation decisions and the complexities that such an assessment involves.

In 1980 the Comprehensive Environmental Response, Compensation, and

Liability Act (CERCLA) was enacted to facilitate cleanup of the nation’s worst

hazardous waste sites. CERCLA and the subsequent 1986 Superfund Amendments and Reauthorization Act (SARA) created a fund, the Superfund, to pay for

site cleanup when parties who caused the contamination could not be found or

could not pay for the cleanup themselves.

Many of the Superfund sites involve contamination of ground water resources or are listed as potential threats to local public water supply wells (Canter

and Sabatini, 1994). Contaminants found in public ground water supplies are

mainly volatile organic contaminants (VOCs) such as TCE (trichloroethylene),

PCE (tetrachloroethylene), 1,2-DCE (dichloroethylene), vinyl chloride, and benzene; other contaminants commonly present in various combinations included

heavy metals (chromium, lead, and arsenic) and polynuclear aromatic hydrocarbons (PAHs).

Economic considerations should play a key role in determining the extent to

which ground water remediation is pursued at these sites. If the expected costs of

cleanup exceed the expected benefits of improving the quality of the ground

water, then the economically rational alternative is not to remediate the ground

water. This might be the case if the contaminated ground water resource is not

used and is perceived to have a low potential for future use or if there are

relatively low-cost substitutes. Alternatively, there may be different levels of

remediation depending upon the future uses and expected costs of the ground

water resources. Thus, in the context of Superfund remediation, the value of

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ground water is reflected in the benefits associated with improvements in the

quality of the contaminated aquifer, and the value will depend upon the level of

remediation. In addition, the benefits of remediation cannot exceed the total

economic value of the ground water for that level of remediation.

Analysis of the Woburn Superfund Site

The Superfund site in east Woburn, Massachusetts, included two municipal

water supply wells, which had been found to be contaminated with chlorinated

solvents in 1979. Prior to contamination, the local aquifer segment had served as

a drinking water supply for the city of Woburn and as a water source for several

industrial users. Possible levels of remediation included restoring the aquifer to

drinking water quality as well as maintaining the aquifer for nonconsumptive

purposes only.

Because of measured contaminant concentrations and related health concerns, TCE had been identified as the key contaminant for remediation planning.

The costs of remediation that were analyzed in the RFF study were based on

withdrawal of the contaminated ground water from the aquifer using extraction

wells, treatment using aeration towers, and return of the treated water to the

aquifer using injection wells.

In estimating the benefits of remediation, the RFF study considered only

those benefits that were associated with direct use of the aquifer. The benefits

that were not measured in the RFF study but that should be considered in a study

designed to measure the TEV of the contaminated aquifer include reductions in

losses of recreational opportunities; reductions in ecological damages; reductions in losses of intrinsic value, including bequest and existence values; reductions in health damages due to morbidity as opposed to losses due to mortality

(these were included in the assessment of health damages in the RFF study); and

reductions in fear and anxiety associated with switching from a water supply that

is perceived to be safe (bottled water or a municipal water source) to a water

supply that may be perceived as unsafe (the remediated ground water). As the

authors indicate, estimates of these benefits were not included in the report since

the primary purpose of the research was to illustrate the impact of uncertainties

on measures of net benefits as opposed to replicating the true benefits and costs

for a specific site, and study funds were limited (Spofford et al., 1989).

To estimate the benefits of remediation, the researchers hypothesized two

management contexts. The first is fairly simple and basically involved using an

alternative water supply for the entire city of Woburn. The contaminated ground

water supply was assumed to be replaced with water purchased from the Massachusetts Water Resources Authority (MWRA), which was the least expensive

alternative available to the city. The additional cost per gallon of using MWRA

water as opposed to pumping the aquifer multiplied by the total use of water in

the city provides a lower bound on the value of the aquifer in a given year. (The

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study estimated this cost to be approximately $0.32 per 1,000 gallons in 1986.)

This method of valuing the ground water resource is basically a replacement cost

approach, which does not reflect the values people may attach to clean ground

water or the disutility attached to knowing that the aquifer is contaminated.

The second management context developed in the study was more complex

and was based on the underlying assumption that all the households that had

previously relied on private wells as opposed to a municipal water supply system

would continue to use “contaminated” water, although the extent of uses by these

households could vary. The study hypothesized a range of situations from ones

in which consumers avoided using the water for drinking, food preparation, and

personal hygiene, in which case the direct use value of the ground water would be

reflected in the costs of purchasing alternative drinking water supplies, to situations where individuals continued to consume the contaminated ground water. In

the latter situation, the direct use value of the ground water would be reflected in

the health costs, or damages, associated with the consumption of contaminated

water.

To implement this second management context, a model of consumer decision-making under uncertainty that incorporated perceived health risks associated with consumption of contaminated water and the costs of alternative drinking supplies (such as bottled water) serves as the basis for determining how

individuals made their consumption choices and for constructing a demand curve

for ground water. The value of ground water can then be measured as the area

under the demand curve. The consumers’ demand for ground water depends

upon many factors, including the normal demand determinants (income, price of

substitutes, etc.) as well as attitudes toward perceived health risks and the levels

of TCE in the water. Over time, the demand for ground water may shift as these

underlying factors change, and thus the value of the ground water will change.

The direct use value of the ground water in this second management context

will depend upon the extent to which the contaminated ground water is consumed

as a source of drinking water. For example, if the water is not consumed as a

source of drinking water, then the direct use value of the ground water would be

reflected primarily in the costs of bottled water, which substitutes for the human

consumption component of per capita water consumption. RFF estimated this

level of use to be approximately 3.65 gallons per person per day out of a total use

level of 130 gallons per person per day. In this context the direct use value of

ground water can be estimated using the estimates of avoidance costs, but as in

the first management context, this value does not reflect any of the indirect or

nonuse values of the aquifer.

If consumers continue to drink the contaminated water from the private

wells, there are no avoidance costs per se, and the value of the ground water is

reflected in the health costs associated with its consumption as drinking water

plus the indirect or option value. These two extremes provide some bounds on

the direct use value of ground water or, alternatively, provide bounds on the

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152 VALUING GROUND WATER

average benefits of ground water remediation for the management context where

households in the area still continue to use private wells.

As the RFF study noted, estimates of the benefits of ground water remediation

depend on many assumptions. For example, in specifying the model of consumer

behavior, assumptions are needed regarding the level of the potential health

damages, discount rates, concentrations of TCE over time in the aquifer, and

future costs of alternative drinking water supplies. These assumptions affect

decisions on avoidance costs and measures of health damages and thus the direct

use value attached to ground water by individuals who have private water supply

wells.

An additional source of uncertainty relates to the behavior of individuals

confronted with different levels of TCE in drinking water that exceed the standard. The extent to which individuals will avoid contaminated well water and

their willingness to pay for such avoidance varies with perceived risks to health

of different levels of TCE in the drinking water. The authors cite the lack of an

adequate methodology for measuring perceived health risks as a major limitation

in using this approach to quantify the value of ground water or using this management context as a basis for remediation decisions (Spofford et al., 1989).

The general findings of the RFF report indicate that for the first management

context the net benefits of remediation were positive, indicating that from an

economic perspective it is more efficient to remediate the aquifer than to continue

using an alternative water supply. This finding also held true for the second

management context, where it was assumed that all the households affected by

the contaminated aquifer had previously relied on private wells: it is more efficient to remediate the ground water than it is to permit the exposed population to

continue to use contaminated well water. Comparisons among the net benefits

for alternative remediation designs would shed some light on the relative efficiency of alternative cleanup options.

Conclusions

Several conclusions pertaining to the value of ground water can be drawn

from the Woburn case study:

• Economic valuation of ground water for the specific hazardous waste site

is crucial to making informed decisions regarding the status of remedial action.

The conclusions reached will be site specific, depending on the nature of the

contaminant and the current uses of the aquifer.

• Determining the full economic value of the aquifer will often be difficult

because of the indirect nature of many of the benefits. However, assessing the

direct use benefits poses a much simpler task and may serve as a lower bound on

the benefit estimates.

• Technical and economic uncertainties must be recognized in quantifying

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the value of the ground water resource. While the RFF study noted many uncertainties, those that pertain to the benefit side of the equation are substantial

enough to warrant further research.

References

Canter, L. W., and D. A. Sabatini. 1994. Contamination of public ground water supplies by

Superfund sites. International Journal of Environmental Studies, Part B 46:35-57.

Spofford, W. O., A. J. Krupnick, and E. F. Wood. 1989. Uncertainties in estimates of the costs and

benefits of ground water remediation: Results of a cost-benefit analysis. Discussion Paper QE

89-15. Washington, D.C.: Resources for the Future.

APPLYING GROUND WATER VALUATION TECHNIQUES

Tucson, Arizona

Background

The objective of this case study is to illustrate how incorporating the economic concepts and techniques developed in Chapters 1 through 4 of this report

can assist in management of ground water resources over the long term. Unlike

the previous case studies, which are limited to reviews of existing work and

demonstrations of value of ground water in various contexts, the Tucson case

study illustrates the application of the conceptual valuation framework described

in Chapter 3.

The Tucson case study is notable both for the diversity of ground water

services it illustrates as well as for the urgency of policy attention the area’s water

management system requires. The intent is not to calculate the incremental

change in value of services provided by ground water in the “with treatment” and

“without treatment” condition but to identify the steps required to implement the

valuation process in a real-world context. This case study simplifies and abstracts information from the actual Tucson situation in order to better illustrate

the role of economic valuation in improving management of ground water resources.

Ground water provides numerous extractive services in Tucson, including

residential, commercial, agricultural, and industrial water uses. The region’s

ground water resources also provide a range of in situ services, such as prevention of land subsidence, reservoir functions that will buffer future drought associated with shortages in surface water supplies, bequest value, and ecological

services such as maintenance of riparian habitat. Policy-makers in Arizona have

struggled to reduce the extent to which ground water supplies in the region are

mined. Ground water policies have been put in place as a mechanism to ration

and conserve supplies for future use. Alternative renewable surface water supCopyright © National Academy of Sciences. All rights reserved.

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154 VALUING GROUND WATER

plies to augment and substitute for ground water have been developed at great

cost in anticipation of future demands.

As is the common practice, the price of ground water in Tucson does not

reflect any of the commodity values, including the extractive and in situ service

flow values. It is based on the cost of distribution, including capital, operations

and maintenance, and administrative costs. Ground water is thus the least expensive and highest-quality water supply available. In a dynamic pricing environment, water would be priced to incorporate marginal extraction cost and user cost

and would reflect the values of all use and nonuse service flows.

Instead of relying on price to ration scarce ground water supplies, Arizona

water managers have focused on regulations and other nonprice policies to reduce water use. The total economic value of ground water supplies in any

location is affected by the institutional, policy, and hydrological constraints that

shape current and future use and define management options. Policy-makers

must recognize this institutional and political context in order to make an accurate assessment of the services ground water provides.

Tucson’s Water Resources

Tucson has relied on a high-quality ground water supply to meet all of its

demands for water. Ground water use has exceeded natural recharge (precipitation and return flows) annually since 1940, leading to a situation in which over

half of annual use is from mined ground water. In Tucson’s desert climate, there

are no viable local renewable surface supplies (other than municipal effluent) to

substitute for ground water resources.

Although there is a substantial amount of ground water in the aquifer, dependence on mined ground water has a number of negative consequences. Falling

ground water levels have eliminated many of the free-flowing rivers, streams,

and associated riparian habitat in most of southern Arizona. The risk of subsidence with continued depletion of ground water is quite severe in the central

Tucson wellfield that underlies the city of Tucson; a worst-case estimate is that

the ground level will drop by 12 feet by 2024 (Hanson and Benedict, 1994). In

addition, the most productive parts of the aquifer are nearly exhausted, which can

be expected to lead to substantial increases in pumping costs. As a consequence

of municipal pumping in the central Tucson wellfield, ground water levels have

fallen as much as 170 feet.

Legal and Institutional Constraints

Legal and institutional constraints on ground water use frame the valuation

context. The Tucson Active Management Area (AMA) is one of five AMAs in

the state established pursuant to the 1980 Groundwater Management Code. The

Tucson AMA has a statutory goal of safe yield by 2025. The safe yield goal

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CASE STUDIES 155

requires that the amount of ground water used on an average annual basis must

not exceed the amount that is naturally or artificially recharged.

The code established stringent limitations on ground water use within AMAs.

Farmers receive an allocation based on historic cropping patterns assuming maximum irrigation efficiency. No irrigation of new agricultural land is allowed.

Allocations to municipal water providers are on the basis of their average historical use in gallons per capita per day. A “reasonable” reduction is required within

each water company, based on an evaluation of conservation potential. All large

industries are directly regulated, using an approach based on either allotment (for

golf courses) or best management practices (for copper mines, sand and gravel,

electric power, etc.).

In addition to demand management policies, there are economic incentives

to discourage development of new ground water uses and encourage use of renewable supplies, primarily imported surface supplies (from the Central Arizona

Project, or CAP) and wastewater effluent. One of the primary tools for moving

from the current state of overdraft to the safe-yield condition is the 100-Year

Assured Water Supply (AWS) Program. This program, administered by the

Arizona Department of Water Resources, severely limits the amount of ground

water that can be used for municipal purposes. The cumulative amount of ground

water that the city of Tucson can legally withdraw as part of its AWS is approximately 3.5 million acre-feet. If the city were to rely solely on ground water for its

supply, its cumulative ground water withdrawals would exceed this amount before 2030. Without utilization of Tucson’s CAP allocation, Tucson would not

qualify for a designation of AWS.

Demand for Water

The population of the Tucson AMA is estimated at 750,000 for 1995 and is

projected to reach 1.3 million by 2025. The majority (78 percent) of the population in the Tucson AMA is served by Tucson Water, the water utility operated by

the city of Tucson.

Total water use in the AMA is currently close to 300,000 acre-feet per year

(see Table 6.2); more than half of the total water supply is mined ground water.

TABLE 6.2 Tucson AMA Water Demand

Sector 1994 USE (in acre-feet) Percent

Agricultural 97,900 31

Municipal 148,500 47

Industrial 18,600 6

Mining 45,000 14

SOURCE: Arizona Department of Water Resources, 1996.

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156 VALUING GROUND WATER

Under current population projections, total demand for water in the Tucson AMA

is expected to be approximately 427,000 acre-feet per year by 2025 (Arizona

Department of Water Resources, 1995 and 1996), increasing by 50 percent from

the 1995 levels.

Development of Alternative Renewable Water Supplies:

The Central Arizona Project

The Central Arizona Project is a 330-mile canal built by the U.S. Bureau of

Reclamation, with pumping stations and associated distribution and flood control

facilities. It extends from Lake Havasu to Tucson; the total cost, including

federal, local, and private investment, exceeds $4 billion. A major feature that

has not been constructed is a reliability feature for Tucson, a terminal storage

reservoir. Tucson has the largest municipal allocation of Colorado River water—

148,200 acre-feet.

Applying the Economic Valuation Framework in Tucson

Policy Constraints on Use of Renewable Supplies

At the end of 1992, nearly half of Tucson Water’s customers (84,000 metered connections) began receiving CAP water. After unanticipated water-quality problems arose (rusty water, turbidity, taste and odor problems, and bursting

pipes), 37,000 metered connections in the older parts of town were returned to

ground water in October 1993. Water-quality problems were attributed to old

cast iron and galvanized steel water mains and household plumbing, combined

with pH and other chemical attributes of the imported surface water that encouraged corrosion.

 In January 1995, the Tucson City Council voted not to directly deliver CAP

water to customers until the water-quality problems were fixed. On November 7,

1995, the citizens of Tucson approved a citizen’s initiative (Proposition 200; the

Water Consumer Protection Act) prohibiting direct delivery of CAP water to

customers unless it is treated to the same quality as ground water for hardness,

salinity, and dissolved organic material. This can be accomplished only through

advanced treatment, probably reverse osmosis or nanofiltration.

Defining the Management Options Within Current Constraints

Under the existing constraints, Tucson’s water planners must define feasible

options for meeting Tucson’s present and future water needs. These options are

constrained by the above policies and laws.

In this application of the conceptual framework, recharging the untreated

CAP water supplies into overdrafted aquifers is the base or “without-treatment”

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case. Water to meet all demands would continue to be pumped from ground

water supplies in a conjunctive management scheme. Treating surface water

with advanced membrane filtration to remove salinity and organic material prior

to direct delivery to customers is the “with-treatment” option. It is important to

note that in this example the valuation techniques are not used to calculate the

TEV for ground water. Rather, they are used to evaluate the change in ground

water value that results from a particular policy decision.

Identifying Changes in the Quantity and Quality of Ground Water

Initially, hydrologists must establish the quantity and quality of Tucson’s

ground water resources. Policy-makers need to assess how the “with-treatment”

management option would change this baseline quantity and quality. Since the

recharge option is considered the baseline, an accurate assessment of the impacts

of artificial recharge potential is also needed.

The quality of the water that is pumped depends on where the CAP water is

recharged relative to the location of recovery, the nature of the aquifer materials,

the degree of blending with local ground water, the distance the water travels in

the subsurface, and the presence of any source of contamination. The Groundwater Management Code allows an entity to recharge in one location and recover at

a distant location within the same AMA, provided certain criteria are met.

Identifying Changes in Service Flows

The next step is to link the management decision with the changes that result

in the time path of services that the ground water will provide under the alternative. This is where the critical input from scientists and hydrologists is required.

The “without” scenario describes the services provided in the base case and the

incremental changes that result from substituting treated surface water supplies.

Incremental Changes in Extractive Service Flows

Although Colorado River water is viewed as a high-quality water source for

millions of people in the Southwest, there are several ways in which recharge

using CAP water can reduce the quality of the water available for extractive uses.

CAP water as treated with conventional surface water treatment methods meets

all of the EPA maximum contaminant levels (MCLs), but the aesthetics, taste,

and hardness of CAP water were a major issue for Tucson Water when the supply

was directly delivered to customers from 1992 to 1994. Any use of CAP water in

the basin, whether through direct delivery or recharge, will increase the salinity

level of the aquifers within the Tucson AMA. The only way to avoid the increase

in salinity is to utilize an advanced treatment approach (probably using membrane technology) to remove the salts. This technology is expensive; it is thereCopyright © National Academy of Sciences. All rights reserved.

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158 VALUING GROUND WATER

fore important to identify the value of the changes in service flows that would be

provided to decide whether the additional expense is justified. Unlike native

ground water, surface water tends to contain pathogens, some of which are difficult to remove.

CAP water has roughly twice the total dissolved solids (TDS) and salinity of

the local ground water, and it contains organic precursors that can, in combination with chlorine, cause formation of trihalomethanes, a group of chemicals

known as carcinogens. Depending on the contact time and travel through aquifer

materials, the recharge process may reduce the organics and disease-causing

organisms (bacteria and viruses), but it does not affect the salinity and hardness

of the water. Therefore, recharge of untreated CAP water is likely to influence

the quality of the water in the aquifer. To the degree that this same water is

recovered for delivery to municipal customers, costs for end users will increase,

because higher salinity and hardness translate into the need to replace appliances

more frequently and increase the maintenance of irrigation and cooling systems.

Depending on the location of the recharge, impact on water quality may not

be substantial. For example, there are areas in the AMA where the end users may

not experience negative effects from the higher salinity (agriculture usually has

few problems with 700 mg/l TDS). However, it is important to note that the salt

load brought in with the CAP water will be distributed in the vicinity of the

recharge facilities and could migrate over time to surrounding aquifer materials

unless the withdrawal facilities are in the same location.

Recharge will have a positive effect on extractive values if the water is

recharged in the vicinity of wells supporting extractive uses. However, several of

the prime recharge locations are not near the central Tucson wellfield.

The treatment option requires the development of an advanced water treatment facility, probably nanofiltration or reverse osmosis, to remove the salts,

organics and solids as required by Proposition 200. Aside from the capital cost of

the facility, which is several hundred million dollars, a major concern is disposal

of the brine stream. Depending on how this salt-laden wastewater is directed, the

effect on ground water service flows varies. The brine stream from such plants is

normally discharged into surface water or injected into deep wells. Neither of

these options is available in Tucson. The most likely disposal alternative is

evaporation ponds, with the sludge deposited in lined landfills.

The advanced treatment option provides the highest-quality water for municipal uses. It would not affect the quality or quantity of water for agriculture or

mining. Direct delivery has many benefits, since it leaves the ground water in

place and should allow for at least partial recovery of all of Tucson’s wellfields.

Advanced treatment will limit the avoidance costs of many municipal end users,

who would otherwise buy bottled water, resort to point-of-use treatment devices,

or replace their appliances more frequently as a result of using CAP water either

directly or after recharge. Membrane treatment will also eliminate the possibility

of Cryptosporidium or Giardia outbreaks, if the treated water is blended with

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ground water rather than surface water before delivery to customers. Blending of

membrane-treated water is generally recommended to improve the taste, reduce

corrosiveness, and reduce costs.

Depending on the brine stream disposal method (most likely through evaporation ponds), there could be localized impacts on water quality in the aquifer.

Another option is to deliver the brine to existing wastewater treatment plants, to

be blended with less salty effluent before discharge. This would result in high

salinity downstream from the wastewater facilities. The ground water quality in

these areas could be degraded, affecting service flows.

Incremental Changes in In Situ Service Flows

In situ service flows can be categorized as use and nonuse. For Tucson, in

situ uses include use of the stock to: (1) assimilate contaminated runoff from

extractive uses and attenuate existing areas of ground water contamination; (2)

buffer future drought on the Colorado River system in a conjunctive use scheme;

and (3) support the soil structure in the aquifer and prevent subsidence. Additional in situ services include: existence value (based on a desire to protect the

aquifer as part of the natural system); bequest value (the intent to protect water

for future generations); and ecological services in which ground water supports

surface water flows and riparian habitat.

Recharge Effects

If recharge is used to limit water-level declines in areas that are prone to

compaction, it will help support in situ uses. There are two ways to limit the

subsidence potential in the central Tucson wellfield: reduce the amount of future

pumping there by withdrawing ground water elsewhere and recharging within the

central wellfield. The former is easier in this case, since Proposition 200 precludes an effective way to recharge in the central basin (injection recharge).

Surface recharge in areas of subsidence can actually accelerate subsidence, since

its weight adds stress to the aquifer materials.

Recharge results in the storage of water for future use, which increases the

buffer value of the aquifer. If the water is available for future generations, then it

supports the bequest value as well. Those who stress the existence value of the

aquifer would likely prefer that higher-quality ground water be maintained rather

than degraded by CAP water through recharge. However, it is not clear what the

quantity/quality trade-off is for existence value.

If recharge occurs in the vicinity of streambeds, it is likely to support riparian

habitat or provide for an expansion of habitat values. Recharge facilities can

easily be designed with a habitat/recreation component, guaranteeing a positive

impact on ecological values. However, there are costs associated with increasing

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160 VALUING GROUND WATER

nent of the new habitat. The costs are associated with endangered species regulations, which could require permanent maintenance of the artificially created

habitat to protect a particular species. This introduces a cost associated with

irreversibility—the decision to recharge could be legally required to continue

even if another water use option were more desirable from other perspectives.

Advanced Treatment Effects

Substitution of treated surface supplies for pumped ground water means that

most of the wellfields in the vicinity of key riparian areas would not be used

often. In addition, the regional water tables should rise in the wellfields because

of natural recharge. Both of these occurrences should increase the quantity of

water available for ecological service flows.

The direct delivery option with advanced treatment protects both the quality

(depending on the disposal of the brine stream) and the quantity of water in the

aquifer. The buffer value of ground water would be the highest in this option,

since there will definitely be future supply shortages, during which consumers

will rely on ground water. By ending the current pumping in the central wellfield,

additional subsidence is likely to be avoided. Ground water will be available for

future generations, and those who value existence of the aquifer would have the

quality as well as the quantity protected (at least in theory).

Valuing Changes in Extractive Service Flows

Incremental Extraction Costs (Marginal Benefits of Quality Changes). In

the Tucson example, the difference in the extractive service flows between the

two options is related primarily to the reduced pumping costs and the reduced

number of wells required to serve the community, as well as the water-quality

issues caused by recharge of untreated CAP water that occurs in the one option.

If the recharge does not occur in the vicinity of existing wellfields, water levels

will continue to decline in those areas. Lowering the water level has two economic effects: it increases the amount of energy required to pump each acre-foot

of water, and it results in the need to drill more wells since the most productive

part of the aquifer may be exhausted. Direct delivery after treatment eliminates

these costs because there would be little dependence on ground water as a supply

except during infrequent CAP shortages and canal shutdowns.

The only methods identified for evaluating the change in services related to

pumping costs for extractive purposes were standard engineering analysis techniques—increased energy costs associated with increased head and well drilling

and system extension costs. The major issues associated with this type of analysis are uncertainty and discounting. It is unclear how productive deeper parts of

the aquifer will be and how many wells will be required to replace the capacity of

the existing high-capacity wells. The time element is also uncertain; it is not

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CASE STUDIES 161

known how many years will pass before expanded infrastructure is required to

maintain current production levels. Since the growth rate on the city’s system is

1-2 percent per year and long-term outages may occur on the CAP canal, pumping capacity must be expanded to meet the increased demand as well.

Incremental Quality Costs (Marginal Benefits of Quality Changes). There is

an additional reduction in service flows as the water level drops (assuming that

recharge does not occur in the vicinity of production wells). The water that is

withdrawn at greater depth in the Tucson basin is higher in salinity and TDS.

This lower quality, like that of CAP water, will increase costs for end users in the

residential, commercial, and industrial sectors. Households and firms may buy

bottled water or in-home treatment devices (avoidance costs) or replace appliances more frequently. Industries and individuals with private wells will be

similarly affected. These costs do not occur in the case of the direct delivery with

advanced treatment option.

Possible techniques to evaluate the costs associated with reduced water quality include the averting behavior method and the contingent valuation method.

To the extent that wellhead treatment or well replacement is required, standard

engineering techniques must be used.

Opportunity Costs (Marginal User Costs). Ground water in the Tucson area

is essentially a stock resource, since it is not naturally replenished at a high rate.

Using a unit of ground water today means that it will not be available for future

use. Methods that can be used to measure this “dynamic” opportunity cost

include dynamic programming and intertemporal (optimal) control techniques.

Although these methods are limited to measuring use values, they may be valuable in evaluating alternative options.

Valuing Changes in In Situ Service Flows

Subsidence Avoidance. The risk of subsidence is high in the central Tucson

basin, where 60 percent of the city’s water supply is currently pumped. In the

recharge option, some pumping in the central wellfield would continue without

replenishment in the same location. Subsidence costs include disruption of all

utilities (sewer, water, electric, gas, etc.); damage to roads and buildings; and a

possible permanent reduction in storage capacity of the aquifer. The direct delivery with treatment option eliminates the pumpage in the central wellfield, thereby

essentially eliminating the possibility of increasing the rate of subsidence.

There are two techniques that can be used to measure the benefits associated

with subsidence reduction. To the extent that utilities must be repaired or rerouted and roads and buildings must be repaired, standard production cost estimates can be prepared. The other method is the hedonic price (property value)

method, since some areas are at considerable risk of subsidence and others are

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162 VALUING GROUND WATER

unlikely to experience any damage. Differences in market prices across these

zones may begin to reflect these costs.

The degree of uncertainty associated with predicting subsidence damage is

high. It is unclear how long it will take after an aquifer is dewatered for the

compaction to occur. It is also unclear whether the whole basin will settle as a

unit or whether it will settle differentially, causing subsidence cracks and substantially more damage. The normal pattern is that the cracking occurs near the

edge of the basin, and downtown Tucson is near the base of the Tucson mountains. A risk/probability assessment may be required.

Reservoir Function. In some aquifers subsidence causes irreversible damage

to the water-holding capacity because rewetting these areas fails to have any

rebound effect. The irreversible aspects of subsidence need to be taken into

account, at least from a qualitative perspective. Engineering analyses can be used

to compare lost storage capacity to the costs of alternative storage facilities, such

as reservoirs.

Buffer Value. A ground water value that is lost under the recharge option is

the ability to buffer the effect of drought on the CAP system. This value is not as

high in the recharge option, since all customers are receiving pumped ground

water and continuous delivery is not critical. If a direct delivery option were

selected in the future, however, the buffer value of the aquifer would have been

lost if most of the ground water supply in the vicinity of the wells had been

removed.

Methods associated with estimating buffer value, such as intertemporal optimization, may be applied (Tsur and Graham-Tomasi, 1991).

Existence Value. Certain values associated with maintaining the ground

water aquifer intact are unrelated to any function or service the aquifer provides.

This value is difficult to describe, so methods of estimating it are limited. The

most likely technique to establish this value is the contingent valuation method.

Habitat Values Related to Water Quantity. Higher water levels in the vicinity of some proposed recharge sites are likely to enhance habitat values. In

addition, recharge sites can be designed with habitat enhancement as a component. However, in comparing the two options, it should be noted that it may be

possible to create habitat using the brine stream from the advanced treatment

facility. The options for improving local habitat due to recharge are offset by the

probability that existing mature riparian habitat (such as the Tanque Verde Creek

area) in the Tucson basin could be destroyed by continued pumping of the ground

water.

Because impacts on habitat are visible only in limited areas, the hedonic

price method (based on differences in property values) may be useful. Other

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CASE STUDIES 163

methods that can be employed for evaluating the recreational/aesthetic values of

habitat include contingent valuation and travel cost. Sources of uncertainty include lack of definitive information about the relationship of ground water level

and habitat quality, the length of time it will take for dewatering to occur, and the

limited number of remaining high-quality habitats to evaluate.

Habitat Values Related to Water Quality. The recharge of untreated CAP

water will increase the aquifer salinity in the vicinity of the recharge site and in

areas that are down-gradient from the recharge site. It is unclear whether the

increased salt levels will have any negative effect on the development or maintenance of high-quality ecosystems. However, it is unlikely that salinity and TDS

concentrations in the CAP will have a measurable effect on mature vegetation. If

it can be demonstrated that mature riparian vegetation or mammals and birds are

affected, it is possible that salt-avoidance ecological values can be measured

using the contingent valuation or travel cost method.

Conclusions

Based on this descriptive approach for applying the valuation framework

presented in Chapter 3, the following conclusions can be drawn:

• The treatment option is likely to have a higher benefit/cost ratio when the

TEV of ground water is considered.

• Engineering analyses (changes in production costs) may continue to be

used to establish costs where extractive services are a large component of cost, so

long as costs are assessed at both the household level and the utility level.

• Quality issues may represent a more crucial impact on service flows than

do quantity issues.

• There are any number of scientific and economic uncertainties associated

with the use of ground water valuation methods.

References

Arizona Department of Water Resources. 1995. Proposal to Increase the Use of Colorado River

Water in the State of Arizona. Arizona Department of Water Resources, Tucson, Arizona.

Arizona Department of Water Resources. 1996. State of the AMA: Tucson Active Management

Area. Arizona Department of Water Resources, Tucson, Arizona.

Hanson, R. T., and J. F. Benedict. 1994. Simulation of ground water flow and potential land

subsidence, Upper Santa Cruz Basin, Arizona. U.S. Geological Survey Water Resources Investigations Report 93-4196.

Tsur, Y., and T. Graham-Tomasi. 1991. The buffer value of ground water with stochastic surface

water supplies. Journal of Environmental Economics and Management (21):201-224.

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164 VALUING GROUND WATER

LESSONS LEARNED

Even though the case studies presented in this chapter are diverse, they share

themes that provide the basis for observations and lessons.

• Each study involves unique hydrogeological features, ground water quality, uses of the resource, institutional requirements and constraints, and political

contexts. Although the principles of the valuation framework described in Chapter 3 can be transferred, then, limited opportunities exist for transfer of benefits in

subsequent studies.

• The case studies clearly demonstrate a range of ground water services

even if comprehensive valuation studies have not yet been accomplished. Tradeoffs in decision-making can be made based on descriptive (qualitative) information about this range. Clearly, quantification of the values of such services would

provide more complete information for decision-making.

• These case studies highlighted the extractive value (service) of ground

water. Several studies, however, recognized other services and TEV, and some

focused on changes in value at the margin. Accordingly, ground water valuation

studies should consider all components of TEV even though not all can currently

be quantified. This approach would provide more complete information for

subsequent decisions.

• Several cases illustrate the classic natural resource scarcity phenomenon

where market indicators have been given only limited consideration relative to

depletion. A price regime that more nearly mimics the market appears to be at

least one of the ingredients of more rational water management. If that course is

to prove fruitful for the long run, we probably must find a way to unbundle water

demand and supply among such major extractive uses as drinking, bathing, laundry, lawn watering, and car washing—the variety of water uses likely to be

valued very differently. Unbundling could involve dual water systems, or a

single system with special treatment measures for drinking water, or creative

water use accounting schemes.

• Some of the case studies identified concerns associated with human health

risks from extractive uses of contaminated ground water. These concerns underscore the importance of carefully designed epidemiological studies, though even

these are scarcely conclusive by themselves. Further, in the absence of epidemiological studies or information, debate will continue regarding actual and perceived health risks associated with degraded ground water.

• Ecological services provided by ground water are recognized in several

cases; however, there appears to be a dearth of information on how to quantify

and value ecological benefits. This need can be further emphasized by considering the contributions of ground water to the base flow of streams, maintenance of

wetlands and their associated hydrological and biological functions, and the provision of riparian habitat.

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• Technical and economic uncertainties must be recognized in efforts to

develop site-specific ground water valuation information. Each of the case studies provides illustrations of such uncertainties. For example, in ground water

valuation studies for Superfund sites, stochastic modeling of the contamination

problem and potential effectiveness of cleanup measures should be used to develop ranges of resultant information that can be viewed as a type of “sensitivity

analysis.” Decision-makers should also consider the possible influences of uncertainties and nondelineated costs and benefits (of ground water services) as

they interpret information.

• Ground water valuation studies must recognize the importance and limitations of the institutional and political context, which can lead to conflicts in

conducting valuation studies and interpreting their results and influence on subsequent policies and decisions.

• Planning and implementation of valuation studies require the interdisciplinary efforts of hydrogeologists, engineers, environmental scientists, and economists, who must be able to interact with and learn from related disciplines.

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APPENDIX A 169

169

APPENDIX 5 A

Glossary

If you wish to converse with me, define your terms.

Voltaire

aquifer—an underground geologic unit that stores ground water.

aquifer capacity—the amount of water that is stored in an aquifer; sometimes

used loosely to indicate the amount of water an aquifer can deliver under

a specified set of pumping conditions.

averting behavior model (ABM)—an assessment approach in which costs incurred by households to offset or mitigate environmental hazards (e.g.,

expenditures on water purifiers to remove pollution from ground water)

are used to infer value of clean water (Young, 1996).

base flow—that portion of a stream’s flow derived from ground water (as opposed to surface runoff and interflow).

basins and watersheds—areas of drainage in which all collected water ultimately drains through a single exit point. Basins differ from watersheds

only in the perception of their size: basins are usually considered to be

much larger, composed of many watersheds. Within a watershed or basin,

water moves both on and below the surface. Topographic “highs” prevent

surface water from crossing from one watershed (aquifer) to another.

benefits—the gains, often measured as the sum of the monetary values of the

direct and indirect uses, associated with the use of a resource or with

improvements in the quality of a resource unit.

benefit-cost analysis (BCA)—a technique to compare the economic efficiency

of different alternatives, usually applied to individual projects or policies.

A BCA comprises the gross benefits of a project or policy and with its the

opportunity costs. Benefits and costs are measured as changes in consumer and producer surpluses accruing to individuals in society.

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bequest value (BV)—a willingness to pay to preserve the environment for the

benefit of one’s descendants.

buffer value—the difference between the maximum value of a stock of ground

water under uncertainty and its maximum value under certainty where the

supply of surface water is stabilized at its mean. Thus, this value arises

from the ability of ground water to provide supplemental water supplies

during short-term periods of drought or other supply disruptions.

cone of depression—a localized depression of the water level in an aquifer as a

result of pumping. The depression may be confined to a small area or

spread over a large area depending on the pumping rate and transmissivity

of the aquifer. See Figure 2.4.

confined aquifer—an aquifer bounded above and below by units of distinctly

lower hydraulic conductivity and in which the pore water pressure is

greater than atmospheric pressure. An unconfined aquifer is not bounded

above and is the uppermost aquifer. See Figure 2.2.

consumptive use—a use of water that does not return water (polluted or not) to

system. For example, drinking water is consumed, while shower water

returns to the treatment system.

contingent valuation method (CVM)—a method determining money measures

of change in welfare by describing a hypothetical situation to respondents

and eliciting how much they would be willing to pay either to obtain or to

avoid a situation. Although well accepted for use values, CVM has many

limitations when used to calculate nonuse values (Young, 1996).

costs—the mirror image of benefits, that is, what is lost when a resource increases or decreases in quantity or quality. In this context one can think of

costs as damages. Costs also refer to the value of any resources used to

change the quality or quantity of the resource stock, for example, the costs

of ground water remediation.

direct approaches—valuation approaches that use survey-based techniques to

elicit preferences for nonmarket goods and services (e.g., the contingent

valuation method).

discounting—a procedure that adjusts for future values of a particular good by

accounting for time preferences. It aims to determine the present value of

benefits or costs in relation to the benefits or costs at different times in the

future.

drawdown—lowering of the water table or potentiometric surface as a result of

pumping.

existence value (EV)—a pure nonuse value that is the amount an individual

would pay to know that a resource exists.

extractive value—a value calculated by adding up the benefits (across time) of

removing water from an aquifer.

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future value (FV)—the value of a time-dependent benefit or cost obtained by

discounting the values out into future.

hedonic price method (HPM)—a technique to estimate implicit prices for environmental attributes of a market commodity. Usually applied to levels of

clean air or water or similar environmental attributes as components of

the total value (sales price) of real estate (Young, 1996).

incremental value—see marginal value.

indirect approaches—approaches that rely on observed behavior to infer nonmarket values. Examples include the travel cost method and the hedonic

price method.

in situ—in place, that is, within the aquifer.

intergenerational equity—the concept that one generation should consume in a

manner that allows an equal opportunity for future generations.

irreversibility—an effect that cannot be restored to its original state.

law of capture—as applied to common property resources is the tenet that whoever gets to the ground water first gets to use it.

marginal value—the value of another (hypothetical or last) increment of water

when used in the most efficient manner.

nanofiltration—a membrane filtration process designed to desalinate (or soften)

water at relatively low pressure.

natural discharge—ground water that reaches the surface (streams, lakes, wetlands, etc.) in the absence of pumping, excavation, or other human action.

neoclassical welfare economics—a school of economic thought in which the

basic premises are that all economic activity is aimed at increasing the

welfare of the individuals in society and that individuals are the best

judges of their own welfare.

nonmarket—describes goods and services not priced and traded in markets.

nonmarket and market value—a market value is the value ascertained in a

system where supply and demand forces are free to work and set the value

of a good. A nonmarket value is the value of a good outside of a market

system (for example, the value of the air you breathe or of the beautiful

stream in the park).

nonpoint source pollution—pollution that is caused by diffuse sources that are

not regulated as point sources and are normally associated with agricultural, silvicultural, and urban runoff.

nonuse value—values that are independent of the people’s present use of the

resource. (See bequest value and existence value.)

open access resource—a resource that has unlimited access which causes overexploitation of the resource.

option value—often categorized as a nonuse or passive use value, and refers to

the fact that an individual places a certain current value on the option to

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172 VALUING GROUND WATER

use a resource in the future. Option value is often considered “closest” of

the preservation values to use values.

overdrafting—ground water supply that is being used in excess of its natural

recharge rate.

potentiometric surface—represents the height of rise of the water due to hydrostatic pressure when the constraint of the confining layer is removed (see

Figure 2.2). Sometimes referred to as the piezometric surface.

present value—the value of a time-dependent benefit or cost obtained by discounting the values back through time to the present.

rate of time preference—rate of conversion of value between time periods. It is

defined at the individual level; it is a feature of peoples’ desires.

recharge—the replenishment of water beneath the earth’s surface, usually

through percolation through soils or connection to surface water.

recreational value—one of the use values provided by water. It is rooted indirectly to the value of ground water, which plays a role in providing surface water.

regulatory impact analysis (RIA)—a required analysis to be performed to determine the benefits and costs of a proposed regulation.

renovated ground water—ground water from which certain contaminants have

been removed, synonymous with remediated ground water.

reverse osmosis—is a highly efficient removal process for inorganic ions, salts,

some organic compounds, and in some designs, microbiological contaminants. Reverse osmosis resembles the membrane filtration process in that

it involves the application of a high feed water pressure to force water

through semipermeable membrane. In osmotic processes, water spontaneously passes through semipermeable membrane from a dilute solution

to a concentrated solution in order to equilibrate concentrations. Reverse

osmosis is produced by exerting enough pressure on a concentrated solution to reverse this flow and push the water from the concentrated solution

to the more dilute one. The result is clear permeate water and a brackish

reject concentrate (NRC, 1997).

riparian—associated with stream banks.

service flows—indirect and direct benefits to consumers attributable to a provision of services over time.

total economic value (TEV)—the sum of the extractive and in situ values. From

the perspective of how to calculate the total economic value, it is the sum

of use and nonuse values.

travel cost method—an indirect valuation method that values a recreation site by

estimating the demand for access to the site; expenditures on the travel

required to reach a recreational site are interpreted as a measure of willingness to pay for the recreational experience (Young, 1996).

unconfined aquifer—see confined aquifer.

use value—determined by a resource’s or environmental asset’s contribution to

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APPENDIX A 173

current production or consumption. Values may take the form of changes

in income to producers (e.g., increases in agricultural output) or changes

in services not usually traded in markets, such as recreation. Use values

thus involve both marketed and nonmarketed commodities. Changes may

also involve “intermediate” commodities that affect final consumption or

production (e.g., natural filtration of polluted water or other ecosystem

functions).

value—what one is willing to give up in order to obtain a good, service, experience, or state of nature. Economists try to measure this in monetary terms.

value taxonomies—a classification through which resource value or benefits reflect the economic channels through which a resource’s service is valued

(for example, use and nonuse values or extractive and in situ values).

welfare economics—a field of inquiry within the broad scope of economics that is

concerned with money measures of individual and social well-being, particularly changes in well-being due to implementation of public policies.

willingness to accept (WTA) and willingness to pay (WTP)—willingness to

accept is the minimum amount an individual must be paid to accept a

certain risk or a change (decrement) in environmental quality. Willingness to pay is the maximum amount an individual would pay to obtain a

change (increment) in environmental quality.

References

National Research Council. 1997. Safe Water From Every Tap. Washington, D.C.: National Academy Press.

Young, R. A. 1996. Measuring Economic Benefits for Water Investments and Policies. World Bank Technical

Paper No. 338. Washington, D.C.: World Bank.

Acronyms

ABM—averting behavior method

BCA—benefit-cost analysis

BV—bequest value

CVM—contingent valuation method

EV—existence value

HPM—hedonic price method

RIA—regulatory impact analyses

TEV—total economic value

TCM—travel cost method

WTA—willingness to accept

WTP—willingness to pay

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174 VALUING GROUND WATER

174

APPENDIX B

5

A Portion of a Sample Contingent Value

Methods Questionnaire

John Reed Powell

1. There are many ways to protect public water supplies, and communities

vary greatly in the extent to which they protect water supplies. We would like

your opinion on how well you feel the drinking water supply in your community

is protected from contamination.

Study the chart below and circle one letter (A, B, C, or D) that corresponds to

how safe you feel about your household drinking water supply.

HOW SAFE PROTECTION

I FEEL LEVEL DESCRIPTION

VERY SAFE A I feel absolutely secure. I have no worries

about the safety of the community water

supply at present. I am certain the level of

protection is excellent and I cannot foresee

any contamination occurring in the near

future.

SAFE B I feel secure. I am confident the community water supply is safe at present. I am

sure the level of protection is good and I

am reasonably sure the water will not be

contaminated in the near future.

SOMEWHAT SAFE C I feel apprehensive. I am unsure about

the safety of the community water supply. I think the level of protection is adequate at present, but I am uneasy about

the future. There is a possibility it could

become contaminated in the near future.

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APPENDIX B 175

2. One way to prevent pollution of the supply is to establish an areawide

special water protection district. This district would develop and implement

pollution prevention policies specifically designed to suit your community’s

needs. Those in the district who would benefit from the increased protection

would make an annual payment, which would be added to their water utility bill.

We are interested in discovering what you would be willing to pay, in higher

water utility bills, per year to increase the level of protection for your community

water supply. Take into account your household income and the fact that the

money would have come from some part of your budget.

Using the payment card below, please indicate how much you are willing to

pay, per year, to go from your present protection level, which you indicated on

the chart in Question 1, to the highest level (For example, if you feel “SOMEWHAT SAFE” now, what would you pay to move to “VERY SAFE”)? Circle

one dollar range as your annual payment.

If you would be willing to pay more than $350, what is the maximum amount per

year that would pay $____________.

3. If you answered “$0” to Question 2, please indicate which one of the

following reasons best describes why you answered the way you did:

[ ] I AM ALREADY AT THE HIGHEST PROTECTION LEVEL.

[ ] I NEED MORE INFORMATION TO ANSWER THE QUESTION.

[ ] I DO NOT WANT TO PLACE A DOLLAR VALUE ON WATER

SUPPLY PROTECTION.

UNSAFE D I feel troubled. I am anxious about the

safety of the community water supply. I

have doubts about the level of protection

and I think it is very likely the water will

become contaminated in the near future.

$ 0 $51-75 $201-225

$0-10 $76-100 $226-250

$11-20 $101-125 $251-275

$21-30 $126-150 $276-300

$31-40 $151-175 $301-325

$41-50 $176-200 $326-350

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TRUST IN SOURCE

DO NOT GREAT

TRUST SOME DEAL OF

AT ALL TRUST TRUST UNSURE

Business and Industry a b c d

Citizen Groups a b c d

Municipal Water Supplier a b c d

Farmers a b c d

State Agency Officials a b c d

Newspapers a b c d

Local Government Officials a b c d

Scientific Experts a b c d

Environmental Groups a b c d

[ ] I AM ALREADY PAYING ENOUGH.

[ ] OTHER (Please specify)____________________________________

4. Many individuals and groups supply information about water quality.

How much trust do you have in information from each of the following different

sources? Circle one letter for each item.

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APPENDIX C 177

177

APPENDIX C

Biographical Sketches of

Committee Members

Larry W. Canter, who chaired the committee, is the Sun Company Chair of

Ground Water Hydrology, and Director of the Environmental and Ground

Water Institute at the University of Oklahoma, Norman, Oklahoma. He

holds a B.S. in civil engineering from Vanderbilt University, an M.S. in

sanitary engineering from the University of Illinois, and a Ph.D. in Environmental Health Engineering from the University of Texas, Austin, Texas.

Over the last 30 years, Dr. Canter’s research has addressed a wide range of

technical and policy issues relating to ground water quality and quantity. He

has published over 110 papers in refereed journals or conference proceedings and is author of over 135 research reports. Dr. Canter is a former

member of the U.S. Army Corps of Engineers Environmental Advisory Board

and the Governor of Oklahoma’s Coordinating Committee on Water Resources Research. He served as associate editor of Environmental Professional and on the International Advisory Board of EIA Review. He was a

principal contributor to the WSTB’s 1989 colloquium on “Ground Water

and Soil Contamination Remediation: Toward Compatible Science, Policy,

and Public Perception.”

Charles W. Abdalla is an associate professor in the Department of Agricultural

Economics and Rural Sociology at Pennsylvania State University. He earned

his B.S. in environmental resource management from Pennsylvania State

University, and his M.A. in economics, M.S. in agricultural economics, and

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178 VALUING GROUND WATER

Ph.D. in agricultural economics from Michigan State University. His research and extension programs address public choice about natural resources

and the environment. His recent studies include the economic assessment of

institutions for water management, measuring ground water values, and implications of industrialization of the U.S. food system for environmental

policy design. He has written several book chapters, articles, and reviews,

his work appearing in journals such as American Journal of Agricultural

Economics, Land Economics, and Water Resources Bulletin. Also he served

as guest editor of an award-winning issue of the Journal of Soil and Water

Conservation entitled “Rural Groundwater Quality Management: Emerging

Issues and Public Policies for the 1990s.” Dr. Abdalla is the co-founder of

the Pennsylvania Groundwater Policy Education Project and has worked

with organizations at the national, state, and local levels to inform citizens

and public officials and increase their involvement in water resources decision-making. He is a recipient of the Gilbert White Fellowship awarded by

Resources for the Future and the Berg Fellowship awarded by the Soil and

Water Conservation Society.

Richard M. Adams is a professor of agricultural and resource economics at

Oregon State University, Corvallis. He holds a B.S. in resource management, and an M.S. and Ph.D. in agricultural economics from the University

of California, Davis. His current research interests include economic assessments of the effects of environmental change on agricultural and natural

ecosystems, assessments of agricultural costs and social benefits of reducing

ground water pollution from agriculture, valuation of water across competing uses, and valuation of fish and wildlife resources. He has served as

associate editor of Water Resources Research, editor of the American Journal of Agricultural Economics, and chair of the Policy Sciences Committee

of the American Geophysical Union’s Hydrology Section. Dr. Adams is

author of approximately 200 publications and has provided consulting services on numerous natural resource assessment projects.

J. David Aiken is a professor of water and agricultural law at the University of

Nebraska, Lincoln. He is a lawyer and has written extensively on ground

water policy, including topics such as the depletion of the Ogallala aquifer,

ground water protection, and conjunctive use. He has made extensive study

of the various approaches to ground water allocation and protection taken in

the western states. In addition, he has served as a legal consultant in the

development of Nebraska’s recharge appropriation legislation, and on a variety of agricultural and water law cases. He was a member of the Nebraska

Water Independence Congress, and currently serves on the Water Quality

Technical Advisory Committee of the Nebraska Department of Environmental Quality.

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Sandra O. Archibald earned her B.A. and M.S. in Public Policy from the University of California at Berkeley, and her M.S. and Ph.D. in Agricultural Economics from the University of California at Davis. She is an associate

professor of public affairs and planning at the University of Minnesota. Her

research on the economic valuation of water resources has been conducted

primarily in California where she heads a large study examining the impacts

of changing federal water policy on ground water value. Her research has

addressed issues such as ground water and surface water interactions, spatial

and temporal dimensions, institutional roles, surrogate use indicators, and

sustainability. In addition, she has examined economic issues related to

irrigation drainage in the San Joaquin Valley, and the economic impacts

associated with the ecological effects of ground water mining. Dr. Archibald

has also published in the area of pesticide use and associated economic

benefits and health risks. She is a member of the American Agricultural

Economics Association, and has served on committees of the Transportation

Research Board and Institute of Medicine.

Susan Capalbo is an associate professor in the Department of Agricultural Economics and Economics at Montana State University in Bozeman, Montana.

She has also held positions at the University of California, Davis; Resources

for the Future; the University of Maryland; and the National Marine Fisheries Service. Dr. Capalbo’s current research examines the interface among

agricultural practices and the environment, with a specific emphasis on

ground water, surface water, erosion, and farm worker health. She has

served as director of the Western Agricultural Economics Association and

associate editor of the American Journal of Agricultural Economics. She is

a member of the American Agricultural Economics Association, American

Economic Association, Canadian Economic Association, Western Agricultural Economics Association, and Association of Environmental and Resource Economists. She recently won the Outstanding Journal Article Award

in the Northeastern Journal of Agricultural and Resource Economics.

Patrick A. Domenico (a committee member through November 1995) is the

David B. Harris Professor of Geology at Texas A&M University’s College

Station Campus where he specializes in teaching and research in ground

water hydrology. He earned his B.S. in geology and M.S. in engineering

geology from Syracuse University, and his Ph.D. in hydrology from the

University of Nevada. Dr. Domenico has authored more than 40 professional publications, including a textbook on ground water hydrology. He has

consulted on projects dealing with hydrologic, ground water supply, geothermal, and environmental issues for many private and governmental organizations including the International Bank for Reconstruction and Development,

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180 VALUING GROUND WATER

ceived many prestigious awards, including the Birdsall Distinguished Lecturer in Hydrogeology, the Distinguished Teaching Award from the College

of Geoscience, and the Distinguished Teaching Award from Texas A&M

University.

Peter G. Hubbell has formed a private consulting firm, Water Resource Associates, Inc., focusing on water resource engineering and planning. He was

formerly Executive Director of the Southwest Florida Water Management

District (SWFWMD). He holds a B.S. in Water Resource Management from

the University of Maryland, and completed the Program for Senior Executives at Harvard University’s John F. Kennedy School of Government. At

the SWFWMD he was responsible for the development of water resource

programs and overall management of District operations. He has also held

positions as a water resource analyst with a major environmental and engineering consulting firm, with the U.S. Bureau of Land Management, and

with the U.S. Geological Survey. He was the chair of Florida’s Bluebelt

Commission on Aquifer Recharge, a founding member of the International

Water Resource Network’s Policy Council, a member of the board of the

Florida Conflict Resolution Consortium, and holds memberships in the

American Water Resources Association, American Water Works Association, and Interstate Council on Water Policy.

Katharine L. Jacobs is the Director of the Arizona Department of Water Resources Tucson Active Management Area. She holds a B.A. in Biology from

Middlebury College, and an M.L.A. in environmental planning from the

University of California, Berkeley. As Director of the Tucson Active Management Area, she is involved in ground water policy development and

coordination, and consensus building in solving water resource management

problems. She represents southern Arizona in statewide water issues and

works with community leaders and other agencies to address a variety of

local resource problems. She was a primary author in the development of

Arizona’s “assured and adequate water supply” rules. She serves on the

Board of Directors of the Southern Arizona Water Resources Association

and the Tucson Regional Water Council; and is a member of the Arizona

Hydrologic Society, American Water Works Association, and American

Water Resources Association.

Aaron L. Mills is a professor of environmental sciences at the University of

Virginia. He earned his B.A. in biology from Ithaca College, and his M.S.

and Ph.D. in soil science, with minors in microbiology and ecology, from

Cornell University. Dr. Mills’ areas of research address the transport of

bacteria through porous media and biogeochemical reactions pertinent to

ground water systems and he has over 80 professional publications. He has

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APPENDIX C 181

served as the chair of the aquatic and terrestrial microbiology section of the

American Society for Microbiology and is an active member of the American Academy of Microbiology and the American Geophysical Union. He

has also served as a member of the editorial board of Applied and Environmental Microbiology and Microbial Ecology. He has also served as a consultant on a number of sites where bioremediation efforts have been proposed and undertaken.

William R. Mills, Jr. has been the General Manager of the Orange County Water

District (OCWD) since the fall of 1987. OCWD is responsible for management of the ground water basin in northern Orange County. Prior to his

appointment at OCWD, Mills was a private consulting engineer between

1984 and 1987, specializing in water resources management, surface and

ground water investigations, water quality, and water rights. From 1967 to

1984 Mills was employed by PRC Engineering, Inc. in Santa Ana, California

in technical capacities up to and including President of the Planning and

Development Division. Prior to joining PRC Engineering, Inc., Mills worked

for the California Department of Water Resources and Los Angeles County

Flood Control District. He is a graduate geological engineer from the Colorado School of Mines, with an M.S. degree in civil engineering from Loyola

University of Los Angeles, and is a registered engineer and geologist.

Paul V. Roberts is the Clair Peck Professor of Environmental Engineering at

Stanford University. He holds a B.S. in chemical engineering from Princeton

University, a Ph.D. in chemical engineering from Cornell University, and an

M.S. in environmental engineering from Stanford University. His research

focuses on the transport and fate of contaminants in subsurface porous media, as well as water treatment technology. Previously, he headed the engineering department of the Swiss Federal Institute of Water Supply and Water

Pollution Control. He has also worked as a research engineer at Stanford

Research Institute, and as a process engineer at Chevron Research Company.

He was a member of the WSTB’s Committee on Ground Water Clean-Up

Alternatives and has served three terms on the Environmental Engineering

Committee of EPA’s Science Advisory Board.

Thomas C. Schelling is a Distinguished Professor of Economics and Public

Affairs at the University of Maryland, and the Lucius N. Littauer Professor

of Political Economy, Emeritus, at Harvard University. He earned an A.B.

in economics from the University of California, Berkeley, and a Ph.D. in

economics from Harvard University. He has served in the U.S. Bureau of the

Budget, the Economic Cooperation Administration in Europe, and the White

House Executive Office of the President. He joined the faculty at Harvard

University after serving five years on the faculty at Yale University. He is a

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182 VALUING GROUND WATER

member of the National Academy of Sciences, Institute of Medicine, and a

fellow of the American Academy of Arts and Sciences, the American Association for the Advancement of Science, and the Association for Public

Policy Analysis and Management. Dr. Schelling currently serves as a member of the NRC’s Commission of Geosciences, Environment, and Resources.

Theodore Tomasi is a Research Scientist in the College of Marine Studies at the

University of Delaware, and a Principal in the consulting firm Environmental Economics Research Group. He earned his B.A. in environment and

public policy and an M.A. in economics from the University of Colorado,

and a Ph.D. in natural resource economics from the University of Michigan.

Dr. Tomasi’s research focuses on environmental economics with special

emphasis on methods for assessing the value of nonmarket goods and services. Prior to joining the University of Delaware, he held positions at the

University of Minnesota, University of Michigan, and Michigan State University. He has served as a consultant on various issues of conducting

natural resource damage assessments to NOAA, the U.S. Fish and Wildlife

Service, the U.S. Department of Justice, the State of Michigan, and the State

of Florida.

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INDEX 183

183

A

ABM. See Averting behavior model

Absolute ownership, 107

Acceptable risk, 118

Agricultural uses, 15, 17, 27, 69, 113, 130-131,

140-141. See also Nonpoint source

(NPS) pollution

AGU. See American Geophysical Union

AGWSE. See Association of Ground Water

Scientists and Engineers

Air stripping, 43

Allocation of ground water, 1-2, 51-57, 106-

114

laws regulating, 10, 105-113

American Geophysical Union (AGU), 124

American Water Resource Association

(AWRA), 124

Appropriation doctrine. See Regulatory

measures

Aquifers, 21, 31-36, 169. See also individual

aquifers

capacity of, 169

confined, 33-35, 39, 170

deep, 3, 34, 45

as managed storage facilities, 21, 146

recharge capability of, 26 (See also

Recharge)

as three-dimensional, 32

Index

transmissivity of, 170

unconfined, 33-35, 39, 172

Arizona, 40, 109-113, 147

Ground Water Management Act of 1980,

113-114, 154, 157

Tucson, 12, 128, 130, 153-163

Asset value. See Stock value

Association of Ground Water Scientists and

Engineers (AGWSE), 124

Averting behavior model (ABM), 7, 9, 75-79,

87-90, 169

AWRA. See American Water Resource

Association

B

Bacterial contaminants. See Pathogenic

microbes

Base flow, 32, 169

Basins, 31-32, 169

benefits of, 36

Benefit-cost analysis (BCA), 56, 65, 106, 114,

120, 169

Benefits, 169

direct versus indirect (See Service flows)

Bequest value (BV), 98, 170. See also

Intergenerational equity

Best management practices (BMPs), 117

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184 INDEX

Bioeconomic assessment, 28

Bioremediation, 43

Brackish reject concentrate. See Reverse

osmosis

Buffer value, 2, 21, 60, 77, 139, 141, 146, 159-

162, 170

Bush, President George, 11

BV. See Bequest value

C

California, 21, 39, 109-111

Arvin-Edison, 12, 128-129, 140-142

Orange County, 12, 128-129, 142-148

San Joaquin Valley, 39

Capture, law of, 4, 37, 113, 171

Case studies, 12, 127-165. See also specific

states

lessons learned, 164-165

summarized, 127-130

CERCLA. See Comprehensive Environmental

Response, Compensation, and Liability

Act

Chlorinated hydrocarbons. See Organic

contaminants

Clean Water Act (CWA), 10, 114, 116-117

Clinton, President William, 11

Coastal Zone Management Act (CZMA), 116

COI. See Cost of illness method

Colorado, 112

Command-and-control approaches, 10

Commerce Department. See U.S. Department

of Commerce

Committee on Ground Water Cleanup

Alternatives, 26

Commodity prices, 57

Common law doctrines, 106-111

Comprehensive Environmental Response,

Compensation, and Liability Act

(CERCLA), 1, 10, 44, 115, 149

Computer capacity, inadequate, 45

Cone of depression, 35, 109-110, 170

Confined aquifer. See Aquifer

Conjoint analysis. See Contingent valuation

method (CVM)

Conjunctive use, 35-36, 111

Conservation efforts, 15, 39

little incentive for, 37

Consumers, basis of valuation, 49-50

Consumptive use, 170

Contamination, 4, 41-42. See also Hazardous

waste contamination; Hydrologic cycle,

anthropogenic modifications of;

Maximum contaminant levels (MCLs);

and specific contaminants

containing, 44

filtering out, 2, 35

laws regulating, 10

protecting against, 15, 17, 116-117

Contingent valuation method (CVM), 6-9, 27-

28, 69, 76, 82-87, 90-100, 170

cautions about using, 83-85

questionnaire, sample of, 84, 174-176

Corps of Engineers, 124

Correlative rights, 107-108

Cost-benefit analysis. See Benefit-cost analysis

(BCA)

Cost of illness (COI) method, 7, 9, 75, 78

Costs, 14, 25-26, 31, 35, 37, 74-77, 160, 170

dynamic, 72

of water treatment, 42-44, 118-119

Current use value. See Use value

CVM. See Contingent valuation method

CWA. See Clean Water Act

CZMA. See Coastal Zone Management Act

D

Deep aquifers. See Aquifers

Deep-well injection, 42

Defense Department. See U.S. Department of

Defense

Depletion, 32-35

Depression. See Cone of depression

Derived demand method. See Costs

Desalination, low pressure. See Nanofiltration

Direct approaches, 28, 82-86, 90-99, 170

Discharge. See Depletion

Discounting, 5-6, 54-56, 65-66, 170. See also

Future value (FV); Risk premiums

Disposal options, 42

Disutility, measuring. See Contingent valuation

method (CVM)

Diversity. See Wildlife habitat

Double counting errors, 8, 20, 99

Drawdown, 139, 170

Drought, 4, 38. See also Buffer value

Dynamic price, 71-73

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INDEX 185

E

Eastern correlative rights. See Correlative rights

Ecological diversity. See Wildlife habitat

Economics of environmental resources, 2, 4,

65, 68-86

history of, 68-70, 123

methods for, 73-86

Economics of ground water use, 37-40, 57

analyzing, 60-65

current knowledge of, 86-99

Edwards Aquifer, 112

Effluent, treated, 21, 155

Energy Department. See U.S. Department of

Energy

Environmental economics. See Economics of

environmental resources; Economics of

ground water use

Environmental Protection Agency, 1-2, 9-11,

17, 28, 90, 100, 114-119, 123-125

Environmental quality. See Quality of ground

water; Willingness to accept (WTA);

Willingness to pay (WTP)

Estimating implicit prices. See Hedonic price

method (HPM)

EV. See Existence value

Evaporation ponds, 42

Executive Orders, 10-11, 119

Existence value (EV), 85-86, 98, 132, 162, 170

Exploitation. See Open access resource;

Optimal time rate of use

Extractive costs. See Costs

Extractive rights, 11, 37

Extractive uses, 58-59

history of, 14-19

Extractive value, 2, 8, 17, 20, 62-63, 164, 170

Exxon Valdez oil spill, 86

F

Fairness issues, 56-57

Farm policies, 57. See also Policy-making

Fecal material. See Pathogenic microbes

Federal Insecticide, Fungicide and Rodenticide

Act (FIFRA), 116

Flood flows, 21

Florida, 21, 39, 111, 113

Flow value, 20

Fossil water. See Aquifers, deep

Free-rider behavior errors, 83

Fuel hydrocarbons. See Organic contaminants

Future value (FV), 70-71, 105, 171

G

Global cycles, 32

Gross benefits. See Benefit-cost analysis (BCA)

Ground water, 58-60. See also Allocation of

ground water; Economics of ground

water use; Quality of ground water;

Value of ground water

balance of, 32-35, 52

defined, 169

dependence on, 21

flow diagram, 49, 62-65

managing, 65

rights, 121-122

saline (See Intrusion of sea water)

Ground Water Vulnerability Assessment, 64

H

Habitat value, 162-163

Habitats

aquatic, 38

riparian, 137-139, 164, 172

wildlife (See Wildlife habitats)

Hazardous waste contamination, 26. See also

Superfund sites

Health-based regulation, 118-119, 164

Hedonic price method (HPM), 9, 69, 75-76, 79-

81, 161-162, 171

HPM. See Hedonic price method

Human health perspectives. See Health-based

regulation

Hydraulic conductivity, 33-35, 170

Hydrocarbons. See Organic contaminants

Hydroelectric uses, 15

Hydrologic cycle, 31-36

anthropogenic modifications of, 32-33, 41-

42, 57, 62

Hydrologic uncertainty, 44-45

Hydrostatic pressure. See Potentiometric

surface

I

Illness, cost of. See Cost of illness (COI)

Implicit prices, estimating. See Hedonic price

method (HPM)

Incremental value, 160-161, 171

Indirect approaches, 7, 9, 27-28, 74-81, 87-90,

171

Infinite value, 1

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186 INDEX

In situ services, 17, 20, 63, 159, 171

defined, 2, 60

In situ value, 2, 63

Institutions, decision-making by, 51-55, 154-

156

Integrated plan. See Conjunctive use

Interactions. See Conjunctive use

Interdisciplinary study, 165

Interflow, 32

Intergenerational equity, 5, 56, 171

Interior Department. See U.S. Department of

the Interior

Intertemporal optimization, 48, 162

Intrusion of sea water, 2, 21, 39-40, 60, 142-

145

Ion exchange, 43

Irreversibility, 171

Irrigation uses, 15

Israel, 77

K

Knowledge of respondents, presumed, 94

L

Land subsidence. See Subsidence of land

surface

Land use planning, 17

Law of capture. See Capture

Legal considerations, 10, 121-122

Long-term view, 4, 6, 46

M

Management practices. See Best management

practices (BMPs); Ground water;

Watersheds; Wildlife habitats

Mandates. See Unfunded mandates

Marginal user cost. See Opportunity costs

Marginal value, 171

Market value, 6, 13-14, 76, 171. See also Water

marketing

Massachusetts

Boston, 87-90

Woburn, 12, 128-130, 149-153

Maximum contaminant levels (MCLs), 114-

115, 157

MCLs. See Maximum contaminant levels

Measurements, imprecise, 45

Membrane filtration. See Nanofiltration;

Reverse osmosis

Model uncertainty, 45

Municipal water use, 77, 137, 142, 146-148

N

Nanofiltration, 156-158, 171

National Oceanic and Atmospheric

Administration (NOAA), 8, 82, 86, 124

National Research Council (NRC), 2, 26, 28-

29, 44

National Science Foundation, 123

National Water Research Institute, 2

Natural assets, 48, 54-55

Natural discharge, 171

Natural recharge. See Aquifers, deep

Natural resource damage assessment (NRDA),

86

Natural resource districts (NRDs), 111

Natural resource valuation. See Economics of

environmental resources

Nebraska, 110-111

Negotiated transactions value. See Market

value

Neoclassical welfare economics. See Welfare

economics

Nevada, 110, 147

New Mexico, 34, 112

Albuquerque, 12, 128-129, 136-140

Nitrate contaminants, 92, 130-131

NOAA. See National Oceanic and Atmospheric

Administration

Nonmarket value, 8, 27, 54, 69, 74-86, 171

Nonorganic contaminants. See Nitrate

contaminants

Nonpoint source (NPS) pollution, 32, 116-117,

171

Nonrenewable resource. See Safe yield

Nonuse value, 6-9, 17, 20, 49-50, 98-99, 171

estimating, 28, 69, 85-86

NPS. See Nonpoint source (NPS) pollution

NRC. See National Research Council

NRDA. See Natural resource damage

assessment

NRDs. See Natural resource districts

O

Ocean discharge, 42

Office of Management and Budget (OMB), 120

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INDEX 187

Ogallala aquifer, 34, 45, 110

Oil Pollution Control Act of 1990, 86

Oklahoma, 34

OMB. See Office of Management and Budget

Open access resource, 4, 37, 171

Opportunity costs, 56, 78, 161

Optimal time rate of use, 71-72

Option value, 92, 171-172

Oregon, Treasure Valley, 12, 128-132

Organic contaminants, 41, 43, 79, 149

Osmotic processes. See Reverse osmosis

Overdrafting, 4, 38-39, 45, 137, 172

P

PAHs. See Organic contaminants

Parasites. See Pathogenic microbes

Passive use value. See Nonuse value

Pathogenic microbes, 41, 158

Payment vehicle, 96-97

Pennsylvania, 87-90

Laurel Ridge, 12, 128-129, 133-136

Percolation. See Recharge

Permeability. See Hydraulic conductivity

Permits. See Regulatory measures

Phenols. See Organic contaminants

Phthalates. See Organic contaminants

Piezometric surface. See Potentiometric surface

Point source pollution, 15, 57, 114-115

Policy-making, 5, 8, 14, 24. See also Water

marketing; Welfare economics

changing priorities, 118-121

Pollution. See Contamination; Nonpoint source

(NPS) pollution; Point source pollution

Polynuclear aromatic hydrocarbons (PAHs).

See Organic contaminants

Pore water pressure, 170

Potentiometric surface, 33-35, 172

Prescriptive rights, 109

Present value, 55, 172

Presumed knowledge. See Knowledge of

respondents, presumed

Price elasticity, 77

Production costs. See Costs

Property rights, 121-122

Property values. See Hedonic price method

(HPM)

Protozoan contaminants. See Pathogenic

microbes

Public perceptions, 26, 59, 90, 95-97, 174-175

Public policy. See Policy-making

Pumping rate. See Aquifers, transmissivity of;

Cone of depression

Pumping technology, 15, 37

Pump taxes. See Taxes, pump

Q

Quality of ground water, 10, 24-26, 40-45, 53.

See also Contamination; Remediating

ground water

effect on value, 58, 161

protecting, 114-118

Quantity of ground water. See Ground water,

balance of

Quotas, 5, 38, 46

R

Rainfall, 62-63

Rate of time preference, 172

RCRA. See Resource Conservation and

Recovery Act

Reagan, President Ronald, 10, 119

Reasonable use, 107, 109

Recharge, 32-35, 122, 159-160, 172. See also

Aquifers, deep; Safe yield

rate of, 3, 33

Recommendations, 45-46, 66, 100, 125. See

also Research needed

Recreational value, 2, 59, 134, 172. See also

Travel cost method

Recycling, 15. See also Remediating ground

water

Reducing Risk, 1, 122

Regulatory impact assessments (RIAs), 119-

121, 172

Regulatory measures, 108-111. See also

Quotas; Taxes, pump

Remediating ground water, 25, 172. See also

Bioremediation; Effluent, treated;

Restoration

laws regulating, 10

Renovating ground water. See Remediating

ground water

Research needed, 9, 11, 46, 122-124

Resource allocation. See Allocation

Resource Conservation and Recovery Act

(RCRA), 10, 44, 115

Resource units, 169

Restoration, 4-5, 44-45

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188 INDEX

Revealed preferences approaches. See Indirect

approaches

Reverse osmosis, 43, 156-158, 172

RIAs. See Regulatory impact assessments

Rights. See Correlative rights; Extractive rights;

Ground water rights; Prescriptive rights;

Property rights

Riparian habitats. See Habitats, riparian

Risk assessment, 8, 106, 114, 120. See also

Acceptable risk

Risk premiums, 8

Riverine habitats. See Habitats, riparian

Runoff. See Nonpoint source (NPS) pollution

S

SAB. See Science Advisory Board

Safe Drinking Water Act (SDWA), 10, 17, 114-

115, 117, 120, 133

Safety of public water supplies

perceptions of (See Public perceptions)

willingness to pay for, 175-176

Safe yield, 35, 136, 139, 154

Salt water intrusion. See Intrusion of sea water

Sampling errors, 45

SARA. See Superfund Amendments and

Reauthorization Act

Scarcity, 56

Science Advisory Board (SAB), 1

SDWA. See Safe Drinking Water Act

Semipermeable membrane. See Reverse osmosis

Service flows, 49, 62-65, 172

changes in, 36, 47, 160-161

potential, 21-24

Shortages, buffering. See Buffer value

Silvicultural use. See Nonpoint source (NPS)

pollution

Starting point bias, 83-84

Statistical errors, 45

Steady-state equilibrium, 4, 36, 38

Stochastic modeling, 165

Stock value, 20

Subsidence of land surface, 2-3, 21, 38, 138, 154

disruptions caused by, 39, 60, 161

Superfund Amendments and Reauthorization

Act (SARA), 10, 117, 149

Superfund laws, 11, 17, 106. See also

Comprehensive Environmental

Response, Compensation, and Liability

Act; Superfund Amendments and

Reauthorization Act (SARA)

Superfund sites, 44, 117-118, 149-152

Supply development, 26, 156

Supply disruptions. See Buffer value

Surface water, 21, 33. See also Value of surface

water

flow reductions in, 39-40

Surfical aquifers. See Aquifers, unconfined

Surrogate measures, 3

Survey-based techniques. See Contingent

valuation method (CVM)

Sustainable yield. See Safe yield

T

Takings, 121-122

Taxes, pump, 5, 38, 46

TCE. See Trichloroethylene

TCM. See Travel cost method

TDS. See Total dissolved solids

Technology-based regulation, 119. See also

Treatment technologies

TEV. See Total economic value

Texas, 34, 111

Houston/Baytown region, 39

San Antonio, 112

Time-dependent benefit or cost. See Dynamic

price; Future value (FV); Intertemporal

optimization; Present value

Total dissolved solids (TDS), 158, 161

Total economic value (TEV), 2-12, 48-50, 63-

65, 100, 112, 123-125, 150, 164, 172

Transaction value. See Market value

Transferring water rights. See Water marketing

Transfer value, 9, 11

Travel cost method (TCM), 27, 69, 75, 81, 172

Treatment technologies, 42-43

Trichloroethylene (TCE), 149, 151-152

U

Uncertainty, 95, 151-153, 163. See also

Hydrologic uncertainty

Unconfined aquifer. See Aquifer

Underground storage tanks (USTs), 10, 115

Unfunded mandates, 11, 120

Unfunded Mandates Act of 1995, 120-121

U.S. Bureau of Reclamation, 156

U.S. Constitution, 121

U.S. Department of Commerce, 86

U.S. Department of Defense, 2, 17, 123

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INDEX 189

U.S. Department of Energy, 2, 17, 123

U.S. Department of the Interior, 118

U.S. Fish and Wildlife Service (USFWS), 137

U.S. Geological Survey (USGS), 15, 124, 137

Use conflicts, 134

Use value, 6-7, 11, 17, 20, 172-173

USGS. See U.S. Geological Survey

USTs. See Underground storage tanks

V

Validity issues, 8

Valuation framework, 5-6, 47-67. See also

Total economic value (TEV)

Valuation of natural resources. See Economics

of environmental resources

Value. See also Transfer value

Value of ground water. See also Bequest value

(BV); Buffer value; Existence value

(EV); Extractive value; Flow value;

Future value (FV); Habitat value;

Incremental value; Infinite value; In situ

value; Marginal value; Market value;

Nonmarket value; Nonuse value; Option

value; Present value; Recreational

value; Stock value; Total economic

value (TEV); Use value

alternative methods, 25

defined, 1, 64, 173

history of, 13-28

taxonomies of, 17, 20, 49, 59-60, 173

Value of surface water, 14

Viral contaminants. See Pathogenic microbes

Volatile organic contaminants. See Organic

contaminants

W

Waivers, 114

Waste disposal sites. See also Hazardous waste

contamination

laws regulating, 10

Water marketing, 10, 112-113

Water protection district, 175-176

Water quality, sources of information about,

175-176

Water rights. See Ground water, rights

Watersheds, 31-32, 169

managing, 35

Water table. See Potentiometric surface

Welfare economics, 74, 171, 173

Well drilling, laws regulating, 24

Wellhead protection (WHP) programs, 17, 117

Well interference conflicts, 109-110

Western correlative rights. See Correlative

rights

WHP. See Wellhead protection (WHP)

programs

Wildlife habitats

destruction of, 25

diversity of, 2

managing, 21, 61

Willingness to accept (WTA), 6-7, 74, 82, 173

Willingness to pay (WTP), 6-7, 31, 40, 74-75,

78-82, 93, 173

meaningless estimates of, 85

Withdrawals. See Extractive uses

WTA. See Willingness to accept

WTP. See Willingness to pay

Y

Yea saying bias, 84

Yield. See Safe yield

Z

Zoning, 117

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Copyright © National Academy of Sciences. All rights reserved.

Valuing Ground Water: Economic Concepts and Approaches

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