ENVIRONMENTAL ENVIRONMENTAL ECONOMICS ECONOMICS

RESEARCH STRATEGY
ENVIRONMENTAL ECONOMICS

RESEARCH STRATEGY

OFFICE OF RESEARCH AND DEVELOPMENT, NATIONAL CENTER FOR ENVIRONMENTAL RESEARCH

OFFICE OF POLICY, ECONOMICS AND INNOVATION, NATIONAL CENTER FOR ENVIRONMENTAL ECONOMICS

WASHINGTON, DC 20460

EPA/600/R-04/195

DECEMBER 2005

FOREWORD

ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY III

The 2005 Environmental Economics Research Strategy (EERS) presents a conceptual framework for future economics and decision science research of the U.S. Environmental

Protection Agency (EPA). This research strategy identifies the economics and decision science

research areas important to EPA programs and EPA’s planned research agenda in these areas.

This program implements components of the Office of Research and Development’s (ORD’s)

Strategic Plan and is consistent with priorities outlined in EPA’s 2003 Strategic Plan. 

This research strategy outlines EPA’s research effort to provide the necessary behavioral 

science foundation for making decisions and designing environmental policies at the least

cost to American businesses and consumers. To be effective, the Agency must understand

how people and firms make decisions about and affect the environment and, in turn, how

the environment affects Americans’ quality of life. High-quality environmental economics

research is the best way to improve this understanding.

EPA developed the EERS to guide future environmental economics research at the Agency.

EPA program staff and managers identified desired research results, and external peer

reviewers assisted EPA in developing a novel and feasible research agenda to meet these

needs. Different program offices in EPA need different types of economics research to

accomplish their individual missions. Regulatory offices need better tools to evaluate the

costs and benefits of preventing or reducing pollution damage to health and ecosystems.

Innovation and information offices need to understand how and when collaborative

approaches can succeed and how and why information disclosure works to change firm or

market behavior. Enforcement personnel need better tools to identify facilities for inspections and enforcement actions while identifying those who would benefit from technical

assistance to improve environmental performance. All programs should understand how to

design implementation strategies that will take advantage of market forces to reduce costs

for businesses and the public and protect the environment. 

The EERS’ major strategic research directions include research in: (1) human health valuation; (2) ecological valuation; (3) environmental behavior and decision-making; (4) market

mechanisms and incentives; and (5) benefits of environmental information disclosure. 

These strategic objectives frequently require an interdisciplinary approach to develop sound

research. EPA will address the most important research gaps in these areas and will develop

interdisciplinary teams and partnerships with other agencies when needed.

George Gray Brian Mannix

Assistant Administrator Associate Administrator

for Research and Development for Policy, Economics, and Innovation

ACKNOWLEDGMENTS

ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY V

The authors of EPA’s Environmental Economics Research Strategy wish to thank the many

EPA staff members who contributed their time and expertise to the interviews and meetings

that generated the research priorities discussed in this Strategy. 

EPA also wants to acknowledge the important contributions to the development of this 

document of external reviewers from the EPA Science Advisory Board’s Environmental

Economics Advisory Committee and selected reviewers. The Science Advisory Board members’ diligence and insight have increased the value of this Strategy considerably by providing a critical review and suggesting important new avenues 

of research.

ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY AUTHORS

National Center for Environmental Economics

Alan Carlin

Chris Dockins

Brian Heninger

Julie Hewitt

Lanelle Wiggins

Ann Wolverton

National Center for Environmental Research

Matthew Clark

William Wheeler

CONTRIBUTING AUTHORS

Allen Basala, Office of Air and Radiation

Gary Cole, Office of Pollution Prevention and Toxics

Matt Heberling, Office of Research and Development/National Center for 

Environmental Assessment

Bruce Madariaga, Office of Environmental Information

Mahesh Podar, Office of Water

Hale Thurston, Office of Research and Development/National Risk Management 

Research Laboratory

PEER REVIEW HISTORY

ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY VII

Peer review is an important component of research strategy development. The peer review

history for this Research Strategy follows:

OFFICE OF RESEARCH AND DEVELOPMENT SCIENCE COUNCIL:

May 2003, Subhas Sikdar, Lee Mulkey, Lead Reviewers

EXTERNAL PEER REVIEW:

EPA Science Advisory Board, Environmental Economics Advisory Committee, 

November 17, 2003

EXTERNAL PEER REVIEW PANEL MEMBERS: 

Science Advisory Board Executive Committee

Dr. Trudy Cameron, University of Oregon, Eugene, OR

Dr. Myrick Freeman, Bowdoin College, Brunswick, ME

Dr. Dom Grasso, Smith College, Northampton, MA

Dr. Rebecca Parkin, George Washington University, Washington, DC

Environmental Economics Advisory Committee

Dr. Maureen Cropper, Chair, University of Maryland, College Park, MD, 

and the World Bank, Washington, DC

Dr. Dallas Burtraw, Resources for the Future, Washington, DC

Dr. Lawrence Goulder, Stanford University, Palo Alto, CA

Dr. James Hammitt, Harvard School of Public Health, Boston, MA

Dr. Gloria Helfand, University of Michigan, Ann Arbor, MI

Dr. Catherine Kling, Iowa State University, Ames, IA

Dr. Arik Levinson, Georgetown University, Washington, DC

Dr. Richard Norgaard, University of California, Berkeley, CA

Dr. Kathleen Segerson, University of Connecticut, Storrs, CT

Dr. Hilary Sigman, Rutgers University, New Brunswick, NJ

Dr. Robert Stavins, Harvard University, Cambridge, MA

Dr. Gary Yohe, Wesleyan College, Middletown, CT

PEER REVIEW COORDINATOR:

Mr. Thomas Miller, Designated Federal Officer, EPA Science Advisory Board Staff, 

Washington, DC

TABLE OF CONTENTS

ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY IX

Page

Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .III

Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .V

Peer Review History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .VII

Glossary of Terms and Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .XI

Abstract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .XIII

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ES-1

Chapter 1. Overview and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1-1

Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1-1

Report Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1-1

EPA’s Use of Economics Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1-2

Purposes of This Document . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1-4

Relationship to Other Strategies, Plans, and Documents . . . . . . . . . . . . . . . . . . .1-5

Environmental Economics Strategy Development Process . . . . . . . . . . . . . . . . .1-5

Chapter 2. Identifying Research Needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2-1

Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2-1

Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2-1

Chapter 3. Identifying the Research Gaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3-1

Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3-1

Criteria for Identifying Priority Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3-1

Existing Literature in Priority Topics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3-2

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3-8

Chapter 4. Research Strategy Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4-1

Overview of Implementation Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4-1

Research Tools—Comparative Advantages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4-1

Roles and Activities of EPA Programs, Centers, Laboratories, and Regions . . . .4-3

Communication of Research Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4-8

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4-9

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .R-1

GLOSSARY OF TERMS AND ACRONYMS

ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY XI

EPA The United States Environmental Protection Agency (the Agency)

EERS Environmental Economics Research Strategy

EPA Offices

Suboffices listed under Office

Q Projects or Programs listed under suboffice with responsibility

OAR Office of Air and Radiation

OAP Office of Atmospheric Programs

OAQPS Office of Air Quality Planning and Standards

OIA Office of Indoor Air

OCFO Office of the Chief Financial Officer

OPAA Office of Planning, Analysis and Accountability

OCHP Office of Children’s Health Protection

OECA Office of Enforcement and Compliance Assurance

OEI Office of Environmental Information

OPEI Office of Policy, Economics, and Innovation

NCEE National Center for Environmental Economics

Q EBASP: Ecological Benefits Assessment Strategic Plan

NCEI National Center for Environmental Innovation

ORP Office of Regulatory Programs
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OPPTS Office of Pollution Prevention and Toxic Substances

OPP Office of Pesticide Programs

OPPT Office of Pollution Prevention and Toxics

ORD Office of Research and Development

NCEA National Center for Environmental Assessment

NCER National Center for Environmental Research

Q STAR: Science To Achieve Results

NERL National Exposure Research Laboratory

NHEERL National Health and Environmental Effects Research Laboratory

NRMRL National Risk Management Research Laboratory

OSP Office of Science Policy

OSWER Office of Solid Waste and Emergency Response

OERR Office of Emergency Response and Remediation

OSW Office of Solid Waste

OW Office of Water

OGWDW Office of Ground Water and Drinking Water

OST Office of Science and Technology

OWM Office of Wastewater Management

OWOW Office of Wetlands, Oceans and Watersheds

SAB EPA’s Science Advisory Board

EEAC Environmental Economics Advisory Committee (of the SAB)
ABSTRACT

ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY XIII

Economics research is an essential component for developing environmental policy. EPA

developed the Environmental Economics Research Strategy (EERS) to guide future environmental economics research directions at the Agency. EERS authors interviewed EPA staff and

managers to identify research priorities. These priorities were compared with existing

research to establish strategic objectives whereby allocation of EPA resources could help the

Agency and its clients to achieve their missions. The strategy and research objectives were

peer reviewed by the EPA Science Advisory Board. The strategic research objectives include:

(1) human health valuation; (2) ecological valuation; (3) environmental behavior and decision-making; (4) market mechanisms and incentives; and (5) benefits of environmental information disclosure. These strategic objectives frequently require an interdisciplinary approach

to develop sound research. EPA will devote internal and extramural resources to filling the

most important research gaps in these areas and will develop interdisciplinary teams when

needed.
EXECUTIVE SUMMARY

ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY ES-1

BACKGROUND

The Environmental Protection Agency (EPA) needs accurate environmental economics research on which to

base and evaluate policies. This Environmental Economics Research Strategy (EERS) has been developed to

guide future environmental economics research at EPA. The focus of the EERS is to develop a comprehensive

list of research priorities that are of interest and importance to environmental management over the long

term.

The EERS was developed by a team from the National Center for Environmental Economics (NCEE) and 

the National Center for Environmental Research (NCER), working with EPA program offices, the Office of

Research and Development (ORD) laboratories and centers, and EPA regions. NCEE provides research support

and economic guidance to EPA programs, and NCER manages an economics and decision sciences research

grants program. The findings of the EERS will guide research activities in both of these organizations and in

ORD laboratories and centers, which provide multidisciplinary research support to programs and regions.

The EERS identifies priorities and research gaps, evaluates research tools, sets strategic research objectives,

and suggests responsibilities and sequences for conducting or sponsoring research. EPA programs, other federal agencies, academics, states, local governments, and others can consult the EERS to understand what EPA

(in particular, NCEE and NCER) has planned and the results the Agency expects. These parties can use the

EERS to plan their own research or analyses to make the best use of EPA’s efforts. The EERS will guide

research for several years or until circumstances change, at which time it will be revised.

The EERS is based on research priority needs identified through in-person interviews with program economists, managers, and other users of economic research results. The offices that were interviewed identified

short- and long-term research needs and anticipated potential changes in program structure and emphasis.

The priority research areas then were compared with existing research to determine what remained to be

done. This comparison generated a short list of strategic research objectives. The research objectives were

matched to available tools and resources to identify comparative advantages throughout EPA and to develop

timelines for achieving the objectives. Finally, a draft of the research strategy was peer-reviewed by external

academic economists through the auspices of EPA’s Science Advisory Board (SAB).

RESEARCH PRIORITIES 

The research team interviewed 75 people from 21 separate offices. These groups each established a list of

research priorities and gave strength-of-preference weights to each. The research team combined the results,

giving equal weights to each major program office. Table ES1 shows the final results. 

Table ES1 shows the top 10 short- and long-term priorities, listed in long-term priority order. As the table

shows, the relative priority rankings change based on whether the research areas are ranked by short-term

weights, long-term weights, or the number of offices requesting each research topic.
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The priority research areas were identified based on both the breadth (number of offices requesting research

in a topical area) and depth (strength of preference score) of expressed need, as well as the opportunity to

develop a coherent long-term program of research. The highest priority research topics are morbidity valuation; environmental behavior and decision-making; ecological valuation; the benefits of environmental information disclosure; mortality valuation; market mechanisms and incentives, including both trading and methods other than trading; green accounting, finance, and international trade; discounting and intergenerational

equity; and integrating risk and uncertainty with valuation. The first five topics were the highest ranked

research needs in the short term and long term, and the two market mechanism topics were the most highly

ranked priorities based on the number of offices requesting the research. 

TABLE ES1. GENERAL RESEARCH PRIORITIES

Research Topics

Valuation of Reduced Morbidity Benefits 1 3 2 6

Environmental Behavior and 

Decision-Making 2 2 2 5

Valuation of Ecological Benefits 3 5 2 5

Benefits of Environmental Information 

Disclosure 4 4 10 2

Valuation of Mortality Benefits 5 1 7 3

Market Mechanisms and Incentives, 

Other Than Trading 5 7 1 7

Green Accounting/International Trade/

Finance 7 9 6 4

Market Mechanisms and Incentives, Trading 8 6 2 6

Discounting/Intergenerational Equity 9 8 7 3

Risk and Uncertainty: Integration With 

Valuation 9 10 7 3

IDENTIFYING RESEARCH GAPS 

After identifying priority research areas from EPA economists, the research strategy team focused on the

highest priority research areas, reviewed existing literature in each area, and identified major gaps in which

new high-quality research is both feasible and relevant to EPA’s mission. The team evaluated research priorities based on five criteria. Research must:

Q Be useful to EPA, states, or other clients;

Q Fill a gap in the existing knowledge base;

Rank 

Based on 

Long

Term

Rank 

Based on

Short

Term

Rank Based

on Number 

of Offices

Requesting

Number of

Offices

Requesting

Research
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY ES-3

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Q Be scientifically feasible and potentially of high quality; 

Q Be likely to provide useful answers within 5 to 10 years, and

Q Be related to EPA’s mission in a policy-relevant context.

A workshop held in late 2002 brought research clients together from many offices to further define research

questions within the general areas in Table ES1. The workshop succeeded in further defining research questions in market mechanisms and incentives, ecological and human health valuation, and environmental 

decision-making. 

STRATEGIC OBJECTIVES

Based on the above criteria and the results of the survey, workshop, and investigation of the existing

research, implementation of the Research Strategy will focus on five strategic research objectives on which

EPA has determined that concentrating research resources will make a difference:

1. Health Benefits Valuation

2. Ecological Benefits Valuation

3. Environmental Behavior and Decision-Making

4. Market Mechanisms and Incentives

5. Benefits of Environmental Information Disclosure.

EPA will focus research efforts toward these objectives after conducting comprehensive literature reviews in

areas lacking them. 

EXTERNAL PEER REVIEW

Acting through the auspices of EPA’s SAB, an external panel of academic economists and decision scientists

reviewed and commented on a draft of this Research Strategy. They concluded that the strategic objectives

above were appropriate and that EPA had accurately characterized gaps in the literature. The review panel

made several important suggestions for improving the strategy, including recommendations that EPA:

increase its emphasis on morbidity valuation, develop interdisciplinary approaches for both health and ecological valuation, expand its research focus on compliance behavior to all environmental behavior, expand its

research focus on market mechanisms and incentives to a broader range of financial incentives, evaluate the

effects of regulations and other interventions on innovation, investigate risk-risk tradeoffs associated with

interventions, and extend the outreach component of the strategy to more outlets and formats. 
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IMPLEMENTATION

To ensure that the return from research in these areas is maximized, resources will be dedicated to the 

further refinement of research questions as more information is developed. In addition, resources will be

devoted to the development of the appropriate interdisciplinary research teams, provision of necessary 

infrastructure for information access and communication, periodic assessment of the state of existing

research, and provision of analytic guidance as needed. 

EPA uses a variety of vehicles for funding research outside the Agency. These funding vehicles include cooperative agreements, grants, and contracts. Each funding vehicle varies in its ability to generate research

results in the short versus long run, in the degree of EPA’s participation in and influence on research outcomes, in the expected quality and generalizability of research results, and in its ability to supply basic 

versus applied research. EPA will match these characteristics to the type and timing of needed research for

each strategic research objective.

ORD’s NCER plans and manages the Science To Achieve Results (STAR) grant program, EPA’s primary research

grant program. The Economics and Decision Sciences component of the STAR program will sponsor solicitations for each strategic research objective to obtain needed research results from academic economists and

decision scientists.

EPA’s in-house research centers, including ORD and NCEE of the Office of Policy, Economics, and Innovation,

can be used as substitutes for, or complements to, externally funded research. NCEE has a number of environmental economists well suited to conduct research and analysis on crosscutting issues for program offices

and regions. NCEE provides research-related guidance, workshops, and seminars. 

Effective achievement of the strategic research objectives frequently requires interdisciplinary research

approaches. ORD conducts research on integrated risk assessment research questions and regularly collaborates with NCEE. ORD and NCEE will strengthen this collaboration by searching for opportunities for interdisciplinary approaches to address the strategic objectives. A detailed discussion of projects conducted at

NCEE and ORD is available in Chapter 4.

Finally, EPA will communicate and disseminate research results through existing venues, such as EPA workshops, seminars, and document databases, and will develop new venues where feasible and appropriate.
CHAPTER 1 OVERVIEW AND PURPOSE

ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY 1-1

BACKGROUND

There is increasing awareness throughout the federal government of the value of economic analysis for public policy decisions. Both Congress and a series of presidents have enacted legislation and executive orders

that require federal agencies to conduct economic analyses to support policy or regulatory decisions.1 It is

generally agreed that paying attention to economic principles and information can yield more efficient

resource use. 

Environmental issues and policies are among the many that benefit from high-quality economic analysis. 

EPA simultaneously faces increased pressure to remove or avoid economically burdensome environmental

regulations and to do a better job of protecting ecosystems and human health, particularly among sensitive

populations. The Office of Management and Budget has increased the stakes for EPA and other federal agencies by requiring more and higher quality economic analyses and improved underlying data. Across EPA, practitioners need applied and theoretically sound economic information, especially to analyze new environmental problems and regulatory tools. EPA also must ensure that its economic estimates are based on the best

possible and practical scientific methods. This document, EPA’s Environmental Economics Research Strategy

(EERS), describes how EPA will develop research that provides the information and tools needed to continue

to conduct economic analyses at EPA.

The primary role of environmental economics research for EPA and others with environmental management

responsibilities is to develop the data and analytical methods needed to analyze environmental issues. These

data and methods are crucial to understanding regulated entities’ behavior, predicting responses to government policy interventions, evaluating the efficiency and equity effects of environmental rules and policies,

and predicting future environmental problems driven by economic forces. The environmental economics

research described in this Strategy will become a cornerstone of the economic analyses that EPA needs to

develop environmental policy. 

REPORT ORGANIZATION

This report consists of four chapters. This chapter explains the background for developing the EERS, including how EPA uses economics research, how this Strategy might be used, and some related efforts and plans.

Chapter 2 reports the main findings from the needs assessment survey and workshop. Chapter 3 describes

how EPA evaluated the remaining gaps in the research literature in priority economic research areas and

developed strategic research goals to implement. Chapter 4 describes the research tools or approaches available to implement the strategy and how EPA plans to use these tools to generate and communicate needed

research results. Appendix 1 provides more detail on the survey process. Appendix 2 discusses requests for

economic analysis and research that are not discussed in Chapter 2. Appendix 3 discusses the relationship of

this document to other research strategies and plans and similar documents. Appendix 4 describes the suite

1 Executive Orders and Guidance include: EO 12866; OMB Circular A-4; EO 12898 (Environmental Justice); EO 13045 (Children’s Health); 

EO 13132 (Federalism); EO 13175 (Indian Tribal governments); EO 13211 (Energy).

Laws include: The Regulatory Flexibility Act of 1980 (as amended by the Small Business Regulatory Enforcement Fairness Act in 1996); the

Unfunded Mandates Reform Act of 1995; and the Paperwork Reduction Act of 1995.
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of research tools available to EPA. Appendix 5 shows detailed results of the interviews that form the needs

assessment. Appendix 6 contains the results of the SAB’s peer review of a draft of this Strategy, and

Appendix 7 contains EPA’s responses to the SAB’s comments.

EPA’S USE OF ECONOMICS RESEARCH

EPA’s most frequent use of economics research is as a basis for benefit-cost, cost-effectiveness, and economic

impact analyses for environmental regulations and other policies. Economic principles also are playing an

increasingly important role in the design of implementation strategies, such as marketable pollution permit

trading as an alternative to traditional regulation. Analysts have begun to use economics research to explain

and predict individual or corporate environmental behavior in response to voluntary programs, incentives,

regulations, or sanctions. Finally, EPA is using economic information to predict future environmental conditions (i.e., investigating the extent to which environmental problems are caused by economic activities or

variables).

Benefit-Cost Analysis

Developing environmental regulations is a significant part of EPA’s mission and is required by a number of

federal laws. Many rules at EPA are subject to some degree of benefit-cost analysis. Generally, more detailed

and sophisticated analyses are performed for rules with larger economic impacts. Benefit-cost analysis also

supports the evaluation of existing and ongoing Agency initiatives or goals, through retrospective or prospective analyses of aggregate benefits and costs. 

Over the past 25 years, there has been a steady increase in EPA’s use of benefit-cost analysis in rulemaking,

and a commensurate improvement in the analytical techniques and data sources available to the Agency. 

EPA has developed guidance for practitioners of benefit-cost and related analysis in Guidelines for Preparing

Economic Analyses (U.S. EPA, 2000a, or the Guidelines) and is in the process of updating this guidance. The

Guidelines provide a thorough overview of the current standards, practices, and available data for conducting

economic analyses of environmental policies. They also acknowledge the deficiencies in the tools and data

available to analysts that are needed to accurately assess benefits and costs.

With sufficient time and resources, economics research can provide the theoretical and technical basis for

conducting the environmental economic analyses that EPA and others need. Although current economic

analyses contribute valuable information to environmental policymakers, scientific limitations often prevent

them from fully characterizing the benefits and costs of environmental quality changes. For example, it is

common in benefit-cost and economic impact analyses to base social cost estimates on calculated engineering costs of pollution-control technologies. However, these costs exclude other costs faced by firms such as

legal and reputation costs, costs to government such as monitoring and enforcement, and costs to consumers

who might face higher prices or changes in the quality of the goods available on the market. Sound research

will improve understanding of firm decision-making processes and help the government to design policies

that achieve environmental quality goals as efficiently and effectively as possible. However, these costs are

not the only environmentally related inputs, or factors of production, that might affect businesses. The 

actual decision processes of firms or individuals might include considerations of fines for noncompliance,

legal costs, reputation, or relationships with the communities surrounding them. Sound research will

improve understanding of these decision-making processes and help to achieve environmental quality goals

in as cost-effective a manner as possible.
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In most applied benefit-cost analyses, environmental benefits are even less well understood, or accepted,

than costs, in large part because of the absence of markets for environmental goods and services. To the

extent currently feasible, the Guidelines present an overview of the methods available and suggest best practices for estimating environmental benefits. However, EPA analysts recognize that additional environmental

economics research is needed to develop techniques and data to fully evaluate the benefits of environmental

improvement. These benefits include valuation of reductions in morbidity or mortality risk and improvements in ecological conditions. Primarily, we need to understand better how people understand and value

changes in health risks and ecological services.

Efficient Environmental Policy

Economics research contributes to the development of economically efficient environmental policy.2 An

increasingly important economics research area is the development of market mechanisms or incentives

(MM&Is) for environmental management. These complements or supplements to traditional regulations use

competitive forces to attain environmental objectives. Federal agencies are required to identify and assess

MM&Is as alternatives to direct regulation under Executive Order 12866. EPA’s experience, particularly with

the cap and trade program established under Title IV of the 1990 Clean Air Act (CAA) Amendments, is that

sound theoretical, empirical, and experimental economics research can contribute to the design of more efficient and effective environmental policy. Research has shown that, compared with regulatory approaches,

the Title IV cap and trade program has saved the electric utility industry billions of dollars while achieving a

higher rate of SO2 reductions (Ellerman and Montero, 2002). The use of MM&Is also is increasing at the state

and federal levels (Hahn, 2000). More research on economic incentives will contribute to making emerging

markets in pollution more feasible or more efficient as EPA and states apply these tools in new situations.

Understanding Environmental Behavior

Another area of economics research is identifying how firms react to a range of potential government interventions in different markets and under differing economic conditions. EPA, states, and others can use this

research to tailor technical assistance, enforcement, and compliance activities to optimize the use of public

resources (i.e., to achieve environmental quality most cost-effectively). Specific research can demonstrate 

the circumstances under which voluntary, incentive, technical assistance, and enforcement programs are

effective at achieving society’s environmental objectives.

A specific area of economics research under this topic is understanding how firms and industries initiate 

voluntary pollution prevention actions, either for financial reasons or in cooperation with the government.

EPA, states, and others can use this research to identify situations and scenarios in which government policy

would be most effective, namely those in which there is a possibility of financial as well as economic benefits. This research also could identify the types of incentives that could be used by the government to

encourage such business behavior. It also could delineate performance measures to assess the financial,

social, and environmental benefits of such business behavior. In addition, similar questions need to be

addressed for consumers.

2 Economically efficient environmental policy maximizes net benefits to society or achieves a given policy goal at the least cost. 
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PURPOSES OF THIS DOCUMENT

The principal purposes of this Research Strategy are to identify EPA’s highest priority environmental economics research needs, set corresponding research objectives for the short and long terms, describe resources and

tools available for achieving these research objectives, and suggest a timeframe and tools for meeting the

objectives. Although prescriptive, the Research Strategy is intended to be flexible. The EERS provides an overall framework, so that, as circumstances and priorities change, EPA can respond without having to completely reconstruct this planning effort. 

The audiences for this Strategy include EPA personnel, other federal agencies, state and local environmental

agencies, nongovernmental organizations, academic researchers, elected officials, and anyone interested in

environmental economics research. These audiences will use this Strategy according to their needs. At minimum, the EERS will make EPA’s economics research intentions transparent. Other interested parties then can

use this Strategy to complement or take advantage of EPA’s research. The EERS is not intended to constrain

independent research or analysis efforts by EPA program offices or regions. Rather, it will help guide (and

outline) the activities of the two offices primarily responsible for crafting this Research Strategy, ORD and

OPEI’s NCEE.

ORD and OPEI have a unique and multifaceted cross-office working relationship. The two offices share

responsibility for developing and implementing this EERS. OPEI/NCEE has the lead responsibility for developing guidance and providing advice and technical support to programs and regions on issues of economic

analysis. Part of this responsibility is met through internally conducted research in support of programs, 

supplemented by contractual arrangements with vendors and cooperative research agreements with, and

grants to, qualified external economic researchers. 

ORD conducts internal research in support of program activities, principally in an integrated framework with

engineers, economists, and health scientists. ORD scientists from several laboratories and centers also cooperate with NCEE researchers on a number of interdisciplinary projects that integrate economics with health

and ecological research. 

ORD’s NCER administers the STAR grant program, of which economics and decision science research is a significant and crosscutting component. NCEE has participated extensively in the economics research elements

of the STAR grant program since its inception in 1995. NCEE staff members assist with writing research solicitations, co-hosting conferences, reviewing proposals, and assisting NCER with annual and strategic planning.

Staff economists from the programs and regions also contribute to these tasks.

NCEE and ORD will plan future activities to achieve the research objectives identified here. NCER will schedule grant solicitations, or Requests For Applications (RFAs), to support external research on priority topics for

the next few years, to the extent funding and grant limitations allow. Each year, NCER plans three or four

RFAs in areas related to benefit-cost analysis, MM&I program design and evaluation, regulated entities’ environmental behavior and decision-making, and the use of economic information to predict future environmental problems. NCER will use the Research Strategy results to focus these RFAs on the research topics of

interest in which the need for additional research is most critical.

OPEI’s NCEE will use the EERS to help prioritize its internal and extramural research. NCEE also will produce

new and or improved economic guidance on research areas identified in the EERS as Agency priorities change.
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY 1-5

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The Research Strategy’s objectives include both problem-driven (applied) and core research. These research

types are described in more detail in ORD’s Strategic Plan (U.S. EPA, 2001a). Problem-driven environmental

economics research addresses specific, identified problems such as valuation of water quality. Core environmental economics research provides theoretical bases and methodological improvements that can be used to

improve the understanding of human behavior with respect to environmental issues and problems, as well

as tools that can be applied generally to solve environmental problems. Core research also can be accompanied by environmental economics data that can be used by other researchers and analysts. 

ORD will use the Strategy to plan specific internal economics research projects for the next few years and to

target research areas for extramural funding. The strategic research objectives developed will be translated

into long-term goals in ORD’s multiyear plan for economics and decision sciences. This link demonstrates

ORD’s commitment to providing the economics research that EPA needs. The path for attaining the long-term

goal will be mapped out using Annual Performance Goals (APGs), which are evaluated using Annual Performance Measures (APMs). The Government Performance and Results Act requires agencies to establish

strategic goals, APGs, and APMs; these goals and measures also are routinely used in ORD’s annual budget

process.

The EERS will discuss briefly, but not plan for, economic analyses of EPA program-specific issues. Here, the

EERS makes a distinction between economic analysis and economics research. Economic analysis applies the

tools and data developed by economics research to evaluate a particular issue or environmental problem for 

a specific policy purpose.3 Economics research, whether applied or basic, creates generalizable theory,

hypotheses, methods, and data that can be applied to other circumstances. For the EERS to consider a

research topic, the requested research must pose some question of interest to one or more programs over 

the long term. The EERS will focus on research that can serve the needs of several programs or regions,

rather than analyses tailored to a short-term program-specific need. These analytical efforts are handled best

by the programs and regions directly involved in specific environmental issues, although assistance from

ORD or NCEE sometimes may be appropriate. 

RELATIONSHIP TO OTHER STRATEGIES, PLANS, AND DOCUMENTS

The EERS follows related efforts, particularly an economic research needs assessment survey conducted in

1997. It also is related to and will inform the efforts and strategies of a number of organizations within EPA,

notably the EPA Strategic Plan, the work of NCEE and ORD’s laboratories and centers, the ORD Strategic Plan,

and a number of other research strategies and program efforts. The relationship of the EERS to other strategies, plans, and documents is detailed in Appendix 3. 

ENVIRONMENTAL ECONOMICS STRATEGY DEVELOPMENT PROCESS

Internal EPA Review

The NCEE/ORD research strategy team jointly determined that a new and formal research strategy would be

timely. The team assembled a workgroup from offices, research laboratories, and regions throughout EPA to

draft this Strategy. Workgroup members are economists and users of economic information who represent

3 When program offices requested analytical assistance during the development of the EERS, specific requests were noted and are described in

Appendix 2; they might provide direction for program assistance in the future.
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the concerns and needs of their offices with respect to economic issues. Much of the writing in this report is

based on contributions and suggestions of these workgroup members, especially the emphasis on emerging

issues and evaluation of strategic and administrative initiatives. This group is responsible for reviewing the

document, disseminating it for review to economists and managers within their offices, and conducting an

internal peer review. ORD’s Science Council and NCEE administrators also reviewed the EERS.

Peer Review

In 2004, a draft of the EERS was peer-reviewed by the EEAC, a subcommittee of EPA’s SAB, in conformance

with the guidance in EPA’s Peer Review Handbook (U.S. EPA, 2000c). The SAB is a federally chartered advisory

committee comprised of experts in various environmental science topics. The EEAC comprises esteemed

environmental economists with a wide variety of interests and experience with issues affecting EPA economic analysis. The EEAC also was the SAB’s formal peer-review panel for the Guidelines for Preparing Economic

Analyses. 
CHAPTER 2IDENTIFYING RESEARCH NEEDS

ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY 2-1

METHODS

The first section of this chapter presents a brief overview of the process used to identify research needs and

to prioritize those needs. The following two sections describe the overall results in some detail. Detail on the

survey process itself is presented in Appendix 1.

The development of this research plan follows ORD’s general approach to setting research priorities,

described in the ORD Strategic Plan (U.S. EPA 2001a). To select research topics, the team took the following

steps:

1. Sought input from its customers as to the type of research that is of greatest importance to their 

programs;

2. Sought input from NCEE and ORD staff regarding the state of the science and the best opportunities for

reducing uncertainty in EPA’s understanding of important environmental economic issues (i.e., focus on

the gaps in the existing research base);

3. Examined research activities in terms of scientific feasibility, resource constraints, tools and capabilities,

compatibility with existing expertise, and EPA’s ability to make a significant contribution relative to

other research institutions doing work in the area; and

4. Consulted with external experts (peer review) to ensure that the research will be of high quality and will

address important and novel issues.

The initial steps in the development of this strategy focused on soliciting client input from economists and

users of economic information. The next two steps were used to further refine the research needs and plan

implementation (see Chapters 3 and 4). The final step, peer review, will be conducted after internal EPA

review is complete.

RESULTS

Clients were asked for their research needs in both the short (results in 3-5 years) and long term (results in

more than 5 years). The remainder of this chapter presents overall results using short- and long-term preferences. The next section provides additional detail on priority areas. If more than one interview took place in

a given office, the team aggregated results to the level of Assistant or Associate Administrator. Rankings were

normalized within each of these organizations so that they add up to one for each office. Results are weighted equally across offices.

The following tables present the preferences for results of the research strategy interviews by general categories. Because interview subjects provided priority rankings for both short- and long-term needs, results are

presented for each time period in Tables 2.1 and 2.2. Table 2.3 presents the number of offices that requested

a research need in each category. In certain cases, expressed needs were determined to be for economic

analysis and not research. An example is cost estimates for specific rules, which neither NCEE nor NCER

could provide. These categories are discussed in Appendix 2 rather than this chapter for ease of presentation.
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TABLE 2.1 GENERAL RESEARCH PRIORITIES - SHORT TERM

Research Category Rank1

Valuation of Mortality Benefits 1

Environmental Behavior and Decision-Making 2

Valuation of Reduced Morbidity Benefits 3

Benefits of Environmental Information Disclosure 4

Valuation of Ecological Benefits 5

MM&Is, Trading 6

MM&Is, Other Than Trading 7

Discounting/Intergenerational Equity 8

Green Accounting/International Trade/Finance 9

Risk and Uncertainty: Techniques, Integration With Valuation 10

Environmental Justice (EJ) 11

Cross-Regulation Interaction 12

TABLE 2.2 GENERAL RESEARCH PRIORITIES - LONG TERM

Research Category Rank

Valuation of Reduced Morbidity Benefits 1

Environmental Behavior and Decision-Making 2

Valuation of Ecological Benefits 3

Benefits of Environmental Information Disclosure 4

Valuation of Mortality Benefits 5

MM&Is, Other Than Trading 6

Green Accounting/International Trade/Finance 7

MM&Is, Trading 8

Discounting/Intergenerational Equity 9

Risk and Uncertainty: Techniques, Integration With Valuation 10

Cross-Regulation Interaction 11

EJ 12

1 Based on averaging across EPA offices.
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY 2-3

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TABLE 2.3 NUMBER OF OFFICES REQUESTING RESEARCH PRIORITIES TOPICS

Research Category Number of Offices

MM&Is, Other Than Trading 7

MM&Is, Trading 6

Valuation of Reduced Morbidity Benefits 6

Environmental Behavior and Decision-Making 5

Valuation of Ecological Benefits 5

Green Accounting/International Trade/Finance 4

EJ 4

Risk and Uncertainty: Techniques, Integration With Valuation 3

Discounting/Intergenerational Equity 3

Valuation of Mortality Benefits 3

Cross-Regulation Interaction 2

Benefits of Environmental Information Disclosure 2

Valuation of Reduced Morbidity Benefits

Four media offices (OAR, OW, OSW, and OPPTS), ORD, and OCHP requested improved valuation of reducing

morbidity risk from environmental causes. Although the strategy team further subcategorized morbidity (into

asthma, skin lesions, etc.), most of the requests were very general. Offices requested either a long list of endpoints or generic noncancer health endpoints. Because the economic literature does not provide values for a

large number of health endpoints, research could make significant contributions in this area. Although EPA

will need further clarification to set priorities for research to develop morbidity values, the implementation

of this EERS will address this issue directly (see Chapters 3 and 4). Program economists mentioned some 

specific health endpoints, including earaches, headaches, coldlike illness, gastrointestinal upset, reproductive

and developmental effects, asthma, developmental disorders (e.g., attention deficit hyperactivity disorder,

autism, mental retardation), and cancer-related morbidity effects. OAR and OW requested health endpoints

caused by toxics exposure, whereas OSWER and OPPTS both mentioned lead-related illnesses as priority

research topics. Several offices mentioned a need for values for special subpopulations, especially children,

and two offices suggested research to evaluate quality-adjusted life-years (QALYs) or some other framework

as a potential tool for estimating and transferring benefit values.

Environmental Behavior and Decision-Making 

The general category of Environmental Behavior and Decision-Making can be subdivided into three more

detailed research topics:

Q Why and how do facilities perform well environmentally, or comply or not comply with environmental

rules or policies? 

Q What policies or approaches will effectively induce compliance or improved environmental performance?
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Q How effective are voluntary programs?

The first two questions are closely related. EPA needs to understand individual or corporate environmental

behavior both with and without government intervention to adopt a cost-effective combination of approaches (for both the regulators and the regulated) that will improve environmental quality. Five offices requested

research in this area: OAR, OW, OSW, OECA, and OPPTS. Of these, OECA put the highest weight on this

research topic. These offices are trying to understand how corporations and other regulated entities view

compliance and how they will react to regulations, enforcement actions, and other interventions. They also

want to understand what organizational characteristics foster improved environmental performance and

compliance, and how these characteristics influence behavior.

Although OECA’s interest is general, the four program offices that place a priority on this research area have

more specific interests: 

Q OAR wants to understand facility location decisions.

Q OW wants research into how drinking water purveyors decide what technologies to select to comply.

Q OPPTS is interested in how farmers and applicators select pesticides and application programs (i.e.,

which pesticide to use and how much).

Q OSW wants to understand how firms make onsite versus offsite hazardous waste disposal decisions, 

and how leaking underground storage tank and potentially responsible party (under Superfund) owneroperators make decisions about mothballing or revitalizing sites.

Interest in research on the effectiveness of and participation in voluntary programs also is broad. OW, OSW,

OECA, and OPPTS want to know what induces participation in voluntary programs and what changes in

environmental outcomes result from participation. They also would like to understand the conditions under

which a voluntary program might be superior to a regulatory program. 

Valuation of Ecological Benefits

Expressed needs for ecological benefits research tend to be both general and pervasive across programs. ORD

and the four media offices (OAR, OW, OSW, and OPPTS) requested research to improve the valuation of ecological benefits. Moreover, the Assistant Administrator for Water made this topic his office’s highest research

priority.2 A great degree of uncertainty is associated with this topic, both because a large number of ecosystem or ecological services (or benefits) are not valued and because economists do not fully understand how

people consider and make choices regarding (value) ecological services.

Two offices, as part of their responses, identified a need for frameworks to understand and value ecological

endpoints. There were some slightly more detailed requests for research, including estimation of the values of: 

Q Water quality changes (two offices requested estimates for changes caused by agricultural pollution and

one requested a basis for national estimates);

2 This will be accounted for during implementation of the strategy, but the survey results were not altered in response to the OW Assistant

Administrator’s preferences.
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Q The sensitivity of water values based on stream size and uses;

Q Ecological impacts from air pollutants;

Q Introduced versus native species; 

Q Avoided groundwater contamination;

Q Ecosystems’ impacts from hazardous wastes; 

Q Avian species; and

Q Ecological endpoints from reducing toxic pollutants.

Valuation of Other Endpoints, Including Benefits of Environmental Information Disclosure

A number of program offices identified valuing environmental changes other than direct ecological or human

health endpoints as a high priority. We have categorized such research priorities under Benefits Valuation,

Other Endpoints. These endpoints include all environmental changes that are not direct ecological or human

health endpoints. 

Several offices placed a high short- and long-term priority on research on the value of environmental information disclosure. For example, OEI placed most of the weight of its preference on this single category, and

OPPTS and OW-OGWDW requested value-of-information research. There is currently no generally accepted

method to estimate or monetize the benefits of information disclosure, for example, from the Toxics Release

Inventory (TRI) or consumer confidence reports. Anecdotal and other evidence suggests that companies or

facilities may change behavior after information announcements are made, and that the change in behavior

affects exposure as well as the behavior of the potentially exposed population. This valuation research category is closely related to one on the effectiveness of information programs. Other important research questions include: 

Q Are potential cost savings identified when disclosure is made? 

Q How is the value of information linked to the amount or toxicity of the pollutant? (e.g., a corollary about

food is that the value of information about fat content is not strictly correlated with the amount of fat); and

Q How can the benefits of information disclosure be transferred among situations?

Valuation of Mortality Benefits

The issue of mortality valuation has historically been of great interest to EPA economists. This interview

exercise indicates that the topic is still important, in part due to OMB’s interest in using QALYs or other

alternatives to EPA’s customary measure of the value of mortality risk reduction, the value of a statistical 

life (VSL). OW, OPPTS, and OCHP placed priority on this research topic. The survey results showed a strong

interest in how mortality valuation varies by age. Many of the studies used to generate EPA’s central estimate
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of VSL are based on wage-risk studies and apply to working adults (U.S. EPA, 2000a), so there is a need for

complementary values for children and the elderly. A related need is how individual values for their remaining years (or a similar concept such as QALYs) vary by the age of the affected individual. 

MM&Is, Other Than Trading

OEI, OAR, OW, OSW, OECA, OPPTS, and OPEI requested additional research in this category. Several offices

suggested research on the effectiveness of environmental information programs in achieving improved environmental outcomes and when these programs might be more cost-effective than regulatory programs. These

are largely voluntary programs and are distinguished from mandatory information disclosure programs such

as the TRI. The voluntary information programs include eco-labeling, recognition, publicity programs, and

content information, among others. Note: SAB reviewers suggested more extensive MM&Is research into various incentive-based instruments, such as pollution taxes, abatement subsidies, scrappage schemes for old

cars, and deposit-refund systems. Although these programs might not be used much by the federal government, states and international bodies use a number of them.

MM&Is, Trading

Six offices—OAR, OW, OSW, OPPTS, ORD, and OPEI—requested research on emission permit trading, primarily for “Trading in Practice” and “Trading in New Contexts.” Some trading programs set up by EPA and

other governments have been remarkably successful, saving billions of dollars in regulatory costs (U.S. EPA,

2001b; Ellerman and Montero, 2002). Other types of trading programs have not been as successful to date.

Trading-related research should ultimately result in the implementation of efficient trading programs in

areas in which trading programs have not yet been established. 

OW, as well as OAR and OPEI, requested empirical research on “Trading in Practice.” OW is particularly interested in exploring experience to date with total maximum daily load (TMDL) water quality discharge trades.

The TMDL program sets maximum pollutant loads for water bodies and would seem an ideal candidate for a

trading program. However, existing attempts at TMDL trades have been difficult to establish and have not

always been successful. TMDLs provide situations that are less clearly defined than the successful air pollution trades, both in terms of monitoring and with respect to pollutants. A TMDL trading program could

involve multiple pollutants, a mixture of point and nonpoint sources, institutional constraints, monitoring

difficulties, and spatial differentiation. These complications impose transaction costs and additional constraints on trades. Research could improve the prospects for successful trading programs in these situations

by providing a better understanding of the existing constraints, as well as information requirements for 

efficient markets. 

“Trading in New Contexts” identifies research needs for the design of trading programs for sectors or pollutants

where they do not currently exist. The four media offices (OAR, OW, OSW, and OPPTS) requested research to

explore trades in drinking water, pesticides, and hazardous waste, areas in which little trading effort exists.

In accordance with EPA policy, external experts in the field of environmental economics reviewed a draft of

the Environmental Economics Research Strategy. The peer review panel identified several areas in which

they thought that additions to the environmental economics literature could improve environmental policy

and decision-making. The reviewers’ suggestions have been incorporated into Chapter 3. Chapter 3 will

address how to compare the priority research needs with the existing body of research to identify those gaps

in which EPA research can be most beneficial.
CHAPTER 3 IDENTIFYING THE RESEARCH GAPS

ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY 3-1

APPROACH

To make the transition from a needs assessment to an implementable research strategy, the research team

identified existing research in the priority research areas and gaps between what is needed and what already

exists. It is not possible to address all of the research needs, so the team focused on the highest priority research identified by the programs and regions and supplemented these with suggestions from peer reviewers.

The highest priority research falls into five major areas:

1. Valuation of human health benefits;

2. Valuation of ecological benefits;

3. Environmental behavior and decision-making, particularly compliance behavior;

4. MM&Is, particularly pollution trading; and

5. Benefits of environmental information disclosure.

Some research, and in some cases, a substantial amount of research, has been conducted in each of these

areas. However, the perception among informed Agency economists who rely on this information is that

existing research is insufficient to provide a thorough basis for environmental policy decisions. The EERS

team supplemented these anecdotal assessments with assessments of recent literature reviews in several of

the topical areas. The SAB EEAC peer reviewers determined that the major research areas identified by EPA

are the most important priority areas for focusing additional research, and suggested filling in gaps within

these five areas (see Appendix 6). Throughout this chapter, EPA has incorporated research areas suggested by

the SAB EEAC. Further consultation with experts and additional evaluations of the remaining subject areas

will help determine where EPA-sponsored research could have a notable payoff. 

CRITERIA FOR IDENTIFYING PRIORITY RESEARCH

To assess priority research areas, the EERS team considered the criteria for selecting research topics (paraphrased from ORD’s Strategic Plan, U.S. EPA 2001a, and augmented). Research must:

Q Be useful to EPA, states, or other clients;

Q Fill a gap in the existing knowledge base;

Q Be scientifically feasible and potentially of high quality; 

Q Be likely to provide useful answers within 5 to 10 years, and

Q Be related to EPA’s mission in a policy-relevant context.
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EXISTING LITERATURE IN PRIORITY TOPICS

Each of the five research areas will be discussed relative to these criteria, which will be used to determine

implementation approaches in the next chapter. In several cases, the existing research base seems somewhat

spare. That is, the uncertainty or lack of knowledge in the topical area is pervasive.

Human Health Benefits

EPA has reasonably current assessments of the state of the science regarding valuation of morbidity 

(nonfatal) and mortality risk reductions. These assessments come from recent cross-Agency reviews of the 

literature, largely in support of guidance development for applied benefit-cost analysis. 

Morbidity Benefits

To assess the current science on morbidity valuation, EPA’s Science Policy Council, comprised of scientific

administrators from across the Agency, sponsored a study in 2000 that provided guidance on how to estimate

the value of reducing noncancer (nonfatal) risk. This study resulted in the development of the Handbook for

Non-Cancer Health Effects Valuation (U.S. EPA, 2000b). This document contains an extensive literature review on existing valuation methods and morbidity endpoints for which values have been derived, including

a large annotated bibliography. A key finding in this handbook is that willingness-to-pay (WTP) estimates of

specific nonfatal endpoints are limited, especially for chronic or long-term health effects. Further, some

potentially useful research results are difficult to use in applied analysis because they fail to control carefully

for severity, duration, and frequency. The value of a specific nonfatal health effect may vary significantly

with changes in severity and duration. 

Another source assessing a subset of the literature is the Children’s Health Valuation Handbook (U.S. EPA,

2003a), a peer-reviewed reference to complement EPA’s Guidelines. This handbook includes a bibliography of

the empirical literature on valuing reduced health risks in children and comes to the general conclusion that

there is very little information available to EPA analysts on this subject. However, this is changing as

researchers respond to recent EPA STAR grant solicitations in this area.

The research strategy team considered the endpoints and methods covered in both handbooks and determined that further research should focus on measures of the WTP to avoid illness, using empirically and 

theoretically sound methods rather than more limited measures such as cost of illness (COI). WTP measures

are theoretically superior to suggested alternative measures that do not reflect how people actually would

make choices about health-related expenditures. In the case of children’s health risks, research also should

consider the role of household composition on value. The EEAC recommended adding appropriate COI 

measures to WTP measures to arrive at a measure of the total value of avoiding illness.

As noted in Chapter 2, EPA program economists identified this area to be generally important but pinpointed

few specific morbidity endpoints for conducting benefits research. As a result, the implementation process

will identify specific health endpoints through further discussion with programs and regions, review past

analyses that were unable to value particular endpoints, and consider EPA’s regulatory and policy agendas

and the likely health endpoints that these agendas will affect. 
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An initial conclusion of the EERS is that the large number of specific health endpoints that could be valued

dwarfs the limited resources available to conduct valuation research. In response, a long-term strategy might

be to develop methods that generate cost-effective and theoretically plausible values for multiple health endpoints, such as valuation of symptoms, or health status indices, and improved methods for benefit transfer.

A goal of this Strategy is to develop a comprehensive study to elicit WTP estimates for a large number of

environmentally influenced health endpoints. In preparation for this effort, ORD is undertaking a project to

identify the health endpoints most adversely affected by environmental causes.

Mortality Benefits 

The issue of mortality benefits has received a great deal of attention from EPA, in no small part because environmental management measures often generate large reductions in mortality risks, estimated to be on the

order of several billion dollars annually (U.S. EPA, 1997; U.S. EPA, 1999a). EPA recently completed a current

literature review of the benefits of reducing premature mortality as part of the Guidelines development

process. The Guidelines themselves contain a brief summary of the state of the science in empirically 

characterizing the effect of population and risk on valuation, and the SAB EEAC peer-reviewed the

Guidelines.

In a related but separate exercise, the EEAC reviewed an EPA white paper assessing the literature on the 

subject of valuing reduced premature mortality from cancer (Chestnut et al., 1997; U.S. EPA, 2000c; U.S. EPA,

2002b).

In short, these literature reviews and the EEAC’s comments regarding them suggest that more research 

is needed on how the value of mortality risks varies with the age and health status of the individual, the 

co-morbidity associated with the mortality risk (e.g., illness from cancer), and risk characteristics such as the

degree to which the risk is voluntarily taken. 

EPA also has sponsored a significant amount of research in valuing mortality reductions, much of which was

summarized in a recent EPA workshop. Proceedings of this workshop can be found on the STAR grant Web

site. Some recent EPA-sponsored research addresses EPA’s priority mortality valuation issues, such as ageand debility-related valuation issues (DeShazo and Cameron, 2003; Krupnick et al., 2004).

EPA continues to explore and develop research in this area and is in the process of evaluating revisions to

existing guidance on the topic of valuing reductions in premature mortality. Moreover, EPA and Resources 

for the Future, along with other federal agencies1 sponsored a major conference on health evaluation in

Washington, DC, in February 2003 (Resources for the Future, 2003). The purpose of the conference was to

bring together researchers and practitioners of various disciplines related to health and risk valuation. These

include medical researchers engaged in health-related quality-of-life measures such as QALYs and disabilityadjusted life-years, and economists who primarily employ and develop WTP measures. To date, these two

broad disciplines have not interacted to a great extent to develop health valuation estimates. EPA and the

other organizers expect this conference to lead to greater communication and cooperation across disciplines,

which should be especially informative for identifying mutual research gaps. 

1 The National Institutes of Health, Occupational Safety and Health Administration, Food and Drug Administration, Department of

Transportation, Department of Health and Human Services, and U.S. Department of Agriculture.
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EPA will use the results of this conference, the assessments developed with the Guidelines and current

efforts to revise guidance, and the results of current research to further define the mortality research areas

that should be pursued. At minimum, EPA expects to support further investigations into key areas of uncertainty already identified, such as the role of age, physical condition, and risk characteristics on WTP, for preventing premature mortality. 

Ecological Benefits

As with human health benefits, EPA developed an appraisal of ecological benefits estimation. The Science

Policy Council sponsored a study, A Framework for the Economic Assessment of Ecological Benefits (U.S. EPA,

2002a), which summarized approaches for ecological benefits estimation. This document provides a thorough

overview of the methods and issues involved in estimating the benefits of ecological improvement. 

Ecological benefits estimation is often problematic because ecosystems provide a wide range of essential

services, but people frequently do not understand the services provided. Some of these services can be

priced in markets, and others are strictly nonmarket goods that require alternative valuation approaches. To

value nonmarketed ecological services, people must be familiar with them, which can require complex valuation approaches that combine education and value elicitation to obtain reliable WTP measures. Not all of

these approaches are universally accepted. Some noneconomists have proposed alternative valuation measures based on energy balances or replacement costs (Odum, 1996; Costanza et al., 1997). To date, these

approaches have met with little acceptance among economists because they violate the most basic and welldeveloped tenets of economic theory (Bockstael et al., 2000). EPA programs appear to want conventional WTP

measures for ecological services that would survive the rigor of the rule-making review process. 

As with morbidity valuation, programs were generally vague about the specific ecological endpoints they

want valued. EPA has conducted or sponsored a large number of ecological valuation studies through grants,

cooperative agreements, and internal research, at a cost of several million dollars. Moreover, the Environmental Valuation Resource Inventory, a benefits-transfer database developed by EPA and Environment

Canada and maintained by Environment Canada, contains approximately 500 water-related valuation studies,

many of which estimate ecological values (Environment Canada, 2004). It is critical to further focus research

in this topic to address the highest priorities that states and federal environmental agencies will need to

value. 

NCEE, ORD, and EPA’s program offices have drafted a new Ecological Benefits Assessment Strategic Plan as a

collaborative effort between EPA ecologists and economists to determine long-term critical research needs in

this area (U.S. EPA, 2004a). Furthermore, ORD/NCEA is conducting several pilot projects with economic and

ecological researchers to develop frameworks for future assessments. An initial conclusion of these efforts 

is that, given the large number of specific ecological endpoints that could be valued in comparison with the

limited resources that are likely to be available, a cost-effective strategy might be to investigate methods that

generate theoretically sound values for multiple endpoints, such as the valuation of ecological indicators 

or indices and improved methods for benefit transfer. The SAB recommended more collaborative ecologisteconomist research efforts. The SAB also recently formed a panel on Valuing the Protection of Ecological

Systems and Services to “provide advice to strengthen EPA’s approaches for assessing the costs and benefits

of environmental programs that protect ecological systems and services, to identify research needs to

improve how ecological resources are valued, and to support decision-making to protect ecological

resources.” 
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY 3-5

U.S. ENVIRONMENTAL PROTECTION AGENCY

Environmental Behavior and Decision-Making

Interest in environmental behavior research has increased in recent years among both practitioners and 

academics. However, even EPA staff’s preference for environmental behavior and decision-making research is 

quite diverse. Each program desires research about the compliance-related decision-making processes of its

relevant regulated communities. These processes could be quite varied because the regulated communities 

in question include different combinations of individuals, firms, government agencies, and municipal corporations, and the regulations differ greatly in form and intent. 

One seemingly common factor among these regulated communities is the influence of costs on decisionmaking and the need for cost minimization in the manufacturing, farming, and service sectors. However,

research has shown that perceptions of environmentally related costs differ among firms, organizations, 

and individuals. For example, although some firms or individuals may base operating and capital investment decisions solely on accounting costs, others more strongly weigh the transaction costs of dealing with

regulatory agencies, potential liability costs, costs of adverse publicity, potential cost savings of pollution 

prevention, costs associated with dealing with local communities, and even loss of sales (market share).

Consideration of all of these types of costs, as well as the ability of firms to adapt through process changes

and innovations, suggests that the engineering cost approach used by many EPA programs might not fully

reflect the costs these entities consider regarding all environmentally related factors of production. 

EPA and others need research that is focused on how individuals, businesses, and facilities decide to meet

environmental obligations, how they determine their degree of compliance with environmental regulations

or initiatives, and how they consider the range of potential costs. Although traditional notions of costs have

been researched extensively, relatively little research has been done on the actual role of complex environmental cost concepts in firm and individual decision-making. 

For instance, what is the most effective way to set environmental fines to encourage increased compliance?

EPA’s current practice requires firms found not complying with environmental regulations to pay fines equal

to the profits they earned as a consequence of their violations. Research is needed to assess the optimality of

this method and to compare its effectiveness with other methods such as a resource-based optimal compensation in lieu of fines or nonmonetary penalties such as restoration or enhancement activities. 

Likewise, EPA needs research that considers an interactive model of compliance and enforcement, under

which regulators and regulated parties work together to identify pollution sources and the means to address

them. Public-private partnerships are often undertaken at the federal and state level to improve environmental compliance. Such partnerships can encompass monitoring, technology sharing, regulatory relief, and

other options to achieve improved environmental performance for a firm, locale, or sector. Research on compliance and enforcement has traditionally treated the policy process as linear. Researchers assume that the

regulators first design and impose a policy (e.g., water quality levels, emissions limits), then an enforcement

strategy (e.g., an audit frequency and penalties for noncompliance), and then the polluting firm decides

whether or not to comply. Such assumptions are often not realistic or valid and may reduce the accuracy of

behavioral predictions. This research area should attempt to identify the factors and design characteristics

that would make public-private partnerships cost-effective.
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Finally, EPA needs environmental behavior research from multiple disciplines—economics, business administration, political science, sociology, and decision theory—that rely on distinctly different research approaches.

Theory, methods, and empirical data in environmental behavior research are all somewhat incomplete. There

is a great need to refine the behavioral theory to identify the factors that motivate different classes of environmental actors, whether their objectives are cost minimization, improved reputation, increased market

share, and decreased transaction costs with neighbors and regulators. A variety of research approaches—case

studies, theoretical models, experimental methods, interviews, surveys, retrospective financial and environmental performance data analysis, and geospatial analysis—can all make unique contributions to this broad

area of study. EPA and the research community need to integrate these research approaches effectively to

improve understanding of environmental decision-making.

EPA is in a unique position to make contributions to this research area because there are few other commensurate sources of research interest and funding. However, the beneficiaries of such research include many

state and local governments, as well as other federal agencies and foreign governments. A question of increasing importance to EPA that is closely related to compliance decisions is how and why facilities or firms

decide to participate in voluntary programs or standards, whether initiated by government or industry. Such

programs typically have costs and benefits for the firm that are not captured in traditional financial analyses. 

Market Mechanisms and Incentives

Commensurate with the interest from program offices, regions, and elected officials, EPA is conducting internal research and supporting extramural research in the MM&I area. For EPA staff, the most important focal

areas are empirical research on the practical results of trading programs and research into the feasibility of

new trading programs where none currently exist. For more ex-post empirical research to be feasible, trading

programs have to be established and operated for several years. Where no trading markets exist, ex-ante

research must focus on theoretical and experimental design, as well as modeling using empirical values. The

EEAC peer-review panel suggested that it is important to evaluate other incentive-based instruments, such as

pollution taxes, abatement subsidies, scrappage schemes for old cars, and deposit-refund systems. Adding

these focal areas makes sense because they are environmental policy tools used by state and local governments, although currently they are not used extensively at the federal level. 

The SAB EEAC also suggested further investigation into the issue of the effects of preexisting tax distortions

on the costs and benefits of policy instruments. EPA programs mentioned but did not elevate this category of

research to a priority status. 

The STAR program has supported 25 academic research projects in this topical area, including a number of

experimental market studies, theoretical models that have identified the efficiency effects of alternative tradable permit allocation schemes, and the definitive empirical analysis of the CAA cap and trade program. Both

NCEE and ORD/NRMRL have conducted incentive-related research and are planning more. NCEE published

an assessment of the savings potential of incentive-based approaches in lieu of traditional regulations, identifying more than $40 billion per year if all possible programs were implemented (U.S. EPA, 2001b). 

ORD/NRMRL is designing and analyzing market approaches for environmental systems management, including a program of tradable credits for controlling urban stormwater runoff, with a focus on stream quality and

combined sewer overflows. Stormwater is a significant source of water quality problems across the country,
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY 3-7

U.S. ENVIRONMENTAL PROTECTION AGENCY

and market approaches have not been widely applied to stormwater, although EPA is pursuing the idea as a

viable option (Thurston et al., 2003; U.S. EPA, 2004b). 

EPA hosted a symposium on research results and the state of the science in MM&I research in May 2003 (U.S.

EPA, 2003b). EPA will use the results of this workshop to further refine NCEE and ORD’s MM&I research

plans for 2005–2008. In general terms, EPA recognizes that, to realize the cost savings of MM&I programs,

well-designed programs have to be developed and implemented for new pollutants, media, and geographical

areas. EPA will continue to conduct research to extend current validated results and use lessons learned from

existing programs and experimental and theoretical assessments to design and predict the outcomes of new

MM&I programs. 

As with other research areas, it is important to distinguish true MM&I research from analytical applications.

Research results should provide new theoretical developments or approaches that can be generalized to other

circumstances or geographical areas. The lack of existing theory and the complexity of MM&I applications to

different media and situations offer a wide range of potential extensions. For example, using tradable water

quality permits to resolve rural nonpoint water problems is complicated by existing agricultural subsidies,

lack of monitoring, and cultural resistance to enforcement—all of which present the potential for new theoretical and empirical extensions. Similarly, some basic theoretical questions with significant policy implications, such as how marketable permits interact with existing taxes, still do not have satisfactory answers and

are not easy to test empirically. The uncertainty among theorists must progress to empirical testing so that

some questions can be answered and extended in fruitful directions (i.e., toward facilitating efficient trading

program design or emissions tax levels). Other questions that affect market design, such as balancing demand and supply in a newly created market and developing self-correcting and flexible markets, also need

further study. Furthermore, policymakers can benefit from additional research on the relative efficiency and

feasibility of fees (prices) and cap and trade permits (quantities) in different circumstances. The applications

are so diverse, the range of potential extensions so extensive, that the MM&I area is likely to be a source of

useful behavioral research for some time.

Benefits of Environmental Information Disclosure

As noted in Chapter 1, EPA operates under several statutes that require the disclosure of environmental

information to regulators, consumers, or communities. Most notable are the Community Right-to-Know Act

requirements that facilities disclose releases of toxic substances through the TRI, and the Safe Drinking

Water Act requirement that water purveyors disclose chemicals contained in domestic water through annual

consumer confidence reports.

Although several studies have examined the effect of TRI disclosure on stock prices and firm behavior or

have studied firms’ participation in voluntary programs that include information disclosure or voluntary

emissions reductions, none have directly estimated the economic benefit or impact from using disclosure

rules, compared with alternatives such as direct regulations (Hamilton, 1995; Khanna et al., 1998). The 

range of benefits and the number of methods for estimating them could both be considerable. Ultimately,

the principal benefits to the public would be reductions in damages to ecosystems or human health that can

be estimated. However, the reputed value of an information disclosure approach is that it can achieve these

reductions at a lower cost or more equitably than other approaches, such as regulation or market incentives. 
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How to calculate these benefits is unclear. However, there are a number of pertinent questions, including: 

Q Are markets working more efficiently as a result of information disclosure, as economic theory would

suggest?

Q Are there health and ecosystem benefits that would be unrealized if not for the information disclosure

requirements?

Q Are there lower costs associated with firms acting on their own to avoid having to disclose seemingly

adverse environmental results? 

Q Are there benefits to the firm to discovering pollution-prevention cost savings?

Q Are there implementation and enforcement savings for state and federal government agencies as a result

of information disclosure?

Q Are communities better informed and therefore more active in protecting their local environment

through torts or negotiations with facilities? If so, what damages are reduced or savings realized?

These and other questions have been addressed inadequately to date. There is a clear need for more empirical information, as well as development of improved theory about how environmental information affects

choices. Furthermore, it is likely that EPA can make a significant contribution to this literature, as it has with

the valuation for children’s health risk reduction, simply because there is so little existing research. 

SUMMARY

EPA understands that filling the research gaps in these five priority environmental economics research topics

is a daunting task. Nonetheless, implementation of this Research Strategy will make valuable advances to the

state of knowledge, given existing and expected resources. Already, EPA-conducted or -sponsored research has

had a significant impact on valuation methods and market-oriented approaches for environmental policy.

Addressing the remaining research gaps over the coming years will extend this successful track record. 
CHAPTER 4 RESEARCH STRATEGY IMPLEMENTATION

ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY 4-1

OVERVIEW OF IMPLEMENTATION PROCESS

The EERS is a framework for producing research that clients within and outside EPA can use to achieve costeffective environmental protection. ORD and NCEE and their clients—programs, regions, states, local and

tribal governments, academic researchers, nonprofits, and for-profit enterprises—need a number of different

types of research-derived information. Some information, such as accurate data and assessments of the state

of existing research, are prerequisites to original, useful, and high-quality research results. This chapter discusses the different types of research that EPA and its clients need, the tools available for developing this

research, and the comparative advantages of various EPA organizations for providing them. It then articulates

a flexible implementation approach that suggests a division of responsibilities but allows for adaptation to

changing circumstances.

Note: Neither this chapter nor the EERS in general is intended to proscribe research that programs, laboratories, or regions believe they need. Rather, this chapter will describe what the organizations principally

responsible for implementing this strategy, NCEE and ORD, plan to do to provide research identified as a 

priority across EPA.

The types of information needed to implement this strategy include:

1. Research results in the five areas described:

a. Value of reducing environmental risks to health endpoints; 

b. Value of reducing environmental risks to ecological services;

c. Environmental behavior and decision-making, particularly expanded considerations of costs and 

compliance behavior;

d. MM&Is; and

e. Benefits of environmental information disclosure;

2. Infrastructure for information access and communication, including databases of environmental values,

firm and facility characteristics, and past research data; 

3. Periodic assessments of the state of existing research; and

4. Specific analytical guidance as needed.

RESEARCH TOOLS—COMPARATIVE ADVANTAGES

EPA’s research support tools differ in their suitability for providing information. The available tools include:

intramural EPA research, cooperative agreements between EPA researchers and research institutions, grants
Research 

Tools

Time To 

Produce Results

Influence on

Research Progress

Quality or Level

of Peer Review

Basic 

vs. Applied

Generalizability

of Results

Contracts Short, if contract

vehicle in place

Maximum 

influence, 

directed by EPA

Generally not

peer reviewed;

unpublished 

literature; not

original research

Applied Specific to rule

or industry

Intramural

Research

Short, if staff

present; longer,

if hiring required

Highly flexible;

EPA manages

research; research

for direct EPA use

Low to high,

depending on

project and 

purpose

Either; greater

tendency

toward applied

Mixed; some

program specific,

some broader

applications

Cooperative

Agreements

Up to several

years; bidding

and coordination

issues

Less flexible;

some research

influence; tradeoffs and compromises;not for

direct EPA use

Generally high

quality

Mostly applied Mixed; some

program specific,

some broader

applications

Grants Several years

from initiation

of award process

to results

Little influence

once award is

made; not for EPA

direct use

High quality; 

original research

Basic or

applied

research

Generally, broadly applicable

methods or 

theory

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to research institutions, and contracts to economic consultants. The EERS team compared these tools on the

basis of:

Q Their ability to generate results in the short versus long term;

Q EPA’s ability to influence research products and outcomes;

Q The typical quality of research results, with the “best” research defined as those findings published in

the most respected peer-reviewed academic journals;

Q The specific nature of the research (i.e., basic or applied);

Q The general applicability of results (i.e., whether specific to one medium or program or generalizable to

other programs, industries, or locales); and

Q The degree to which original research is needed, as opposed to program-specific applications of research

results.

Table 4.1 shows how the research tools generally compare on the basis of these characteristics. Appendix 4

discusses these tools and criteria in more detail.

TABLE 4.1 CHARACTERISTICS OF RESEARCH TOOLS
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U.S. ENVIRONMENTAL PROTECTION AGENCY

ROLES AND ACTIVITIES OF EPA PROGRAMS, CENTERS, LABORATORIES, AND REGIONS

The research capabilities of EPA actors involved with implementing the Research Strategy differ according to

their respective missions and their relative access to the research tools described on pages 4-1 and 4-2. In

general, EPA media programs perform analysis of media- or industry-specific issues; regions and states implement policies and regulations; and ORD and NCEE provide support to programs, regions, and states and communicate research results. It is efficient for ORD and NCEE to conduct in-house or extramural research that

can be applied across programs or to maintain expertise that can be used on a continuing basis by different

programs (e.g., designing valuation surveys, integrated scientific research projects, or peer-review capabilities).

EPA Programs and Regions

With some exceptions, EPA programs conduct analyses that use and apply existing research findings to specific issues. Most programs have economic staff on board to conduct economic analyses and are supplemented by contractual support from economic consultants. In some instances, programs have had sufficient need

for results that could be applied across rules or policies to justify maintaining true research capabilities.

More often than not, however, the programs have turned to NCEE (for economics) or ORD (for other scientific disciplines or multidisciplinary research) for basic or applied research support. Regions generally have

used contracts for specific projects and have relied on the research offices or programs to provide research or

analytical support. As noted in Chapter 2, regions frequently have different research and analytical needs

than do the programs and are more involved in implementation issues.

National Center for Environmental Economics

NCEE has the Agency’s largest concentration of environmental economists on staff, making it uniquely qualified to conduct in-house analysis and research in support of programs or high-priority cross-program projects.

NCEE also uses contracts, cooperative agreements, and grants in various ways to support program or crossprogram research objectives. Generally, NCEE funds research and uses a significant part of its staff capacity

for short-term projects, although it also conducts longer term (3-5 year) research projects that are of direct

importance to EPA.

Over the years, NCEE has received feedback on the Agency’s economic research needs from its client offices

via their requests for assistance with various economic topics. NCEE has produced research and published

guidance on a wide variety of economic issues in response to these requests. The Center also has sponsored

workshops and seminars that have served to disseminate economic research as well as identify holes in the

existing body of economic research in specific subject areas pertinent to the Agency’s mission. 

The EERS will enable NCEE to direct staff research time toward economic issues that are likely to be in high

demand in the coming years. NCEE will address key methodological issues, data needs, and other gaps specified by the participants in this survey. By better understanding gaps in the environmental economic research,

NCEE will be able to provide guidance and assistance with economic analyses and promote consistency in

the economic analyses being carried out throughout the Agency. In addition, NCEE will be better able to

encourage outside researchers to focus on issues of interest to the Agency through its allocation of funding

for extramural research, seminars and workshops directed at priority topic areas, support of visiting scholars,

collaboration with outside researchers, and communication of critical economic data. 
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NCEE is involved in a number of long-term projects related to specific research questions that program

offices mentioned as a priority in interviews for the EERS. A number of shorter term projects also are under

way that fall within these research subject areas, but they are not discussed here.

NCEE has a number of projects under way related to valuation of reductions in morbidity. The Drinking

Water Arsenic Valuation Survey collects data on the WTP for reduced exposure to arsenic in drinking water

and examines how these values are affected by the provision of information on arsenic risks, as well as the

implied valuation measure for children’s health. NCEE also is involved in designing surveys for the State of

Minnesota to address how households value risk reductions to children, and in conducting a study to examine the WTP to reduce asthma episodes for adults and children. 

In the subject area of environmental behavior and decision-making, particularly compliance-related behavior,

NCEE is involved in designing the Pollution Abatement and Cost Expenditures (PACE) survey and in conducting a Chesapeake Bay watershed analysis to estimate the economic impacts of direct and indirect compliance.

NCEE also has maintained access to and expertise in the Regional Economic Modeling Inc. (REMI) model and

the Impact Analysis for Planning (IMPLAN) model for use in regulatory and impact analysis on a regional

and/or industry level. In addition, research is ongoing related to the location and emission decisions of TRI

plants. Future work related to the location decisions of electric utilities also is planned. Finally, NCEE is

developing a highly disaggregated model of emission factors, referred to as the Trade and Environmental

Assessment Model (TEAM), that can be used to translate changes in output resulting from trade liberalization

or other exogenous regulatory decisions into environmental impacts. 

NCEE, working with ORD and the media programs, is taking the lead on developing an Ecological Benefits

Assessment Strategic Plan to establish a dialogue between economists and ecologists in the Agency to identify information gaps and establish a more detailed research agenda for the measurement of ecological benefits (see Appendix 3).

NCEE has several long-term projects associated with benefits valuation related to mortality. A risk-risk survey

for valuing cancer risk reductions addresses issues related to age, latency, timing, and morbidity. Another

NCEE study examines prices paid for bicycle helmets to estimate the WTP for mortality risk reduction across

different age groups. NCEE also is funding research on the use of the preference calibration approach for

mortality risk valuation and is participating in a survey project to elicit values for mortality risk reductions to

older individuals across countries. 

Currently, NCEE has one long-term project related to MM&Is other than trading. Researchers are conducting

studies to develop a methodology useful for evaluating the effectiveness of voluntary programs as a regulatory tool. NCEE has a more active research agenda in the area of trading. Research projects, both ongoing and

planned, include an examination of the EJ implications of SO2 emissions trading; an evaluation of plant productivity and costs under trading; a project related to operationalizing groundwater trading; and research

related to the Region 10 trading pilot project. 

In the area of trade and green accounting, NCEE is developing TEAM. Two models, the U.S. Agricultural and

Resource Model (USARM) and the Agricultural Simulation Model (AGSIM), also are being modified to examine regulatory impacts in agriculture, including those related to trade. NCEE will make these models and the

expertise needed to use them available to the programs for analytical projects as resources permit. 
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY 4-5

U.S. ENVIRONMENTAL PROTECTION AGENCY

Table 4.2 briefly describes NCEE’s long-term projects by subject area.

TABLE 4.2 RESEARCH PRIORITY-RELATED NCEE PROJECTS

Research Priority Category Related Long-Term NCEE Project 

Valuation of Morbidity Benefits Drinking Water Arsenic Valuation Survey

How households value risk reductions to children

Estimation of WTP to reduce asthma episodes for adults 

and children

Environmental Behavior and PACE Survey

Decision-Making Chesapeake Bay Watershed Analysis

Access and expertise in both the REMI and IMPLAN models

Location decisions of TRI plants

Development of TEAM

Location decisions of electric utilities

Valuation of Ecological Benefits Ecological Benefits Assessment Strategic Plan

Benefits of Information Disclosure Short-term projects only at this time

Valuation of Mortality Benefits Risk-risk survey for valuing cancer reductions

WTP for mortality risk reduction: the case of bicycle safety

helmets

Preference calibration approach for mortality risk reduction

Survey project eliciting values for mortality risk reductions

to older individuals across countries

MM&Is, Other Than Trading Methodology for evaluation of effectiveness of voluntary 

programs

Green Accounting/Trade/Finance Retention of access and expertise in the Global Trade 

Analysis Project/Computable General Equilibrium (CGE) 

modeling

Investment in USARM and AGSIM models of agriculture 

sector

Development of TEAM

MM&Is, Trading EJ in SO2 emissions trading: evidence from the electric 

utilities industry

An evaluation of plant productivity and costs under trading 

(future project)

Survey of water-based trading programs

Region 10 trading pilot project (future project)
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Office of Research and Development

ORD-sponsored research attempts to provide methods or models that are broadly applicable and will facilitate or improve economic analysis. ORD conducts internal integrated economic research, collaborates with

NCEE on integrated economic and risk assessment research, and administers STAR, the Agency’s extramural

research grant program. Many of ORD’s research projects are focused on single media or issues. Priorities for

research are based on relative risk to human health and ecosystems (U.S. EPA, 2001a). However, the economic tools developed as a result of this strategy typically will not be limited to single risks but will be used by

economists across EPA, in other federal agencies, and in state and local governments to address a broad 

spectrum of issues. 

ORD’s research planning process addresses overarching research questions through a series of interrelated

solicitations or multidisciplinary research projects. Among the long-term goals that ORD will pursue are the

priorities discussed above. ORD will support this research through STAR grants and other multidisciplinary

laboratory and center research projects.

STAR Grants (National Center for Environmental Research)

NCER will use this Strategy to set long-term goals for research planning purposes. These long-term goals will

be used to target STAR RFAs and to evaluate specific applications for funding. The STAR grant program has

four newly revised long-term economic research goals based on the priorities suggested by the program

offices at EPA in the EERS. Implementation of this Strategy will concentrate on the three standing solicitations—Valuation for Environmental Policy, Corporate Environmental Behavior and the Effectiveness of

Government Interventions, and Market Mechanisms and Incentives. However, NCER also funds economic

research under other occasional solicitations and in integrated RFAs and will use these vehicles when appropriate to address issues of importance that do not fall under the umbrella of the standing solicitations. NCEE

and program economists will continue to provide invaluable input to NCER by writing RFAs and evaluating

proposals to ensure that funded research continues to meet EPA’s needs.

Valuation for Environmental Policy (VEP)

NCER’s current VEP RFA is an outgrowth of two previous RFAs: Decision-Making and Valuation for Environmental Policy and Valuation of Environmental Impacts to Children’s Health. The 2003 VEP RFA had two

parts: Human Health Valuation and Ecological Valuation, whereas the 2004 VEP RFA focused exclusively on

ecological benefits valuation, and the 2005 VEP RFA is expected to focus on valuing the benefits of morbidity

reduction. The relative focus of specific RFAs will vary from year to year.

An initial goal of the VEP RFA will be to fund investigations into the use of benefit transfer for human health

and ecological valuation. A preliminary step might be to undertake studies that are designed to understand

the frameworks underlying valuation. The focus on benefit transfer is necessary given the large number of

human health and ecological endpoints for which programs requested valuation research. The STAR program

does not have the resources to provide grants for all of these endpoints, but the development of transfer

methods might be a cost-effective approach to this problem. After funding research into methodological

development, NCER expects to fund original studies that can be used to provide values for transfer.
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Environmental Behavior and Decision-Making (EB&D)

Programs exhibited a surprising amount of interest in a better understanding of how regulated entities made

process, disposal, and location decisions that affect environmental quality. A 2003–2004 EB&D solicitation

was focused on specific applications of this issue. A related focus solicited investigations into what firms and

facilities actually consider (capital and operation and maintenance, transactions, reputation, market share)

when estimating environmental management costs. 

MM&I for Environmental Management 

The MM&I solicitation will focus initially on two priorities, trading in practice and trading in new markets,

but might expand to address fees, taxes, deposit-refunds, and other incentive systems. One objective will be

to learn from experience in previous emissions trading markets and apply these lessons in either new or

redesigned markets. The purpose of focusing on past trades will be to answer the two following questions:

Have emissions trading markets led to environmental quality that is equal or superior to traditional regulations? What savings have been achieved, compared with regulations? The second objective will be to use 

theory-based models and experimental economics to better predict the success of new markets and to determine the considerations that should be incorporated into program design to make new markets both more

efficient and more effective in accomplishing environmental objectives. Similarly, both empirical and theoretical models will be solicited to evaluate the effectiveness of other incentive programs.

Benefits of Environmental Information Disclosure

EPA has decided, on the basis of comments from EEAC peer reviewers and resource considerations, to fold

this area of research into the environmental behavior and decision-making area. The relevant grant RFA was

previously named Corporate Environmental Behavior and the Effectiveness of Government Interventions, or

CEB. NCER is proposing a version of the renamed Environmental Behavior and Decision-Making (EB&D) RFA

to address the benefits of information disclosure in 2005. NCER intends to use the EB&D RFA to solicit investigations of different interventions in different years; that is, compliance behavior will be addressed in year

one, information disclosure in year two, voluntary approaches in year three, and so on.

ORD Laboratories and Centers

Several ORD laboratories and centers (other than NCER) have the capacity to develop integrated economics

and risk assessment research projects. In addition, these offices are developing joint projects with NCEE.

Laboratories and centers will continue their existing interdisciplinary projects and programs that focus on

high-priority economics research areas. For example, an NCEA research project is integrating ecological 

endpoints and economic valuation, and NRMRL is conducting original research on new trading markets

(stormwater runoff for nonpoint water pollution control). The EERS will indicate where future integrated

research is needed as these projects are completed. 

ORD staff assessed future economic research capabilities needed by the organization. The primary conclusion of this assessment was that ORD needs to increase its ability to integrate social science research and

analysis into its existing strengths in human health and ecological research. To the extent ORD can develop

the economic research capabilities outlined in the white paper, it will be able to address the needs outlined

in this Strategy. In keeping with the white paper, ORD will emphasize integrating economics either in labora-
4-8 ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY

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tories and centers or in cooperation with NCEE, using its expertise in engineering, physical, and biological

sciences to address the EERS priorities. 

Integration of Social, Biological, and Physical Sciences

Of particular importance for valuation activities, the EPA Administrator recently charged ORD’s management

to work with NCEE economists to integrate economic with biological and physical science analysis and

research, an official recognition of what many in ORD and NCEE (and elsewhere) have known for some time.

There is a clear need to better integrate economics and other social sciences with health and ecological

assessments. The traditional approach of having physical, biological, and engineering scientists define the

research questions and agendas without input from downstream scientists such as economists underutilizes

scientific findings at best and, at worst, wastes resources because the research design does not take into

account how the findings will be used in a decision context or influence people’s behavior. Equally important, economic research conducted without the direct input of the relevant scientific and engineering disciplines runs similar risks if scientific and engineering uncertainties are not explicitly incorporated into the

economic modeling and analysis. 

There has been extensive discussion on the topic of integration, and ORD/NCEA and OPEI/NCEE have developed a working team to investigate some case studies involving health risk assessment and benefits analysis

through the Risk Assessment-Benefits Analysis project. This development represents a promising start.

However, the focus of this group has been risk and benefits analysis for regulatory purposes. The research

coordination needed to build the underlying science has not been developed. For example, commonly useful

data have not been collected, and the required cooperation among different research specialties is not yet

evident at the beginning of the hypothesis development and data-gathering phases of research. As a stepping

stone, EPA’s portfolio of health, ecology, emissions, and economic databases—whether based on geographic

information systems or otherwise—should be catalogued and made available for researchers to crossreference and share.

ORD has some comparative advantages over other parts of EPA for integrating social science and health 

and ecological research. First, it has a large number of ecologists, health scientists, and engineers available,

although it has few social scientists. One solution would be for ORD to establish a policy of using multidisciplinary teams of scientists, engineers, and economists whenever possible to identify research questions,

design research strategies, and conduct the indicated research. A combined effort to identify both scientifically valid and economically cost-effective solutions to environmental problems is crucial to prevent environmental protection from being more expensive than necessary. 

A scientist exchange program between ORD and NCEE could help EPA social, biological, and physical scientists to collaborate on research projects and could facilitate improvements in data collection and methods. 

A similar requirement that grant recipients develop multidisciplinary approaches to relevant projects would

further advance this goal.

COMMUNICATION OF RESEARCH RESULTS

NCEE and ORD will continue to expand their existing communication efforts to improve communication of

economic research results within and outside EPA. The primary outlets available to EPA are conferences and

workshops, seminars, summary reports, and research publications. NCEE and NCER jointly organized and
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY 4-9

U.S. ENVIRONMENTAL PROTECTION AGENCY

conducted a series of economic research workshops beginning in 1998. So far, seven workshops have presented results of STAR grants and related research. These workshops have been attended by EPA and other

federal and state agency staff, academics, and others with interest in the subjects discussed. The SAB EEAC

peer review panel suggested that EPA could achieve wider distribution of the results of the research strategy

and receive useful feedback from members of the research community by holding workshops in conjunction

with the annual meetings of the American Economics Association and the American Agricultural Economics

Association and by more aggressively notifying economics departments of upcoming grant RFAs.

Both NCEE and ORD independently hold seminars on economic and other scientific research topics on a 

regular basis. NCEE uses its position as host to the EPA Economics Forum to invite economists from the 

programs, laboratories, and regions to attend or listen in by conference call. NCER is currently improving its

ability to conference with remote locations via video-conferencing.

NCER has begun to produce research capsules that summarize related STAR research results in a specific area

of interest (e.g., stated preference value elicitation methods). NCER will continue to produce these research

capsules in topical areas in which related projects have generated a useful compilation of results. 

NCER and NCEE also propose to hold an annual economics research workshop for EPA staff to summarize

the current research conducted or supported by EPA and to plan research for the coming year (e.g., focusing

RFAs on high-priority issues).

NCEE maintains a database of economic reports and regulatory economic and benefit-cost analyses and is in

the process of improving the accessibility and usefulness of these reports.

ORD and NCEE, working with other offices, are investigating the establishment of research databases that

contain EPA facility-specific data for researchers. In addition, EPA is attempting to improve access to the

Environmental Valuation Resource Inventory, a database maintained by Environment Canada to facilitate the

transfer of health and economic values from original studies to policy situations.

CONCLUSIONS

EPA, through NCEE and ORD, has evaluated its needs for economic research by interviewing practitioners,

reviewing the existing research, and consulting external experts. The EERS sets forth a plan to conduct 

the research of the highest priority and payoff for the Agency and its customers. The EERS also allocates

responsibilities for accomplishing this plan. Some of the activities to be carried out are immediate and clear, 

whereas others are less certain and therefore require more information and flexibility. When this plan is

implemented, EPA and economics researchers should be able to provide the Agency and its clients with 

suggestions for improving the cost-effectiveness of environmental protection.

REFERENCES

ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY R-1

Bockstael NE, Freeman AM 3rd, Kopp RJ, Portney PR, Smith VK. On measuring economic values for nature.

Environmental Science and Technology 2000;34:1384-1389.

Chesnut LG, Mills D, Alberini A. Monetary valuation of human mortality risks in cost-benefit analyses of

environmental programs: background paper and bibliography. 1997. (http://yosemite.epa.gov/ee/epa/

eerm.nsf/vwRepNumLookup/EE-0437A?OpenDocument).

Costanza R, D’Arge R, de Groot R, Farber S, Grasso M, Hannon B, Limburg K, Naeem S, O’Neill R, Paruaelo J,

Raskin R, Sutton P, ven den Belt M. The value of the world’s ecosystem services and natural capital. Nature

1997;387:6230.

DeShazo JR, Cameron T. Not all deaths are created equal: understanding individual preference for morbiditymortality events. Proceedings of USEPA STAR/NCEE Workshop: Valuing Health Risk Reductions to Children.

2003;IV:1-60. (http://es.epa.gov/ncer/publications/workshop/pdf/EE-0475-06.pdf).

Ellerman AD, Montero J-P. The temporal efficiency of SO2 emissions trading. MIT CEEPR Working Paper.

2002. (http://web.mit.edu/ceepr/www/2002-003.pdf). 

Environment Canada. Environmental valuation reference inventory, 2004. (http://www.evri.ca/english/

default.htm).

Hahn RW. The impact of economics on environmental policy. Journal of Environmental Economics and

Management 2002;39:375-399.

Hamilton JT. Pollution as news: media and stock market reactions to the Toxics Release Inventory data.

Journal of Environmental Economics and Management 1995;28:98-113.

Khanna M, Quimio WRH, Bojilova D. Toxic release information: a policy tool for environmental protection.

Journal of Environmental Economics and Management 1998;36:243-266.

Krupnick AJ, Cropper M, Alberini A, Simon N. Final report: the valuation of mortality risk reductions: 

application of two new survey instruments. 2004. (http://cfpub.epa.gov/ncer_abstracts/index.cfm/

fuseaction/display.abstractDetail/abstract/24/report/F). 

Odum HT. Environmental Accounting, Energy and Decision-making. New York: John Wiley, 1996.

Resources for the Future. Valuing health outcomes: an assessment of approaches, 2003. (http://www.rff.org/

rff/Events/Valuing-Health/Valuing-Health-Outcomes-An-Assessment-of-Approaches.cfm).

Thurston HW, Goddard HC, Szlag D, Lemberg B. Controlling stormwater runoff with tradable allowances for

impervious surfaces. Journal of Water Resources Planning and Management 2003;129(5):409-418.
R-2 ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY

U.S. ENVIRONMENTAL PROTECTION AGENCY

U.S. EPA. The Benefits and Costs of the Clean Air Act, 1970-1990. Prepared for the U.S. Congress. Office of Air

and Radiation, October 1997.

U.S. EPA. The Benefits and Costs of the Clean Air Act, 1990-2010. EPA Report to Congress. EPA-410-R-99-001,

1999a.

U.S. EPA. Guidelines for Preparing Economic Analyses. EPA 240-R-00-003, 2000a.

U.S. EPA. Handbook for Non-Cancer Health Effects Valuation. 2000b. (http://www.epa.gov/osa/spc/htm/

Homeqs.htm) 

U.S. EPA. EPA Science Policy Council. Peer Review Handbook. 2nd edition. EPA 100-B-00-001, 2000c.

(http://epa.gov/osa/spc/htm/prhandbk.pdf).

U.S. EPA. Office of Research and Development Strategic Plan. EPA 600-R-01-003, 2001a. (http://www.epa.gov/

osp/stplan.htm). 

U.S. EPA. The United States Experience with Economic Incentives for Protecting the Environment. EPA-240-R01-001, 2001b. (http://yosemite.epa.gov/ee/epa/eed.nsf/Webpages/USExperienceWithEconomicIncentives.html).

U.S. EPA. A Framework for the Economic Assessment of Ecological Benefits. 2002a. 

U.S. EPA. Economic Valuation of Mortality Risk Reduction: Assessing the State of the Art for Policy

Applications. 2002b. (http://yosemite.epa.gov/ee/epa/eerm.nsf/vwRepNumLookup/EE-0464?OpenDocument).

U.S. EPA. Children’s Health Valuation Handbook. EPA100-R-03-003, 2003a. (http://yosemite.epa.gov/ee/epa/

eed.nsf/webpages/HandbookChildrensHealthValuation.html).

U.S. EPA. Proceedings: EPA Market Mechanisms & Incentives Research Workshop. May 2003b. (http://es.epa.

gov/ncer/publications/workshop/05_01_03proceedings.html).

U.S. EPA. Draft Ecological Benefits Assessment Strategic Plan. 2004a. Unpublished.

U.S. EPA. Office of Research and Development, National Risk Management Research Laboratory, Shepherd

Creek Project, 2004b. (http://www.epa.gov/ord/NRMRL/std/seb/research/tradeablecredits.htm).
Office of Research and Development (8101R)

Office of Policy, Economics, and Innovation (1804A)

Washington, DC 20460

EPA/600/R-04/195

December 2005

www.epa.gov

Recycled/Recyclable

Printed with vegetable-based ink on paper that contains a minimum of 50% post-consumer fiber content

processed chlorine free.
ENVIRONMENTAL ENVIRONMENTAL ECONOMICS ECONOMICS

RESEARCH STRATEGY

APPENDICES
ENVIRONMENTAL ECONOMICS

RESEARCH STRATEGY

APPENDICES

OFFICE OF RESEARCH AND DEVELOPMENT, NATIONAL CENTER FOR ENVIRONMENTAL RESEARCH

OFFICE OF POLICY, ECONOMICS AND INNOVATION, NATIONAL CENTER FOR ENVIRONMENTAL ECONOMICS

WASHINGTON, DC 20460

EPA/600/R-04/195

DECEMBER 2005

TABLE OF CONTENTS

ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY III

Page

Appendix 1. Survey Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A1-1

Appendix 2. Requests for Analytical Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A2-1

Appendix 3. Relationship to Other Plans, Strategies, and Documents . . . . . . . . . . . . . .A3-1

Appendix 4. Relative Advantages of Research Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A4-1

Appendix 5. Detailed Interview Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A5-1

Appendix 6. Science Advisory Board Peer Review Comments . . . . . . . . . . . . . . . . . . . . .A6-1

Appendix 7. EPA Responses to Internal and External Reviews . . . . . . . . . . . . . . . . . . . .A7-1

APPENDIX 1 SURVEY PROCESS

ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY A1-1

NEEDS ASSESSMENT

Research team members interviewed economists, users of economics, managers, and other scientists with an

interest in economics in as many parts of the Agency as possible. These staff members represent some of the

primary customers of research provided by ORD and NCEE. Before interviews, NCEE and NCER sent letters

to all of the Office Directors and Deputy Regional Administrators to identify potential users of economics

research results. The research strategy team also used internal EPA lists, such as membership in EPA’s

Economics Forum, and past programmatic reviewers for NCER economics and decision science grants. 

For Offices (Assistant Administrator level) with economists in several suboffices (Office Director level or

lower), meetings were generally held with groups of economists and others at the Office Director level. The

team held face-to-face meetings when possible. When in-person meetings were not possible, team members

conducted interviews through conference calls and e-mail. Virtually all meetings had at least two strategy

team members present—one from NCEE and one from NCER. Trained facilitators led meetings when there

were large numbers of interview subjects.

The research strategy team held 21 interview meetings with 75 participants, including respondents participating via telephone or e-mail. The program offices that participated in interviews included:

Q The Office of Air and Radiation (OAR),

Q The Office of the Chief Financial Officer (OCFO),

Q The Office of Children’s Health Protection (OCHP),

Q The Office of Enforcement and Compliance Assurance (OECA), 

Q The Office of Environmental Information (OEI),

Q The Office of International Activities (OIA), 

Q The Office of Policy, Economics, and Innovation (OPEI),

Q The Office of Prevention, Pesticides, and Toxic Substances (OPPTS),

Q The Office of Research and Development (ORD),

Q The Office of Solid Waste and Emergency Response (OSWER), and 

Q The Office of Water (OW).1

1 Because they acted as leads for the development of this strategy, no NCEE or NCER staff members participated in the interviews reported in

Chapter 2, although other representatives from OPEI and ORD did participate. Some NCEE staff members participated in a pretest interview. 
A1-2 ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY

U.S. ENVIRONMENTAL PROTECTION AGENCY

Each interview session began with an open-ended period of brainstorming in which participants described

all relevant economic research needs for their offices. Participants then ranked these research needs, and

results were used to create the scores in Tables 2.1 to 2.3. 

Larger groups voted for individual research priorities using a multivote approach,2 but groups of one or two

simply assigned weights (percentages) to the different research needs. The research strategy team provided

separate voting opportunities for both short-term (defined as having results in 3 to 5 years) and long-term

(defined as having results in more than 5 years) research needs. The strategy team then prepared lists of

research needs with the associated weights, along with other information about the meeting. 

The EERS team coded each research idea from EPA staff interviews into topical categories at two different

levels of detail. The first level has the broadest categorization, but the second level is more detailed. Table

A.1 shows the more general categorization scheme, and Appendix 2 contains the more detailed categories.

TABLE A1.1 GENERAL RESEARCH NEEDS (ALPHABETICAL)

Benefits Valuation, Ecological

Benefits Valuation, Morbidity

Benefits Valuation, Mortality 

Benefits Valuation, Other Endpoints

Environmental Behavior and Decision-Making

Cost/Impact Analyses

Cross-Regulation Interaction 

Discounting/Intergenerational Equity

Environmental Justice (EJ)

Government Performance and Results Act (GPRA) Analysis/Strategic Planning

Green Accounting/International Trade/Finance

Market Mechanisms and Incentives (MM&Is), Other Than Trading 

MM&Is, Trading 

Risk and Uncertainty, Risk Assessment Techniques, Integration With Valuation, Other

2 Each participant received three short-term votes and three long-term votes and could distribute these to the priorities developed in the brainstorming session in any fashion (i.e., all on one research priority or across two or three priorities for both short and long term).
APPENDIX 2 REQUESTS FOR ANALYTICAL SUPPORT

ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY A2-1

As noted in Chapter 2, although for the most part participants in the needs assessment were able to focus on

research priorities, some respondents requested analyses or other products that are addressed better through

guidance or a group such as the Economics Forum (a forum of economists from around the Agency). Three

categories of priorities were eliminated from the presentation in Chapter 2 for this reason, including GPRA

Analysis/Strategic Planning, Cost Analyses, and Impact Analyses. These categories were determined to be

more analytical than research in nature because the specific requests from the programs and regions were 

for short-term or rule-specific analytical results. The tables presenting research priorities from Chapter 2 are

reproduced here with those categories added. The tables are then followed by category descriptions for these

three additional categories.

TABLE A2.1 GENERAL RESEARCH PRIORITIES—SHORT TERM

Valuation of Mortality Benefits 1.19

Environmental Behavior and Decision-Making (especially compliance) 1.06

GPRA Analysis/Strategic Planning 1.00

Valuation of Reduced Morbidity Benefits 0.96

Benefits of Information Disclosure 0.89

Cost Analyses 0.83

Impact Analyses 0.71

Valuation of Ecological Benefits 0.64

MM&Is, Trading 0.60

MM&Is, Other Than Trading 0.58

Discounting/Intergenerational Equity 0.38

Green Accounting/International Trade/Finance 0.32

Risk and Uncertainty, Risk Assessment Techniques, Integration With Valuation, Other 0.11

EJ 0.06

Cross-Regulation Interaction 0.03
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TABLE A2.2 GENERAL RESEARCH PRIORITIES—LONG TERM

Valuation of Reduced Morbidity Benefits 1.27

Environmental Behavior and Decision-Making (especially compliance) 1.25

Valuation of Ecological Benefits 1.15

GPRA Analysis/Strategic Planning 1.00

Cost Analyses 0.89

Valuation of Information Disclosure 0.80

Valuation of Mortality Benefits 0.60

MM&Is, Other Than Trading 0.60

Green Accounting/International Trade/Finance 0.51

MM&Is, Trading 0.48

Discounting/Intergenerational Equity 0.22

Risk and Uncertainty, Risk Assessment Techniques, Integration With Valuation, Other 0.22

Impact Analyses 0.21

Cross-Regulation Interaction 0.13

EJ 0.09

TABLE A2.3 NUMBER OF OFFICES REQUESTING RESEARCH PRIORITIES TOPICS

MM&Is, Other Than Trading 7

MM&Is, Trading 6

Valuation of Reduced Morbidity Benefits 6

Environmental (Compliance) Decision-Making 5

Valuation of Ecological Benefits 5

Impact Analyses 5

Green Accounting/International Trade/Finance 4

EJ 4

Cost Analyses 4

Risk and Uncertainty, Risk Assessment Techniques, Integration With Valuation, Other 3

Discounting/Intergenerational Equity 3

Valuation of Mortality Benefits 3

Cross-Regulation Interaction 2

Valuation of Information Disclosure 2

GPRA Analysis/Strategic Planning 1
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY A2-3

U.S. ENVIRONMENTAL PROTECTION AGENCY

GPRA/STRATEGIC PLANNING

As with environmental information, one office, OCFO, placed all of its research emphasis on one study

objective, identifying the benefits and costs of achieving the objectives outlined in the Agency’s new strategic

plan. As noted above, a cross-agency workgroup is trying to address this issue in response to a request from

the Office of Management and Budget (OMB). The results of this workgroup will be used to help identify

research areas later in the implementation of this strategy. The area does not seem to provide particularly

fertile ground for high-quality original research that would be generalizable to other situations. That is, it

would benefit more from application of other research (e.g., valuation, cost, compliance behavior) rather than

from original economics research. Implementation of the EERS will enhance the Agency’s ability to estimate

the costs and benefits of all of EPA’s strategic objectives, which reflects EPA’s regulatory agenda to a significant degree.

COST ANALYSES

The primary request in this category was for cost estimates that could be used for specific rule-makings.

Another request was for further guidance on translating private costs into social costs. This topic is considered in the Guidelines, and discussions on this topic are appropriate for the Economics Forum. As discussed

in the footnote to the Impact Analyses category, these are not appropriate for this document. One research

topic is how learning over time affects cost estimates, that is, testing the hypothesis that compliance costs

decrease over time as facilities adapt to new regulations. 

IMPACT ANALYSES

The category of impact analyses reflects an aggregation of two subcategories: 

Q Facility or firm-level impacts and

Q Market, aggregate, or computable general equilibrium (CGE) impacts. 

Respondents placed the major emphasis in this category on methods to calculate impacts (facility or firmlevel and market, aggregate, or CGE) and the “Other” category, which they used primarily to request assistance for rule-specific cost estimates.1

Some requests could be either research or analysis. OAR, OW, OECA, OPPTS, and OPEI requested general

research on the economic impacts of regulations on firms and markets, although specific ideas are quite varied across the offices. OW and OPEI requested guidance (see footnote) on the proper tools to analyze the

impact of regulations on small businesses and nontraditional industries such as agriculture. These two

offices also requested retrospective analyses of the impacts of rules or government investments. Other

offices requested a variety of analyses or improved models, including:

Q Retrospective comparisons of economic growth in attainment versus nonattainment areas; 

1 Requests for rule-specific costs or impacts are categorized more appropriately as analysis than research and will not be addressed in this document unless they have widespread generalizability. Similarly, although guidance is an important contribution to improving economic analysis,

it is not research but an application of research results.
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U.S. ENVIRONMENTAL PROTECTION AGENCY

Q Incorporation of regulation-induced product quality changes into market analyses; 

Q Development of CGE models that can be used in regulatory decision-making;

Q Measurement of the relationship between environmental and financial performance;

Q Refinement/improvement of agricultural sector models to accommodate regulatory impacts; 

Q Updates of reports on the cumulative impact of regulation on business; and 

Q Development of models that can be used to analyze the environmental effects of trade. 

There is no apparent unifying theme to the analytical needs in this area, suggesting that more investigation

into the highest priority impact area is needed to determine which approach can make the greatest contribution—guidance, literature reviews, or more specific applications. Several respondents requested guidance

that could be updated through existing groups (the Economics Forum and a Small Business Regulatory

Enforcement Fairness Act [SBREFA] review group) through NCEE. Note: NCEE has acted on both of these

suggestions and currently (2004) is updating the Guidance for Economic Analyses and coordinating an 

SBREFA review group.
APPENDIX 3 RELATIONSHIP TO OTHER PLANS,

STRATEGIES, AND DOCUMENTS

ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY A3-1

PRIOR ENVIRONMENTAL ECONOMICS RESEARCH PLANNING 

This effort follows directly from a 5-year-old needs assessment conducted by a predecessor group to NCEE

(McClelland et al., 1999). In that effort, EPA staff and external experts on EPA’s SAB EEAC described and

ranked the research areas that they considered to be most important. This prior research planning effort 

has been used for the past several years to focus STAR grant solicitations on valuation and MM&Is, and as a

source of ideas for in-house research conducted by NCEE economists. Given the passage of time, EPA believes

the time is right to update and formalize the research planning process through this EERS.

AGENCY STRATEGIC PLAN

In 2003, EPA revised the Agency’s Strategic Plan (U.S. EPA, 2003). The structure of the plan evolved from its

previous version with 10 strategic goals to its current version with 5 strategic goals. With the plan revision,

OMB is requiring EPA to include the “social costs” of achieving EPA’s strategic objectives. An Agency-wide

group of economists and others are working to define and measure these “social” benefits and costs. EPA

economists anticipate that it will take several years to develop methods and data that will allow the Agency

to completely and accurately characterize the benefits and costs of achieving its strategic goals. The research

developed in response to the EERS will provide some basis for estimating these benefits and costs and make

the EPA strategic plan more responsive to OMB requests.

ORD STRATEGIC PLAN

The 2001 ORD Strategic Plan sets out five strategic organizational goals. This Research Strategy should further achievement of all of these goals. 

1. Support the Agency’s Mission

By proceeding from a basis of problem-driven research priorities derived by clients from across EPA and

outside the Agency, the EERS clearly supports the Agency across all programs and regions when there is a

well-recognized, critical need for additional economic information to accomplish its mission.

2. Be a High-Performing Organization

The EERS attempts to systematically incorporate all of ORD’s economics research activities and integrate

them with NCEE’s, other EPA and external economics research, and research from other scientific disciplines. This effort will maximize the exposure and effectiveness of ORD and EPA economics research. 

3. Be a Leader in the Environmental Research Community 

Research sponsored by the STAR grant program and conducted or sponsored by NCEE and ORD laboratories is recognized as some of the most important environmental economics research developed anywhere. The EERS will further this reputation by supporting cutting-edge and practical research that will

affect the course of future environmental policy.
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4. Integrate Environmental Science and Technology To Solve Environmental Problems

A sizable share of the research conducted by NCEE, ORD laboratories, or externally through STAR grants

comprises multidisciplinary teams of economists and other scientists, such as psychologists, ecologists,

epidemiologists, engineers, and health scientists. Sponsored environmental economics research uses a

vast array of technological, financial, physical science, and biological science information to analyze environmental policies. Several ORD laboratories and centers are working closely with NCEE and the programs to integrate economic analysis with human health and ecological risk assessment. This EERS will

improve and formalize support for this trend.

5. Anticipate Future Environmental Issues

This Research Strategy will help develop a capacity to predict how economic forces and trends will affect

future environmental conditions.

RELATIONSHIP OF EERS TO THE NATIONAL CENTER FOR ENVIRONMENTAL ECONOMICS 

NCEE conducts and supervises research and development on economic analytic methods; leads production

of cross-Agency economic reports; provides guidance for performing economic analysis; and promotes consistency in the preparation and presentation of economic information in the Agency. NCEE prepares economic

analyses under its own direction and functions as an internal resource for other Agency offices seeking 

information on benefit-cost research and techniques, economic impact models and measures, and economic

incentive mechanisms. NCEE also performs a regulatory review function for the Agency by reviewing the 

economic analysis underlying significant regulatory actions.

The EERS will enhance NCEE’s ability to perform its primary functions in several ways.

Putting Theory Into Practice: NCEE is responsible for assisting EPA’s offices in applying sound economic

science in the preparation of economic analyses. The EERS will inform NCEE regarding the economics

research needs of its client offices.

Improving EPA’s Economic Tools: NCEE develops data and methods for benefit-cost assessments through

research aimed at filling priority needs common to many programs in the Agency. By better understanding

the gaps in the existing economics research, and which research needs are most important given Agency 

priorities, NCEE’s work in economic methods development can be better targeted at these identified needs.

Gateway for Academic Research: NCEE communicates EPA’s research priorities to economics professionals

across the Nation. NCEE helps academicians identify topics pertinent to the Agency’s needs and funds

research in those areas through grants and cooperative agreements with universities. Through these efforts,

as well as seminars, workshops, and a Web site with online resources, NCEE serves as a gateway for academic research. The research needs identified in the EERS allow NCEE to better engage the research community

when seeking outside assistance with its research activities.

Linking Science and Policy: NCEE works to identify better ways to link the natural and social sciences to

help improve risk assessments and benefit-cost analyses. NCEE works to provide risk assessment information that can be fed easily into economic analyses. The goal is to improve EPA’s ability to evaluate its
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY A3-3

U.S. ENVIRONMENTAL PROTECTION AGENCY

progress in addressing risks to public health and the environment. Therefore, by understanding the Agency’s

economics research needs, NCEE is positioned to assess the underlying science, policy, and data needs

required to make the priority economics research as effective as possible in fulfilling the goals and mission

of the Agency.

Exploring Emerging and Crosscutting Issues: The Center explores the changing nature of environmental

problems that face EPA and the Nation. This work includes identifying a wide range of emerging issues,

trends, and challenges; assessing their potential impacts on the environment; and positioning the Agency to

respond. The EERS will help NCEE prepare to meet these emerging challenges by focusing attention on the

economics research that is most needed by the Agency to better evaluate future environmental issues and

trends. Furthermore, because NCEE is not connected with any one media or program, the EERS enhances

NCEE’s unique capability to address crosscutting issues.

OTHER ORD STRATEGIES AND PLANS

Because it focuses on behavior, environmental economics spans all of EPA’s environmental protection activities. The ORD Strategic Plan (U.S. EPA, 2001) notes that one of the trends likely to have the greatest impact

on ORD research is the need to integrate “environmental research so that the findings of economics, sociology, psychology, and other social sciences can be incorporated into decision-making.” Implementation of other

ORD strategic plans will ultimately depend on a better understanding of “individuals’ behavior as consumers, commuters, and property owners.” Some particularly relevant strategies to the EERS include the

ecological research strategy, pollution prevention research strategy, human health risk assessment research

strategy, asthma research strategy, and global change research strategy.

NCEA—Global Change

EPA’s Global Change Research Program in NCEA is an assessment-oriented program with primary emphasis

on understanding the potential consequences of climate variability and change on human health, ecosystems, and socioeconomic systems in the United States (U.S. EPA, 2004). This includes assessing adaptation

options to improve society’s ability to effectively respond to the risks and opportunities presented by global

change as they emerge. The program’s health assessments go beyond basic epidemiologic research to develop

integrated health assessment frameworks that consider the effects of multiple stresses, their interactions,

and human adaptations including economic responses. The Global Change Research Program also is investigating the effects of global change on (1) aquatic ecosystems (including lakes, rivers, streams, wetlands, 

estuaries, and coastal ecosystems); (2) invasive nonindigenous species; and (3) ecosystem services. These

efforts are closely related to ecosystem valuation research. 

NCEA—Cincinnati

To improve the utility of ecological risk assessment in the decision-making process, economists and ecologists in NCEA’s Cincinnati laboratory are evaluating the application of models, landscape characterization

methods, and economic analyses to formulate alternative approaches for protecting and restoring water quality and critical habitats and to forecast the ecological, economic, and human health outcomes of alternative

solutions. The team of ecologists and economists also is exploring the relationship between indicators of ecosystem conditions and a selected set of high-priority environmental management problems in the Missouri,

upper Mississippi, or Ohio River basins. The products of this effort will be a set of problem-specific reports
A3-4 ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY

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that will include conceptual models of sources, stressors, and both ecological and economic endpoints related to each problem.

NRMRL—Cincinnati

Economists in NRMRL are working with engineers and ecologists to design and analyze market approaches

for environmental systems management, including a program of tradable credits for impervious surface for

controlling urban stormwater runoff, with a focus on stream quality and combined sewer overflows, a serious problem in many regions. This team also is working on construction of a basic theory of sustainable 

systems using principles from ecology, physics, law, and economics to uncover the underlying principles of

sustainable systems and provide guidance on the viability of different environmental systems management

strategies. 

ORD—Capacity Needs White Paper

ORD recently developed an assessment of the social science capabilities that the organization will need in

the future. All of the potential strategic directions involved integrating economics and other social sciences

with engineering, physical, and biological sciences. Among several suggestions for integrating social, life, and

“hard” sciences was that ORD should develop an integrated capacity where co-location of multiple disciplines would be essential to improved research. NCEE has followed a similar strategy. 

OTHER PLANS AND ACTIVITIES

Ecological Benefits Assessment Strategic Plan

Simultaneous with the development of the EERS, NCEE is working with the rest of the Agency, particularly

ORD laboratories and centers and OW, to develop a strategic plan for estimating ecological benefits. This

effort is patterned after a successful 2-year collaboration between NCEE and NCEA to improve estimation of

health benefits. 

Development of the Ecological Benefits Assessment Strategic Plan involves both ecologists and economists

from across EPA and will try to find common metrics for understanding ecological and economic processes

upon which to base sound estimates of values. Interviews for the Strategic Plan will involve both economists

and ecologists and will focus solely on ecological valuations. As a result, they will provide different and more

detailed results than the EERS surveys. The Ecological Benefits Assessment Strategic Plan will identify

research needs in ecology and related fields that are necessary to enhance the valuation of ecological benefits. As noted below, EPA’s programs perceive the inability to conduct ecological valuation as a key weakness

in EPA’s estimates of the benefits and costs of environmental protection, and they have consistently raised

this issue as a priority research area. NCEE and ORD will therefore use the results from the Ecological

Benefits Assessment Strategic Plan to further focus research in the ecological benefits area.

National Research Council (NRC) Report on Air Pollution Benefits

The NRC recently issued a report (NRC, 2002) on the estimation of the benefits of air pollution regulations.

This report contained several recommendations, including some that require further research to implement,
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY A3-5

U.S. ENVIRONMENTAL PROTECTION AGENCY

such as incorporating uncertainty in benefits estimation. ORD and NCEE are collaborating with OAR to 

provide whatever research support is necessary to respond to the NRC report. 

Program Office Research Plans

Several program offices are developing and implementing research/analysis plans of their own, focusing on

important program-specific issues. Both OA and OW have initiated research plans. 

REFERENCES

McClelland E, et al. Survey of EPA environmental economics research needs, 1999. Unpublished.

National Research Council. Estimating the Public Health Benefits of Proposed Air Pollution Regulations.

Washington, DC: National Academies Press, 2002.

U.S. EPA. Office of Research and Development Strategic Plan. EPA 600-R-01-003, 2001.

(http://www.epa.gov/osp/stplan.htm). 

U.S. EPA. Proceedings: EPA Market Mechanisms and Incentives Research Workshop. May 2003.

(http://es.epa.gov/ncer/publications/workshop/05_01_03proceedings.html).

U.S. EPA. Office of Research and Development, National Center for Environmental Assessment, Global

Change Research Program, 2004. (http://www.epa.gov/globalresearch).

APPENDIX 4 RELATIVE ADVANTAGES OF RESEARCH

TOOLS

ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY A4-1

CONTRACTS

Contracts are intended for the acquisition of services for EPA’s direct use, rather than assistance to support

more general purposes related to the Agency’s mission. EPA programs use economic contracts for a range of

specific tasks, often to estimate the costs and benefits of specific regulatory options. Contracts are generally

more suitable for analysis than research. An economic analysis work assignment under a contract can be executed quickly if a relevant contract is already in place, which makes contracts particularly suitable for analyses that are needed immediately. Contractual analyses tend to be program or project specific, involve mostly

secondary data sources, and rarely provide the original contributions needed to be published in peerreviewed journals. 

EPA INTERNAL RESEARCH

In-house research is arguably the fastest way to produce research results if qualified staff is in place and 

no other barriers exist. However, if the Agency is missing the needed research capabilities, the time and

resources required to initiate research can be considerable. EPA’s personnel system requires considerable

effort to hire new staff. To make new hires an efficient research approach, EPA would have to require the

new personnel’s skill set continually over the long term.1 In addition, economic studies frequently use some

form of survey or questioning of individuals or industry to gather information. Internal research that gathers

information directly from individuals or firms is subject to the requirements of the Paperwork Reduction Act

(PRA), one of which is that OMB must review and approve any survey instrument. The time and resources

necessary to undertake the Paperwork Reduction Act review process may be significant. 

Conversely, intramural research is particularly well suited to providing research results that are needed

specifically by EPA programs. Also, conducting research internally gives EPA the greatest amount of influence

regarding methods, hypotheses to test, and the level of effort devoted to the research. Moreover, in-house

research gives EPA the flexibility to adjust the level of rigor and peer review based on an assessment of

clients’ needs. Some research conducted by EPA is original, and other research is meta-analysis of research

results. Some economic analysis is appropriate for program-level consideration of options, whereas other

research is published in the best peer-reviewed journals. EPA research also can range from theoretical to

applied research, although there is a greater tendency toward applied research for which EPA programs have

a direct need. 

COOPERATIVE RESEARCH AGREEMENTS

Cooperative agreements are joint research efforts between EPA scientists and researchers at other institutions. Cooperative agreements and grants are both “assistance” agreements, which can be used only to support research of general interest that is related to EPA’s mission. They may not be used to generate research

results that primarily benefit EPA in its day-to-day activities. As something of a hybrid between grants and

internal research, they share the advantages and disadvantages of both. EPA staff participates in and has

more control over the direction and timing of research efforts, but all facets of research results, resources,

1 Visiting academics and research fellows might provide temporary or project-specific research skills.
A4-2 ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY

U.S. ENVIRONMENTAL PROTECTION AGENCY

and timing must be negotiated with co-investigators from outside the Agency. Cooperative agreements that

use surveys or experiments are generally subject to PRA requirements and OMB review. Cooperative agreements often generate high-quality publications that researchers submit to peer-reviewed journals. Results can

be either program-specific or generalizable to a range of programs or circumstances.

GRANTS

Like cooperative agreements, grants are assistance agreements and are focused to an even greater degree 

on research questions of broad academic or public interest. The grant-making process (from solicitation

development, through peer review and award, to final results) can take up to 5 years. Grants give external

researchers the greatest amount of discretion and, conversely, give EPA the least amount of influence over

research results. In the STAR program, research proposals are received in response to criteria set forth in

published solicitations. The proposals are peer reviewed, and only the highest quality proposals are eligible

for funding. As well focused as a solicitation might be, investigators have considerable flexibility in responding to it. EPA’s influence over research topics, approaches, or timetables is limited largely to deciding

whether to fund a proposal. Grants produce high-quality, peer-reviewed results for which academics are 

typically rewarded, while also forwarding the state of the science. They tend to be quite generalizable and

benefit EPA programs only incidentally, although several programs might use adaptations of their results.
APPENDIX 5DETAILED INTERVIEW RESULTS

ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY A5-1

This appendix shows the short-term (ST) and long-term (LT) stated research needs of program offices, program suboffices, and individuals. It comprises largely unedited raw data taken from focus group meetings

with EPA staff. These data provide the fundamental building blocks for the research objectives in the Strategy

but include many additional topics that EPA’s available research resources will not be able to address. However, the data provide many ideas for academic and other researchers interested in policy-relevant topics.

OAR/OAQPS Meeting 4-29-02

ORD: Matt Clark

NCEE: Chris Dockins 

OAQPS: Aaiysha Khursheed, Larry Sorrels, Bryan Hubbell, Virgis Brown, Tyler Fox, Ron Evans, Lillian Bradley,

Lawrence Pope, Linda Chappell, Eric Crump, Lisa Conner, Nancy Mayer

Votes

Topic ST LT

How the technology learning curve affects future year compliance costs 3

Incorporating economic and behavioral responses (averting behavior) into epidemiologic 

studies 6

How and when firm value (e.g., stock prices) is affected by changes in environmental 

information

Linking water-quality changes to economic endpoints (aquatic vegetation, nutrients, 

fish populations, economic endpoints) 3 3

Ecological, economic, and health effects related to systems of agricultural production 2

Economic and health-effect studies on sensitive subpopulations (EJ) 1 1

Spatial economic growth models for emissions projections, critical pollutants, 

and toxics: distribution of economic growth 2 3

Quantification of emissions to provide the basis for trading, better and more monitoring, 

or equivalents; gross emissions within and across compounds and source categories 

(point and nonpoint) 3 2

Value of noncancer health endpoints of air toxics 3

Linking environmental indicators with economic endpoints so that they can be used 

in analyses 2 2

Approach for determining appropriate air pollution control emissions fee and alternative 

payment/fee 4 1

Indepth analysis comparing economic growth in attainment and nonattainment areas; 

retrospective/prospective to identify key growth factors 2 1

Modeling emissions trading for non-utility sectors; single/multiple pollutants, 

cross-industry, cross-pollutant, local/regional 3

Alternative (to quality-adjusted life-years [QALYs]) cost-effectiveness measures that capture 

acute and chronic health and ecological effects 

continued
A5-2 ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY

U.S. ENVIRONMENTAL PROTECTION AGENCY

Votes

Topic ST LT

Use Tiebout model to examine migration between attainment and nonattainment areas 

based on health and other environmental effects (who and why?)

Incorporate regulation-induced new product development and product quality changes 

into market (equilibrium) analyses 4 1

Estimating existence values for cultures (tribes) 1 5

New air- or water-quality models: need reduced-form surface models for off-the-shelf runs 

(practical, updatable, policy-relevant versions) 1 2

Emissions tracking or banking systems that streamline transaction costs 

(environmental impact of trades) 1

Residential visibility valuation 1 1

Uncertainty characterization: integrate uncertainty analysis from dose-response to 

valuation to cost impacts 2 1

Objective way to determine location of EJ communities with respect to sources 1 1

Total Votes 35 34

OAR/OPAR Meeting 6-10-02

ORD: Will Wheeler 

NCEE: Brian Heninger

OAR: Jim DeMocker

Votes (%)

Topic ST LT

Value of ecosystem services that are potentially relevant for air; develop paradigm for 

ecosystem valuation and define ecosystem service flows to satisfy both ecologists and 

economists 33.3 33.3

Morbidity risks: wider endpoint coverage, more subpopulations (e.g., childhood asthma), 

use of QALYs (or other methods) to transfer values 33.3 33.3

Other welfare benefits, more endpoints, more population coverage (household visibility, 

different agriculture crops, other species of timber) 33.3 33.3

Mortality

Benefits transfer methods to get better coverage of endpoints

Indirect (productivity) benefits

Actual discount rates; rate or return on investment

CGE models

Learning curve for reducing compliance costs, especially important for regulatory phase-ins

Total 100 100
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY A5-3

U.S. ENVIRONMENTAL PROTECTION AGENCY

OPAA/OCFO Meeting 5-16-02

ORD: Matt Clark

NCEE: Ann Wolverton

Votes (%)

Topic ST LT

Research that improves the inclusion of social costs in EPA’s strategic planning 

Characterize benefits aligned with Government expenditure information from OCFO 

so that relative values of expenditures can be determined; estimates of both public and 

private costs

Prospective benefit-cost analysis for each strategic objective 100 100

Desire rigorous peer-reviewed journal articles estimating the social costs of achieving 

EPA’s strategic goals (e.g., costs and benefits of climate change)

Total 100 100

OCHP Meeting 5-8-02

ORD: Will Wheeler

NCEE: Lanelle Wiggins

OCHP: Ed Chu 

Votes (%)

Topic ST LT

Age-specific values for mortality valuation (children and elderly) 50 50

Are QALYs theoretically appropriate for environmental policy use? 10

Age-specific values for chronic health effects, such as asthma, developmental disorders 

(attention deficit hyperactivity disorder, autism, mental retardation), and health effects 

associated with cancer both during the disease and during remission (effects from 

cancer treatment) 40 50

Economic indicators of the environment (what does pollution cost the economy?)

Total 100 100
OECA/OPPAC Meeting 5-9-02

ORD: Will Wheeler 

NCEE: Ann Wolverton

OECA-OPPAC: Jon Silberman 

Votes (%)

Topic ST LT

How and why do compliance and enforcement interventions, assistance, incentives and 

monitoring (e.g., inspections, information collection requests), and civil and criminal 

enforcement actions affect corporate behavior, decision-making, compliance, and 

performance?1 45 45

What are the impacts and cost-effectiveness of environmental management systems (EMSs) 

in achieving compliance and improving corporate efficiency (e.g., average or marginal costs 

of reducing units of pollution, energy savings, improved competitiveness, compliance over 

the short and long term) 15 15

What organizational characteristics (e.g., centralized or decentralized, EMSs, performance 

appraisal, reward, and compensation policies) foster improved environmental performance 

and compliance? 15 15

What is the relationship between environmental and financial performance? How/why do 

compliance and environmental performance correlate with or affect financial performance 

(cost increases and reductions; value creation [tangible and intangible worth])? How does 

public disclosure of compliance and performance information affect future environmental 

and financial performance (e.g., stock values, bond ratings, insurance rates, profitability)? 8 8

What compliance and enforcement interventions most effectively ensure accountability 

for the generation of credits and allowances in market-based effluent discharge and air 

emissions trading programs? 9 9

How does participation in voluntary incentive or recognition programs affect 

beyond-compliance behavior, corporate efficiency, and earnings/profitability? 8 8

Total 100 100

A5-4 ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY

U.S. ENVIRONMENTAL PROTECTION AGENCY

1 This topic includes subissues: (1) Increasingly, EPA and the states are employing integrated compliance strategies that rely on multiple compliance and enforcement interventions (a tool that may be applied sequentially, simultaneously, or both). How can we maximize and measure

the synergistic impacts of such strategies? (2) What motivates companies in their decision-making processes, and how do compliance and

enforcement interventions compare with other incentives companies may have to change their behavior? (3) What are the effects/results of

sector-based compliance and enforcement interventions?
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY A5-5

U.S. ENVIRONMENTAL PROTECTION AGENCY

OECA/ORE Meeting 5-28-02

ORD: Will Wheeler 

NCEE: Brian Heninger

ORE: Jonathan Libber

Votes (%)

Topic ST LT

Understanding deterrence: What is the private discount rate for corporations? What kind of 

financing do they use (equity, weighted average cost of capital, other instruments)? How do 

firms make decisions with respect to discount rates? 60

How do responsible environmental officials view compliance, and how do they react to 

regulations? If enforcement is not real, will they comply? 40 85

Do the same factors that motivate compliance in the United States apply elsewhere? 15

Total 100 100

OEI Meeting 6-11-02

ORD: Will Wheeler 

NCEE: Brian Heninger

OEI: Christine Augustyniak, Cody Rice

Votes (%)

Topic ST LT

Value of information to corporations, labor, consumers. Currently, there is no way to 

monetize the benefits of information provision (e.g., Toxics Release Inventory [TRI]) to 

compare against costs. 80 80

How information is used in decision-making: Do companies change behavior? People 

choose where to live, work (include all subcategories)? 20 20

What are the internal cost-savings identified when a TRI report is prepared? Value of 

information to companies?

What are the ecological and health benefits from reduced pollution?

Is emphasis on information programs (e.g., Design for the Environment) a good way to go? 

Are they effective?

Prioritize expansion of TRI (industries, chemicals, threshold quantities): What is the highest 

value? What order? What is the marginal value of the next aspect of the program?

How is value of information linked to lbs. of pollutant? (e.g., regarding fat content, value of 

information is not correlated strictly with amount of fat). Lead is an example.

How to use benefits transfer to get value from another situation

Total 100 100
A5-6 ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY

U.S. ENVIRONMENTAL PROTECTION AGENCY

OIA Meeting 4-28-02

ORD: Will Wheeler

NCEE: Brian Heninger

OIA: Paul Cough 

Votes (%)

Topic ST LT

Tools for measuring environmental effects of trade agreements, including changes in terms 

of trade, location of production, or means of production (if changes have environmental 

consequences); linking economic models with pollution intensity and effects 30 30

How different rules (e.g., banning methyl tertiary butyl ether) affect foreign investment, 

product movements/flows 2.5 2.5

Finance: How do we pay to provide safe drinking water to developing countries? 

How should environmental improvement be paid for (domestic vs. international finance, 

public vs. private, end-of-pipe vs. other methods)? 2.5 2.5

Environmentally preferable green products: How do you adjust incentives to promote their 

use/production in accordance with trade laws (e.g., shade-grown coffee, voluntary or 

mandatory labeling)? 22.5 22.5

Corporate environmental stewardship: Will people appreciate trade more if companies are 

good citizens (e.g., private international agreements on pollution prevention [P2])? 22.5 22.5

How trade affects environmental regulation 20 20

Total 100 100

OPEI/OEPI Meeting 6-3-02

ORD: Will Wheeler 

NCEE: Brian Heninger

OEPI: Katherine Dawes, Pamela Kogan 

Votes (%)

Topic ST LT

How trading actually works in practice (water, nonpoint source pollution): flexible 

permitting, performance-based, across-media trades 50 40

Water infrastructure, aging of publicly owned treatment works (POTW); could cost a lot, 

so how to invest? 40

Do innovative programs (e.g., flexible permitting) lead to disparities even if there is 

superior performance? EJ aspects (e.g., hotspots), how do you avoid this? 10

Incentives for beyond-compliance performance (is compliance assistance a good incentive?); 

e.g., the Environmental Results Program in Massachusetts. Demonstrating cost-effectiveness 

and environmental soundness for other states 20

Retrospective analyses of innovative programs: POTW, bioreactors, P2 permitting pilots, 

more successful “eXcellence and Leadership” (XL) projects

continued
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY A5-7

U.S. ENVIRONMENTAL PROTECTION AGENCY

Votes (%)

Topic ST LT

Expanding markets for metals recycling/recovery (Resource Conservation and Recovery Act 

[RCRA]) 20

P2 for small businesses 20

Total 100 100

OPEI-Small Business Division Meeting 7-22-02

ORD: none

NCEE: Julie Hewitt, Ann Wolverton

Small Business Division: Tracy Mattson, Larry Tessier, Jim Malcolm, Tom Nakley, Daniel Eddinger, 

William Crosswhite, Elsa Bishop 

Votes (%)

Topic ST LT

Literature search for relevant small business economic research; would help program offices 

to do better SBREFA analysis 25

Cost to implement EMSs to large vs. small businesses: What works? What does not work? 

What motivates small businesses to implement? (Sometimes large firms require suppliers to 

have an EMS to stay on the bidding list.) 25

Measurement of true costs for small businesses (get a better idea of the economic impact; 

small businesses are a different animal from large businesses and are motivated by different 

factors). Is the type of economic analysis we are doing appropriate in this context (e.g., use 

of profit margin instead of revenues)? 25 30

Incorporation of unique characteristics of small businesses into economic analysis 25 30

Update cumulative impact report completed in 1988 40

Data collection: building a database that accurately reflects revenues, costs, and profits of 

small businesses; geographical breakdown; labor differences, capital investment, etc. 

What motivates small business behavior?

Evaluation of past rules to identify gaps/where we could have done better in our analysis 

(over- or underestimation of universe affected, costs, etc.), and what we are missing 

Total 100 100
A5-8 ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY

U.S. ENVIRONMENTAL PROTECTION AGENCY

OPPTS/IO Meeting 5-6-02

ORD: Matt Clark

NCEE: Brian Heninger

OPPTS: Sandy Evalenko 

Votes (%)

Topic ST LT

Value of information to the public; requiring companies to provide use and exposure 

information has costs, but what are the benefits? 30

Human health valuation for nonmonetized endpoints: How do you consider nonmonetized 

benefits? Values for endocrine disruptors, values for special populations (e.g., farm workers)? 

Lead a specific need. 30 25

Ecological valuation for nonmonetized endpoints: endocrine disruptors and lead 15 35

Expand literature on latency issue 25

Children’s health valuation for specific endpoints 30

Market mechanisms/voluntary programs (e.g., technical assistance) 10 10

Total 110 100

OPPTS/OPP Meeting 4-23-02

ORD: Becki Clark, Matt Clark, Will Wheeler

NCEE: Julie Hewitt

OPP: David Widawsky, John Faulkner, Jihad Alsadek, Carole Battle, Tim Kiely, Steve Smearmann, 

Alan Halvorson, Istanbul Yusuf, Arthur Grube, Philip Villanueva, T.J. Wyatt, F. Hernandez

Votes

Topic ST LT

Valuing aquatic impacts from pesticide use 9

Extending Zilberman-type work on tradeable permits for pesticides 2

Quantifying benefits 3

Measuring the impact of the Food Quality Protection Act on growers and consumers; 

refining and improving agriculture sector models (Agricultural Simulation Model, U.S. 

Agricultural and Resource Model) to accommodate pesticide regulatory models 9

How do pesticide users decide which pesticide/product to use (including price, rate of return), 

and how much? 4 3

Pesticide usage on nonagricultural sites (residential, school) 1

Value of avian species 1

Evolution of chemical industry; change to sustainable agriculture, biotechnology 1

Valuation of human health impacts by pesticide class 5 3

Effects of biotechnology on chemical use 1

Integrating risk assessments with valuation 1

continued
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY A5-9

U.S. ENVIRONMENTAL PROTECTION AGENCY

Votes

Topic ST LT

Risk perception and valuation; how consumer risk perceptions (e.g., organics) affect 

behavior; how fear of remote risks (e.g., biotechnology) affects valuation; effects of green 

labels on consumer and farmer behavior 1

Combine usage information into a user-friendly software 6

Discounting; what rate to use (time stability)

Burden on the health care system as a consequence of pesticide use

How regulatory decisions have affected the agricultural industry

EPA’s role in communicating risks and benefits 1

Comparative evaluation of pesticide regulations; efficiency gains 2

Risk analyses (acre treatments vs. percentage of crop treated) 1

Improve major vendor’s pesticide data for usage data (targeting) 4

Regulatory impacts under market distortions

How timing of regulatory decisions affects outcome 1 1

Appropriate use of cost-benefit analysis

Institutional restrictions on pesticide use/usage (keeping a subsidy for a specific crop, 

lending requirements)

Economics of reducing expected risk vs. regulated risk (safety factors) 1 2

Impacts of global warming on pesticide use 4

Managing global climate change on pesticide use 3

Total Votes 36 34

OPPTS/OPPT Meeting 5-08-02

ORD: Will Wheeler, Matt Clark

NCEE: Ann Wolverton

OPPT: Bob Lee, Gary Cole (summarizing rest of office) 

Votes (%)

Topic ST LT

Incentives for voluntary programs (both business and consumer-related): What induces a 

firm’s/consumer’s decision to participate? How do these systems work? What change in 

behavior results from the provision of new information to consumers (e.g., labeling)? 

When is a voluntary program a good strategy in relation to a regulatory program? 50 50

Benefits from informational rules: Do real improvements occur as a result of information 

provision? Do we solve market failures with these kinds of rules? 30 30

Discounting/intergenerational equity 20

Value of statistical life-years/QALYs 20

Total 100 100
A5-10 ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY

U.S. ENVIRONMENTAL PROTECTION AGENCY

ORD Meeting 6-6-02

ORD: Matt Clark, Will Wheeler 

ORD: Anne Grambsch, Randy Bruins, Lynn Papa, Matt Heberling, Betsy Smith, Haynes Goddard, 

Hale Thurston, Beth Lemberg

Votes (%)

Topic ST LT

How can nonmarket values be used to prioritize ecological restoration projects or inform 

other choices (as in ecological risk assessment)? 15 6.66

Develop scenarios of technical and regional economic change and how these will affect 

environmental quality 16.67

Retrospective study of environmental restoration costs vs. prevention 8.33

Incorporating nonmonetized values of ecosystems or other ways to value ecosystems 20

New or novel approaches to link quantified morbidity effects of air pollution with 

economic values 13.33

Economic value of ecosystem services: How does this change by level of aggregation? 

Spatial-temporal scales? 16.67 16.67

Important health metrics when valuing health risks and types of information that risk 

assessors can provide to economists 10 10

What behavioral modifications can individuals take to adapt to climate change and how 

can they be activated? 6.67 6.67

Investment strategies to manage nonpoint water quality problems and habitat restoration 

(including stormwater) 16.67 16.67

Can market-based mechanisms guide these investments? What type of market structure/

institutional arrangements would achieve efficiency within explicit ecological constraints? 10 10

Total Votes 100 100

OSWER/OERR Meeting 4-30-02

ORD: Will Wheeler

NCEE: Julie Hewitt

OERR: John Harris (Dave Slutsky, contractors)

Votes (%)

Topic (SUPERFUND) ST LT

Identifying, quantifying, monetizing existence and use (including passive use recreation) 

values of open-space lands 50 30

Understanding both landowner and nonlandowner potentially responsible parties’ (PRPs) 

behavior. Why do PRPs mothball sites? Why do PRPs cooperate and why don’t they? 

What leads to site reuse? Compliance disincentives for cooperative behavior? 30

What is the optimal solution when there are multiple sites in a geographic area? 20

continued
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY A5-11

U.S. ENVIRONMENTAL PROTECTION AGENCY

Votes (%)

Topic (SUPERFUND) ST LT

Appropriate discount rate for intergenerational flows 40

Monetizing ecosystem service values 20

How to value messes not made or voluntary cleanup (i.e., the bigger picture benefits of 

Superfund program). What is the appropriate methodology for capturing these as indirect 

benefits? 10

What portion of the health benefits of cleanup is capitalized into property values? Can we 

be certain there is no double-counting?

How to compare and value alternative re-uses of contaminated sites

Why isn’t there more of a market for environmental insurance? Are there adequate 

mechanisms to bottle risk for transfer?

Why are states in a race to the bottom? Are they competing for business?

How to measure cultural values

EJ questions in economics terms

Is there a catalytic impact to resolving a National Priorities List site? What does it trigger?

Is there a value to permanent solutions over temporary (30 years) solutions? To clean it up 

and haul it away, or to contain it?

Cleanup level is often tied to next use. Are there intergenerational impacts to this? 

Are there financial tools to remedy this?

Cross-program interactions (State Implementation Plan in air)

Groundwater: Clean up the aquifer or pump and treat? Law says the former, but is 

the latter more rational?

Multicriteria analysis

Value of EPA information being organized and presented differently to the market

Stigma: Is it attached to Agency action or to existence of contamination in the first place?

How to meaningfully communicate a cost-benefit analysis to noneconomists

Total 100 100
A5-12 ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY

U.S. ENVIRONMENTAL PROTECTION AGENCY

OSWER/OSW Meeting 4-24-02

ORD: Becki Clark, Matt Clark, Will Wheeler

NCEE: Lanelle Wiggins

OSW: Lyn Luben, Mark Eads, Glenn Farber, Gary Ballard, Jan Young 

Votes

Topic ST LT

Cost issues related to a technology learning curve: How much and how does technology 

become cheaper to operate (and to buy) every year? 3

Price elasticity of demand for hazardous waste as a fuel 1

Benefits, primarily from reduced lead exposure in children and adults; look at threshold 

effects 1

How can economics stimulate and measure progress in solid waste recycling, solid waste 

energy recovery, and retail product stewardship? Economic incentive approaches to waste 

reduction in the realm of corporate decision-making? 1

How can economics play a role in industrial ecology approaches to solid waste management?

What role/direction can economics provide to OSW’s RCRA 2020 vision?

Valuation of avoided contamination of groundwater (specifically address non-use values) 1 1

Valuation of avoided acute events (explosions, toxic gas clouds, fires, major spills) 1

Effects of RCRA regulations on private-sector recycling decisions 1

Success of extended product responsibility 1

Tools and database to cross-walk cost/sales to economic impacts (firm closures, profit 

reductions)

Guidance or tools for translating engineering/out-of-pocket costs to social costs 1 1

How do sociological values affect corporate or individual economic decisions? 1

Intergenerational equity issues: What premium does society place on future generations? 1

Valuation of ecological services: ecosystems, groundwater, biodiversity 3 2

Tradable permit program for hazardous waste 1

Nonconstant or differential (between benefits and costs) discount rates 3

Additional benefits from P2 (versus remedial activities) 1

When is it cost-effective to segregate waste by retrofitting a facility rather than shipping 

commingled waste offsite?

Liability thresholds for onsite waste management

Understand social cost of using virgin materials vs. reuse 1 1

Sustainability analysis (renewables vs. nonrenewables) 2

Looking at ways to fortify existing hazardous waste markets; improve profitability, improve 

participation/coverage; achieve with incentives, regulatory, and nonregulatory programs

Equity and EJ 1

Total Votes 15 15
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY A5-13

U.S. ENVIRONMENTAL PROTECTION AGENCY

OSWER/OUST Meeting 08-5-02

ORD: Will Wheeler

NCEE: Chris Dockins 

OUST: Maricruz Magowan 

Votes (%)

Topic ST LT

Average cost of an Office of Underground Storage Tanks cleanup (preferred by state or 

by region) 40

What is the average cost of training one inspector? Ideal number of inspectors? 

Ideal frequency of inspection? 20

Benefits of revitalization of sites/underground storage tank fields 10 15

Database: age of tanks 5

Economic evaluation of leaks: frequency and causes 5 10

Evaluation of the Leaking Underground Storage Tank Trust Fund financial assurance formula 20 15

Benefits of increased expenditures on cleanup 10

What economic factors drive owner and operator decisions? What opportunities would be 

more profitable and/or increase compliance? 15

Database: location of tanks 35

Total 100 100

OW/IO Meeting 4-25-02

ORD: Matt Clark, Will Wheeler

NCEE: Chris Dockins

OW: John Powers, Mahesh Podar, Ron McHugh 

Votes

Topic ST LT

A framework for ecological service valuation to comprehensively estimate benefits 3

Water quality/quantity interactions; cause climate change on quantity (feeds into 

ecological valuation) 2

Monetization of QALYs/disability-adjusted life-years (DALYs)

Monitoring technologies that make trading feasible and improve assessments 2

Institutional constraints (transaction costs) affecting transition from technology-based 

regulations to an incentive-based regulatory system (e.g., from effluent limit guidelines 

[ELGs]) to tradable limits—total maximum daily loads [TMDLs]); this transition is difficult 

because institutions support existing structures. 2

CGE models that can be used in regulatory decision-making 2

Systematic framework for valuing mortality/morbidity 2

Integrated regional assessments of watersheds (e.g., hypoxia in Gulf)

continued
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Votes

Topic ST LT

Trading in the context of TMDLs, multipollutant and multi-TMDL (scale); also between rivers 3

Creating markets for multiple service flows between stakeholders 2

Systematic strategy for environmental priority-setting

Total Votes 9 9

OW/OGWDW Meeting 2-28-02

ORD: Matt Clark, Will Wheeler 

NCEE: Brian Heninger 

OW: John Bennett, Tricia Hall, Becky Allen, Ephraim King

Votes

Topic ST LT

Cost-effectiveness analysis, especially regarding life-years or QALYs as a subset (how to 

respond to a request for these analyses). How much dose-response information (by age) 

do you need for a life-years extended analysis? 2 1

Reproductive and developmental valuation (e.g., miscarriages and stillbirths) 1 2

Focus on treatments costs; need social costs of regulations 1 2

OGWDW uses a decision tree to predict technology adoption and cost estimation; 

discovered tree was inaccurate (facilities adopt management practices or get new sources 

in lieu of treatment; treat for taste and odor; install technologies at the same time).

How to improve understanding of decision processes; retrospective studies are one avenue. 3

Integration of the Safe Drinking Water Act and Clean Water Act/interaction of treatment cost 

savings 2 4

Valuation of leisure time

Value of gastrointestinal (GI) distress incidents (U.S. Department of Agriculture uses 

cost-of-illness [COI] approach.) 1

Data needs for QALYs

Application of qualitative endpoints when national incidence is not known

Characterization of uncertainty in benefits estimates

Valuation of health endpoints for children and the elderly 1 1

Variation in mortality value (willingness to pay [WTP] for cancer death vs. accident; 

age; voluntariness; dread, etc.) 1 1

Alternative risk-reduction measures (e.g., seat belts vs. drinking water contamination): 

If risk reductions come from different budgets, how do you compare them? 2

Costs to parents of a child’s illness

MM&Is in a drinking water context 1

Life-years cost-effectiveness analysis 2 2

Total Votes 15 15
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OW/OST Meeting 5-7-02

ORD: Becki Clark, Matt Clark, Will Wheeler 

NCEE: Lanelle Wiggins

OW: Chris Miller, Bill Anderson, Nick Bouwes, James Covington, Renee Johnson, Kristen Strellec

Votes

Topic ST LT

Defining new water quality uses (guidance on widespread economic impacts for states, 

regions)

Valuation of noncancer morbidity effects from toxic pollutants 1 1

WTP values that reflect latency period so they can be applied at time of exposure 2 1

EJ: How do our rules affect communities? Benefits of improved EJ 2

How do you incorporate growth factors into impact analysis? Incentives for smart growth 3

Tradable permits; TMDLs vs. water-quality standards vs. ELGs: How do you design them to 

work? Focus on market mechanism issue (add development credits) 1 2

Intergenerational impacts; how discounting affects future generations: Should it be done? 1

A retrospective study: how ELGs affected industries/small businesses that have been 

regulated 2

Cancer mortality risks (better link between risk and human health/mortality) with 

dose-response function 1

WTP to avoid risk of various health endpoints from major pollutants

Guidance on assessing financial impacts to individual firms/facilities (e.g., consistency/

what to use depending on kind of data/industry) 1 2

Measuring impacts on nonpoint/agricultural sources, other nontraditional industries; 

little guidance available on impacts to noncorporate structures 2 2

Ecological valuation; impacts from removal of nutrients/total suspended solids 2 1

Valuation of avoided pathogen exposure to humans, wildlife, agriculture 2

QALYs 2

Environmental ethics (e.g., EJ, QALYs, impacts on nonhumans, intergenerational) 1

Benefits from reduction in ammonia and hydrogen sulfide air emissions

Environmental accounting/impacts linked to environmental accounts 1

Effectiveness of voluntary programs (e.g., an EMS) 1 2

Total Votes 18 18
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OW/OWM Meeting 4-29-02

ORD: Will Wheeler, Matt Clark

NCEE: Julie Hewitt

OWM: Laura Palmer, Ginny Kibler

Votes

Topic ST LT

Documenting market failures based on a lack of information about the environment or 

about how their actions affect the environment 2

Agricultural impacts: 1

Q Value of impacts from agricultural pollution on groundwater and surface water

Q Health and ecological effects of agricultural pollution on groundwater and 

surface water quality

Q Impact of aquatic animal production (aquaculture) on surface water quality: 

When is benefit transfer okay?

Issues in water quality valuation: 1 1

Q Do people value water that is not new to them?

Q Valuation of small vs. large streams; small streams that feed into large streams

Q Are water-quality values sensitive to recreational or other uses?

Value of produced species relative to natural species (invasive threat, substitution benefit) 1 1

Management practices: 2

Q How to measure cost-savings from improved management of collection system 

(i.e., sewer)

Q Tradeoff of operation and maintenance vs. future capital

Q What are the costs and benefits of improved management practices?

WTP or COI values of avoiding specific illnesses (earaches, headaches, coldlike, non-GI, GI) 

with different durations 1

QALYs

Replacement for Mitchell-Carson study approach for large national rules 1

How to account for baseline closures

How to handle 1-year (or limited) data in a cyclical industry

Total Votes 5 6
APPENDIX 6 SCIENCE ADVISORY BOARD 

PEER REVIEW COMMENTS

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APPENDIX 7 EPA RESPONSES TO INTERNAL AND

EXTERNAL REVIEWS

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INTRODUCTION

Before being submitted to the SAB for external peer review, the EERS was reviewed by ORD’s Science

Council. Science Council members had comments on the report organization, such as moving much of the

text to appendices to improve readability. These suggestions were largely incorporated. Other Science

Council suggestions included increasing the description of linkages between this Strategy and other programs, which was accomplished in Appendix 3, and extending a discussion of QALYs and DALYs, which is

accomplished below, in response to SAB comments. 

In the rest of this appendix, EPA provides detailed responses to the SAB EEAC comments, found in narrative

form in Appendix 6: Review of the Environmental Economics Research Strategy of the U.S. Environmental

Protection Agency. By itself, EPA may not be able to address all of the SAB’s suggestions immediately because

of resource constraints. However, the SAB’s comments comprise a wealth of potential research topics and

should generate a significant amount of additional research by environmental economists in government and

academia. 

2.1 VALUATION OF HUMAN HEALTH BENEFITS OF ENVIRONMENTAL IMPROVEMENTS

2.1.1 Characterization of Research Gaps and Priorities

Charge Question: Is the characterization of each of the major research gaps in the literature adequate? 

Will these priorities and implementation approaches effectively address the areas of greatest scientific 

uncertainty?

Most of the literature on human health valuation has focused on mortality valuation-measuring what individuals will pay for small reductions in their risk of dying in a specified time period. As the EERS notes,

much less effort has been invested in measuring what people will pay to avoid episodes of acute illness or to

reduce their risk of contracting a chronic illness (morbidity valuation).1 As a result, many health endpoints

are not monetized in Regulatory Impact Analyses; or their value is measured by productivity gains and avoided medical costs, which are a lower bound to the appropriate measure of value. In the area of morbidity valuation, the EERS (p. 10) calls for valuation of noncancer endpoints; earaches, headaches, colds, gastrointestinal

upsets, reproductive and developmental effects (e.g., Attention Deficit Disorder, autism), and cancer-related

morbidity effects. On p. 15 of the Research Strategy, more emphasis is put on chronic health effects. The

EERS notes that it is important to allow valuation to depend on severity, duration, and frequency of symptoms. Emphasis also is put on valuing children’s health.

According to the EERS, the main needs in mortality valuation (p. 16) focus on the impact of age on the Value

of a Statistical Life (VSL) and on the impact of the health status of the individual and co-morbidity (illness

preceding death) on the VSL. 

COMMENT HEALTHVAL 1

The Committee agrees with the Agency’s assessment on the lack of estimates of the value of morbidity risk

reduction benefits. Willingness to pay (WTP) estimates are indeed unavailable for many cancers, as well as

1 WTP estimates exist for reduced risk of chronic bronchitis and for some cancers, as well as for asthma attacks, restricted activity days, and

symptom days.
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for risks of heart attacks and strokes. WTP estimates for the other health endpoints noted in the first paragraph also are lacking.

Response: Noted. This is a factual comment. No response is required.

COMMENT HEALTHVAL 2

In many cases, the productivity losses and medical costs associated with illness are not born by the individual. If this is the case, estimates of productivity losses (the so-called indirect costs of illness) and medical

costs (the direct costs of illness) must be added to WTP estimates. Estimating these illness costs is itself a

research task whose importance should not be underestimated. 

Response: EPA agrees with this comment, and the final EERS has been revised (see Chapter 3) to identify

these factors as characteristics of desired research.

COMMENT HEALTHVAL 3

Regarding the Agency’s priorities in the area of mortality valuation, the impact of age on the VSL is an important, policy-relevant topic. Any environmental regulation that saves lives in proportion to the age distribution of deaths in the U.S. will primarily extend the lives of older people. (Fifty percent of the deaths in the

United States occur after age 75.) 

Response: Noted. This is a factual comment. No response is required.

COMMENT HEALTHVAL 4

Regarding the impact of health status and co-morbidity on the VSL, the important issue here is whether environmental pollution causes chronic illness or simply increases mortality risk for people who have preexisting

chronic conditions. When environmental contaminants cause a disease, it is theoretically desirable to value

the risk of contracting the illness (such as cancer), which will entail both morbidity and a reduction in life

expectancy. If pollutants differentially affect mortality risk for those with a preexisting condition (e.g., cardiovascular disease), then efforts should be put on measuring the impacts of the health state on the value of

increasing life expectancy.

Response: EPA agrees that the decision to value the mortality and co-morbidity (or incidence and risk of

death) of a given health endpoint either together or separately should consider all theoretically relevant 

factors, including preexisting conditions. The valuation approach should try to capture individuals’ WTP for

actual changes in health states. (This has been noted in Chapter 3 of the final EERS.) See also Comment

HEALTHVAL 9 on the next page.

COMMENT HEALTHVAL 5

There are three topics in the area of mortality risk valuation that the Committee believes deserve attention,

even though they are not mentioned in the EERS. The first concerns the reliability of existing estimates of

the VSL, which rely on labor market and on stated preference studies. The Agency has recently commissioned re-analyses of data from compensating wage studies (Black, Galdo, and Liu, 2003) and of data from

contingent valuation studies of mortality risks. Examination of these results may suggest that emphasis

should be placed on developing newer, more reliable estimates of the VSL. 
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Response: As the SAB reviewers note, EPA has requested an SAB EEAC review of the Black et al. study and

the broader literature on mortality valuation. The main goal of this review is to inform EPA’s guidance on

valuing fatal risk, but the charge to the EEAC also specifically asks about the need for new mortality valuation research. EPA will incorporate suggestions about mortality risk into the EERS implementation plan after

this second review. Nothing in the current EERS would preclude this research direction; in fact, it was a highpriority short-term research area. 

COMMENT HEALTHVAL 6

The second research topic concerns the issue of marginal versus nonmarginal risk valuation. Emphasis in 

the literature is on valuing small changes in risk of death, on the order of 1 in 10,000 per year or smaller.

The Agency, however, uses these estimates to value regulations that, together, account for much larger risk

reductions. To illustrate, The Benefits and Costs of the Clean Air Act 1970-1990 (U.S. EPA 1997) predicted that

air quality regulations issued between 1970 and 1990 reduced mortality by 200,000 lives in 1990. When a VSL

of $4.8 million (1990 USD) was applied to these statistical lives, the WTP in 1990 for mortality risk reductions occurring in that year was estimated to be approximately $16,000 (1990 USD) for a family of four.2

This was because the VSL was applied to a nonmarginal reduction in risk of death (on average, a 1/1,000

reduction). 

Response: EPA agrees that its research portfolio should include studies that either evaluate nonmarginal

changes in risk or investigate how to properly “add up” values for marginal changes that, when totaled,

become nonmarginal changes. We will consider these issues in future internal research and in the scope of

future extramural solicitations. 

COMMENT HEALTHVAL 7

Similarly large benefit estimates may arise when one adds together WTP for the risk reductions associated

with the 1990 Clean Air Act Amendments, the Tier II Emissions standards, the Heavy Duty Engine Diesel

Rule, the Off-Road Diesel Rule and Clear Skies. In short, although a single regulation may confer marginal

risk reduction benefits, the set of environmental regulations evaluated over a 10-year period may confer 

nonmarginal benefits, and should be evaluated accordingly.

Response: Please see the response to Comment HEALTHVAL 6.

COMMENT HEALTHVAL 8

The third research topic concerns the impact of income on the VSL. Historically EPA has adjusted future 

values of the VSL to allow for income growth. Such adjustments require estimates of the income elasticity 

of WTP for mortality risk reductions. We believe that this is a topic that requires additional research.

Response: Noted. EPA will consider this topic in future solicitations and internal research.

2.1.2 Research Feasibility

Charge Question: Given the implementation strategy laid out in the EERS: To what extent is this research

scientifically feasible at a high level of quality? How successful is this research likely to be in answering 

policy-relevant questions for EPA within the next 8-10 years?

2 The total value of the statistical lives saved, $1 trillion, when divided by the population of the United States in 1990, implies a WTP of

approximately $4,000 per person.
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COMMENT HEALTHVAL 9

There are several criteria to consider in formulating a research strategy for morbidity valuation:

a. The approach taken should be able to evaluate a large number of health endpoints;

b. It should, ideally, value the risk of avoiding chronic illness rather than avoiding the illness with 

certainty;

c. The definition of health endpoints should take into account the severity, duration and frequency of

symptoms; and

d. The health endpoints valued should correspond to those linked to environmental pollutants in the 

epidemiological literature.

Response: EPA agrees that these are proper criteria in formulating a research strategy for morbidity valuation

and will use these criteria in developing future solicitations and research projects in this subject area.

COMMENT HEALTHVAL 10

An important question, related to mortality valuation, is whether chronic morbidity and mortality should 

be valued as part of the same package. For example, should people value the risk of developing congestive

heart failure as the risk of experiencing a series of hospital episodes, recurring discomfort and shortened life

span? Or, should the impact of air pollution on the morbidity associated with congestive heart failure be 

valued separately from the impact of air pollution on the mortality associated with congestive heart failure?

The answer to this question depends crucially on the point articulated in item (d) above. If the epidemiological literature suggests that air pollution increases risk of death due to congestive heart failure (and other

forms of heart disease), but does not link air pollution to increased incidence of the disease, then valuation

should mirror this approach. For diseases where environmental contaminants may actually increase the 

risk of contracting the disease (e.g., for some cancers) then, assuming that people can comprehend both 

the risk of the disease and its sequelae, the goal should be to value the morbidity and mortality risks as a

single package.

Response: Please see the response to HEALTHVAL 4. EPA agrees that morbidity and mortality valuation

research should follow from research results in the health science research literature. To improve this 

linkage, EPA also is initiating an effort to incorporate behavioral variables in epidemiologic studies.

COMMENT HEALTHVAL 11

Regarding the number of health diseases to be valued, a possible approach to dealing with the point articulated in item (a) above is to have people value functional limitations (characterized by severity, duration, and

frequency), which, in turn, are related to illnesses. This is likely to work best for chronic illnesses and less

well for acute illnesses. Obtaining reliable values for the risk of an illness will remain a challenge. 

Response: EPA generally agrees with this suggestion. As noted in the draft EERS, “a long-term strategy might

be to develop methods that generate cost-effective and theoretically plausible values for multiple health endpoints, such as valuation of symptoms or health status indices, and improved methods for benefit transfer.”

However, any such indices or transfers must be based on theoretically and methodologically sound and

empirically valid studies that have been rigorously peer-reviewed by economists. 
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COMMENT HEALTHVAL 12

One potential area of research is to examine whether it is possible to use information contained in measures

of health preference, such as QALYs, that are used in other public-health domains to provide a method for

transferring benefit estimates from one health endpoint to another. 

Response: Please see the response to Comment HEALTHVAL 11. 

COMMENT HEALTHVAL 13

Regarding estimates of the value of mortality risk reductions, it would seem that stated preference methods

are the main candidates for studying the impact of age and health status on WTP, although it may be possible

to use revealed preference methods for the impacts of age in the context of auto safety. (Labor market data

probably cannot be used to estimate WTP for ages greater than about 65 because of the relatively small fraction of the elderly who are employed [Viscusi and Aldy, 2003]). The use of both stated and revealed preference methods to value reductions in risk of death is advisable. 

Response: EPA agrees that, based on existing mortality studies, stated preference methods are preferred to

revealed preference methods for valuing mortality risk outside of the workforce, but that both methods

could provide useful information, particularly if new revealed preference approaches are developed that

would address the shortcomings of labor market studies for some age groups.

COMMENT HEALTHVAL 14

Regarding the issue of valuing nonmarginal risk changes, this is certainly feasible using stated preference

approaches. Recent advances in dealing with the identification problem in hedonic markets suggest that this

should also be feasible in a revealed preference context (Heckman, Matzkin, and Nesheim, 2003). 

Response: EPA will consider this as a possible focus in future health valuation research. 

COMMENT HEALTHVAL 15

The Committee believes that progress in the area of health valuation can be made, with appropriate funding,

within the next 8-10 years. We believe that for these efforts to be successful, and to yield high-quality

research, it is essential that the economists conducting the research work together with epidemiologists to

ensure that the health effects valued match up with those examined in the epidemiological literature, and

with physicians to ensure that any health status indices that are used to facilitate evaluating a large range of

health endpoints are appropriate to the task.

Response: EPA agrees that economists and health scientists should work together on these issues. EPA also

agrees that its valuation research will be more effective by focusing on valuing health endpoints that can be

identified and measured. However, EPA notes that health risk assessments cannot rely solely on epidemiologists or on physicians’ opinions but should also rely on toxicology, biomarkers, and exposure studies.

Economists need to work with all of these disciplines to get a full and accurate picture of environmental

health effects.

2.1.3 Usefulness of the Research

What improvements in the design and implementation of the EERS would make each research project more

useful to EPA and other environmental management agencies?
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COMMENT HEALTHVAL 16

The Committee believes that it is important to measure the impact of household characteristics on WTP 

for both morbidity and mortality benefits. This is important if the Agency is to examine the distributional

impacts of environmental policies. It is also the case that certain air pollution epidemiology studies distinguish health effects by socioeconomic status (e.g., Pope et al., 2002). Making these distinctions in terms 

of valuation would make it possible to further refine the distributional impacts of air pollution control

strategies.

Response: EPA agrees that household (and other demographic) characteristics can be important in measuring

WTP for morbidity and mortality effects, provided that the ethical considerations underlying this approach

are made explicit in each analysis (see SAB Comments MM&I 14 and 15). This approach, or extension, will be

considered in developing further health valuation and other environmental economic research.

2.2 VALUATION OF ECOLOGICAL BENEFITS OF ENVIRONMENTAL IMPROVEMENTS

2.2.1 Characterization of Research Gaps and Priorities

Charge Question: Is the characterization of each of the major research gaps in the literature adequate? 

Will these priorities and implementation approaches effectively address the areas of greatest scientific 

uncertainty?

COMMENT ECOVAL 1

The EERS identifies a number of endpoints for which valuation of ecological services will be useful. These

endpoints include water quality changes, ecological impacts of air pollution, introduced versus native

species, avian species, etc. Although this way of thinking about the benefits of ecosystem improvement is

consistent with how economists view the valuation of many goods, this single endpoint focus is not generally consistent with how ecologists view ecosystem functioning. For research in ecological benefits to be

most valuable, there must be a high level of interaction between economists and ecologists. 

COMMENT ECOVAL 2

To begin, there must be a broad understanding of the way in which ecologists view ecosystem functioning.

For example: The research plan refers to “outcomes” as if ecosystems are mechanical” (i.e., when the level 

of an insult increases the ecosystem has predictable new equilibrium outcomes). This characterization of

ecosystem dynamics may be appropriate in some cases, but this is not the way ecologists think about ecosystem responses generally. Rather, they tend to think of ecosystems as constantly changing, with different

levels of insult affecting the course of change. Even if there is an equilibrium, the equilibrium may not be

reached for decades or a century, so outcomes have to be thought of in a more dynamic way. 

COMMENT ECOVAL 3 

On the other hand, ecologists do think of the services provided by well-functioning ecosystems as something

that can be characterized and assessed. This may be the point at which ecologists and economists can best

find meeting points. 

Response to Comments ECOVAL 1-3: In line with the SAB’s suggestion, EPA typically attempts to measure

policy-induced changes in structure and function of an ecological system based on ecological studies, and

then to estimate changes in the (valuable) service flows that are produced by that ecological system. EPA has
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a large number of ecologists in its research and program (regulatory) offices, with whom EPA economists

often work closely. EPA also has initiated a number of solicitations for extramural research that requires ecologists and economists to work together, and is developing an Ecological Benefits Assessment Strategic Plan

based on sustained interaction between economists and ecologists. 

COMMENT ECOVAL 4 

Ecologists are more concerned with thresholds and irreversibilities in ecosystems than in the pros and cons

of changing from one equilibrium to another. One of the effects of a change may be that the ecosystem is less

resilient to the next insult, so alternative scenarios of future insults need to be explored, not one-time changes.

COMMENT ECOVAL 5

This brings us back to earlier efforts to tackle cumulative effects. Ecologists do not think of stresses as being

separable. Hence, they are more “conservative” than economists who are comfortable with the assumption

that stresses are separable and hence can be considered “on the margin.” For ecologists, the order of stresses

also can be important. The earlier efforts of economists to understand cumulative impacts should probably

be reviewed as a starting point for moving forward in this respect.

Response to Comments ECOVAL 4-5: EPA acknowledges the importance of the divergence in how ecologists

and economists view an ecosystem. ECOVAL Comments 4 and 5 are both similar to the issue of visibility valuation, in which one regulatory action alone might not produce a perceptible change in visibility, but two or more

regulatory actions together will produce a measurable change that can be perceived and valued. This is analogous

to an ecosystem in which one individual ecological stressor might not change the “outputs” from that ecosystem but will change its resilience so that additional future stresses might have a much more profound effect

on ecosystem services. A change in an ecosystem’s resilience is an attribute that currently is not captured very

well. Resiliency is a suitable focus for future research, provided it can be linked to people’s observable choices.

COMMENT ECOVAL 6

Although it would be nice if ecologists could simply provide predictions of ecosystem behavior to meet economists’ specifications of what they need, the fact of the matter is that ecologists are the experts on ecosystems. Implying that the economists need something that is contrary to the expertise of ecologists may not 

be a good starting point for what has to be a joint project. The Research Strategy should address how economists and ecologists in the Agency can learn more about what each other knows and how they can develop

shared understandings, language, and models. 

Response: See the response to Comments ECOVAL 1-3. It is not the intent of the EERS to imply that EPA

believes “economists need something that is contrary to the expertise of ecologists.” Generally, EPA would

concur that may not be a good starting point for joint projects between ecologists and economists. On the

contrary, as the text explains, discussions between economists, ecologists, and other scientists have been

ongoing within EPA for some time. Both EPA and EPA-supported external economists and ecologists have expended considerable effort trying to learn more about what each other knows and believes and how they can

develop shared understandings, language, and models that can actually be used in the policy evaluation arena.

COMMENT ECOVAL 7

Rather than valuing changes in a single service from an ecosystem (e.g., increased avian species or increased

fish catch), it may be appropriate to work with ecologists to value the entire bundle of service changes associ-
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ated with a change in an ecosystem from one state (perhaps one with a low level of function generally) to

another (one that supports on average more species diversity, more resilience to external shocks, etc.)

Response: EPA agrees that this would be a notable goal and would be interested in new research to achieve

this objective. See also EPA’s response to Comments ECOVAL 1-3.

COMMENT ECOVAL 8

Research on the benefits of ecological systems and services will necessarily need to be ecosystem specific.

Although “outcomes” for human health effects are many and are probably sensitive to the age at which the

problem occurs, they are going to be pretty much true whether a person lives in Phoenix or Philadelphia. For

ecosystems, although there are classifications of ecosystem types that will prove helpful, there are going to be

a considerable number of types. The condition of the ecosystem for which an additional stress is being considered also will be important. Of course, the conditions of people experiencing an environmental stress also

are important, but the stress is generally experienced by a large population of people whose conditions can be

understood in statistical terms. Decisions on ecosystems will much more likely be taken one system at a time.

Response: The first part of this comment is true if the point of departure for valuation is a classification of

ecosystem “types.” However, if ecosystems (e.g., water bodies) are classified according to their uses or their

abilities to provide “services,” as some ecologists suggest, then the comparability across ecosystem types or

indices is more tractable. As with health effects, the value of a boating day would vary pretty much along the

same characteristics whether a person lives in Phoenix or Philadelphia, that is, the availability of substitutes,

scenic amenities, or the quality of the water as a source for complementary recreation (fishing, swimming,

water skiing). It is clear that any transfers of values across ecosystems or ecosystem indices would have to be

done on the basis of characteristics common to both ecosystems. The condition of the ecosystem will be

important, as the comment notes.

COMMENT ECOVAL 9

The EERS recognizes the large reliance the agency places on benefits transfer and the likely need to continue

this reliance. They suggest that a “cost-effective strategy may be to investigate methods that generate theoretically sound values for multiple endpoints.” The Committee generally agrees with the logic of this idea, but

the Agency should consider that the highly contextual nature of ecosystem services may make transfers even

more challenging than when the focus is on single endpoints. Benefits transfer in the case of ecosystems is

exceptionally challenging. 

Response: EPA agrees with this statement but believes the challenge of transferring (multiple endpoint)

index values should be worth the effort, due to the interactive nature of multiple ecosystem services 

(e.g., wetland effects on water purification, flood risk reduction). Ultimately, transfers may be possible 

only for individual services, based on these services’ characteristics, but that is largely unknown at present.

COMMENT ECOVAL 10

One important issue noted in the document is the fact that ecosystem services and functioning are not well

understood by the general public, thus complicating the process of valuation. In addition to eliciting the

value of ecosystem changes, the valuation process usually requires some education of the public. This has

important implications for the resulting values and for the resulting use of benefits transfer. The relationship between physical measures of ecosystem functioning (pollution concentrations in water or air, number
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of species present in a land area, etc), features of an ecosystem that people perceive and the perception of

the ecosystem by people is poorly understood. Because this linkage is critical for valuation, this is an area of

research that might yield high returns to EPA and other agencies. 

Response: Noted. The EERS indicates that this ecosystem “education/preference elicitation” research area is

important. EPA has sponsored several studies (see Hoehn et al., 2003) that specifically address people’s perceptions of ecosystem services, and will attempt to integrate this consideration into future studies and solicitations. 

COMMENT ECOVAL 11

The inherent uncertainties in ecosystem functioning makes the need to characterize uncertainty in the valuation process particularly important when ecosystem values are sought. This is an area where additional work

could be focused. 

Response: EPA agrees with this statement; the treatment of uncertainty in estimating both benefits and

costs is a priority for economic analyses across the Agency.

COMMENT ECOVAL 12

Likewise, additional work on the implications of the “precautionary principle” and cost-benefit analysis

when irreversibility and uncertainty is present may prove beneficial. 

Response: The comment brings an interesting area of ecological valuation research to EPA’s attention that

has not been addressed in a systematic way. We will consider how best to incorporate this concept into

future research. 

COMMENT ECOVAL 13

Another feature that merits focus is the implication of threshold effects and valuation of large rather than

marginal changes. Valuation for dynamic systems and the consequences of valuing changes in ecosystem

services under very long time scales also are issues that EPA may wish to consider. Again, these features may

be unique to ecosystem valuation as distinct from health endpoints or other nonmarket goods. 

Response: Noted. EPA will consider these comments in developing future research projects.

COMMENT ECOVAL 14

Among nonmarket values for ecosystem services, nonuse values are the poorest understood, yet they have

the potential to be very large in magnitude. This implies that research that focuses on nonuse values may

have the highest returns. 

Response: Noted. EPA will consider these comments in developing future research projects.

COMMENT ECOVAL 15

Some committee members felt that materials damage and losses of visibility from pollution should also be

included among environmental benefits to be studied. 

Response: Noted. EPA will consider these comments in developing future research projects.
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2.2.2 Research Feasibility

Given the implementation strategy laid out in the EERS: To what extent is this research scientifically feasible at a high level of quality? How successful is this research likely to be in answering policy-relevant questions for EPA within the next 8-10 years?

COMMENT ECOVAL 16

The Committee sees considerable return on research in the area of ecosystem valuation. With adequate funding, the Agency is likely to see information that is very relevant for policy questions being 

produced. 

Response: Noted.

2.2.3 Usefulness of the Research

What improvements in the design and implementation of the EERS would make each research project more

useful to EPA and other environmental management agencies?

COMMENT ECOVAL 17

Many of the ecological benefits measures needed by EPA also would be of value to other government and

public agencies. Specifically, the U.S. Army Corps of Engineers, Unites States Department of Agriculture

(USDA), Forest Service, and many Non-Governmental Organizations (NGOs) and state agencies would find

ecological benefits work to be highly valuable. EPA should find ways to share research results as well as consider jointly funding and identifying needed research on ecological benefits. 

Response: Noted. EPA has initiated efforts to share research with these agencies in areas of mutual interest.

COMMENT ECOVAL 18

One of the needs identified in the report is for valuation of reductions in pesticides in water, but in many

parts of the country, nutrients are as much or significantly more of an issue. Nitrogen is a clear problem for

hypoxia, while phosphorous and other nutrients are important for local water quality problems in much of

the Midwest. 

Response: Several EPA offices suggested that valuing the effects of nutrient level changes on ecological conditions should be a research focus (see Appendix 5). EPA will consider these comments in developing future

research solicitations.

COMMENT ECOVAL 19

A centralized team of economists in Washington, DC, may not be the ideal configuration of economists for

undertaking research that is going to be inherently more contextual than other types of environmental economic research. More economists are probably going to be needed in the regional offices to carry out ecosystem valuation effectively. This activity also could be enhanced by the use of non-EPA economists (outside of

Washington) with expertise in ecosystems analysis.

Response: Although it is true that ecosystem research and valuation are likely to have context-specific components, EPA has nationwide policy development and regulatory responsibilities. EPA analyses are typically
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conducted at the regional or national level (e.g., for a national rule affecting concentrated animal feeding

operations). More economists in the regions might complement a centralized group of economists in EPA. In

general, however, economic valuation methodology would not vary by locale, although the data informing

the valuation process certainly would. EPA believes there are both economies of scale and synergistic benefits in co-locating a group of economic researchers and analysts who have close ties to academic research; scientists from other disciplines (e.g., ecologists, epidemiologists); and the regulatory process. The benefits of

co-location also seem to hold true in most academic economics departments. Through the STAR grant program,

EPA is supporting research by external economists and ecologists who have successfully competed for grants.

Hiring more economists in the Regions also is outside of the scope of the activities covered by the EERS.

2.3 VALUATION METHODOLOGIES

What methodological research needs in valuation should EPA investigate as a complement to the needs

derived from the strategy interviews?

As noted in the Research Strategy, much of the academic literature in nonmarket valuation focuses on

methodological development. Although this implies that a substantial amount of methodological work may

be produced without impetus from EPA or other agencies, there are some areas of valuation where the needed methodological refinements may not be as forthcoming as others. 

COMMENT VALMETHOD 1

In particular, some areas may not be viewed to be as methodologically interesting as others, but may still be

critical to improving the accuracy of nonmarket valuation in the context of ecosystem services. 

COMMENT VALMETHOD 2

The Committee identified the following topics as being of particular value to EPA programs (See comments

VALMETHOD 2–7):

1. Improved methodologies and tools for benefits transfer as well as increased understanding of the range

of uncertainty associated with the transfer of values from one study site to another. Given the enormous

reliance that EPA and other agencies make on the transfer of benefits to perform benefit-cost analysis,

considerable gains from additional understanding of this process may be possible.

COMMENT VALMETHOD 3

2. Increased understanding of the appropriate extent of the market when taking welfare estimates from

individual values and aggregating them to the full population (this is particularly important for nonuse

values). There is both the issue of having the appropriate sampling frame from which to compute per

household benefits (e.g., a random population survey versus a sample of people visiting a shopping mall)

and the issue of how much of the general population to apply these values to (e.g., households in close

proximity to the impacted resource, all households in a certain political jurisdiction, all households in

the world?). 
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COMMENT VALMETHOD 4

3. Further study of the WTP-WTA divergence literature. In many cases, a strong argument may exist for the

use of a WTA valuation rather than a WTP based on explicit or implicit property rights. 

COMMENT VALMETHOD 5

4. Increased understanding of the appropriate valuation of the opportunity cost of time in revealed preference studies. This concern relates primarily to recreation demand studies, where different assumptions

about the value of time can yield differences in the estimates of welfare changes by a factor of two or

more. 

COMMENT VALMETHOD 6

5. Improved bid design methods for stated preference surveys. Discrete choice stated preference surveys

require the researcher to define the bid distribution for respondents. Potential bias and inefficiency from

suboptimal bid design are not well understood.

COMMENT VALMETHOD 7

6. Although a growing literature in the valuation field combines stated and revealed preference information 

to jointly estimate the parameters of welfare measures, there may be substantial gains to EPA and other

agencies from furthering work in this area. The combination of stated and revealed preference data

enjoys the prospect of grounding welfare estimates in observable behavior while allowing for a much

broader category of benefits to be studied with the inclusion of stated preference information. 

Response to Comments VALMETHOD 1-7: EPA has noted its strong interest in developing valid methods for

benefits transfer. In addition, EPA has sponsored some research in the areas of: (1) the opportunity cost of

time, (2) bid design methodology for stated preference, (3) combined revealed and stated preference, and 

(4) scope issues in health valuation research. To date, EPA has done relatively little to investigate the discrepancy between WTP and WTA, except as it is integral with time preference studies (see Gregory et al., 2004).

EPA is giving serious consideration to the SAB’s recommendations and has already begun to incorporate

some elements of these suggestions into grant solicitations, as appropriate. EPA will continue this practice

for future solicitations.

2.4 ENVIRONMENTAL BEHAVIOR AND DECISION-MAKING 

(Formerly called “Corporate Environmental Behavior and the Effectiveness of Government Interventions

[referred to as CEB]”)

2.4.1 Characterization of Research Gaps and Priorities and Usefulness of Research

Is the characterization of each of the major research gaps in the literature adequate? Will these priorities and

implementation approaches effectively address the areas of greatest scientific uncertainty?
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What improvements in the design and implementation of the EERS would make each research project more

useful to EPA and other environmental management agencies?

COMMENT CEB 1

This topic is one of the most important research priorities faced by EPA. Judging from the survey of EPA 

program offices, this topic is tied with “Valuation of Reduced Morbidity Benefits” for the highest priority.

Several research questions are highlighted, including: (a) Why and how do facilities comply? (b) What policies or approaches increase compliance? and (c) How successful have voluntary programs been? The

Committee offers the following comments on the research goals:

Response: EPA agrees with this comment; CEB research is a high priority for EPA.

COMMENT CEB 2

Previous EPA-funded results. It would be helpful to assess how successful the previous Science To Achieve

Results (STAR) competitions on Corporate Environmentalism have been. 

Response: The STAR grant program undertakes periodic assessments of the success of its supported grant

programs. The CEB grant program is young, entering its fifth year in 2004, and broad, covering a range of

behavioral topics from compliance effectiveness to voluntary programs to information disclosure. As a result,

few compelling results have been demonstrated in any one topical area. However, anecdotal evidence suggests that the STAR CEB program has produced not only numerous publications but also results that corporations, industry associations, and environmental management agencies can use and have used. A research

workshop on CEB in April 2004, was well attended and well received by EPA and state agency staff. As the

SAB EEAC recommends, a CEB comprehensive program evaluation will be tentatively scheduled for 2005 as

part of the Economics and Decision Sciences Research Multiyear Plan.

COMMENT CEB 3

Breadth of research area. This research priority area is termed Environmental (Compliance) Behavior and

Decision-Making. It is unclear whether the focus is limited to compliance-related behavior or whether this

priority area is intended to include broader issues relating to environmental behavior. Some of the specific

questions raised in this context (e.g., location, technology adoption, and pesticide use) do not involve compliance directly. They are questions about how firms make decisions that have environmental implications.

The Committee believes that this is the correct perspective on this issue. Ultimately, EPA’s goal should be to

understand why some firms pollute more (per unit of input or output) than others. This may depend on the

nature or environmental regulations and their enforcement, but also will depend on the costs of reducing

emissions.

Response: As described in the EERS, the focus of the CEB research area is broader than compliance behavior,

including mandated and voluntary environmental behavior, environmental performance, the motivations for

each of these, and the effectiveness of government interventions on each. In addition, the definition of “corporate,” as EPA has used it for the past 4 years, encompasses individuals, municipalities, and other organizations

or institutions, public or private, whose actions have environmental impacts. Within this umbrella research

area, EPA will attempt to address the effectiveness of all realistic alternatives for influencing polluter behavior: enforcement, information, government-industry partnerships, voluntary programs, as well as motives for

adopting new “greener” technologies. EPA intends to rotate grant solicitations among these topics over the

next few years to build a “weight of evidence” for understanding the efficacy of each of these alternatives.
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Nonetheless, compliance behavior specifically arose as EPA’s highest priority for research in this area. As a

result, EPA is initially allocating resources to this more focused research area to answer some fundamental

questions, such as “Why do regulated entities behave as they do?” Variants of this question were ranked

highly in interviews with every program office. 

In its comments below, the SAB also recommends research on costs. A closely related question—What are the

working definitions or conceptions of “compliance costs” for regulated entities?—arose frequently (either

explicitly or implicitly) in the survey of EPA program offices. This question includes consideration of transaction costs with government agencies or neighboring communities, potential for gaining a comparative advantage and market share, and liability concerns, all of which figure into many business decisions but are not

commonly counted as compliance costs in public or private analyses. The 2003 CEB RFA, developed after the

EERS was drafted, solicited research to investigate these questions. 

COMMENT CEB 4

If the focus is on compliance alone, then it is not clear why the questions relating to voluntary programs are

included, because by definition voluntary programs do not entail “compliance” with existing rules or regulations. The study of voluntary programs would fit more closely with the research about information disclosure. Alternatively, if this priority area is intended to be broader, then the research on information disclosure

could be folded into this priority area.

Response: The focus of the CEB area of research is not on compliance alone. Please see the response to

Comment CEB 3. The environmental information disclosure research area will be folded into the CEB

research umbrella.

COMMENT CEB 5

Feedback from regulated industries. Traditionally, research on compliance and enforcement has treated the

policy process as linear. The regulator first designs and imposes a policy, then an enforcement strategy (e.g.,

an audit frequency and penalties for non-compliance), and then the polluting firm decides whether or not to

comply. Some research on enforcement and compliance might benefit from considering a more interactive

model, under which regulators and regulated parties work together to identify pollution sources and means

to address them. Monitoring and information generation are key parts of such a strategy. One example is

EPA’s Clean Charles 2005 Initiative. (Again, this suggests that the research priority area on information 

disclosure is closely linked to this priority area.) 

Response: The Reference to a Model: “Under which regulators and regulated parties work together to 

identify pollution sources and means to address them” implies a public-private partnership. Such partnerships have been attempted as part of both state and federal efforts and therefore also are a focus of the CEB

research area. Chapters 3 and 4 of the EERS have been expanded to address public-private partnerships more

explicitly. Such partnerships can encompass monitoring, technology sharing, regulatory relief, and other

options to achieve improved environmental performance for a firm, locale, or sector. This research will

attempt to identify the factors and design characteristics that would make such partnerships cost effective.

COMMENT CEB 6

Public sector compliance. Most of the compliance and enforcement literature studies private-sector polluters.

Other sources, such as municipalities, have received relatively little attention. Yet, in some contexts these
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constitute the primary pollution sources (e.g., water pollution). Thus, the scope of the research priority

should be sufficiently broad to include not only decisions by private polluters but also by public sources.

Response: EPA agrees and has supported research addressing the behavior of municipal sources of water pollution, hazardous waste generation, and brownfields redevelopment. Please see the response to Comment CEB 3.

COMMENT CEB 7

Unobserved determinants of behavior. The existing literature has understandably focused on easily observable determinants of environmental decisions: firm size, industry group, etc. However, less easily observable

motivational factors may be more important in explaining the environmental behavior of a particular firm.

Information about these factors comes primarily from case studies, which are often viewed as anecdotal.

Therefore, it seems appropriate for EPA to fund research that seeks to provide statistical evidence regarding

firm decision-making, as well as more indepth case studies of the behavior of individual firms.

Response: EPA agrees with this comment. EPA has funded and conducted both case studies and statistical

analyses of cross-sectional, time-series, and panel (a mix of both) data. Each has its strengths and weaknesses. In combination with each other, and with theoretically based simulation models and experimental

approaches, these approaches can provide more varied and robust depictions of actual environmental behavior under different circumstances than any one approach can individually. One element of the CEB component of the research strategy will be to try to piece these approaches together coherently and identify where

each, in combination with the others, can most efficiently advance the process of scientific discovery. A

description of this element has been added in Chapter 3 of the EERS.

COMMENT CEB 8

Market incentives. A key question that needs to be addressed (statistically and through case studies) is whether

market incentives for environmental protection (e.g., from consumers, communities, suppliers, or investors)

are sufficiently strong. Again this relates closely to the effect of information disclosure, as information disclosure is likely to increase these pressures. Instead of thinking about voluntary approaches and information

provision as substitutes for more traditional regulations, they may be thought of as complements. 

Response: Noted. The substance of this comment has been added to the EERS and will be one of the focal

areas of the planned RFA on the benefits of environmental information disclosure.

COMMENT CEB 9

Cost-effectiveness. Most studies focus on accounting costs of compliance, and ignore things like the transactions costs of dealing with regulators, liability costs, and adverse publicity. It would be worth considering

these broader definitions of costs.

Response: EPA agrees with this comment and has posed this question in the 2003 CEB RFA. Please see the

response to Comment CEB 3.

COMMENT CEB 10

Market structure. Regulations may have different effects on industries with different market structures.

Response: Noted. This has been the focus of several funded CEB research projects and will continue to be an

area of interest for CEB research. More broadly, EPA would like to identify the range of factors that influence
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environmental behavior, including market or industry structure, firm size, ownership, community pressure,

and organization.

COMMENT CEB 11

Appropriate fines. The EPA’s current practice requires firms caught violating environmental regulations to

pay fines equal to the profits they earned as a consequence of their violations. It is an open research question whether this is in any way optimal. Research also could be conducted on the use of resource-based 

optimal compensation in lieu of fines. Sometimes violators can avoid fines by undertaking restoration or

enhancement activities of great value than the fine. The desirability and effectiveness of non-monetary

penalties need to be better understood.

Response: Noted. This comment arose in the development of the EERS but was not a strong enough priority

to merit the early application of resources. In response to the SAB’s interest, EPA will explore areas where it

can fit with other CEB topics so that it can be addressed sooner rather than later. 

COMMENT CEB 12

Ex-ante versus ex-post estimates of compliance costs. Ex-ante estimates are typically higher. This may be 

due to strategic industry overstatement of costs, or because technological improvements are not foreseen.

Research on the difference between ex-post and ex-ante estimates would be useful to researchers assessing

future proposed regulations.

Response: EPA agrees with this comment and has invited researchers to explore this question in past RFAs.

In the future, EPA will continue to solicit such research, although the Agency recognizes that there might be

some practical difficulties. These include the difficulty of obtaining accurate cost and expenditure data voluntarily from private firms or facilities, the common inability of plant managers to discern investments that

improve productivity from those that reduce pollution, and the aforementioned issue of what “costs” really

means to decision-makers. 

COMMENT CEB 13

Data: Several researchers noted that state variation in approaches, fines, monitoring, etc., can be used to

study these issues, but that state data are difficult for individual researchers to collect. A useful role for EPA

may be to encourage states to collect data in a standardized way and to assist in compiling the data.

Response: Several offices in EPA, including OECA and OEI, are devoting considerable resources to standardizing the collection of facility-specific data from states. In addition, EPA is exploring approaches to “clean” and

document the data it has already collected to improve the ability of researchers and analysts to match information from different data sources, and to understand why and how the data were collected.

2.4.2 Research Feasibility

Given the implementation strategy laid out in the EERS: To what extent is this research scientifically feasible at a high level of quality? How successful is this research likely to be in answering policy-relevant questions for EPA within the next 8-10 years?
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COMMENT CEB 14

In general, committee members felt that EPA researchers have identified an important area for research, and

one that could lead directly to improvements in EPA efficacy, reductions in regulatory costs, and improvements in environmental quality. Key tasks for the EPA include: defining the scope of the research objective,

assessing prior EPA funded research, and assisting with the unification and publication of monitoring and

enforcement data.

Response: EPA agrees with this comment and has addressed all of these comments above.

In addition, the Committee noted that any research in this area will have to deal with the following problems.

COMMENT CEB 15

Enforcement actions are widely understood to be targeted at likely violators, and hence endogenous.

Researchers cannot estimate the effect of inspections and enforcement on the probability of violating environmental laws without simultaneously estimating the effect of violations on enforcement. This task is difficult without knowing the procedures EPA or the states use to decide which facilities to inspect. For a seminal

paper on this topic, see Magat and Viscusi (J. Law and Econ, 1990).

Response: Noted. A number of sponsored and other research projects have attempted to resolve the endogeneity problem using approaches such as instrumental variables. EPA is aware of this issue and will continue to use rigorous peer review to ensure that sponsored research projects explicitly address sources of bias

before funding.

COMMENT CEB 16

A second empirical problem, noted by Harrington (JPubE, 1988), is that given the low probability of any particular firm being inspected, or punished given an observed violation, the overall level of compliance is surprisingly high. Some other phenomenon aside from regulatory enforcement must explain compliance: public

relations, citizen suits, NGO actions, etc.

Response: These are issues that the CEB research area is attempting to address. Researchers are trying to 

differentiate among firms based on the characteristics mentioned. This topic will be included more explicitly

in a future CEB solicitation.

COMMENT CEB 17

A third empirical problem involves the availability of data. Much of the empirical literature focuses on the

pulp and paper industries, due to the availability of water pollution enforcement data via the Permit

Compliance System (PCS).

Response: Some of the more recent research projects have looked into detailed data in several other sectors,

including iron and steel, oil and gas, chemical manufacturing, and metal processing. These and other

research projects also have considered plant-specific air emissions and hazardous waste generation data. EPA

collects, and provides researchers access to, facility-specific data on enforcement, inspections, air emissions,

hazardous waste disposal, toxic releases, nearby population, and several other factors. 
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COMMENT CEB 18

Finally, this section of the Research Strategy asks to what extent voluntary pollution reduction programs

such as the “33-50” program have succeeded. Answering this question requires facing another simultaneity

problem: firms that have unobserved tendencies to reduce pollution are more likely to volunteer to do so. To

accurately assess the efficacy of these voluntary programs, a researcher will need some exogenous variation

in the programs, or some instrument for program participation. The Agency needs to be particularly attentive

to opportunities to exploit exogenous variation in eligibility for particular programs so that valuable chances

to assess the consequences of “natural experiments” are not missed. Labor economists have sensitized the

discipline to the desirability of natural experiments for program evaluation. In particular, the Agency needs

to be watchful whenever there are boundaries in some dimension (time, firm size, space) across which the

assignment of firms to regulatory regimes is randomized by arguably external factors.

Response: First, the assertion that “firms that have unobserved tendencies to reduce pollution are more likely to volunteer to do so” has been at least partially rejected in some recent CEB-sponsored research. King and

Lenox (2001) provide some evidence that both high and low performers join voluntary programs but for different reasons (e.g., comparative advantage or free-riding, respectively). The research has progressed somewhat in recent years beyond this question to focus more on the characteristics and requirements of the voluntary programs and how well matched their inherent incentives are to industry and firm characteristics. As

mentioned above, the instrumental variables approach has been followed in a number of studies. Second,

the comment on EPA trying to exploit the occasions of natural experiments is well taken, and EPA will try to

take advantage of such situations.

2.5 MARKET METHODS AND INCENTIVES

2.5.1 Characterization of Research Gaps and Priorities and Usefulness of the Research

Charge Questions:

Q Is the characterization of each of the major research gaps in the literature adequate?

Q Will these priorities and implementation approaches effectively address the areas of greatest 

scientific uncertainty?

Q What improvements in the design and implementation of the EERS would make each research 

project more useful to EPA and other environmental management agencies?

The Research Strategy combines the research priority “Market Mechanisms and Incentives [MM&I], Trading”

with the priority “Market Mechanisms and Incentives, Other than Trading” in its final list of research gaps 

(p. 19). The proposed research emphasis from the Office of Research and Development will be on “trading in

practice and trading in new markets” (p. 29). These specific areas are mirrored in the identified research gaps

on p. 19. Especially regarding “trading in practice,” the key questions that are identified are the environmental effects of trading and estimating the resulting cost savings. For new applications, the key questions are

predicting the success of new markets and designing the markets to achieve both environmental and costreduction goals. 
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Some specific possible research areas that are mentioned include using market approaches for urban storm

water management; programs for new pollutants and media; the complexities of tradable water quality permits in a world of multiple market distortions, lack of monitoring, and “cultural resistance to enforcement”

(p. 20); the interactions of marketable permits with existing taxes; and market design questions.

COMMENT MM&I 1 

The Committee believes the Research Strategy identifies some extremely important areas for future research,

but is too limited in its focus. The following are areas worthy of inclusion in the MM&I research program.

COMMENT MM&I 2

Market mechanisms other than trading are notably absent from the discussion of research gaps. Exceptions

include the brief mention of “environmental information programs” (p. 12) and “Methodology for evaluation

of effectiveness of voluntary programs” (p. 26), which are already the subject of research priorities identified

elsewhere in the EERS. The exclusion of other MM&I instruments, or more generally incentive-based instruments, such as pollution taxes, abatement subsidies, scrappage schemes for old cars, and deposit-refund systems, unduly limits the policy approaches that merit study. For example, current environmental policy relies

heavily on legal liability for environmental contamination, which is an incentive-based policy. The empirical

effects of these policies are not well understood but are a promising area for future research because data

exist from recent experience. 

COMMENT MM&I 3

Although the language in the Strategy does not rule out study of mechanisms other than permits, the

absence of their mention does not encourage it either. Research has shown that different market-based

instruments vary in, for instance, their effects on technological change, their total costs to pollution sources,

their effects on entry and exit in an industry, the potential for “double dividend” effects, and the political or

social acceptability of the instruments. Exploration of the relative merits of other instruments would be a

valuable area of study.

Response to Comments MM&I 1-3

In developing the EERS, the Research Strategy team divided the market mechanisms and incentives research

area into MM&I, Pollution Trading (existing and new markets) and MM&I, Other Than Trading, to get as specific a breakdown in priorities as possible. Given the SAB’s comments, we have decided to treat all research

topics related to MM&I as one group. 

EPA agrees that the other areas noted by the SAB, such as pollution taxes, abatement subsidies, scrappage

schemes for old cars, deposit-refund systems, and legal liability for environmental contamination, are important research topics, particularly for states and local governments. Several of these topics arose as areas of

research interest in discussion with EPA staff and managers (see Appendix 4). However, they had a more specific focus than what is suggested by the SAB and did not sort out as high-priority areas for MM&I research

across all of the Agency’s programs. 

Given the SAB’s interest in these areas and accompanying rationale, EPA will increase its research emphasis

in these areas, incorporating these research areas in future MM&I RFAs and internal research agendas over

the next several years to the extent that resources allow. For example, EPA anticipates a CEB solicitation in

the next several years that will address the effects of different instruments—economic, mandatory, and voluntary—on technological innovation and change.
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COMMENT MM&I 4

The spatial and temporal effects of MM&I also need further attention. For many, if not most, pollutants, the

kind of cap-and-trade program exemplified by the acid rain program differs from the design of a trading program identified in economic theory because the spatial and temporal distribution of pollution determines

pollution damages. For efficiency, the marginal damages at any given locale or time need to be considered.

Even in the absence of information on marginal damages, a cost-effectiveness measure should take spatial

and temporal effects into account, due to requirements in environmental laws to achieve site-based environmental targets (such as the National Ambient Air Quality Standards under the Clean Air Act). There has been

little ex post assessment of the spatial effects of uniform trading ratios in cap and trade systems such as the

1990 Clean Air Act Amendments, the Ozone Transport Region’s NOx budget program, and the NOx SIP call

trading program. 

COMMENT MM&I 5

The spatial and temporal effects of MM&I are important components for design of future programs as the 

nation addresses mercury and ozone as atmospheric problems and the use of TMDLs in water quality. Simple

trading designs, such as a cap-and-trade system for marketable effluent permits, may not achieve environmental

targets in all places. On the other hand, incorporating transfer coefficients, limiting trading regions, or otherwise accounting for spatial and temporal effects limits trading opportunities and thus reduces potential cost

savings. Research should evaluate the tradeoff between achieving environmental goals and achieving cost reductions, and the administrative and scientific difficulties involved in more theoretically correct trading systems. 

Response to Comments MM&I 4-5: EPA agrees with the SAB’s assessment. Currently, both EPA-sponsored

and internal EPA researchers are investigating some of the local distributional effects of trading policies, both

spatial and demographic. We will try to expand this effort to more fully address both temporal and spatial

effects both as elements of future MM&I solicitations and internal research projects, as resources permit. EPA

is planning a solicitation addressing water quality (e.g., TMDL) trading and appropriate trading design, given

the complexities of monitoring, market scope, intertemporal issues, and differentiated pollutants.

COMMENT MM&I 6

The implications of monitoring and enforcement for the design of MM&I policies should be an important

part of the MM&I priority. Monitoring can take at least two forms: one form measures actual environmental

outcomes (e.g., ambient air or water quality), and another form ensures that the emissions or other factors

for which a market is developed are measured at the source. Adequate monitoring of ambient measures can

help tremendously in ensuring the success of MM&I programs in achieving environmental goals in all

locales. Research into ambient monitoring and the interaction with MM&I requires involvement of environmental scientists, for example, to help identify the efficient placement and number of monitoring sites for

achieving ambient goals. Monitoring of source behavior is necessary for the success of the markets: for example, if it is easy for sources to emit more than the number of permits they own, then the permit market as

well as environmental quality will suffer. 

Response: EPA agrees with this statement. As noted in the EERS, monitoring technologies and regimens can

have significant effects on emissions or discharges and can determine the relative advantage of market-based

over other policy instruments. In response to the SAB’s comments, we have expanded the discussion of monitoring in the EERS, and EPA intends to focus an MM&I RFA on this topic in the near future. Furthermore,

recent events have shown that transactions in the emissions trading market also require active monitoring to

prevent cheating, which ultimately will have environmental or financial costs, or both.
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COMMENT MM&I 7

An important and controversial aspect of MM&I programs has been the emergence of trading without a cap

on aggregate emissions. Such programs have been labeled “open market trading programs” because they

allow for new participants who may identify low-cost opportunities for emission reductions to enter the 

program. These programs have been widely criticized because of the absence of a strict emission cap, and 

the difficulty in observing and monitoring emission reductions. However, this generic approach has a broad

application in the Clean Development Mechanism and Joint Implementation aspects of international efforts to reduce greenhouse gases, and it continues to be suggested at the state level in the United States for

control of conventional pollutants. Open market trading should be studied to identify its weaknesses (so 

that programs can be designed to avoid them), its track record, and its role as a transition to cap-and-trade 

programs.

COMMENT MM&I 8

Another important area of study is the use of market approaches on indirect measures of the environment.

For instance, it is typically almost impossible to measure nonpoint source pollution from a source, because

the runoff cannot be observed. Instead, pollution policies are sometimes proposed for related goods, such as

fertilizer use or Best Management Practices. Other examples include taxing gasoline instead of auto emissions and pay-at-the-pump auto insurance. When market instruments are applied to indirect measures, the

environmental effects are much less understood; indeed, it is possible that adverse environmental outcomes

might arise from unexpected substitutions or other unexpected effects.

Response to Comments MM&I 7-8: Please see the response to Comment MM&I 6. EPA is planning a future

RFA to address the interactions of monitoring and incentives in the design of market-based programs. Based

on the SAB’s recommendations, it also will consider a broader definition of proxy measures and indicators

and their incentive effects, given different market designs, or more broadly, implementation approaches. In

addition, EPA will encourage research that evaluates aspects of open market or no-cap trading programs to

reduce emissions in future solicitations.

COMMENT MM&I 9

The interaction of MM&I with existing taxes and other policies (such as agricultural programs) is an important area that deserves study. The General Theory of the Second Best suggests that improving one market in

a world of multiple distortions may not improve welfare; hence, it is worth understanding whether the use

of MM&I might lead to adverse effects in unexpected ways and how the design of policies can be improved

in this light. 

COMMENT MM&I 10

We would accord priority to three particular manifestations of the second best and the importance of preexisting policies that have been found to be very significant in previous research. One has to do with policies

or subsidies for such areas as agriculture or energy, outside EPA’s jurisdiction, whose potentially significant

environmental effects sometimes conflict with the goals of environmental policy. Other programs may have

beneficial effects, and EPA may be able to learn from experience of programs in these other areas. For

instance, the use of environmental targets in the USDA’s Conservation Reserve Program deserves study as an

important application of subsidies promoting, or consistent with, environmental objectives of the EPA. This

program and its Environmental Benefits Index might be modified to target water quality and achievement of

TMDLs. Generally, there could be significant environmental and financial gains from greater cooperation and

coordination of research and policy across agencies. 
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COMMENT MM&I 11

A second area is preexisting tax or regulatory policy. EPA has previously funded work on the “tax interaction

effect” and found this to be significant. Significant opportunity exists to improve this research by making it

more accessible for policy makers and by introducing greater specificity and heterogeneity in the analytical

and simulation models that have been employed to date. In general, further research that addresses the

value (in a public finance context) and potential uses of revenues from environmental policies would be a

very important contribution to policy design in general. For example, mandatory emission fees in severe

nonattainment areas can be used to generate revenues to subsidize investment in emission control by firms

or in infrastructure improvement that will reduce emissions. 

COMMENT MM&I 12

Finally, state-level policies may interact in unforeseen ways with federal programs. For instance, states have

adopted renewable portfolio standards (RPS) as a way to influence technology choice and environmental 

performance in electricity generation. State-level policies, such as RPS or state emission restrictions, when

implemented under the umbrella of an aggregate emissions cap at the federal level, could be ineffective for

achieving national emission reductions, as state-mandated gains are traded away.

Response to Comments MM&I 9-12: As the SAB notes, EPA has already sponsored several projects investigating double-dividend and tax interaction effects and anticipates focusing more research in this area in the

near future. The EERS now includes a discussion of second-best tax, subsidy, and regulatory interactions to

include research in this area. It is important to note that the tax interaction effect literature is controversial

and largely theoretical and has not been tested sufficiently in empirical settings (simulation models simply

assume the tax interaction effects asserted in this literature). It will be important to test whether the tax

interactions asserted by the literature actually occur and the situations in which this effect may or may not

be true or significant. EPA will attempt to address these questions in the future.

COMMENT MM&I 13

Another important area for future study that is excluded from the EERS is the implication of MM&I designs for the perception of equity or fairness, and ultimately political feasibility of environmental policies.

Economic research is often oriented toward measures of efficiency, but it also offers the tools to identify 

the distributional effects of policy. Of special interest and potential contribution is the identification 

of the distributional effects associated with different types of policy design for a given environmental 

goal. This research could measure the effects of policies on market value of firms and the distribution 

of damage from existing environmental burdens (and, implicitly, the distribution of benefits from 

improvements). 

Response to Comment MM&I 13: Please see the response to Comments MM&I 4 and 5. Distributional 

considerations arose with some regularity in discussions with EPA staff and management. It is generally

agreed that this is an important area for research, and future MM&I solicitations will give more emphasis to

distributional issues. Some EPA offices whose focus is on localized environmental issues, such as the solid

waste and hazardous waste programs, listed distributional issues as important topics but not as their top 

priorities.

COMMENT MM&I 14

Furthermore, ORD should consider an investigation into so-called “risk-risk” trade-offs affecting the various

types of costs and burdens imposed on households as a result of environmental controls. Potential cost sav-
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ings of $40 billion from greater use of incentive-based regulation, as has been suggested, may be one of the

most effective programs for improving public health and the environment, according to the risk literature,

and this is a topic that deserves formal study.

Response: This point is well taken and will be considered in implementation planning for MM&I and other

research. 

COMMENT MM&I 15

The implications of technological innovation in the design of environmental policy were identified by the

Committee as a crosscutting theme in environmental economics research. This topic also deserves special

attention in the study of MM&I. Important questions remain about the design of MM&I policies to promote

efficient innovation and technological diffusion. Although there has been important recent work in this area,

evolving methodologies make this area fruitful for additional empirical and theoretical study.

Response: Please see the response to Comments MM&I 1-3. This effect of alternative policy instruments on

innovation will be addressed in future solicitations. 

COMMENT MM&I 16

Developing methods to estimate the cost savings associated with MM&I would be valuable for evaluating the

benefits of these programs. Estimating these savings is actually very difficult to do. The process requires

modeling of costs under both the market approach and a “traditional” policy with the same environmental

goal. Although a number of prospective studies of the benefits of market mechanisms compared to traditional approaches exist, there have been few retrospective studies of the benefits of MM&I. 

Response: EPA agrees that this is a desirable and useful area of inquiry and will continue some studies in

this area (see EPA 2001). In its MM&I solicitations, EPA has customarily asked for estimates of potential cost

savings as part of a larger research scope. To date, only a few research projects have addressed this issue,

Ellerman and Montero (2003) being a notable exception. Although data might be hard to obtain, this might

be an appropriate area for internal EPA research. 

2.5.2 Research Feasibility

Given the implementation strategy laid out in the EERS, to what extent is this research scientifically feasible

at a high level of quality? How successful is this research likely to be in answering policy-relevant questions

for EPA within the next 8-10 years?

Environmental economic researchers have examined many of these issues at some level, although further

work needs to be conducted. It is very likely that high-quality and highly policy-relevant work can be conducted in the next 8-10 years.

2.6 BENEFITS OF ENVIRONMENTAL INFORMATION DISCLOSURE (BEID)

2.6.1 Characterization of Research Gaps and Priorities and Research Feasibility

Is the characterization of each of the major research gaps in the literature adequate? Will these priorities and

implementation approaches effectively address the areas of greatest scientific uncertainty?
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Given the implementation strategy laid out in the EERS: To what extent is this research scientifically 

feasible at a high level of quality? How successful is this research likely to be in answering policy-relevant

questions for EPA within the next 8-10 years?

Several statutes under which EPA operates, including the Emergency Planning and Community Right-toKnow Act of 1986 and the Safe Drinking Water Act amendments of 1996, require that information about

environmental performance be disclosed to affected communities and/or the general public. EPA states that

there is no generally accepted method to estimate the benefits of such information disclosure, although

selected anecdotal evidence suggests that information disclosure programs affect the behavior of entities 

that are required to provide the information.

COMMENT BEID 1 

EPA is correct that there is no generally accepted method, but it is not clear that one should search for a 

“general method.” The fact remains, however, that research to date has not estimated the benefits (or the

costs) of environmental information disclosure programs. For the most part, the major analytical challenge is

not associated with monetizing impacts, but with identifying behavioral responses to information disclosure

requirements.

Clearly, there is increasing interest in the United States (and other countries) in the potential role that can be

played by information disclosure programs, as substitutes or complements for conventional command-andcontrol or market-based environmental policy instruments. Much of this interest can be attributed to the success that has been claimed for the Toxics Release Inventory (TRI) program, which requires large manufacturing facilities to report publicly their annual releases of certain chemicals. Since the inception of the TRI program in 1986, reported releases of more than 300 regulated chemicals have fallen by more than 45 percent. 

Response: Noted. 

COMMENT BEID 2

What is needed is analysis of the efficacy of such information disclosure programs by examining the ways in

which these programs can, in theory, affect environmental quality and by investigating empirically the ways

in which the programs have actually affected pollutant releases. 

Response: Noted.

COMMENT BEID 3

In terms of theory, there are several pathways through which information disclosure might lead to pollution

reduction, including: green consumerism, green investing, community pressure, impacts on labor, the threat

of future regulation, and organizational limitations of the firm. Better theoretical modeling of firms’ production and pollution decisions would incorporate these pathways. Such theoretical frameworks could then be

used as the basis for empirical (econometric) analyses of the effects of TRI on facility decision-making. Such

research could produce greater understanding of how facilities respond to information disclosure programs

such as the TRI. This is a necessary first step to estimating the benefits of such information disclosure 

programs. 

Response: This observation will be incorporated into a future RFA addressing BEID. 
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COMMENT BEID 4

As EPA notes, there are a variety of other important research questions, including cost-effectiveness comparisons of information disclosure programs with command-and-control and/or market-based environmental

policy instruments. In general, EPA’s Office of Research and Development has begun funding such research

efforts under its category of “Corporate Environmental Behavior: Examining the Effectiveness of Government Interventions and Voluntary Initiatives,” part of the STAR program. 

Response: EPA believes this comment is accurate but that a more concerted effort might be needed to sort

the effects of information disclosure on stakeholders and regulators.

COMMENT BEID 5

It is important to distinguish between information disclosure as a complement and as a substitute for other

forms of regulation. EPA suggests in places that information disclosure might be a substitute for regulation

(as in the third bullet point on page 20). Although disclosure requirements might induce pollution reductions, theory suggests that only in a limiting case would these reductions match those under efficiency-maximizing regulation. In the context of the TRI, firms would need to assume that, at the margin, the public-relations cost of pollutant emissions (that is, the negative impact on product demand) were equal to marginal

environmental damages. This would only be the case if customers fully internalized the costs of pollution in

their purchasing decisions. It seems more likely that information-disclosure requirements will lead only to

partial reductions in pollution, relative to the efficient level of reduction. 

Response: Noted. EPA will try to incorporate this observation into a future RFA addressing BEID.

COMMENT BEID 6

This suggests that information-disclosure requirements may indeed be a substitute for regulation that is less

stringent than the efficient amount, but that they are unlikely on their own to yield large enough reductions

to correspond to the efficient level of pollution-abatement. This also suggests the need for research that

examines how information-disclosure rules and other regulatory approaches will operate jointly. Even when

the two instruments—information disclosure and other regulation—are used together, there are potential

cost savings from the information-disclosure component, for example, by facilitating monitoring and enforcement activities.

These considerations imply several additional research questions (See comments BEID 7 - BEID 9).

COMMENT BEID 7 

First, how large is the reduction in pollution induced by information-disclosure requirements, relative to the

efficiency-maximizing reduction? (Perhaps, we should note that the desired reductions from EPA policies are

not typically the “efficiency” maximizing” level, but more likely that set by law or other determinate. The

“efficient” level of reduction is not the best benchmark for comparison.

COMMENT BEID 8

Correspondingly, what fraction of the damage from pollution is internalized in the purchasing decisions of

consumers, once they are aware of respective pollution? Interesting, but it is an academic question and not

so policy relevant, given the comment above.
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COMMENT BEID 9 

What are the cost savings from combining information-disclosure requirements with direct regulation, compared with costs under direct regulation alone?

Response to Comments BEID 6-9: These are relevant and important questions for EPA to research. EPA will

try to incorporate these observations into a future RFA addressing BEID.

Miscellaneous Comments 

COMMENT MISC 1

The topic of information disclosure relates closely to another potential area of economic research for EPA

that is likely to become more important over time, with increasing concerns about the effectiveness of terrorism risk policies on plant safety and security. In particular, EPA might support econometric analysis of the

effectiveness of current and proposed terrorism risk regulations on plant safety and security, drawing on

publicly available data, as well as the Risk Management Plan database housed at EPA’s Chemical Emergency

Preparedness and Prevention Office, and data collected by local emergency preparedness agencies under the

Emergency Planning and Community-Right-to-Know Act.

As noted above, several regulations, beginning in the late 1980s, were designed to reduce the risk of largescale chemical accidents. The Emergency Planning and Community-Right-to-Know Act of 1986 established

disclosure requirements for plants using and storing hazardous chemicals onsite. Section 112(r) of the Clean

Air Act Amendments of 1990 requires detailed risk management planning and reporting for all large chemical plants. The International Standard Organization (ISO) developed a set of management practices designed

to improve environmental performance, but also likely to reduce risk from chemical use. And in the aftermath of September 11, 2001, the American Chemistry Council, a trade organization representing the largest

chemical manufacturing firms, established management practices for enhancing the security of chemical

plants.

Although most of these programs and policies were not specifically designed to reduce risk from terrorism,

studies of the effectiveness of these approaches will provide valuable information regarding the viability of

alternative types of policies to reduce the environmental component of terrorism risk. Until now, little

empirical research has been conducted to evaluate the relative effectiveness of these regulations on plant

and community safety. 

Response: EPA agrees that these are interesting questions; however, EPA first needs to ascertain whether 

others (e.g., Department of Homeland Security [DHS]) have completed or commissioned studies on these 

topics. Because these issues did not arise as EPA priorities in interviews, and DHS economics research is in

its initial stages, this has not yet been done. We also should investigate the balancing of the public’s right to

know and terrorism risks posed by disclosing environmental information.

3. ANSWER TO CHARGE QUESTION 3

3.1 Missing Issues

Can the SAB identify by consensus any environmental economics issues of overriding importance to EPA 

that the EERS has missed, and that EPA should address provided that more resources be made available for

environmental economics research? 
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Within each of the five subject areas discussed in section 2 of this report, the Committee has identified topics not originally mentioned in the Research Strategy. For example, under market methods and incentives we

have suggested that the Agency broaden its purview to consider renewable portfolio standards and incentives

other than permit trading. In the case of valuation of environmental benefits, we have stressed the importance of valuing nonmarginal as well as marginal changes in risk of death and threats to ecosystems. 

Response: EPA has considered and responded to these suggestions as appropriate above.

COMMENT MISC 2

The EEAC, however, believes that that the five subject areas on which the Agency has focused in the EERS

are the most important areas of environmental economics research in terms of their importance to the

Agency and in terms of gaps in the literature.

Response: Noted.

COMMENT MISC 3

There is, however, an additional area of research, namely, the distributional consequences of regulation, to

which the Agency might give more attention. We know that it is difficult to attribute the full general equilibrium costs and benefits of any given policy to specific groups of individuals; however, as long as people have

only one vote each, and cannot exercise a number of votes in proportion to their perceived individual net

benefits from environmental regulations, an awareness of distributional consequences will be important to

the political feasibility of environmental regulations. Even a very attractive potential Pareto improvement

will not fly if the distributional consequences do not meet with society’s approval. The political economy of

regulation will be an enduring dimension of successful environmental management. We urge the Agency to

give more weight to the distributional consequences of regulation in its strategy for benefit valuation and, to

the extent possible, in the measurement of the costs of environmental regulation.

Response: In response to this suggestion, EPA intends to incorporate requests for research on the distributional consequences of different interventions into each solicitation in each area of research—valuation,

CEB, and MM&Is. Through this approach, EPA will solicit research on the equity aspects of stated and revealed preference methods of value elicitation, the equity aspects of different measures of cost-effectiveness

(e.g., WTP vs. QALYs), the suitability of each in a free-market economy, and the distribution of costs and 

cost savings associated with different interventions. As the SAB notes, this is a potentially fruitful area of

research to inform policymaking.

4. ANSWER TO CHARGE QUESTION 4

4.1 Communication of the Research Strategy

What is the best way for EPA to communicate the results of the research strategy and plans for achieving its

long-term research goals to the wider research community and other potential users?

COMMENT MISC 3

One way in which EPA could foster dialogue with members of the research community is to hold workshops

in conjunction with the American Economics Association and American Agricultural Economics Association
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annual meetings. These sessions would give the Agency an opportunity both to communicate its long-range

research goals and to hear from researchers how these goals might best be met. This would inform the

Agency’s formulation of Requests for Proposals.

Response: In response to this suggestion, EPA will submit a proposal for a session addressing EPA’s research

needs for the 2005 American Agricultural Economics Association annual meeting. 

COMMENT MISC 4

Currently, EPA’s requests for proposals are announced 90-120 days in advance, and may be found on EPA’s

Web Site under “Funding Opportunities-Environmental Research Grant Announcements [http://es.epa.gov/

ncer/rfa/]. The EEAC suggests that these notices also be sent to the Chairs of Departments of Economics and

Agricultural Economics, and that announcements be placed in the newsletters of the Association of

Environmental and Resource Economists and American Agricultural Economics Association.

Response: Noted. EPA will take this suggestion into consideration as feasible, given the timing of solicitations and the publication schedule for association newsletters (those mentioned as well as others). Following

development of the Multi-Year (implementation) Plan, it might be more feasible to provide advance notice in

these newsletters. 

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Gregory R, Slovic P, Kentsch J, Lichtenstein S, Finucane M, Peters E, Arvai J, Burns K. Final Report:

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