Document ID: EPA-HQ-OW-2004-0020-0012
Agency: epa
Document Type: Supporting & Related Material
Title: 
Posted Date: 2005-03-18T05:00Z

1
Response
to
Mercatus
Center,

George
Mason
University
Docket
ID:
OW­
2004­
0020­
0003.

Part
I,
Introduction
(
pages
1­
3)

This
section
first
provides
background
information
on
the
316(
b)
rulemaking,
including
Phase
I,
Phase
II,
and
the
proposed
Phase
III
rule.
Then,
the
commenter
briefly
summarizes
information
included
in
the
notice
of
the
proposed
information
collection
request
(
69
FR
68140)
issued
on
November
23,
2004.

No
response
is
necessary.

Part
II
(
pages
3­
4)

The
commenter
argues
that
non­
use
values
exist
for
innumerable
things
and
that
individuals
can
express
hypothetical
gains
and
losses
of
subjective
utility
that
do
not
correspond
to
market
values.
The
commenter
asserts
that
EPA
should
consider
the
possibility
of
non­
market
valued
effects,
including
potential
non­
use
value
effects,
on
"
cost­
side"
resources
that
are
directly
or
indirectly
affected
by
the
316(
b)
Phase
III
regulation.
The
comment
says,
"
If
EPA
is
to
consider
non­
use
value
effects
on
the
benefit
side
of
the
regulation,
then
EPA
should
also
consider
non­
market
and
non­
use
value
effects
on
the
cost
side
of
the
regulation."
The
comment
then
offers
several
cost­
side
resources
and
effects
that
EPA
implicitly
should
account
for
in
a
comprehensive
cost­
benefit
analysis
framework.

While
EPA
acknowledges
the
theoretical
validity
of
the
commenter's
points,
EPA
judges
the
comment
to
be
of
negligible
consequence
in
the
context
of
the
316(
b)
Phase
III
regulation,
whether
for
evaluating
the
proposed
Willingness
to
Pay
Survey
or,
more
generally,
for
analyzing
the
cost
and
benefits
of
the
316(
b)
Phase
III
regulation.

In
general,
any
non­
market
effect
pertaining
to
specific
resources
on
the
cost
side
of
a
regulation
is
likely
to
be
of
no
consequence
 
particularly
in
relation
to
an
environmental
regulation's
benefits
 
because
of
the
dilution
of
the
impact
over
the
wide
range
of
resource
inputs
that
are
called
upon,
directly
or
indirectly,
to
support
regulatory
compliance.
In
contrast,
the
regulation's
benefits
are
focused
on
a
specific
environmental
resources
of
concern
and
are
thus
much
more
likely
to
have
meaningful
non­
market
effects,
including
potential
non­
use
effects.
Of
course,
the
presence
of
these
non­
market
considerations
on
the
benefit
side
of
the
analysis
is
the
reason
that
environmental
regulation
is
called
for
in
the
first
place.
For
this
reason,
EPA
judges
that
the
commenter's
points
have
little
merit
as
a
general
matter
of
environmental
regulatory
analysis.
In
rare
instances,
a
regulation
might
have
a
focused
impact
on
a
specific
input
resource
for
which
there
might
be
significant
non­
market
effects,
including
effects
valued
in
a
non­
use
context.
For
example,
to
create
a
hypothetical
case,
if
a
principal
cost­
side
effect
of
a
regulation
were
to
cause
an
increase
in
production
and
consumption
of
a
resource
that,
in
itself,
presented
a
material
2
environmental
health
risk,
then
it
would
be
incumbent
upon
the
Agency
to
consider
this
side­
damage
resulting
from
regulatory
compliance.
Even
in
this
case,
the
Agency
might
often
find
that
other
already
inplace
environmental
regulations
sufficiently
manage
the
risk
issues
posed
by
the
other
resource
in
such
a
way
that
no
special
consideration
of
the
resource,
for
non­
market
value
effects,
was
warranted
in
the
costbenefit
analysis
for
the
regulation
in
question.

Consideration
of
the
specific
cost­
side
resource
effects,
as
raised
by
the
commenter,
illustrates
this
general
point.
Namely,
all
of
the
cost­
side
resource
effects
suggested
by
the
commenter
are
likely
to
be
remotely
small
or
non­
existent
in
the
context
of
the
316(
b)
regulation
(
and
in
one
instance
have
already
been
considered
in
the
course
of
the
316(
b)
regulatory
analysis):

 
"
Would
the
rule
make
electricity
production
less
energy
efficient?
How
do
people
feel
about
that?"
Because
the
lowest
of
the
applicability
thresholds
in
the
three
proposed
Phase
III
regulatory
options
is
the
same
as
the
applicability
threshold
of
the
Phase
II
regulation,
none
of
the
three
proposed
Phase
III
regulatory
options
would
apply
to
existing
generators
in
the
electric
power
industry.
The
regulation
could
affect
electricity
production
in
manufacturing
industries,
but,
as
a
practical
matter,
any
potential
effect
is
negligible
as
the
estimated
contribution
of
the
regulated
manufacturing
industries
to
total
electricity
production
is
less
than
0.02
percent
of
the
total
national
electricity
supply.
In
fact,
the
potential
for
non­
market
effects
of
the
regulation
on
energy
supply
and
energy
security
was
explicitly
considered
as
part
of
the
analysis
for
Executive
Order
13211,
Actions
Concerning
Regulations
that
Significantly
Affect
Energy
Supply,
Distribution
or
Use,
which
was
undertaken
for
the
proposed
regulatory
options.
This
analysis
concluded
that
the
regulation
has
no
meaningful
effect
relative
to
energy
supply,
distribution
or
use.
Accordingly,
EPA
sees
no
way
that
the
regulation
could
have
a
significant
non­
market
effect
relative
to
this
resource.

 
"
Are
we
extracting
more
material
 
coal,
or
cement
 
from
mines
in
order
to
comply
with
these
regulations?
Do
people
have
nonuse
values
related
to
mining?"
As
already
discussed,
the
Phase
III
regulation
has
no
consequential
effect
on
electricity
production,
which
is
the
presumed
logical
path
by
which
the
regulation
could
cause
an
increase
in
coal
mining.
EPA
is
aware
of
no
route
by
which
the
regulation
could
cause
more
than
a
negligible
increase
in
the
mined
production
inputs
required
for
cement
production.
In
addition,
other
Federal
and
state
regulations
are
in
place
to
address
mining­
related
issues.

 
"
Are
we
using
up
more
depletable
resources
in
order
to
save
resources
(
fish)
that
are
easily
renewable?"
Again,
EPA's
analysis
finds
no
concentration
of
cost­
side
resource
effects,
as
a
result
of
the
regulation,
that
would
imply
a
specific
need
to
consider
the
implications
of
the
regulation
on
depletable
resources
 
beyond
that
already
accounted
for
the
Executive
Order
13211
review.

 
"
Are
we
causing
more
intensive
use
of
hydroelectric
plants,
thus
killing
more
fish
than
we
are
saving?"
As
already
noted,
the
regulation's
effect
on
electricity
markets
is
inconsequential,
as
is
this
potential
concern.
Moreover,
because
of
its
very
low
variable
production
cost
 
virtually
zero
 
hydroelectric
generation
is
most
often
managed
and
dispatched
 
both
in
a
short­
term
and
longer­
term,
seasonal
usage
and
management,
sense
 
not
on
the
basis
of
demand
level
but
on
the
basis
of
supply
considerations:
e.
g.,
water
flow,
precipitation
level,
etc.
Said
another
way,
total
supply
over
a
production
season
is
not
generally
determined
by
demand.
3
In
sum,
EPA
concludes
that
none
of
the
commenter's
suggested
resource
issues
rise
to
a
level
that
would
warrant
specific
scrutiny
of
non­
market
value
effects,
including
non­
use
value
effects,
beyond
that
already
undertaken
by
EPA
in
the
context
of
its
Executive
Order
13211
review.

Part
II,
Section
A
(
page
4)

The
commenter
argues
that
the
proposed
survey
is
not
necessary
for
EPA
to
estimate
benefits
of
the
proposed
Phase
III
regulation
because
(
1)
Executive
Order
12866
does
not
require
that
EPA
quantify
nonuse
benefits
and
(
2)
EPA
has
not
justified
the
assertion
that
non­
use
benefits
exceed
non­
use
costs,
or
that
non­
use
benefits
are
greater
than
zero.
First,
EPA
disagrees
that
quantification
of
non­
use
benefits
of
the
316(
b)
regulation
is
unnecessary.
EPA
refers
the
commenter
to
the
"
best
practices"
for
preparing
the
economic
analysis
of
a
significant
regulatory
action
described
in
the
Office
of
Management
and
Budget
(
OMB)
document:
"
Economic
Analysis
of
Federal
Regulations
under
Executive
Order
12866"
(
OMB
1996).
This
document
explicitly
states
that
"
presentation
of
monetized
benefits
and
costs
is
preferred
where
acceptable
estimates
are
possible"
and
that
"
an
attempt
should
be
made
to
quantify
all
potential
real
incremental
benefits
to
society
in
monetary
terms
to
the
maximum
extent
possible."
Furthermore,
as
appropriately
noted
by
the
commenter,
OMB's
Circular
A­
4,
"
Regulatory
Analysis"
endorses
the
use
of
stated
preference
surveys
for
estimating
non­
use
benefits.
EPA
further
notes
 
following
guidance
in
the
economic
literature
 
that
stated
preference
methods
are
the
primary
means
for
estimating
non­
use
values
of
a
resource
in
question.
Second,
EPA
emphasizes
that
the
magnitude
of
non­
use
benefits
associated
with
the
Phase
III
rule
is
an
empirical
question
 
and
that
the
potential
significance
of
such
benefits
can
only
be
assessed
using
appropriate
empirical
methods.
EPA
is
aware
of
no
research
 
empirical
or
otherwise
 
that
demonstrates
that
individuals
have
limited
existence
motives
for
the
types
of
fish
that
would
be
protected
by
the
Phase
III
rule.
(
For
detail
on
EPA's
discussion
of
"
non­
use
costs"
see
the
preceding
paragraph.)
Therefore,
the
proposed
stated
preference
study
is
necessary
for
developing
comprehensive
benefits
of
the
final
316(
b)
regulation
for
Phase
III
facilities.

Part
II,
Section
A
(
page
5)

The
commenter
asserts
that
the
values
of
protecting
fish
from
impingement
and
entrainment
are
indirect
use
values
and
not
non­
use
values,
and
these
values
are
already
captured
in
EPA's
analysis.
This
statement
reveals
a
misunderstanding
of
the
multiple
primary
ways
in
which
forage
fish
affect
the
utility
of
individuals.
Specifically,
it
fails
to
recognize
the
distinction
between
two
legitimate
sources
of
economic
value
related
to
forage
fish:
indirect
use
benefits
and
non­
use
benefits.
First,
forage
fish
may
influence
utility
indirectly,
through
their
influence
on
the
productivity
of
recreational
and
commercial
fish.
Such
benefits
may
be
largely
captured
by
a
trophic
transfer
approach.
However,
forage
fish
may
also
enter
individuals'
utility
functions
directly,
providing
non­
use
benefits
that
have
little
or
no
relationship
to
recreational
and
commercial
fish.
These
benefits
are
not
measured
using
a
trophic
transfer
approach.
Similarly,
reductions
in
the
impingement
and
entrainment
losses
of
commercial
and
recreational
species
affect
the
utility
of
individuals
in
multiple
ways.
First,
it
affects
recreational
and
commercial
fishing
harvest.
As
pointed
out
by
the
commenter,
changes
in
recreational
and
commercial
fishing
harvest
affect
direct
use
values,
which
are
captured
in
EPA's
analysis
of
the
316(
b)
regulation
for
Phase
III
facilities.
However,
the
fraction
of
recreational
and
commercial
species
lost
to
impingement
and
entrainment
that
will
1
The
estimated
fishing
mortality
for
commercial
and
recreational
fish
species
affected
by
impingement
and
entrainment
ranges
from
3%
to
50%;
for
most
of
the
affected
fish
species
fishing
mortality
does
not
exceed
20%.
For
details,
see
"
The
Regional
Benefits
Assessment
for
the
Proposed
Rule
for
Phase
III
Facilities"
(
U.
S.
EPA,
2004).
4
eventually
be
caught
is
small.
1
The
remainder
of
the
commercial
and
recreational
species
(
i.
e.,
non­
landed
portion)
saved
from
impingement
and
entrainment
due
to
the
316(
b)
regulation
will
contribute
to
the
fish
stock.
The
non­
landed
recreational
species
may
influence
individuals'
utilities
indirectly
through
their
reproduction
which
may
partly
contribute
to
the
commercial
and
recreational
harvest.
But
both
landed
and
non­
landed
commercial
and
recreational
species
may
also
provide
non­
use
benefits
that
are
separate
from
their
indirect
impact
upon
commercial
and
recreational
harvests.
For
example,
individuals
who
do
not
eat
fish
and
do
not
participate
in
recreational
fishing
may
still
value
existence
of
healthy
commercial
and
recreational
stocks.
EPA
refers
to
Freeman
(
2003),
who
provides
a
clear
distinction
between
indirect
use
benefits
and
true
non­
use
benefits.

The
commenter
also
asserts
that
existence
and
bequest
values
are
only
likely
to
exist
for
unique
resources.
Because
the
fish
affected
by
impingement
and
entrainment
are
neither
a
unique
nor
a
diminishing
resource,
"
individuals
are
unlikely
to
give
up
their
income
for
the
mere
knowledge
that
a
larger
population
of
common
fish
exist."
EPA
agrees
that
larger
non­
use
values
would
be
expected
for
unique
resources
with
few
substitutes.
EPA,
however,
emphasizes
that
empirical
evidence
shows
that
fish
are
a
diminishing
resource.
Scientists
estimate
that
"
the
total
weight
of
table
fish
 
species
eaten
by
man
 
in
the
oceans
has
declined
by
a
total
of
85
percent
in
the
last
century
and
continues
to
decline
at
2
percent
or
more
per
year"
(
Trivedi
2002).
Another
study
found
that
"
large
predatory
fish
biomass
today
is
only
about
10%
of
the
pre­
industrial
level
(
Myers
and
Worm
2003).
Species
caught
by
commercial
and
recreational
fishermen
account
for
approximately
30
percent
of
the
total
impingement
and
entrainment
losses
at
cooling
water
intakes.
In
addition,
a
number
of
threatened
and
endangered
species
are
affected
by
cooling
water
intakes.
For
details,
see
"
The
Regional
Benefits
Assessment
for
the
Proposed
Rule
for
Phase
III
Facilities"
(
U.
S.
EPA,
2004).
EPA
points
out
that
the
magnitude
of
non­
use
benefits
in
the
Phase
III
context
is
an
empirical
issue
that
can
only
be
addressed
with
appropriate
research
methods.
Even
if
non­
use
values
for
fish
are
small
on
a
per­
capita
basis,
they
may
be
large
in
the
aggregate.
The
claims
of
trivial
non­
use
benefits
in
the
Phase
III
policy
context
are
based
on
ad
hoc
assessments
unsubstantiated
by
the
empirical
literature.

The
commenter
claims
that
respondents
cannot
"
distinguish
between
the
indirect
use
values
associated
with
the
fish
as
part
of
an
ecosystem
from
true
non­
use
values."
According
to
the
commenter,
EPA
should
focus
its
effort
on
measuring
the
direct
use
benefits
because
of
the
"
theoretical
and
empirical
problems
with
addressing
non­
use
values
and
the
questionable
merit
of
doing
so."
The
commenter
seems
to
misunderstand
the
purpose
of
the
proposed
stated
preference
study.
As
stated
in
Freeman
(
2003,
p.
154)
"
what
matters
for
policy
purposes
is
total
value,
regardless
of
how
it
is
divided
between
use
and
non­
use
values."
Accordingly,
the
stated
preference
study
proposed
by
EPA
is
intended
to
measure
total
values
(
including
use
and
non­
use)
of
reducing
fish
losses
from
impingement
and
entrainment.
EPA
also
points
out
that
it
is
generally
recognized
in
the
economic
literature,
that
it
is
preferable
to
estimate
total
value
of
a
given
resources
rather
that
to
estimate
components
of
the
total
value
(
e.
g.,
indirect
use
vs.
non­
use
values)
and
then
aggregate
them.
Survey
respondents
will
include
both
users
and
non­
users
of
the
fishery
resources.
For
individuals
who
are
users
of
the
resource
in
question,
stated
preference
methods
will
yield
estimates
of
total
values
(
including
use
and
non­
use),
while
revealed
preferences
methods
would
underestimate
total
value
(
Freeman
2003,
p.
154).
For
individuals
who
are
non­
users
of
a
resource
and
by
definition
can
hold
5
only
non­
use
values,
the
stated
preference
study
would
yield
estimates
of
non­
use
values
(
Freeman
2003,
p.
154).

Part
II,
Section
B
EPA
would
like
to
emphasize
that
the
ICR
in
question
concerns
focus
groups
that
are
to
be
used
in
the
development
of
a
stated
preference
survey.
Most
of
the
material
in
this
section
does
not
address
focus
groups
explicitly,
but
rather
the
more
general
topic
of
resource
valuation.
Nonetheless,
it
is
the
opinion
of
EPA
that
these
comments
reflect
the
perspective
of
a
relatively
narrow
portion
of
the
literature,
and
one
that
is
out
of
step
with
accepted
practices
in
benefit­
cost
analysis.
While
EPA
recognizes
that
some
researchers
consider
stated
preference
methods
to
be
controversial,
it
is
also
emphasized
that
standard
benefit­
cost
practice
considers
these
methods
to
provide
useful
information
concerning
resource
values
(
e.
g.,
Freeman
2003;
Boardman
et
al.
2001;
Carson
et
al.
1999;
Mitchell
and
Carson
1989).

EPA
recognizes
that
some
scientists
have
expressed
opinions
that
"
a
survey
cannot
reliably
ascertain
[
values
for
common
fish]."
Such
opinions
notwithstanding,
the
proposed
analysis
is
designed
to
follow
standard
benefit­
cost
practice,
as
reflected
in
the
preponderance
of
the
economic
literature.
The
comments
offered
in
this
section
 
while
reflecting
the
legitimate
opinions
of
some
researchers
 
do
not
reflect
general
standards
or
practice
in
the
larger
benefit­
cost
analysis
literature.
Indeed,
EPA
guidelines
for
economic
analysis
(
US
EPA
2000,
p.
84)
state
that
"
contingent
valuation
is
the
only
established
method
capable
of
measuring
non­
use
values."
As
an
aside,
EPA
notes
that
the
comments
in
this
section
are
drawn
from
only
two
citations,
one
of
which
is
published
outside
of
the
economic
literature.

As
stated
by
the
NOAA
Blue
Ribbon
Panel
on
Contingent
Valuation
(
Arrow
et
al.
1993,
p.
4610),
" 
some
antagonists
of
the
CV
approach
go
so
far
as
to
suggest
that
there
can
be
no
useful
information
content
to
CV
results.
The
Panel
is
unpersuaded
by
these
extreme
arguments."
The
panel
later
follows
with
the
conclusion
"[
t]
he
Panel
concludes
that
under
[
conditions
described
in
the
report],
CV
studies
convey
useful
information.
We
think
it
is
fair
to
describe
such
information
as
reliable
by
the
standards
that
seem
to
be
implicit
in
similar
contexts,
like
market
analysis
for
new
and
innovative
products ."
It
appears
that
the
comments
of
Section
B
reflect
the
type
of
"
extreme"
opinions
that
the
NOAA
panel
found
unconvincing.

Section
B
suggests
that
stated
preference
derived
from
CV
studies
are
akin
to
"
juries'
punitive
damage
awards,"
and
are
"
not
consistent
with
economists'
rational
models."
This
statement
is
again
at
odds
with
current
practice
as
reflected
by
the
NOAA
panel
(
p.
4610),
which
states
that
"
CV
studies
can
produce
results
reliable
enough
to
be
the
starting
point
of
a
judicial
process
of
damage
assessment,
including
lost
passive­
use
values."
Moreover,
as
stated
by
Freemen
(
2003,
p.
154),
"
stated
preference
valuation
methods 
are
likely
to
offer
the
only
feasible
approaches
to
estimating
nonuse
values."

The
primary
theme
of
the
comments
in
this
section
appears
to
be
the
distinction
between
behavior
in
real
markets
and
behavior
stated
in
surveys
 
with
the
former
assumed
by
the
commenter
to
reflect
true,
underlying
values,
and
the
latter
assumed
to
reveal
only
"
expressions
of
attitudes."
However,
while
critics
of
stated
preference
methods
often
claim
vast
divergences
between
stated
and
real
market
behavior,
evidence
from
comparisons
of
binding
referenda
to
stated
preference
responses
contradicts
this
extreme
opinion.
Existing
studies
find
close
correspondence
between
choices
in
stated
preference
surveys
and
6
voting
behavior
in
binding,
consequential
referenda
(
Bateman
et
al.
2002,
p.
318;
Schläpfer
et
al.
2004).
Hence,
in
these
true
tests
of
criterion
validity,
responses
in
hypothetical
and
real
contexts
comport
quite
closely,
suggesting
that
stated
preference
surveys
can
provide
useful
indications
of
that
which
individuals
"
are
willing
to
forgo
to
enjoy
a
particular
benefit"
(
Circular
A­
4,
as
quoted
in
the
received
comment).

As
a
final
note
on
this
section,
EPA
emphasizes
that
many
of
the
claims
made
in
Section
B
represent
empirical
questions
that
are
appropriately
addressed
within
the
survey
design
process.
For
example,
with
regard
to
the
incentive
structure
of
stated
preference
questions
 
that
are
often
cited
as
a
key
distinction
between
stated
and
real­
market
choices
 
Carson
et
al.
(
1999,
p.
124)
state
that
"
one
must
endeavor
to
provide
questions
with
a
proper
incentive
structure."
As
emphasized
by
the
NOAA
Panel
(
Arrow
et
al.
1993),
Schkade
and
Payne
(
1994),
Mitchell
and
Carson
(
1989)
and
many
others,
appropriate
survey
design
can
identify
the
mechanisms
through
which
respondents
respond
to
CVM
questions
and
assess
whether
responses
reflect
the
types
of
tradeoffs
required
by
neoclassical
theory
for
appropriate
expressions
of
stated
values.
Thus,
EPA
is
using
focus
groups
to
assist
in
the
design
of
the
stated
preference
study
to
value
ecological
gains
from
the
316(
b)
regulation.

As
emphasized
by
Johnston
et
al.
(
1995),
Mitchell
and
Carson
(
1989),
Bateman
et
al.
(
2002),
Desvousges
et
al.
(
1984),
Desvousges
and
Smith
(
1988)
and
many
others,
the
use
of
focus
groups
to
assist
in
the
design
of
stated
preference
surveys
is
well
established,
as
is
the
capacity
of
focus
groups
to
provide
insight
into
motivations
underlying
respondents'
stated
willingness
to
pay
values.
Indeed,
EPA
emphasizes
that
focus
groups
will
be
used,
following
the
advice
of
Mitchell
and
Carson
(
1989),
Desvousges
et
al.
(
1984)
and
Johnston
et
al.
(
1995),
to
test
for
and
eliminate
or
ameliorate
potential
biases
which
may
be
associated
with
stated
preference
methodology.

Within
this
context,
EPA
believes
that
the
potential
concerns
reflected
in
Part
B
provide
even
stronger
rationale
for
conducting
focus
groups
 
as
these
comments
reflect
exactly
the
type
of
issues
that
focus
groups
are
meant
to
address
in
stated
preference
survey
design.
Accordingly,
EPA
will
take
special
care
within
the
proposed
focus
groups
to
address
the
concerns
and
issues
raised
by
this
section.

Part
III
The
commenter
states
that
survey
respondents
will
be
unable
to
isolate
"
pure
non­
use
values
that
are
measurable
directly,
and
that
indirect
use
values
are
likely
to
capture
the
full
value
of
the
resource."
Thus,
EPA
should
use
other
methods
(
experimental
economics)
for
measuring
non­
use
values.
For
detailed
responses
to
this
comment,
see
EPA's
response
to
Part
I,
Section
A,
page5,
above
and
EPA's
response
to
Part
III,
Section
B.

Part
III,
Section
A
The
commenter
asserts
that
EPA
was
unable
to
demonstrate
that
the
values
of
reduced
damages
to
forage
species
and
non­
landed
commercial
and
recreational
species
are
"
indeed"
non­
use
values.
This
section
repeats
issues
raised
in
Part
II,
Section
A,
page
5.
For
a
response
to
this
comment,
see
EPA's
response
to
Part
I,
Section
A,
page5,
above.
7
Part
III,
Section
B
EPA
emphasizes
that
the
TER
comment
on
the
potential
of
the
experimental
economics
methods
to
provide
superior
estimates
compared
to
the
stated
preference
methods
(
as
in
Part
II
above)
is
focused
more
on
stated
preference
surveys
than
on
focus
groups.
The
ICR
in
question
addresses
focus
groups
 
not
the
survey
that
may
be
designed
using
the
proposed
focus
groups.
There
is
no
evidence
in
the
literature
that
suggests
that
experimental
economics
methods
provide
a
substitute
for
qualitative
evidence
that
may
be
gathered
from
appropriately
moderated
focus
group
sessions.

More
broadly,
however,
Part
III,
Section
B
of
the
received
comments
proposes
experimental
economics
as
a
means
to
measure
"
individuals'
true
willingness
to
pay
for
"
non­
use"
items,"
using
"
cash­
motivated
students."
EPA
has
a
number
of
concerns
with
this
proposed
solution,
as
reflected
in
the
current
literature.

First,
and
perhaps
most
importantly,
it
is
quite
unclear
how
the
proposed
experimental
economics
methods
would
estimate
non­
use
values,
given
the
majority
position
in
the
literature
that
"
stated
preference
valuation
methods 
are
likely
to
offer
the
only
feasible
approaches
to
estimating
nonuse
values"
Freemen
(
2003,
p.
154).
Indeed,
EPA
guidelines
for
economic
analysis
(
US
EPA
2000,
p.
84)
state
that
"
contingent
valuation
is
the
only
established
method
capable
of
measuring
non­
use
values."
While
experimental
methods
have
often
been
used
to
assess
the
convergent
validity
(
often
inappropriately
referred
to
as
criterion
validity
(
Bateman
et
al.
(
2002))
of
CVM
responses
addressing
private
and
in
some
cases
public
goods,
EPA
is
aware
of
no
literature
showing
conclusively
that
experimental
economics
methods
are
able
to
reliably
estimate
non­
use
values.

EPA
also
questions
the
supposition
that
experimental
economics
methods
will
by
default
provide
appropriate
measures
of
underlying
willingness
to
pay
 
or
criterion
values
from
which
stated
preferences
may
be
compared.
Notwithstanding
the
common
and
theoretically
unsupported
presumption
that
simulated
markets
requiring
real
payments
necessarily
reveal
true
criterion
values
(
i.
e.,
actual
WTP),
the
markets
used
in
economic
lab
experiments
universally
incorporate
simulated
elements
as
a
means
to
permit
comparisons
with
hypothetical
markets
 
particularly
in
cases
involving
public
goods.
For
example,
researchers
often
simulate
markets
in
experimental
laboratory
settings,
or
might
implement
surveys
that
require
respondents
to
mail
actual
payments
in
order
to
obtain
specified
public
goods
(
Murphy
and
Stevens
2004;
Spencer
et
al.
1998).

While
such
simulated
markets
 
experimental
or
otherwise
 
might
generate
unbiased
WTP
estimates,
they
are
often
conducted
in
institutional
settings
unfamiliar
to
respondents.
Such
settings
may
generate
novel
or
unusual
behavior,
confusion,
distrust,
or
other
behaviors
that
may
lead
to
misstatements
of
true,
underlying
WTP.
For
such
reasons
Bateman
et
al.
(
1987)
argue
that
comparisons
involving
WTP
estimates
obtained
through
simulated
or
experimental
markets
do
not
qualify
as
true
tests
of
criterion
validity
(
i.
e.,
they
do
not
provide
unambiguous
measures
of
true
willingness
to
pay
in
actual
markets).
The
most
common
alternative
 
the
use
of
individual
or
group
donation
mechanisms
(
e.
g.,
Champ
et
al.
1997;
Foster
et
al.
1997;
Seip
and
Strand
1992)
 
suffers
from
confounding
effects
of
free­
riding
and
the
associated
lack
of
incentive
compatibility
(
Bateman
et
al.
1987;
Shläpfer
et
al.
2004).
As
a
result,
as
stated
by
Murphy
and
Stevens
(
2004,
p.
185),
one
cannot
unambiguously
claim
that
values
estimated
using
laboratory
experiments
are
any
more
representative
of
true
willingness
to
pay
than
values
estimates
using
hypothetical
markets.
8
Moreover,
EPA
strongly
questions
the
ability
of
lab
experiments
with
college
students
 
as
proposed
in
Part
III,
Section
B
 
to
provide
valid
measures
of
non­
use
values
among
the
general
population.
The
literature
demonstrates
that
willingness
to
pay
varies
according
to
demographic
attributes
(
e.
g.,
Johnston
et
al.
2003).
Moreover,
theory
indicates
that
willingness
to
pay
is
bounded
by
income
(
i.
e.,
the
budget
constraint).
College
students
clearly
face
a
budget
constraint
distinct
from
that
faced
by
the
larger
population
 
and
likely
have
underlying
preferences
that
differ
as
well.
Hence,
EPA
feels
that
responses
from
college
students
 
like
responses
from
any
single
demographic
group
 
are
likely
to
biased
and
thus
unlikely
to
provide
valid
inferences
regarding
preferences
of
the
general
population
affected
by
the
proposed
Phase
III
regulations.
For
this
reason
EPA
is
using
focus
groups
drawn
from
general
population.

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