2. Background
In economics, value is based on the preferences an individual attaches to the flow of services associated with a water resource. Addressing the change in the flow of services is of particular importance. The maximum amount an individual is willing to pay (WTP) for obtaining a benefit or avoiding a loss reflects the individual's preferences for the gain or loss. The minimum willingness to accept (WTA) measures the compensation necessary for the individual experiencing a loss.
The Waitaki River provides a wide array of services, some of which are currently being used. For example, land, labour and capital (market-priced factors of production) combine with an energy gradient within the catchment to produce electricity. Similarly, land, labour and capital combine with water to produce agricultural products. Both of these outputs are market-priced and measuring the benefits and costs associated with alternative water use is relatively straightforward. However, expenditure to derive benefits from the Waitaki River is not limited to the production of market-valued outputs. For example, anglers spend money on the annual licence required for fishing, along with gear, travel and so on, in order to fish in the river. Similarly, individuals spend money on gear to enjoy white water kayaking. The output (utility enjoyed by individuals and families) is not valued in the market. We refer to these as "use values".
However, some people may place a value on the Waitaki River that is independent of their present use. For example, people may gain utility from the knowledge that the river system is preserved even though they may never visit the site. The SKM report suggests that existing knowledge about this class of values is not sufficient to even provide a qualitative assessment of the proposals considered in the national cost benefit analysis (SKM, 2004). Natural resource values that are independent of individual's present use of the resource are variously termed "existence" and "non-use" values (Freeman, 1993). These values arise from a desire to bequeath environmental resources to one's heirs, a sense of stewardship and a desire to preserve options for the future. Little is known about the qualitative impact of water resource development on existence values. More significantly, no conclusions can be drawn about the net impact of each alternative on the flow of environmental services in a qualitative sense. If non-use values are large then ignoring them could result in a misallocation of resources
Non-market valuation methods can provide estimates of environmental impacts in a metric that is consistent with the theoretical underpinnings of cost benefit analysis (CBA). The net present value of each alternative water allocation scenario i (NPVi) is given by
(1)
Each alternative was assessed over a 30-year time horizon (t = 1, ... , 30) using a number of different discount rates (r). The national CBA provides an estimate of efficiency gains in terms of market valued benefits 
and costs 
; that is, the first bracketed term in the numerator of equation (1). As noted in the SKM report, a more comprehensive estimate would include so-called non-market valued impacts; viz the non-market valued benefits 
and costs 
included in the second brackets in the numerator of equation (1). We now turn to an overview of non-market values.
