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Option and Existence Values for the Waitaki Catchment

1. Purpose

2. Background

3. Total economic value

4. Benefits transfer

5. New Zealand studies that indicate potential value magnitudes

6. Waitaki Catchment non-market values

7. Discussion and conclusions

References

5. New Zealand studies that indicate potential value magnitudes

Methods

Relevant New Zealand case studies have been identified from the New Zealand Non-Market Valuation Database (www.learn.lincoln.ac.nz/markval). In most instances, stated preference studies have been employed to measure community willingness to pay to obtain a specified change in the environment. Typically, the environmental scenarios evaluated entail changes in both use and existence values - assessing the changes in total value and not providing any way to identify the relative significance of existence values in the total.

Each study has been reviewed to identify the nature of the items valued, the time of the study, the group whose values have been measured (individuals, households, etc), and the estimated values. This information has been entered into a spreadsheet to allow the disparate values to be converted to a common basis for comparison. No attempt has been made to evaluate the quality of the individual studies. To provide indicative net present values the following parameters have been assumed: two adults per household, one million households, 10 percent discount rate. All values have been converted to December 2003 equivalents using the all groups' consumers' price index.

It is common for people to feel more affinity for proximate resources, implying that existence values may decline with distance. Similarly, recreation use benefits, and therefore option values, are known to decline with distance. If these non-use values decline with distance, then it is not possible to use local and regional studies as a basis for national existence value estimates. Doing so would result in exaggeration of true national benefit changes. Despite this problem, local and regional studies have been used here as the basis for extrapolation to the nation in order to obtain an indication of upwardly biased estimates - to provide an "upper bound" estimate.

Many of the studies address existence values associated with proposed changes directly affecting rivers. Several of the others address water-related matters. Most of the river-related studies address specific stream attributes. Harris' (1984) Waikato River study and both the Sheppard et al (1993) and Kerr, Sharp and Leathers (2004) Waimakariri studies valued the impacts of pollution. The other Waimakariri River studies (Kerr, Sharp, & Leathers, 2004), the Rakaia River studies (Kerr, Sharp, & Leathers, 2004), and the Ashburton River study (Lynch & Weber, 1992) valued river flows. The Auckland streams study (Kerr & Sharp, 2003) addressed several specific stream attributes.

Two studies have taken a national perspective: Kerr's (1985) study of Kawarau River values and Greer and Sheppard's (1990) study of funding for biological control of clematis vitalba. The latter study was unique amongst the cases studied in that it addressed a once-only payment - it also generated the smallest household value of all studies reviewed ($7 per household per year, NPV = $72 million). The remainder are about evenly split between local and regional studies. Table 1 reports the main elements of the case studies.

Table 1a. New Zealand existence value studies: National level studies

Note: All money values have been adjusted to December 2003 values using the consumers' price index

Table 1b. New Zealand existence value studies: Regional level studies

View New Zealand existence value studies: Regional level studies (large table)

Table 1c. New Zealand existence value studies: Local level studies

View New Zealand existence values studies: Local level studies (large table)

The highest value per household ($203 per year) was produced by a local study, which addressed values associated with reduced groundwater extraction on the Waimea Plains in Nelson (White, Sharp, & Kerr, 2001). This figure was nearly matched ($197 per household per year, NPV = $2 billion) by the national study of values associated with proposed Kawarau River hydro-electricity developments (Kerr, 1985).

The column headed NPV reports the (absolute) net present value of existence benefit changes assuming that values can be extrapolated to the whole country [This approach is biased (recall the earlier warning), but yields an extreme upper bound on national values.] . The magnitudes of the entries in the NPV column indicate the potential significance of non-market values. The Ashburton River study estimated preservation values both for Ashburton ($118 per household per year) and for the rest of Canterbury ($70 per household per year). The smaller regional values support the hypothesis that existence values decline with distance. Aggregating that regional figure over all Canterbury households indicates (largely non-use) NPV benefits from preservation of Ashburton River flows in excess of $70 million. The NPV of flow protection on the Waimakariri River for Canterbury householdsis in the order of $60 million.

For the studies in Table 1, existence values are generally confounded with use values. Changes in river attributes such as flow, pollution levels and even impoundment, can affect the amenity gained from activities such as boating, fishing, picnicking and walking. Amenity users may have higher existence values than others because of their familiarity with and affinity for the amenity. Disentangling use and existence values may be impossible. It may also be of little importance. A high use river (for example) may produce recreation use value benefits in the order of $2 million per annum, yielding NPV in the order of $20 million. This may be small in comparison to total value changes as indicated by the NPV column in Table 1.

The suite of studies undertaken on the Waimakariri and Rakaia Rivers by Kerr, Sharp and Leathers (2004) provides some information that helps to understand the likely impact of river use on existence values. Those studies instructed respondents to concentrate on non-use values in constructing their responses to contingent valuation questions. There is no way to know how well respondents followed this instruction. If river users could not successfully undertake this separation of values then users' responses may include elements of use value. Confounding with use values does not occur for non-users of the rivers. However, non-users' option and quasi-option values may not be zero, so while it is possible to gain an indication of differences between use and non-use values, it is still not possible to isolate existence value. The Rakaia and Waimakariri river studies consistently produced non-use value estimates that were larger for river-user households than for non-user households (Table 2).

Table 2. Mean (and median) non-use values by population

Note: Estimates are $ (December 2003) per household per year

Application to all Canterbury households of non-users' values for preserving the rivers at their status quo conditions yields lower bound annual non-use benefits to the region of about $3.7 million (Rakaia) and $1.8 million (Waimakariri). True regional values are likely to exceed these figures because river users probably have higher existence values than non-users. National values would be higher again.

Study designs have generally only permitted non-market value changes to take a single sign -because the studies have assumed that development initiatives will diminish aggregate non-market values (the sum of use, existence, option and quasi-option values). This assumption is likely to have resulted in overstated non-market value changes from development. For example, Lynch's Ashburton River study (Lynch & Weber, 1992) produced mean annual willingness to pay of $70 for Canterbury residents and $118 per household for non-fishing Ashburton households. However, median willingness to pay for those two populations were (-$64) and (-$65) respectively. The negative signs could indicate that most households actually preferred the lower flow levels [This interpretation may be incorrect in the situation where there is a large proportion of the population who simply do not care about Ashburton River flows. In that case the median may actually be zero.] . The skewed nature of responses is also illustrated by Sheppard et al's (1993) study of annual willingness to pay to improve lower Waimakariri River water quality. Mean WTP was $111 per household, but the median was substantially less at $45. Similar results are found for the Waimakariri River and Rakaia River studies reported in Table 1.

Option and quasi-option values

No New Zealand studies have attempted to isolate and measure option value or quasi-option value. However, as noted above, option value and quasi-option value have been measured indirectly during studies that have estimated total economic value (TEV).

Conclusions

Existing studies indicate that New Zealand residents can place high value on protection of the natural environment. Study design limitations ensure that it is not always possible to separate use and non-use values, but mean total economic value changes estimated for various management interventions for braided Canterbury rivers falls in the order of $60 per household per year. Where separate values have been obtained, non-use values appear to be substantial.