Calculating Willingness-To-Pay As a Function of Biophysical Water Quality and Water Quality Perceptions

• Main Author: Silva, Carlos G.
• Format: Others
• Published: DigitalCommons@USU 2014
• Subjects: Willingness-to-pay; Biophysical Water Quality; Water Quality; Economics
• Online Access: https://digitalcommons.usu.edu/etd/3325; https://digitalcommons.usu.edu/cgi/viewcontent.cgi?article=4335&context=etd

When estimating economic value associated with changes in water quality, recreation demand models typically depend upon either (i) biophysical measures of water quality as collected by natural scientists or (ii) the perception of water quality by recreationists. Models based upon biophysical metrics (such as oxygen concentration, pollutant concentrations, Secchi depth measurements, etc.) operate on the assumption that people can perceive and respond to these metrics, or respond to factors that are, indeed, correlated with the biophysical measure. Economists have often estimated willingness-to-pay (WTP) measures associated with unit changes in biophysical measures without examining the degree to which the measures are truly correlated with perceptions. Recreation demand models that are based upon respondents’ perceptions of water quality necessarily assume that perceptions correlate well with the measures used by scientists to evaluate water quality. Again, WTP for unit changes in perceptions have been estimated without examining the relationship to the underlying biophysical measures. The relationship between biophysical metrics and perceptions is rarely addressed, yet it has profound implications for water quality management and policy. Consider a federal or state agency wishing to manage the quality of its waters in an economically efficient way. Through mandated water quality monitoring regulations, an agency may have many years of biophysical measurements, but these measures are in no way linked to people’s perceptions of water quality and, thus, to WTP. Using biophysical measures of water quality and recreation use data recently collected in Utah, this study links technical measures of water quality at a water body to survey respondents’ perceptions of water quality at the same site. This approach is akin to estimating an ecological production function wherein biophysical measures are “inputs” to water quality perceptions (the output). Truncated Negative Binomial models of water-based recreation are used to estimate welfare effects of changes in water quality as measured through (i) unit changes in biophysical measures, (ii) unit changes in perceptions, and (iii) unit changes in biophysical as they change perceptions through the ecological production function.