The Value of Regional Water Quality Improvements

Abstract:     
Four years ago, Magat, Huber, Viscusi, and Bell (2000) reported pretest results that introduced an iterative choice approach to valuing water quality improvements. This paper applies this approach to a nationally representative sample of over 1,000 respondents. We find that the method provides stable, policy relevant estimates of the amount people are willing to pay for improvements. Willingness to pay for a one percentage point improvement in water quality has a mean value of $23.17 with a median of $15, and appropriately increases with family income, age, education, and the likelihood of using lakes or rivers. In addition, the method passes an external scope test demonstrating that greater gains in the percent of water rated "good" increase the likelihood that the respondent will choose the alternative with better water quality. We tested the appropriateness of a national web-based panel of respondents and find that the Knowledge Networks sample does not fall prey to difficulties that could plague such panels. First, the sampled web-based panel matches United States demographics very well, and predictors of sample responsiveness, such as the likelihood to take a long time to respond to the survey, have minimal impact on the critical estimates of the value of good water. Second, the results are quite insensitive to doubly censored regression that accounts for the portion of respondents who indicated an unboundedly high or low estimate for the value of cleaner lakes and rivers. Finally, the stability of the benefit values is further demonstrated by the selection-corrected estimates that adjust for people invited to participate but who did not successfully complete the survey.

Keywords: water quality, environmental benefits, survey, contingent valuation

JEL Classifications: Q25, K32

Working Paper Series