The National Academies Press: Valuing Ground Water: Economic Concepts and Approaches (1997)

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Valuing Ground Water: Economic Concepts and Approaches

(1997)
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PREFACE i
Valuing
Ground Water
Economic Concepts and Approaches
Committee on Valuing Ground Water
Water Science and Technology Board
Commission on Geosciences, Environment, and Resources
National Research Council
NATIONAL ACADEMY PRESS

Washington, D.C. 1997
Copyright National Academy of Sciences. All rights reserved.

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vice Grant No. DASW01-95-M-6159, and the National Water Research Institute.
Library of Congress Cataloging-in-Publication Data
Valuing ground water : economic concepts and approaches / Committee on Valuing Ground Water,
Water Science and Technology Board, Commission on Geosciences, Environment, and
Resources, National Research Council.
p. cm.
Includes bibliographical references and index.
ISBN 0-309-05640-3
1. Groundwater—Valuation. I. National Research Council (U.S.). Committee on Valuing
Ground Water.
HD1691.V35 1997
333.91′04—dc21 97-4837
Valuing Ground Water: Economic Concepts and Approaches is available from the National Academy
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Copyright 1997 by the National Academy of Sciences. All rights reserved.
Printed in the United States of America

COMMITTEE ON VALUING GROUND WATER
LARRY W. CANTER, Chair, University of Oklahoma, Norman

CHARLES W. ABDALLA, Pennsylvania State University, University Park
RICHARD M. ADAMS, Oregon State University, Corvallis
J. DAVID AIKEN, University of Nebraska, Lincoln
SANDRA O. ARCHIBALD, Hubert H. Humphrey Institute of Public Affairs,
Minneapolis, Minnesota
SUSAN CAPALBO, Montana State University, Bozeman
PATRICK A. DOMENICO, Texas A&M University, College Station (from
September 1994 to November 1995)
PETER G. HUBBELL, Water Resources Associates, Inc., Tampa, Florida
KATHARINE L. JACOBS, Arizona Department of Water Resources, Tucson
AARON MILLS, University of Virginia, Charlottesville
WILLIAM R. MILLS, JR., Orange County Water District, Fountain Valley,
California
PAUL ROBERTS, Stanford University, California
THOMAS C. SCHELLING, University of Maryland, College Park
THEODORE TOMASI, University of Delaware, Newark
WSTB Liaison
HENRY J. VAUX, JR., University of California, Riverside
Staff
STEPHEN D. PARKER, Study Director (September 1994 through January

1996)
SHEILA D. DAVID, Study Director (January 1996 through April 1997)
ETAN GUMERMAN, Project Coordinator (September 1994 through October
1996)
MARY BETH MORRIS, Senior Project Assistant (September 1994 through
July 1996)
ELLEN A. DE GUZMAN, Project Assistant (July 1996 through April 1997)
Consultant
JOEL DARMSTADTER, Resources for the Future (September 1994 through

June 1996)
iii

iv PREFACE
WATER SCIENCE AND TECHNOLOGY BOARD
DAVID L. FREYBERG, Chair, Stanford University, California

BRUCE E. RITTMANN, Vice Chair, Northwestern University, Evanston,
Illinois
LINDA ABRIOLA, University of Michigan, Ann Arbor
JOHN BRISCOE, The World Bank, Washington, D.C.
WILLIAM M. EICHBAUM, The World Wildlife Fund, Washington, D.C.
WILFORD R. GARDNER, University of California, Berkeley
EVILLE GORHAM, University of Minnesota, St. Paul
THOMAS M. HELLMAN, Bristol-Myers Squibb Company, New York, New
York
CHARLES D. D. HOWARD, Charles Howard and Associates, Ltd., Victoria,
British Columbia
CAROL A. JOHNSTON, University of Minnesota, Duluth
WILLIAM M. LEWIS, JR., University of Colorado, Boulder
JOHN W. MORRIS, J.W. Morris, Ltd., Arlington, Virginia
CHARLES R. O’MELIA, The Johns Hopkins University, Baltimore, Maryland
REBECCA T. PARKIN, American Public Health Association, Washington,
D.C.
IGNACIO RODRIGUEZ-ITURBE, Texas A&M University, College Station
FRANK W. SCHWARTZ, Ohio State University, Columbus
HENRY J. VAUX, JR., University of California, Riverside
Staff
STEPHEN D. PARKER, Director

SHEILA D. DAVID, Senior Staff Officer
CHRIS ELFRING, Senior Staff Officer
JACQUELINE A. MACDONALD, Senior Staff Officer
GARY D. KRAUSS, Staff Officer
JEANNE AQUILINO, Administrative Associate
ANITA A. HALL, Administrative Assistant
ANGELA F. BRUBAKER, Research Assistant
ELLEN A. DE GUZMAN, Project Assistant
iv

PREFACE v
COMMISSION ON GEOSCIENCES, ENVIRONMENT, AND

RESOURCES
GEORGE M. HORNBERGER, Chair, University of Virginia, Charlottesville

PATRICK R. ATKINS, Aluminum Company of America, Pittsburgh,
Pennsylvania
JAMES P. BRUCE, Canadian Climate Program Board, Ottawa, Ontario
WILLIAM L. FISHER, University of Texas, Austin
JERRY F. FRANKLIN, University of Washington, Seattle
THOMAS E. GRAEDEL, Yale University, New Haven, Connecticut
DEBRA KNOPMAN, Progressive Foundation, Washington, D.C.
KAI N. LEE, Williams College, Williamstown, Massachusetts
PERRY L. McCARTY, Stanford University, California
JUDITH E. McDOWELL, Woods Hole Oceanographic Institution,
Massachusetts
RICHARD A. MESERVE, Covington & Burling, Washington, D.C.
S. GEORGE PHILANDER, Princeton University, New Jersey
RAYMOND A. PRICE, Queen’s University at Kingston, Ontario
THOMAS C. SCHELLING, University of Maryland, College Park
ELLEN SILBERGELD, University of Maryland Medical School, Baltimore
VICTORIA J. TSCHINKEL, Landers and Parsons, Tallahassee, Florida
E-AN ZEN, University of Maryland, College Park
Staff
STEPHEN RATTIEN, Executive Director

STEPHEN D. PARKER, Associate Executive Director
MORGAN GOPNIK, Assistant Executive Director
GREGORY SYMMES, Reports Officer
SANDI FITZPATRICK, Administrative Associate
MARQUITA SMITH, Administrative Assistant/Technology Analyst

The National Academy of Sciences is a private, nonprofit, self-perpetuating soci-

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The National Research Council was organized by the National Academy of
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man and vice chairman, respectively, of the National Research Council.
vi

Preface
Ground water, while providing much of the nation’s supplies of water for
domestic, industrial, and agricultural purposes, is surprisingly underappreciated
and usually undervalued. Water managers at various levels of government are
faced with an array of decisions involving development, protection, and/or
remediation of ground water resources. Examples of questions basic to such
decisions at the local level include:
(1) Should ground water be used singly or in conjunction with surface water
supplies to meet increasing water usage requirements?
(2) Should a comprehensive water conservation program be implemented in
order to extend the availability of ground water and minimize or preclude ground
water depletion?
Examples of questions basic to decisions at the state or federal level include:
(1) Are the benefits of ground water protection programs greater than their
costs, and how should such wellhead protection efforts be funded?
(2) How should ground water remediation projects be prioritized given that
the costs of remedial actions typically far exceed available funding? Should the
value of ground water resources be considered in deciding if remediation efforts
should be undertaken at a site?
Valuation of ground water resources is critical in determining an efficient
outcome in each of these examples as well as many other ground water develop-
ment, protection, and/or remediation projects, programs, or policy decisions.
However, the ground water resource, a non-market good, is difficult to value;
vii

viii PREFACE
and, as a result, economic valuation and future considerations have historically

played almost no part in decision making.
The fundamental need to value natural resources was recognized in a 1990
report of the Science Advisory Board (SAB) of the U.S. Environmental Protec-
tion Agency (EPA, 1990). Based on the review of comparative risk assessments
of environmental problems, a committee of 39 distinguished scientists, engi-
neers, and other experts drawn from academia, state government, industry, and
public interest groups developed ten recommendations; of relevance to this report
is Recommendation 10—EPA should develop improved methods to value natural
resources and to account for long-term environmental effects in its economic
analyses (EPA, 1990).
In 1994 the U.S. Environmental Protection Agency requested that the Na-
tional Research Council (NRC) appoint a committee to study approaches to as-
sessing the future economic value of ground water, and the economic impact of
the contamination or depletion of these resources. This committee was appointed
in 1994 under the auspices of the NRC’s Water Science and Technology Board.
The committee was charged to:
(1) review and critique various approaches for estimating the future value of
uncontaminated ground water in both practice and in theory;
(2) identify areas in which existing approaches require further development
and promising new approaches which might be developed;
(3) delineate the circumstances under which various approaches would be
preferred in practice for various applications of decision making regarding long-
term resource use and management;
(4) outline legislative and policy considerations in connection with the use and
implementation of recommended approaches, and related research needs; and
(5) illustrate, through real or hypothetical case examples, how recommended
procedures would be applied in practice for representative applications.
Due to the relevance of the committee charge to other public interest groups
and agencies, three other sponsors provided financial support for this NRC study
in addition to EPA: the National Water Research Institute, the U.S. Department
of Defense, and the U.S. Department of Energy.
The focus of the study on ground water valuation and the composition of the
committee established the need for economists to work with ground water ex-
perts. Disciplines represented on the committee included agricultural economics,
environmental engineering, hydrogeology, microbiology, public policy, resource
economics, and water law. The members were drawn from academia, private
consultants, and water management positions in local government.
While the assignment was challenging, the committee quickly agreed on
three matters that provided its starting points. First, an interdisciplinary approach
is necessary for ground water valuation studies. Second, when valuing ground
water, the in situ and ecological services must be recognized along with the more

PREFACE ix
obvious extractive services. Finally, it was recognized that common terminology

was not available as a foundation for this study. Thus concepts and principles
from environmental economics and ground water management had to be appro-
priately integrated to provide a basis for the work of the committee.
The committee has completed its task and, in so doing, has received consid-
erable assistance from the NRC staff. Accordingly, on behalf of the committee,
I wish to express our thanks to the following persons: Sheila David, Study Direc-
tor; Etan Gumerman, Project Coordinator; Mary Beth Morris, Project Assistant;
Ellen de Guzman, Project Assistant; Joel Darmstadter, Consultant; and Steve
Parker, Director of the Water Science and Technology Board (WSTB). In addi-
tion, Henry Vaux, WSTB member and liaison to this committee, provided both
helpful guidance and technical input.
Finally, I wish to express my appreciation to all committee members for their
willingness to discuss new concepts from an interdisciplinary perspective, to
prepare and revise materials for this report, and to strive for consensus-building
on key issues. We have all learned from this process!
Larry W. Canter,
Chairman
Reference
U.S. EPA. 1990. Reducing Risk: Setting Priorities and Strategies for Environmental Protection,
Science Advisory Board, Relative Risk Reduction Strategies Committee, U.S. EPA, Wash-
ington, D.C.

xx ACKNOWLEDGMENTS
PREFACE

PREFACE xi
Contents
EXECUTIVE SUMMARY 1
1 INTRODUCTION AND BACKGROUND 13

The Ground Water Valuation Dilemma in Brief, 13
Context for Ground Water Valuation, 14
The Role of the NRC, 28
References, 29
2 GROUND WATER RESOURCES: HYDROLOGY,

ECOLOGY, AND ECONOMICS 31
Hydrological Concepts, 31
The Economics of Ground Water Use, 37
Ground Water Quality, 41
Recommendations, 45
References, 46
3 A FRAMEWORK FOR THE VALUATION OF GROUND WATER 47

Some Preliminaries, 48
Services Provided by Ground Water, 58
The Conceptual Framework, 60
Recommendations, 65
References, 66
xi

xii CONTENTS
4 ECONOMIC VALUATION OF GROUND WATER 68

History of Economic Valuation of Natural/Environmental Resources, 68
The Economic Approach to Valuation, 70
Methods for Estimating the Economic Value of Natural/Environmental
Resources, 73
Current Knowledge of Ground Water Values, 86
Conclusions and Recommendations, 99
References, 101
5 LEGAL CONSIDERATIONS, VALUATION, AND GROUND

WATER POLICY 105
Valuation and Ground Water Allocation, 106
Valuation and Ground Water Quality Protection, 114
Changing Environmental Priorities: Policy Dimensions of
Ground Water Valuation, 118
Legal Issues in Redefining Ground Water Rights, 121
Reducing Risk and Valuing Ground Water, 122
Research Needs, 122
Recommendations, 125
References, 125
6 CASE STUDIES 127

Challenges in Water Quality Management, Treasure Valley,
Oregon, 130
Competing Uses of an Aquifer, Laurel Ridge, Pennsylvania, 133
The Buffer Value of Ground Water, Albuquerque, New Mexico, 136
The Buffer Value of Ground Water, Arvin-Edison Water Storage
District, Southern California, 140
The Value of Averting Sea Water Intrusion, Orange County,
California, 142
Incorporating the Value of Ground Water in Superfund
Decision-Making, Woburn, Massachusetts, 149
Applying Ground Water Valuation Techniques, Tucson, Arizona, 153
Lessons Learned, 164
APPENDIXES
A GLOSSARY 169
B A PORTION OF A SAMPLE CONTINGENT VALUE
METHOD QUESTIONNAIRE 174
C BIOGRAPHICAL SKETCHES OF COMMITTEE MEMBERS 177
INDEX 183

Valuing
Ground Water


EXECUTIVE SUMMARY 1
5
5
Executive Summary
Ground water in the United States is usually considered as either an invalu-

able good or as a “free” good. At one extreme, the Comprehensive Environmen-
tal Response, Compensation, and Liability Act (CERCLA or Superfund) implies
a very high value for ground water by requiring restoration of contaminated water
sources to drinking water quality. Billions of dollars have been spent to clean up
contaminated ground water with little comparison of costs or technological diffi-
culty to future benefits. At sites where cleanup is technically infeasible, the
Superfund law essentially assigns an infinite value to the resource.
At the other extreme, historically, ground water has been priced well below
its value and, as a consequence, misallocated. In many states and localities, no
charge is imposed for water withdrawn, and the consumer, whether a public
water supply entity, an individual, or a firm regards the cost as being confined to
the energy used for pumping and the amortization of well construction and the
costs of the treatment and distribution system. As a result, depletion and pollu-
tion continue largely because it is not recognized that ground water has a high or
long-term value. Further, the Environmental Protection Agency’s Science Advi-
sory Board (SAB) report Reducing Risk (1990) has been perceived as not prop-
erly valuing ground water. The report neglects the uniqueness of the ground
water resource and the often irreversible nature of ground water depletion and
pollution, implying that declines in ground water quality and quantity need not be
major concerns.
Such undervaluation of ground water fosters misallocation of resources in
two ways: (1) the ground water resource is not efficiently allocated relative to
alternative current and future uses; and (2) authorities responsible for resource

2 VALUING GROUND WATER
management and protection devote inadequate attention and funding to maintain-

ing ground water quality.
In 1994, recognizing the need for better methods and informed decision-
making in this area, the U.S. Environmental Protection Agency, the National
Water Research Institute, the U.S. Department of Energy, and the U.S. Depart-
ment of Defense requested that the National Research Council undertake this
study. This study examines approaches to assessing the future economic value of
ground water as well as the economic impact of contaminating or depleting this
resource. Key points addressed include the minimal historical attention given to
ground water valuation in general, and specific methods that can be used to
perform such valuation studies.
Until the last few decades, attention, even in natural resource and environ-
mental economics, has been given primarily to the effects of exploiting natural
resource assets such as extractive minerals, land and timber, ocean fisheries, and
surface water resources. The economic value of unique natural and environmen-
tal resources, such as wetlands and other ecosystems, has more recently been
considered. Most ground water studies to date have focused only on the valua-
tion of limited production-related services provided by ground water, and not on
a more comprehensive view of production and ecological services.
A fundamental step in valuing a ground water resource is recognizing and
quantifying the resource’s total economic value (TEV). Knowing the resource’s
TEV is crucial for determining the net benefits of policies and management
actions. For purposes of this study, ground water services have been divided into
two basic categories: extractive services and in situ services. Each of these has an
economic value, and these values can be summed to yield TEV as follows:
TEV = extractive value + in situ value
The most familiar of these two components are the extractive values, which are
derived from the municipal, industrial, commercial, and agricultural demands
met by ground water. The in situ services (i.e., services or values that occur or
exist as a consequence of water remaining in place within the aquifer) include, for
example, the capacity of ground water to (1) buffer against periodic shortages in
surface water supplies; (2) prevent or minimize subsidence of the land surface
from ground water withdrawals; (3) protect against sea water intrusion; (4) pro-
tect water quality by maintaining the capacity to dilute and assimilate ground
water contaminants; (5) facilitate habitat and ecological diversity; and (6) pro-
vide discharge to support recreational activities. The committee’s calculation of
TEV as the sum of extractive and in situ values can also be expressed by using
concepts which often appear in the environmental economics literature. The
relationship between those concepts and the ones in this report has been defined
in Chapter 1. The committee developed the taxonomy in Chapter 1 so that its use
will lead to greater potential for interdisciplinary work on the neglected service
areas.

EXECUTIVE SUMMARY 3
It is important to recognize the TEV of ground water even when one cannot
develop specific quantitative separations of the various components. In fact,
delineations of what can and cannot be quantified can be useful both to decision-
makers for either development or remediation projects, and to researchers seek-
ing to advance conceptual and methodological approaches. Descriptive informa-
tion or surrogate quantitative measures that are not monetized may be the only
information that can be assembled on some TEV components.
In many circumstances even a partial or inexact measurement of TEV can
greatly aid decision-making by providing insight into how TEV changes with a
policy or management decision. In some cases, the measurement of use values
alone, or extractive services alone, can reveal substantial information on how the
resource’s TEV would be affected by a policy decision. In other circumstances,
these limited measures may fail if they provide only a small portion of the
components of TEV that would be altered.
GROUND WATER RESOURCES:

HYDROLOGY, ECOLOGY, AND ECONOMICS
Valuation of the extractive and in situ services of ground water requires an
understanding of the hydrology and ecology of the ground water source. Hydro-
logic information includes numerous factors such as rainfall, runoff, infiltration,
and water balance data; depth to ground water; whether the water-bearing zone is
confined or unconfined; ground water flow rates and direction; and type of va-
dose and water-bearing zone materials. The contribution of ground water to
stream base flow and the relationships between ground water and wetland and
lake ecosystems are also important.
Knowing natural recharge rates and spatial locations, along with ground
water usage rates and trends, is also necessary in water balance calculations and
the consideration of ground water depletion. Depending upon the location, rela-
tionships between sea water or saline water intrusion and ground water use may
also need to be established. Land subsidence can occur in some areas if ground
water use is excessive, causing major problems with infrastructure components
such as building foundations, roads, sewers, and water and utility lines. The
effect of subsidence on flooding (especially) in coastal areas may also be signifi-
cant. All these should be considered in valuing a ground water resource.
Some ground water supplies can be viewed as nonrenewable because of the
long time-frame required to replenish them. Depletion of ground water (includ-
ing overdrafting and mining) in deep aquifers, for instance, is essentially irrevers-
ible. Therefore, because ground water is a unique and potentially exhaustible
resource vital to future generations, the costs of valuation studies may be recov-
ered by assisting in the protection of ground water. Without planning and protec-
tion of ground water, the resource may not be available to support future genera-
tions.

In other circumstances ground water overdraft can be economically efficient

and socially beneficial in the short term. For all aquifers, a “steady state” should
eventually be reached in which withdrawals are limited to recharge. The level at
which this steady state is to be maintained is a matter of choice. During times of
drought when surface supplies are scarce, temporary overdraft may be justified,
with a subsequent reduction in use of the aquifer to let it recharge. The level
would then fluctuate around some average steady state condition.
The tendency for ground water to be treated as an “open access” resource
when it is exploited underscores the importance of well-defined, clearly enforce-
able rights to extract or obligations to protect ground water. In instances where
these rights are not defined and enforceable, the availability of ground water is
subject to the “law of capture,” in which whoever gets to the water first gets first
rights to it. If ground water is subject to the law of capture, then the benefits of
protection, remediation, and enhancement investments will also be subject to the
law of capture. This results in less than optimal investment in the preservation
and enhancement of ground water quality, since those investing in such measures
cannot reap all of the benefits. (Associated legal and institutional questions are
discussed beginning on page 10.)
Treating environmental systems as economic assets that provide goods and
services has become an established approach in environmental economics.
Ground water systems create ecological services by providing discharge for the
maintenance of stream flows and to wetlands and lakes. These discharges sup-
port general ecological functions that provide their own services of economic
value. For example, discharge to aquatic ecosystems may aid preservation of
threatened or endangered species and support downstream uses of water for
drinking or irrigation. (Many flowing streams in the southwest U.S., for example,
have gone dry after nearby aquifers were drawn on too heavily.) Ground water
provides a “derived” value through its contributions to the larger environment.
While the valuation of a given ground water resource may be complex,
several simple principles may be applied to almost any valuation problem:
• Because ground water resources are finite, decision-makers should
take a long-term view in all decisions regarding valuation and use of these
resources, proceeding very cautiously with any actions that would lead to an
irreversible situation regarding ground water use and management. Ground
water depletion, for instance, is often irreversible. Some aquifers do not
recharge quickly. Moreover, overdrafting can sometimes lead to a collapse
of the geologic formation, permanently reducing the aquifer’s storage capac-
ity.
• Decision-makers should also be cautious regarding contamination of
ground water. Restoration of contaminated aquifers, even when feasible, is
resource-intensive and time-consuming. Restoration methods are uncertain
and unlikely to improve significantly in the near future. As a result, it is

EXECUTIVE SUMMARY 5
almost always less expensive to prevent ground water contamination than to

clean it up.
• Ground water often makes significant contributions to valuable eco-
logical services. For example, in the Southwest, many flowing streams have
been eliminated by overpumping. Because the ground water processes that
affect ecosystems and base stream flow are not well understood, combined
hydrologic/ecologic research should be pursued to clarify these connections
and better define the extent to which changes in ground water quality or
quantity contribute to the change in ecologic values.
• Ground water management entities should consider appropriate poli-
cies such as pump taxes or quotas to ensure that the cost of using the water
now rather than later is accurately accounted for by competing pumpers.
VALUATION FRAMEWORK
One of the major challenges in valuing ground water is how to integrate the
hydrologic and physical components of ground water resources into a valuation
scheme. An appropriate conceptual basis for valuation identifies service flows as
the central link between economic valuation and ground water quality and quan-
tity.
Every generation should be concerned about the supply and quality of fresh
water, and about who has access to it, at what cost. Defining the best long-term
management of the resource requires balancing the needs of the present with
those of the future. In theory, the balancing is done everyday by markets as
reflected in the discount rate. However, many citizens, policy-makers, and scien-
tists believe that the discount rate does not adequately consider the value of
goods or services for future generations.
Discounting is a procedure that adjusts for future values of a particular good
by accounting for time preferences. Higher discount rates, which give less weight
to future net benefits, encourage present use and deter present investments. The
market rate of interest will also influence individual and corporate decisions
regarding resource extraction. Public entities can choose the discount rate they
prefer, and much has been written about these choices. The discount rate a water
utility employs when valuing ground water reflects perceptions of risk, returns,
and possibly intergenerational equity. A high discount rate implicitly places a
low value on the water’s value to future generations. A low rate implies the
opposite.
A valuation framework must take into account how time, institutions, water
quality and quantity, hydrologic factors, and services interact to affect the
resource’s value. This necessity has several important implications:
• As noted earlier, some knowledge of a resource’s TEV is vital to the
work of water managers, and in the development of policies dealing with

allocation of ground water and surface water resources. For many pur-
poses, the full TEV need not be measured, but in all cases where a substan-
tial portion of the TEV will be altered by a decision or policy, that portion
should be measured.
• Policy-makers must recognize the impact that a utility’s choice of a
discount rate can have on ground water management decisions. Ideally, the
discount rate should give adequate weight to long-term considerations.
• An interdisciplinary approach, such as the conceptual model pre-
sented in Chapter 3, is useful in conducting a ground water value assess-
ment. The approach should incorporate knowledge from the economic,
hydrologic, health, and other social, biological, and physical sciences. As-
sessments should be site specific and integrate information on water de-
mands with information on recharge and other hydrologic concerns, and to
the extent possible should reflect the uncertainties in both the economic
estimates of the demand for ground water and in the hydrologic and bio-
physical relationships.
VALUATION METHODS
Ground water services are difficult to value because much of the information
needed for valuation is not readily available. Market trades can provide data
useful in valuation, for instance, but most of the services provided by ground
water are not traded on markets. However, techniques do exist for valuing
nonmarket goods.
Economic value is not a fixed, inherent attribute of a good or service but rather
depends on time, circumstances, and individual preferences. The economic value
of a good or service can be inferred either from someone’s willingness to pay
(WTP) or willingness to accept compensation (WTA) for giving it up.
Several taxonomies have been developed to categorize the types of eco-
nomic values associated with natural resources, such as a ground water system.
One taxonomy distinguishes between use values, which are determined by the
contribution of a resource to current or future production and consumption, and
nonuse values, which typically refers to aesthetic or contemplative values arising
from goods and services. The critical distinction for decision-making is between
goods and services whose economic values are fully captured in market prices
and those whose value is not thus captured.
Applicability of Valuation Methods

One prominent technique that attempts to measure total value, including use
and nonuse values, is the contingent valuation method (CVM). CVM values are
elicited directly from individuals (via interviews or questionnaires (see Appendix
B)) in the form of statements of maximum WTP or minimum WTA compensa-

EXECUTIVE SUMMARY 7
tion for hypothetical changes in environmental goods, such as ground water

quantity or quality. The CVM can be applied to both ground water use and
nonuse values. There are numerous methodological controversies associated
with application of CVM, including how the hypothetical ground water change
that people are being asked to value is to be specified, the elicitation format for
asking valuation questions, the appropriate measure to be elicited (i.e., WTP or
WTA), and various types of response biases.
The advantage of the contingent valuation method, however, is that it allows
analysts to focus precisely on the total resource attribute (e.g., quantity or quality
changes) to be valued. CVM provides reliable estimates of value when an indi-
vidual has a close connection to the resource being valued. When there is a large
nonuse component to the TEV being elicited, application of CVM is difficult,
making it one of the most controversial areas in the valuation literature. CVM
practitioners believe that it is the only method capable of capturing a substantial
part of value when nonuse value is a large part of the TEV. However, the
continuing controversy over both the theoretical validity and the practicality of
CVM-based studies of nonuse values raises questions regarding its use in natural
resource damage assessments and litigation situations. Table 1.6 in Chapter 1
and Table 4.5 in Chapter 4 compare the advantages and disadvantages of CVM
along with other valuation methods.
In contrast to direct elicitation via CVM or some other stated preference
technique, economists also have developed indirect methods (e.g., hedonic price
models), which infer values from other behaviors associated with the good. A
strength of indirect methods is that they rely on observed behaviors of producers
and consumers. Examples of observed behaviors, such as how much water is
applied in irrigation or as drinking water at a given cost, expenditures on water
purification systems, or how much people will spend to travel to a recreational
resource, help to establish a water resource’s value. However, because indirect
approaches generally measure only one component of the TEV (use value) and in
some cases require large amounts of data, care must be taken when employing
them.
In any case, for valid and reliable results to be obtained, the valuation method
must be well-matched to the context and the ground water function/service of
interest. (Chapter 4, Table 4.5 provides a summary of potential matches.) Meth-
ods for valuing the quality of drinking water include cost of illness, averting
behavior, contingent valuation, and conjoint analysis (e.g., contingent ranking or
behavior).
Uncertainty
The decision-maker attempting to value ground water faces significant un-
certainties regarding hydrologic, institutional, economic, and human health as-
pects of ground water management. One source of uncertainty lies with the

problem of predicting the consequences of environmental policies and actions. A

related set of challenges stems from the difficulty of assessing ground water
benefits in the future and the irreversible nature of some present ground water
management decisions and impacts. Economic uncertainties regarding nonmarket
goods and services are even more substantial because there is no accurate docu-
mentation of monetary values when markets are absent.
The notion of risk contrasts with uncertainty. Risk characterizes situations
about which there are a known set of probabilities. By contrast, uncertainty
characterizes situations in which the probabilities are incompletely known or
unknown. Techniques of risk analysis can be customarily applied to characterize
risky situations analytically. One method of accounting for risk involves addition
of “risk premiums” to the discount rate. The size of the “risk premium” varies
directly with the degree of risk. The concept of risk is extremely important in
analyzing the potential costs associated with degraded water quality.
A careful consideration of these valuation factors leads to several conclusions:
• For valid and reliable results to be obtained, the valuation method

must be well-matched to the context and the ground water function or ser-
vice of interest.
• It is hard to make generalizations about the validity and reliability of
specific valuation approaches in the abstract. The validity of the approach
depends on the valuation context and the type of ground water services that
are of interest. Different approaches are needed to value different services;
care must be taken not to double-count values associated with different
services.
• Previous ground water valuation studies have focused primarily on a
small part of the known ground water functions and services (identified in
Chapter 3). Thus, the current empirical knowledge of the values of ground
water is quite limited and concentrated in a few areas, such as extractive
values related to drinking water use.
• The contingent valuation method (CVM), when used correctly, has
the potential for producing reliable estimates of ground water use values in
certain contexts. CVM has the advantage of allowing analysts to focus pre-
cisely on the total value of a resource attribute, compared to the results from
other indirect approaches that generally fail to capture total economic value.
However, few, if any, studies to date meet the stringent conditions, as estab-
lished by a NOAA panel of Nobel-Laureate economists, that are required to
produce defensible estimates of nonuse values. More research is needed to
compare use values from CVM with those of other methods to determine
whether CVM will consistently yield reliable estimates.
• Given the problems in using CVM to measure ground water values,
EPA and other appropriate government agencies should encourage ways of
enhancing the utility of CVM. For example, contingent ranking or behavior

EXECUTIVE SUMMARY 9
methods may be useful in improving the robustness of CVM estimates and

may expand the potential for transferring existing CVM estimates to other
empirical settings.
• If data are available and critical assumptions are met, indirect valua-
tion methods (e.g., travel cost method (TCM), hedonic price method (HPM),
averting behavior) can produce reliable estimates of the use value of ground
water.
• The EPA, and other federal agencies as appropriate, should develop
and test other valuation methods for addressing the use and nonuse values of
ground water, especially the ecological services provided by ground water.
• Technical, economic, and institutional uncertainties should be con-
sidered and their potential influence delineated in ground water valuation
studies. Research is needed to articulate such uncertainties and their poten-
tial influence on valuation study results.
• Ground water values obtained from both indirect and direct methods
are dependent on the specific ground water management context. Attempts
to generalize about or transfer values from one context to another should be
pursued with caution.
• If data are available and critical assumptions are accurate, tradi-
tional valuation methods such as cost of illness, demand analysis, and pro-
duction cost can be used for many ground water management decisions that
involve use values. Such methods offer defensible estimates of what are
likely to be the major benefits of ground water services.
• The pervasiveness and magnitude of nonuse values for ground water
is uncertain. Few and limited studies have been conducted, and little reliable
evidence exists from which to draw conclusions about the importance of
nonuse values for ground water. Additional research is needed to document
the occurrence and size of nonuse values for ground water systems.
• What is most relevant for decision-making regarding ground water
policies or management is knowledge of how the TEV of ground water will
be affected by a decision. Pending documentation of large and pervasive
nonuse values for ground water, it is likely that in many, but not all, circum-
stances, measurement of use values or extractive values alone will provide a
substantial portion of the change in TEV relevant for decision-making.
• In some circumstances the TEV is likely to be largely composed of
nonuse values. At the current time, pending documentation of large and
pervasive nonuse values for ground water systems, this appears to be most
likely when ground water has a strong connection to surface water and a
decision will substantially alter these service flows. In these situations, fo-
cusing on use values alone could seriously mismeasure changes in TEV and
will ill serve decision-making. Decision-makers should approach valuation
with a careful regard for measurement of TEV using direct techniques that
can incorporate nonuse values.

LEGAL CONSIDERATIONS, VALUATION, AND

GROUND WATER POLICY
The last two decades have brought changes in emphases in both technical
and institutional issues related to ground water management. Due to society’s
misplaced perceptions of ground water’s “pure” natural quality, there has been
overemphasis over several decades on ground water quantity issues rather than
quality issues. This has included the magnitude of water supplies being devel-
oped and associated costs. Quality considerations were mainly related to chlo-
rides, nitrates, and the need for disinfection prior to human consumption. Since
the mid-1970s increasing attention has been given to deteriorations in ground
water quality. With ground water issues becoming more complex, the incorpora-
tion of economic valuation of ground water and other natural resources in deci-
sion-making takes on more urgency. This is especially true where a resource
supports an ecosystem of national significance that not all citizens may be in
contact with but still want protected (e.g., the Everglades or the Grand Canyon).
Sixteen federal laws relate directly or indirectly to ground water manage-
ment. Key laws include the Clean Water Act (CWA), Safe Drinking Water Act
(SDWA), Resource Conservation and Recovery Act (RCRA), Comprehensive
Environmental Response, Compensation, and Liability Act (CERCLA, or
Superfund), and Superfund Amendments and Reauthorization Act (SARA). The
SDWA addresses the quality of public drinking water supplies and ground water
protection. The CWA addresses pollution control, while RCRA relates to waste
disposal sites and underground storage tanks. Soil and ground water remediation
are the subjects of the Superfund laws (CERCLA and SARA). Numerous state
and local laws also address ground water usage (quantity allocations) and quality
via numerical standards or descriptive criteria. These multiple laws and regula-
tory agency overlaps can create conflicts regarding ground water usage, quality
protection, and/or remediation responsibility.
Command-and-control approaches have historically dominated pollution
control in environmental quality laws. More recently, market-based consider-
ations, incentives for pollution prevention, and risk management have been ad-
vanced as additional components in environmental management, including the
management of ground water. Many of these recent environmental management
approaches include consideration of some economic issues, including program or
project costs and benefits.
Water marketing (the buying and selling of water rights) has emerged as a
valuable policy alternative for allowing water allocation laws to efficiently re-
spond to all water use demands. Theory suggests that where price reflects the
TEV, reliance on water marketing is a more efficient way to allocate scarce
resources.
On a national level, regulatory impact assessment has been used to address
some economic issues. For example, President Reagan initiated a formal balanc-
ing of the benefits of environmental protection and regulatory compliance costs

EXECUTIVE SUMMARY 11
through Executive Order 12291, which required EPA and other agencies to pre-
pare benefit-cost analyses for any proposed regulations imposing public and
private costs of at least $100 million annually. Presidents Bush and Clinton
issued similar Executive Orders. Current congressional interests include ex-
panded use of risk assessments coupled with economic evaluations for both pro-
grams and projects.
At times, specific legislative mandates or principles may take precedence
over the consideration of economic valuation information or benefit-cost analy-
ses. Most federal environmental, health, and safety programs contain program
requirements that are unfunded mandates. Accurate information regarding ground
water values would make unfunded mandate regulatory reviews better relative to
evaluation of the economic and environmental trade-offs involved in ground
water protection policies. Historical ground water allocation schemes and water
rights laws are examples, as is the concern over human health effects and their
immediate reduction in the near-term requirements of the Superfund laws.
These institutional considerations suggest several areas of governmental ac-
tion:
• Federal, state, and local agencies should give consideration to the
TEV of ground water in their deliberations on new or amended legislation or
regulations related to ground water management.
• States should consider the authorization and promotion of water
marketing, including transfer of ground water rights when appropriate.
Although a transition to a market that adequately captures the full value of
the resource may be difficult, water markets provide flexibility in water use
and more efficient allocation of water among uses. Water markets also pro-
vide real world prices of water for current use values, and their prices aid
decision-makers in valuing ground water.
• States should be encouraged to develop clear and enforceable rights
to ground water where such rights are either lacking or absent. A system of
clear and enforceable extractive rights to ground water is a prerequisite to
economically efficient use of that water. Without such rights, users lack the
incentive to value ground water appropriately (consideration of the full TEV)
either now or in the future.
• EPA and other pertinent agencies should plan and implement an
integrated and comprehensive research effort on ground water valuation.
Federal agencies should conduct research and develop case studies in ground
water valuation that includes a range of environmental conditions and eco-
nomic circumstances. In addition, governmental agencies should sponsor
further research jointly with private institutions to develop valuation meth-
ods that quantify ecological services and values. The results of such research
will assist states in managing and protecting their ground water resources
and could help to demonstrate improvements that valuation can bring to
decision-making.

CASE STUDY OBSERVATIONS

Chapter 6 contains brief synopses of seven case studies in which ground
water valuation has been or could be used to enhance problem analysis and the
decision-making process. The case studies illustrate different themes associated
with the integration of hydrogeological, ground water usage and economic valu-
ation information in real-world decision contexts. The Treasure Valley, Oregon,
case illustrates the role of ground water in ecological services and how valuation
can be incorporated in the allocation of scarce water supplies. The Laurel Ridge,
Pennsylvania, study focuses on institutional fragmentation and the need for a
watershed approach in ground water valuation and management. A study of
Albuquerque, New Mexico examines the importance of hydrological information
and the interaction of ground and surface waters in developing a long-term sus-
tainable ground water policy. The Arvin-Edson, California, study illustrates the
buffer value of ground water relative to extractive services in an area subject to
surface water drought conditions. The Orange County, California, case study
emphasizes the value of artificial recharge as a means of averting the loss of a
ground water supply due to sea water intrusion. A Woburn, Massachusetts,
example describes the use of benefit-cost analysis to integrate valuation informa-
tion in a Superfund remediation dilemma. Finally a water supply study for
Tucson, Arizona illustrates planning considerations associated with the valuation
framework in Chapter 3, the methods illustrated in Chapter 4, and the importance
of substitute water supplies.
These case studies offer several lessons, with most of them supportive of
earlier conclusions. Among other things, they show that TEV provides a useful
context for the qualitative recognition and/or quantitative valuation of ground
water services. At the same time, each study is unique, thus limiting opportuni-
ties for subsequent benefits transfer analysis; and highlighting the technical, eco-
nomic, institutional, and political uncertainties characterize the current state-of-
the-art of ground water valuation.

INTRODUCTION AND BACKGROUND 13
1
5
Introduction and Background
THE GROUND WATER VALUATION DILEMMA IN BRIEF

Typically, water in the United States has not been traded in markets. Be-
cause of this, there are no market-generated prices or meaningful estimates of the
value that markets would assign to water, if in fact water were a traded good.
This undetermined value for water is most apparent in the case of ground water.
Whatever might have been the historic circumstances, there is no basis today for
our practice of judging the value of ground water to be negligible. All scarce
resources, commodities, and services have value. Ground water is often a scarce
resource, whether judged by the direct use people make of it (for example, as
drinking water) or by its less obvious ecological functions, such as wetlands
maintenance and its contribution to stream flow; or the prevention of land subsi-
dence.
The longer we ignore or distort ground water’s value, the more overused,
degraded, and misallocated the resource becomes. Without price signals or other
indicators of value to help guide policy, we tend to devote too little attention and
funding for resource management and protection of ground water.
Goods or services that are generally not “owned” in the same sense as other
property are often not traded in well-functioning markets. Without such markets,
determining the value of these goods and services becomes more complicated,
and analytical efforts must be made to estimate values. In the case of ground
water, that estimate must account for both the cost of pumping and delivery and
13

the inherent value of the resource, reflecting its multiple services, the “goods” it
provides and the “costs or hardships” it protects against. In many states and
localities, however, the charge to the user is confined to out-of-pocket costs such
as energy for pumping and amortization of investments in well construction and
costs of treatment and distribution systems. These are necessary components of
the value of ground water. But undervaluation of the resource is inevitable,
principally because there is no widely accepted means of recording users’ or
society’s valuation of those broader use and nonuse attributes.
Improved ground water valuation techniques and estimates could assist wa-
ter resource management and policy-making in many important ways. For ex-
ample, an improved ability to weigh alternative water sources or protection strat-
egies should lead to better allocation of scarce Superfund dollars. There is
general agreement that water resource decision-making has focused mainly on an
evaluation of alternative projects primarily by the costs of these projects. How-
ever, improved techniques would facilitate the decision-making for cleanup and
protection based on a better standard, one that compares values and benefits of
different ground water sites.
The valuation principles described in this report can be a critical input to but
are distinct from cost-benefit analysis. That is because the estimation of costs
(for example, the infrastructural investment requirements of a municipal water
system) is of secondary concern here. To be sure, certain nonmarket values at
risk on the cost side, such as subsidence, increased salinity from excessive ground
water mining, wetland degradation, and destruction of riparian habitat are rel-
evant. The principal emphasis here is on methods that value the benefits of
ground water.
Ground water valuation concepts and challenges discussed in the following
chapters cut across numerous valuation dilemmas in the natural resources-envi-
ronmental arena. An example of such similarity and overlap is the problem of
assigning values to surface water. Of course, surface water and its management
provide some unique services (e.g., navigation, power, and flood control) not
applicable to ground water, but many services are common to both surface and
ground water (household use, irrigation, and joint ecological benefits, such as
wetlands maintenance). Moreover, ground and surface water are hydrologically
linked, so that the contamination of one body can migrate to the other. There is
no way to divide up benefits neatly and analyze value simply.
CONTEXT FOR GROUND WATER VALUATION
Trends in Ground Water Use and Protection

Tables 1.1 and 1.2 and Figure 1.1 provide quantitative highlights of trends in
U.S. water use. The growth of withdrawals of ground or surface water from 1950
to 1990, occurred largely during the first 25 years of that time span, substantially

TABLE 1.1 Withdrawals of Water, by Type and Category of Use, 1990
Percent of
Million gals. per day Total U.S. Ground or Surface
U.S. Total 408,000 100.0
Ground water, total 80,620 19.8 100.0

Public supply 15,100 3.7 18.7
Domestic 3,260 0.8 4.0
Commercial 908 0.2 1.1
Irrigation 51,000 12.5 63.3
Livestock 2,690 0.7 3.3
Industrial 3,960 1.0 4.9
Mining 3,230 0.8 4.0
Thermoelectric 525 0.1 0.7
Surface water, total 327,000 80.1 100.0
Public supply 23,500 5.8 7.2
Domestic 132 0.0 0.0
Commercial 1,480 0.4 0.5
Irrigation 85,500 21.0 26.1
Livestock 1,800 0.4 0.6
Industrial 18,600 4.6 5.7
Mining 1,718 0.4 0.5
Thermoelectric 194,500 47.7 59.5
SOURCE: Compiled from Solley et al., 1993. Because of rounding, individual items may not add
precisely to totals.
exceeding U.S. population growth in that period. Since 1975 water use has
remained essentially flat. The U. S. Geological Survey (USGS) singles out three
factors to account for that level trend. First, higher energy prices and declines in
farm commodity prices in the 1980s reduced the demand for irrigation water and
spurred the introduction of more efficient pumping technologies. In addition,
pollution control regulations encouraged recycling and reduced discharge of pol-
lutants, thereby decreasing water requirements in the industrial sector. And more
generally, the public became increasingly concerned about conservation (Solley
et al., 1993). No doubt the slowdown in development of new hydroelectric
capacity in the United States contributed as well. However, the USGS does not
identify water pricing as a factor in the deceleration of water use, though higher
energy prices would have constituted an indirect disincentive to consumption.
Ground water is the predominant source of water supply for rural areas in the
United States, primarily for agriculture and domestic use. In 1985 ground water
provided drinking water for more than half the U.S. population and 97% of the
rural population (Moody, 1990). As Table 1.1 indicates, agriculture (irrigation

16
TABLE 1.2 Trends of Estimated Water Use in the U.S., 1950-90
Average annual
% rate of change
1950 1955 1960 1965 1970 1975 1980 1985 1990 1950-75 1975-90
Population (mill.) 150.7 164.0 179.3 193.8 205.9 216.4 229.6 242.4 252.3 1.5 1.0
Withdrawals (bill.
gals. per day) 180 240 270 310 370 420 440 399 408 3.4 −0.2
Ground 34 48 50 60 69 83 84 74 81 3.6 −0.2

Surface 150 198 221 253 303 329 361 325 327 3.2 −0.0
SOURCE: Compiled from Solley et al. (1993). Because total withdrawals were rounded off, the ground and surface numbers do not add precisely to totals.

VALUING GROUND WATER
and livestock) uses approximately two-thirds of the total ground water withdrawn
in the United States, with public supply (including domestic withdrawals) ac-
counting for nearly a quarter of the total.
In the late 1970s and early 1980s, the U.S. Environmental Protection Agency
(EPA) began to direct attention toward ground water pollution studies, emphasiz-
ing the identification and evaluation of pollution sources and source categories
and subsurface transport and fate processes for both inorganic and synthetic
organic chemicals. Also in the early 1980s, the inception of the Superfund
program brought attention to the need to clean up contaminated soil and ground
water and led to major remediation programs by EPA and the Departments of
Defense and Energy. In 1984 EPA adopted a ground water protection strategy
that focused on land use planning, engineering control measures, and manage-
ment practices that could be used to prevent ground water contamination and thus
protect ground water quality.
The Safe Water Drinking Act of 1986 included a wellhead protection pro-
gram to further encourage such pollution prevention efforts by state and local
governments. EPA has continued to promulgate policies and related guidance to
stress the importance of protecting renewable ground water resources from con-
tamination and thus minimize the need for remediation efforts (U.S. EPA, 1991).
Ground Water Valuation Terminology

The inherently interdisciplinary nature of the ground water valuation prob-
lem becomes obvious in the confusion about terminology used to describe it.
There is no commonly used ground water valuation terminology and no one set
that is obviously superior. Two different sets of valuation terminology are dis-
played in Table 1.3. The first is based upon the physical state of the ground water
from which value is derived. The primary distinction is between extractive
values, which occur as a result of the extraction of ground water and subsequent
consumptive use, and in situ values, which occur as a consequence of leaving the
water in the aquifer. Extractive values include municipal, agricultural, and indus-
trial uses of water, uses that nearly always include a sizable component of con-
sumptive use. In situ values are derived from the services provided by leaving
water in the aquifer and typically do not involve consumptive transformation of
the water. In situ values include ecological values, buffer values, values associ-
ated with the avoidance of subsidence, recreational values, existence values, and
bequest values.
The second set of terminology comes from the economic literature or the
valuation of ground water resources which classifies ground water values in
terms of use values and nonuse values. This distinction acknowledges that use
values are associated with both consumptive and nonconsumptive uses of water,
including ecological uses, buffering, subsidence avoidance, and recreation. By
contrast, nonuse values, including existence and bequest value, may occur when

18
TOTAL WITHDRAWALS
WA
MT ME
ND
OR MN VT
NH
ID WI MA
SD NY
WY MI RI
CT
IA PA
NE NJ
NV OH MD
IL IN DL
UT
CO WV
CA KS VA
MO Water withdrawals,
KY
in million gallons per day

NC
TN 0 – 2,000
AZ OK
NM AR SC 2,000 – 5,000
MS AL GA 5,000 – 10,000
10,000 – 20,000
TX
LA 20,000 – 48,000
FL
HAWAII VIRGIN ISLANDS
ALASKA
PUERTO RICO

VALUING GROUND WATER
GROUND-WATER WITHDRAWALS
Total water withdrawals by source and state, 1990. SOURCE: Solley et al., 1993
SURFACE-WATER WITHDRAWALS
FIGURE 1.1

TABLE 1.3 Taxonomy of Ground Water Valuation Terminology

Accounting Terminology
Economic
Physical State Terminology Terminology Stocks Flows
A. Extractive values
1. Municipal use values *
2. Industrial use values *
3. Agricultural use values *
4. Other extractive use values *
B. In situ values
▼
Use Values
1. Ecological values * *
2. Buffer values * *
3. Subsidence avoidance values * *
4. Recreational values *
5. Sea water intrusion values * *
6. Existence values Nonuse *
▼
7. Bequest values Values *
xxx
the ground water is not devoted to any use. The relationship between these two
different sets of taxonomies is also depicted in Table 1.3. The terminology used
in the remainder of this report follows these two taxonomies and the relationship
between stocks and flows of ground water. It is important to recognize that it is
sometimes difficult to draw a distinct line between use and nonuse values. For
example, in southern California ground water in the aquifer has a value in pro-
tecting against sea water intrusion. Sea water intrusion can affect both the use
values of ground water, by increasing the cost of drinking water supplies, and the
nonuse values, through contamination of the aquifer even if it was never to be
used as source of water for human consumption.
Unless care is taken in definition and use, both sets of terminology may mask
or confuse the important distinction between values which are associated with a
flow or stream of goods and services and values which are associated with stocks
or assets which create those streams. Flows or streams of value, such as use
values which come from extraction, recur over time and contrast with stock
values which are the value of an asset (or liability) which yields flows of value
over time. Flow values and stock values are linked because a stream of values
(costs or benefits) can be converted into an asset value by calculating the present
discounted value of the flow. Failure to distinguish between the value of flows
and the value of a stock or asset may result in double counting or other errors.
The last two columns of Table 1.3 indicate whether the various categories of
physical state or economic values are commonly treated as flows or stocks or as
both. In instances where values are commonly expressed as either stocks or
flows, it is important to specify whether the value is a flow value or a stock (asset
value).

Services Provided by Ground Water

Tables 1.4 and 1.5 encapsulate some of the major services ground water
provides that give rise to economic value. (Detailed discussion of the approaches
used to determine quantitative estimates of value is in Chapter 4.) Although
many people already appreciate or may have intuitively accepted the nature of
these services and the importance of assigning value to them, they have not
engaged in widespread action to more effectively conserve, protect, and allocate
these resources. Part of the problem no doubt arises from the technically de-
manding nature of the problem, for example, the complex behavior and proper-
ties of aquifers. In particular it is challenging to evaluate from an economic
perspective the ecological services rendered by ground water since such services
are not traded in markets and are viewed in a highly subjective way.
Table 1.6 (also in Chapter 4 as Table 4.5) presents an overview of the
alternative valuation methods for addressing selected ground water functions/
services. These economic valuation methods and existing applications are dis-
cussed in more detail in Chapter 4.
Ground water problems are receiving more attention for a number of rea-
sons. Increased withdrawals are causing problems such as subsidence, salt water
intrusion, and destruction of wildlife habitat. Public water supply systems depen-
dent on ground water can be found in every state (Solley et al., 1993). Also, the
importance of ground water as a buffer, or emergency supply, is beginning to be
more widely recognized. This value was illustrated in California during the
drought in the early 1990s, when demands for surface water far outstripped the
available supplies. Agricultural and municipal ground water use increased dra-
matically, causing concerns about whether ground water protection regulations
were adequate.
The importance of ground water has also changed in the context of conjunc-
tive use. Recharge of surface water in Florida and use of effluent to replenish
ground water is now common in southern California. In this context the ground
water aquifer becomes an actively managed storage facility, with ground water
supplies replenished by flood flows, imported surface water, and treated effluent.
Water is cycled through the aquifer materials on a relatively short term basis and
provides a buffer against shortages of surface water.
The environmental values associated with ground water are also becoming
more widely recognized. Just as the ecosystem concept is gaining more recogni-
tion in habitat management to protect animal species, the role of ground water in
the support of surface water supplies, wetlands, and riparian habitat is more
clearly understood.
Management/Regulatory Decisions Related to Valuation

Most decisions regarding ground water development, use, or protection are

TABLE 1.4 Potential Service Flows and Effects of Those Services for
Ground Water Stored in an Aquifer
Service Provided Effect on Value
Potable water for residential use Change in Availability of Potable Water

Change in Human Health or Health Risks
Landscape and turf irrigation Change in Cost of Maintaining Public or Private
Property
Agricultural crop irrigation Change in Value of Crops or Production Costs
Livestock watering Change in Value of Livestock Products or
Production Costs
Food product processing Change in Value of Food Products or Production
Costs
Other manufacturing processes Change in Value of Manufactured Goods or
Production Costs
Heated water for geothermal power Change in Cost of Electricity Generation
plants
Cooling water for other power plants Change in Cost of Electricity Generation
Prevention of land subsidence Change in Cost of Maintaining Public or Private
Property
Erosion and flood control through Change in Cost of Maintaining Public or Private
absorption of surface water Property
runoff
Medium for wastes and other Change in Human Health or Health Risks
by-products of human ecomic Attributable to Change in Ground Water Quality
activity Change in Animal Health or Health Risks
Attributable to Change in Ground Water Quality
Change in Economic Output Attributable to Use of
Ground Water Resources as “Sink” for Wastes
Improved water quality through Change in Human Health or Health Risks
support of living organisms Attributable to Change in Ground Water Quality
Change in Animal Health or Health Risks
Attributable to Change in Ground Water Quality
Change in Economic Output or Production Costs
Attributable to Use of Ground Water Resources
as “Sink” for Wastes
Nonuse services (e.g., existence or Change in Personal Utility
bequest motivations)
SOURCE: Modified from Boyle and Bergstrom, 1994.

TABLE 1.5 Potential Service Flows and Effects of Those Services for
Surface Water and Wetland Surfaces Attributable to Ground Water Reserves
Surface water supplies for drinking Change in Availability of Potable Water

water Change in Human Health or Health Risks
Surface water supplies for landscape Change in Cost of Maintaining Public or Private
and turf irrigation Property
Surface water supplies for agricultural Change in Value of Crops or Production Costs
crop irrigation Change in Human Health or Health Risks
Surface water supplies for watering Change in Value of Livestock Products or

livestock Production Costs
Surface water supplies of food product Change in Value of Food Products or Production
processing Costs
Surface water supplies for Change in Value of Manufactured Goods or
manufacturing processes Production Costs
Surface water supplies for power plants Change in Cost of Electricity Generation
Erosion flood and storm protection Change in Cost of Maintaining Public or Private
Property
Changes in Human Health or Health Risks through
Personal Injury Protection
Transport and treatment of wastes and Change in Human Health or Health Risks
other by-products of human Attributable to Change in Surface Water Quality
economic activity through surface Change in Animal Health or Health Risks
water supplies Attributable to Change in Surface Water Quality
Change in Economic Output or Production Costs
Attributable to Use of Surface Water Resources
for Disposing of Wastes
Recreational swimming, boating, Change in Quality or Quantity of Recreational
fishing, hunting, trapping, and plant Activities
gathering Change in Human Health or Health Risks
Commercial fishing, hunting, trapping, Change in Value of Commercial Harvest or Costs
and plant gathering supported by Change in Human Health or Health Risks
ground water discharges
On-site observation or study of fish, Change in Quantity or Quality of On-Site
wildlife, and plants purposes Observation or Study Activities
supported by ground water
discharges for leisure, educational,
or scientific purposes
(continued)

TABLE 1.5 (continued)
Indirect, off-site fish, wildlife, and Change in Quality or Quantity of Indirect Off-Site
plant uses (e.g., viewing wildlife Activities
photos)
Improved water quality resulting from Change in Human Health or Health Risks
living organisms related to ground Attributable to Change in Air Quality
water discharges Change in Animal Health or Health Risks
Attributable to Change in Air Quality
Change in Value of Economic Output or Production
Costs Attributable to Change in Air Quality
Regulation of climate through support Change in Human Health or Health Risks

of plants Attributable to Change in Climate
Change in Animal Health or Health Risks
Attributable to Change in Climate
Change in Value of Economic Output or Production
Costs Attributable to Change in Climate
Provision of nonuse services (e.g., Change in Personal Utility or Satisfaction
existence services) associated with
surface water bodies or wetlands
environments or ecosystems
supported by ground water discharges
SOURCE: Modified from Boyle and Bergstrom, 1994.
made with inadequate attention to the value of ground water as a source of

consumptive use and for the in situ services it provides. For example, although
many states require permits to drill a new high-capacity well, they tend to grant
such permits on a routine basis, neglecting the broad range of values at stake.
Management decisions have traditionally been made by comparing the direct
financial costs of various alternatives, without taking into account the impacts on
the full set of values of ground water. This tendency to consider only financial
costs limits the usefulness of the underlying calculations for cost-benefit analysis.
As a result, ground water (which should be a renewable resource) tends to be
rationally managed only where problems of depletion or pollution are apparent or
have become critical. In most areas of the country, the ground water management
policy may be aptly characterized as out of sight, out of mind.
Superfund: Prevention vs. Remediation

In some cases ground water quality degradation may be irreversible. In such
situations it becomes especially important that the resource is properly valued. If

TABLE 1.6 A General Matrix of Ground Water Functions/Services and

Applicable Valuation Methods
Ground Water Function/Service Flow Applicable Valuation Method
A. Extractive values Cost of illness

1. Municipal use (drinking water) Averting behavior
a) Human health - morbidity Contingent valuation
Contingent ranking/behavior
b) Human health - mortality Averting behavior
Contingent valuation
2. Agricultural water use Derived demand/production cost
3. Industrial water use Derived demand/production cost
B. In situ values
1. Ecological values Production cost techniques
2. Buffer value Dynamic optimization
3. Subsidence avoidance Production cost
Hedonic pricing model
4. Recreation Travel cost method
5. Existence value Contingent valuation
6. Bequest value Contingent valuation
SOURCE: Adapted from Freeman, 1993. (Reprinted with permission from Resources for the Future,
1993. Copyright 1993 by Resources for the Future.)
ground water of suitable quality becomes increasingly scarce owing to pollution

and if substitute sources are unavailable, then the resource’s value may rise
abruptly. Conversely, a contaminated aquifer that poses little threat to its ambi-
ent surroundings and possesses few prized attributes not available from substi-
tutes would rate no such premium.
At both the federal and state levels, there have been prodigious efforts in
recent years to remediate the subsurface environment for purposes of ground
water quality protection and restoration. Current estimates of the total costs of

remediation, through Superfund and analogous programs in the Departments of

Energy and Defense as well as state and local efforts, amount to hundreds of
billions of dollars. Consideration of this enormous expense has led the regulated
community and some decision-makers to question the benefit-cost balance of
mandated subsurface remediation programs.
The Committee on Ground Water Cleanup Alternatives of the National Re-
search Council (NRC) has recently reviewed the technical means to restore ground
water quality (NRC, 1994). The committee found that there is no panacea for
treating ground water contaminated by hazardous wastes. Especially in cases
with heterogeneous hydrogeologic conditions and complex chemical behavior, it
may prove infeasible to restore ground water to its “pristine” state. In such
instances it may be necessary to revert to strategies that aim to contain, or isolate,
the contamination to the extent possible, thus alleviating the endangerment of
surrounding ground water supplies. However, even the less ambitious objective
of containment implies the obligation indefinitely to monitor the quality of the
adjacent threatened ground water, as well as to remove the maximum feasible
mass of contaminants in order to minimize the consequences of possible failure
of the containment measures. For now, the debate continues as to whether a
comprehensively implemented containment strategy will prove less expensive in
the long term than the current policy of complete cleanup.
Valuation, including consideration of alternative uses of an affected site, and
the costs of alternative sources of water, would not only be a useful tool to guide
decisions on whether to pursue containment or remediation but is also worth-
while for clarifying various tradeoffs to contamination prevention action. In-
creasing awareness of the need to prevent contamination of ground water sup-
plies, on top of mounting costs of remediation, point to the importance of
coordinated and comprehensive land and water use decision-making. Only within
such a broad framework will it be possible to inject ground water valuation into
strategies for containment, remediation, or alternatives for safeguarding the wel-
fare of the community.
Management Issues
Water managers make decisions within a particular sociopolitical and techni-
cal context. They are constrained by technical considerations such as capacity of
various conveyance facilities, recharge capability of an aquifer, physical avail-
ability of surface water supplies, and environmental or resource impacts of sup-
ply development. They are also limited by the institutional environment in which
they operate, including federal, state, and local regulations and court-decreed
rights and uses of ground water, and legislated or adjudicated mandates are not
always in accord with economically optimal outcomes. Financial constraints can
greatly aggravate the political landscape; the impact that a particular course of

action has on local water rates and taxes is frequently the controlling factor in a
water management decision.
The public has become progressively more involved in water-related deci-
sion-making in the past few decades. Because of the pervasive importance of
water availability in virtually all types of activity (in households, commercial
development, industry, and agriculture) water issues are commonly linked with
concerns about economic growth. Water management decisions are often in-
fused with local or regional politics and burdened with a heavy overlay of social
values. As a result, the degree of autonomy of local and regional water providers
varies greatly among and within states.
History of Economic Valuation of Natural Resources

The principles for valuing natural assets such as energy and mineral deposits,
forests, and aquifers were set forth more than 60 years ago. This research estab-
lished a relationship between the value of the asset and the present value of the
services it provides. Some of the earliest attempts to value nonmarketed goods
and services focused on environmental and natural resource assets. One of the
first such efforts involved the development of value measures for water resources
used in irrigated agriculture in the western United States. Linear programming
models and other techniques were used to estimate the value of both surface and
ground water by examining how the profitability of farm enterprises changed as
water became more or less available. These techniques worked well in assigning
economic value to water use in agriculture since water is an input to the produc-
tion processes of firms whose products are sold in reasonably well functioning
markets. These early methods, which highlighted the valuation of nonmarketed
inputs, were not well adapted for measuring the value of nonmarketed outputs
that are consumed directly.
Principles for measuring the consumptive value of water for household use
were set forth a century ago. The idea of using a demand curve to measure the
value of a good as the area under the demand curve (consumer surplus) was
articulated in the late 19th century, and applied methods for doing so have been
developed ever since. Hewitt and Hanemann (1995) provide a sophisticated
example of an application to urban water.
Two techniques were developed specifically for the estimation of
nonmarketed outputs: the travel cost method (TCM) and the contingent valuation
method (CVM). The first, created to value visits to national parks, is an example
of an indirect methodology to infer values of nonmarketed goods and services by
examining ancillary evidence such as expenditures on travel. Refinements in the
TCM and the development of other indirect techniques have enhanced the ability
of economists to value a wide range of natural resource and environmental ser-
vices, including improvements in air and water quality. These indirect tech-

niques, however, are sometimes based on questionable assumptions and often

require the resolution of difficult and complex problems in statistical estimation.
Using an earlier suggestion by Ciriacy-Wantrup; Davis in 1963 undertook
the first application of stated-preference approaches to valuing a natural asset
(Ciriacy-Wantrup, 1952; Davis, 1963). These CVM techniques rely on carefully
structured interviews with consumers and potential consumers to elicit measures
of economic value (see Appendix B). Such direct techniques have proved useful
in measuring the value of a wide range of goods and services not traded in a
market. In particular CVM techniques have been used to estimate nonuse values.
Nevertheless, direct valuation techniques, like their indirect counterparts, are
subject to both conceptual and practical difficulties.
Although nonmarket valuation techniques have been helpful in valuing indi-
vidual environmental commodities, policy and regulatory attention has increas-
ingly focused on the management of ecosystems. The need to value complex
hydrologic or ecological functions and the associated range of service flows
raises a number of issues in nonmarket valuation. Part of the difficulty in valuing
ecosystem services is that ecologists cannot define and measure unambiguously
the performance of ecosystems and boundaries of successional trajectories. Other
problems arise from the inability of economists to measure the consequences of
complex phenomena over the long run. Further problems grow out of differences
in disciplinary perspectives, which complicate the interdisciplinary task of inte-
grating the physical relationships required for bioeconomic assessments.
THE ROLE OF THE NRC

The Environmental Protection Agency requested that the NRC appoint a
committee to study approaches to assessing the future economic value of ground
water and the economic impact of the contamination or depletion of these re-
sources. In 1994 the NRC appointed a committee to conduct this study under the
auspices of the NRC’s Water Science and Technology Board. The committee
was charged to:
(1) review and critique various approaches for estimating the future value of
uncontaminated ground water in both practice and theory (addressed in Chapters
2, 3, and 4);
(2) identify areas in which existing approaches require further development
and promising new approaches might be developed (addressed in Chapters 3 and 4);
(3) delineate the circumstances under which various approaches would be

preferred in deciding long-term resource use and management (addressed in Chap-
ters 4 and 6);
(4) outline legislative and policy considerations in connection with the use
and implementation of recommended approaches and related research needs (ad-
dressed in Chapter 5); and

(5) illustrate, through real or hypothetical case examples, how recommended

procedures would be applied in practice for representative applications (addressed
in Chapter 6).
The committee’s report is organized into six chapters. Chapter 2 addresses

ground water hydrology, ecology, and economic concepts relevant to valuation
studies. Chapter 3 highlights the relationship between time, institutional, and
hydrologic constraints and ground water services; it goes on to explain extractive
and in situ services. Also included is a conceptual framework for calculating
economic value based on services, modified from Boyle and Bergstrom (1994).
The central concept of total economic value and the role of time/discounting and
uncertainty round out Chapter 3.
A critique of valuation methods, for example, the contingent valuation
method, the travel cost method, and the hedonic pricing method, as applied in
ground water-related studies is the focus of Chapter 4. Advantages and limita-
tions of such methods are described along with their application in delineating
use and nonuse values for ground water resources. The available evidence from
existing ground water valuation studies is compared with the possible range of
extractive and in situ values identified in earlier chapters. Chapter 5 explores
how various institutional issues such as ground water law and allocation methods
can both affect and be improved by valuation study results. The last chapter
contains brief synopses of seven case studies in which ground water valuation has
been or could be used to enhance problem analysis and the decision-making
process.
This report blends both resource depletion (ground water mining) issues with
quality deterioration issues as they relate to valuation. Further, there are relation-
ships between depletion and quality which need to be recognized. Finally, the
reader should be aware that these issues and relationships are, of necessity, inter-
twined throughout the report.
REFERENCES
Boyle, K. J., and J. C. Bergstrom. 1994. A Framework for Measuring the Economic Benefits of
Ground Water. Department of Agricultural and Resource Economics Staff Paper. Orono:
University of Maine.
Ciriacy-Wantrup, S. V. 1952. Resource Conservation. Berkeley: University of California.
Davis, R. 1963. The Value of Outdoor Recreation: An Economic Study of the Maui Woods. Ph.D.
dissertation, Harvard University.
Hewitt, J. A., and W. M. Hanemann. 1995. A discrete/continuous choice approach to residential
water demand under block-rate pricing. Land Economics 71(2):173-192.
Freeman, A. M., III. 1993. The Measurement of Environmental and Resource Values: Theory and
Methods. Washington, D.C.: Resources for the Future Press.
Moody, D. W. 1990. Ground water contamination in the United States. Journal of Soil and Water
Conservation 45(2):170-179.

National Research Council. 1994. Alternatives for Ground Water Cleanup. Washington, D.C.:
National Academy Press.
Solley, W. B., R. R. Pierce, and H. A. Perlman. 1993. Estimated Use of Water in the United States
in 1990. U.S. Geological Survey Circular 1081. Washington, D.C.: U.S. GPO.
U.S. Environmental Protection Agency. 1991. Preliminary Risk Assessment for Bacteria in Munici-
pal Sewage Sludge Applied to Land. EPA/600/6-91/006. Cincinnati: U.S. Environmental
Protection Agency.

GROUND WATER RESOURCES: HYDROLOGY, ECOLOGY, AND ECONOMICS 31
2
5
Ground Water Resources: Hydrology,

Ecology, and Economics
The use value of ground water depends fundamentally on the costs of pro-
ducing or obtaining the water and its value in the uses to which it is ultimately
put. The costs of producing ground water typically include the costs of extraction
and delivery as well as the opportunity cost of using the water right away rather
than leaving it in storage for later use. The value in alternative uses can be
expressed by the willingness of users to pay for the water. Willingness to pay
depends in turn upon a number of factors, including the quality of the water. The
quality of ground water should be thought of in terms of its acceptability for
certain uses. Thus the quality of a given source of ground water may not be
acceptable for potable uses but may be sufficient for a wide variety of nonpotable
uses. Because extraction and delivery costs are related to the quantity of ground
water, the real question is, What is the availability of ground water that possesses
some desired quality? Ground water quality and the costs of extraction depend
on the geologic and hydrologic characteristics of a given aquifer as well as the
economic circumstances that characterize the particular uses to which ground
water is devoted. Both the current and future values of ground water, then, are
determined jointly by the interaction of geologic/hydrologic factors and eco-
nomic factors.
HYDROLOGICAL CONCEPTS
Ground water is usually found in subsurface formations known as aquifers,
which may be a significant hydrological component of watersheds and basins.
Basins and watersheds are similar in that all of the collected water within them
drains through a single exit point. Basins differ from watersheds only in the
31

perception of their size, with basins being much larger than watersheds and
typically composed of many watersheds. In the United States, “basin” is often
used to mean a large riverine drainage system. Within a watershed or basin,
water moves both on and below the surface. Aquifers are generally bounded by
subsurface divides similar to surface features that separate watersheds. Often the
boundaries of basins are not as obvious as those of watersheds, and aquifers may
underlie and be common to several surface watersheds. Geologic strata that are
tilted counter to the topography can conduct water in the opposite direction from
topographic surface slopes. Large, confined aquifers may underlie smaller, un-
confined zones that conform more closely to the surface topography. Because
aquifers may be connected, the availability and quality of the ground water within
them may be regional issues, defined by both surface and subsurface topography.
The three-dimensional nature of aquifers is not generally well understood and is
rarely considered in modeling for management applications. The condition and
characteristics of a given aquifer are determined by the hydrologic cycle and by
anthropogenic modifications in the hydrologic cycle.
The Hydrologic Cycle

The hydrologic cycle can be usefully depicted on both global and basinwide
scales. In the global hydrologic cycle, water can be transferred from one location
to another and transformed among the solid, liquid, and gaseous phases, but the
total amount of water remains the same. From a basinwide perspective, the fact
that water can be transferred from one basin to another means that specific basins
can experience gains and losses in the total amount of water. This is an important
concept in that the quantity of water in a basin can be depleted, whereas the total
amount of water remains the same as it cycles among the various basins. The
hydrologic cycle is depicted from a basin perspective in Figure 2.1. Precipitation
is the pathway by which water enters the basin. Evaporation and transpiration,
along with stream flows, are the principal pathways by which it leaves. Runoff,
which is overland flow, can be augmented by interflow, which operates below the
surface but above the water table, and by base flow, which refers to the discharge
to streams from the saturated portion of the system. Infiltration of water into the
subsurface is the ultimate source of both interflow and recharge to the ground
water. Ground water recharge, defined as the portion of infiltration water that
reaches the ground water, represents the replenishment of ground water supply.
Ground Water Balance: Recharge and Depletion

The quantity of water stored in an aquifer can be characterized over time by
accounting for inflows and outflows according to the following expression:
Change in storage = recharge − depletion

FIGURE 2.1 The hydrologic cycle as applied to basins.
Recharge occurs whenever precipitation or surface water infiltrates downward

through the soil to the water table. Recharge can also result from subsurface
lateral flows that reach the aquifer. Recharge may occur naturally, and natural
recharge can be augmented by artificial recharges ( as outlined in a recent study,
National Research Council, 1994a). Surface water is usually viewed as a renew-
able resource, since it derives from rainfall and snowmelt, which recur
periodically. Natural ground water supplies may be either renewable or nonre-
newable, depending upon whether recharge occurs at rates similar to those of
withdrawal.
The rate of recharge may be influenced to a large extent by whether the
aquifer is confined or unconfined. Aquifers may have upper and lower bound-
aries, termed “confining layers.” These boundaries normally comprise layers of
unconsolidated material or rock that have a much lower permeability than the
material lying immediately above or below. Confined aquifers have a confining
layer both above and below, while an unconfined aquifer has no confining layer
on top. Since unconfined aquifers tend to be found uppermost in a ground water
system, they are frequently called surficial aquifers. Unconfined aquifers are the
first to receive water infiltrating from the surface. This means that the depth to
water or the water table frequently fluctuates in such aquifers. It also means that
such aquifers tend to contain higher concentrations of dissolved materials of
anthropogenic origin than do lowerlying, confined aquifers. Indeed, water con-
tained in many shallow, unconfined aquifers is often not used for drinking be-
cause of contamination.
Confined aquifers are protected to some degree by the presence of a confining,
low-permeability zone between the surface (and the source of recharge water) and
the ground water itself. While an unconfined aquifer is characterized by a water
table or the depth to ground water, a confined aquifer is characterized by a piezo-
metric, or potentiometric, surface, which results because the height of the upper
surface of the aquifer is constrained by the confining layer. The potentiometric
surface represents the height of rise of the water due to hydrostatic pressure when
the constraint of the confining layer is removed, as illustrated in Figure 2.2.

FIGURE 2.2 Unconfined aquifer and its water table; confined aquifer and its potentio-
metric surface.
Water found in deep aquifers may have been stored over millions of years
and is sometimes referred to as “fossil water.” The natural rates of recharge to
these deep aquifers, when recharge occurs at all, are quite low (Lloyd and Farag,
1978). Fetter (1994) notes that for practical purposes such aquifers are not
recharged and any extractions are irreversible. The extraction and use of water
from such aquifers is analogous to the mining of resources such as minerals that
do not recur periodically on anything less than geologic time scales. Aquifers in
arid regions are frequently characterized by very small rates of recharge that
range from a few hundredths of a millimeter per year to perhaps 200 mm/yr
(Heath, 1983). Aquifers characterized by either the total absence of recharge or
by very low rates of recharge cannot be relied upon as a sustainable source of
water supply. The Ogallala aquifer underlying parts of Texas, Oklahoma, and
New Mexico is a good example of such an aquifer. The relatively high rates of
extraction and use of water from the Ogallala aquifer for agricultural purposes
over the past four decades has resulted in progressive increases in pumping
depths. In many places the depth to ground water is so great that it is no longer
economical to pump. In these areas irrigated agriculture that historically relied
on waters from the Ogallala must be converted to dry land farming or other land
uses.

Ground water depletions occur when water is discharged from aquifers natu-
rally via seeps and springs, from direct uptake by plants where the water table is
in the root zone, and from extractions through wells. The manner in which a
ground water basin responds to pumping depends upon whether the aquifer is
confined or unconfined. For a confined aquifer, a cone of depression, which
originates at the point that water is actually extracted by pumps, will move
rapidly through the aquifer. Thus remote parts of the aquifer will be affected and
some of the natural discharge will be captured. For unconfined systems, the cone
spreads too slowly to affect distant points of natural discharge so that most of the
water removed comes from storage. The ease of pumping is related to the
capacity of the aquifer to conduct water, its hydraulic conductivity. Aquifers
with low conductivities will pass water only very slowly so that wells must be
deep to produce adequate supply. The increased depth requires increases in
pumping lifts, which translate directly to increased pumping (extraction) costs.
In aquifers that are undisturbed by human activity, recharge tends to be
balanced by natural ground water discharge or extractions. This means that water
tables in unconfined aquifers and the potentiometric surfaces in confined aquifers
remain stable. When this steady state is disturbed by ground water pumping or
diversion of customary sources of recharge, water tables and potentiometric sur-
faces respond accordingly. Thus, for example, in unconfined aquifers the water
table rises when the rate of recharge exceeds the rate of extraction and discharge.
Conversely, if extractions exceed recharge, water tables will fall, as will surface
discharges such as base flow in streams (Figure 2.3). As a general rule, however,
rising or falling water tables cannot be sustained indefinitely, and the aquifer will
always tend toward a steady-state condition where the rates of extraction and
discharge are equal to the rate of recharge. For this reason, the sustainable or safe
yield of any aquifer is equal to the long-run average rate of recharge.
Conjunctive Use of Surface and Ground Water

Conjunctive use of surface and ground water may be defined as any inte-
grated plan that capitalizes on the combination of surface and ground water
resources to achieve a greater beneficial use than if the interaction were ignored
(Morel-Seytoux, 1985). Interactions of this kind occur naturally in alluvial val-
leys and flood plains, but under present circumstances prudent watershed man-
agement often necessitates engineered approaches to enhance the natural pro-
cesses. Such management of overall water resources often takes the form of
storing surface water underground in times of surplus by recharging natural
ground water aquifers, thus saving the enormous cost of above-ground storage
reservoirs and aqueducts.
Moreover, long-term storage in and passage through a ground water aquifer
generally improve water quality by filtering out pathogenic microbes and many,
although by no means all, other contaminants (NRC, 1994b). Ground water

FIGURE 2.3 The effect of pumping on service flows provided by a hypothetical aquifer.
With regard to this inventory, the following points are worth noting: (1) Prior to pumping
the aquifer, natural recharge equaled natural discharge, and the ground water basin was in
a steady state. (2) With the addition of pumping and in the course of withdrawals from
storage, net recharge to the aquifer from stream flow increased and reached some maxi-
mum value (i.e., part of the stream flow was captured by pumping the aquifer), whereas
discharge by evapotranspiration decreased and approached some minimum value (i.e., the
amount of plant-viable water was reduced). (3) During the course of the withdrawals, the
basin was in a transient state where water was continually being withdrawn from storage.
Although not shown, this results in a continual decline in water levels. A new steady state
could be achieved by reducing pumping to about 3.8´107 m3 yr-1, but the steady state
would include the reduced stream flow and evapotranspiration. Data for this figure were
taken from Domenico and Schwartz, 1990. (Reprinted with permission from John Wiley
& Sons, Inc., 1990. Copyright 1990 by John Wiley & Sons, Inc.)
supplies generally are far superior to surface water sources (American Water
Works Association, 1990). Indeed, where available, ground water basins
afford benefits of storage, conveyance, and treatment that often render the ground
water resource preferable to surface water alternatives from the standpoint of
health protection, technical simplicity, economy, and public acceptance.

THE ECONOMICS OF GROUND WATER USE

There is a significant and varied literature on the economics of ground water
use (see, for example, Burt, 1970; Cummings, 1970; Burness and Martin, 1988;
and Provencher and Burt, 1993). Several common principles emerge from this
literature, perhaps the most important of which is that ground water is used most
efficiently when it is extracted at rates that maximize net benefits (total benefits
net of total costs) over time. Costs include the cost of extracting and delivering
the ground water and the opportunity, or user, cost. The benefits are determined
by the uses to which the water is put.
The costs of extraction are primarily a function of pumping technology (or
pump efficiency), the depth from which the ground water must be pumped, and
the costs of energy. These costs increase with pumping depth and the cost of
energy and decrease as pump efficiency is improved. The cost of extraction also
includes the value of the opportunity foregone by extracting and using the water
immediately rather than at some time in the future. The user cost is a measure of
the economic consequences of pumping now and thereby lowering the water
table and increasing costs of extraction for all future periods. The extraction rate
in the current period will be efficient only if the potentially higher costs of
pumping in the future periods are appropriately estimated. Much economic
literature on ground water resources emphasizes that when ground water is
pumped in an individually competitive fashion, pumpers have strong incentives
to ignore the user cost. In these circumstances pumpers tend to treat ground
water as an open access resource, with the result that rates of extraction exceed
the economically efficient rate.
The tendency to consider ground water an open access resource when it is
exploited competitively underscores the importance of well-defined, clearly en-
forceable rights to extract ground water. These rights may be assigned to indi-
viduals or the citizens of a political entity. They may also be permanent or time
limited and subject to change. In instances where rights are not effectively
defined and enforceable, the availability of ground water is determined by and
subject to the law of capture: whoever taps the ground water first gets to use it.
Pumpers have an incentive to extract as much water as possible, subject to the
constraints imposed by pumping costs. Incentives to conserve voluntarily are
absent, since water not pumped is available to competing users and will not
necessarily be conserved for future periods. Thus, competitive pumpers often
ignore user costs both because they believe that self-discipline will not effec-
tively conserve supplies for the future and because they believe that the impact of
their own pumping on the water table will be small. When the user cost is
ignored, the costs of ground water extractions are undervalued and water is
extracted too quickly. This contrasts with situations in which ground water is
extracted by a single pumper. The single pumper accounts for the user cost
simply because he or she will have to bear all of the additional costs of pumping

from a lowered water table in the future. In competitive situations regulatory

measures can be used to ensure that pumpers account for the user cost. Two
common measures are the imposition of a pump tax equivalent to the user cost or
the imposition of pumping quotas to ensure that the aquifer is not exploited too
quickly (Nether, 1990). Such measures can be imposed by ground water man-
agement agencies, and where taxes are employed, the revenues could be used to
defray the costs of managing the ground water basin, should that be the most
efficient use of the funds.
Defining and enforcing ground water extraction rights and ensuring that
rates of extraction are efficient are equally important in decisions to invest in the
protection of ground water quality, as well as in programs to remediate or en-
hance ground water quality. If ground water is subject to the law of capture, then
the benefits of protection, remediation, and enhancement investments will simi-
larly be subject to the law of capture. This results in less than optimal investment
in the preservation and enhancement of ground water quality, since those invest-
ing in such measures cannot be sure they will capture all of the benefits. This fact
underscores the necessity of establishing clear and enforceable systems of extrac-
tion rights and appropriate regulatory measures before investing in the protection
and enhancement of ground water quality.
In the long run, rates of ground water extraction cannot exceed rates of
recharge. That is, over time, rates of extraction and recharge will be brought into
steady-state equilibrium. When overdrafting occurs persistently, water tables are
lowered and pumping costs increase. Finally a point is reached where the costs of
extracting ground water exceed the benefits that can be obtained from its use;
then pumpers stop extracting and the decline in the ground water table is arrested.
Because ground water is extracted and used only when it is profitable to do so,
overdraft will be self-terminating and rates of extraction will ultimately be ex-
actly equivalent to the rates of recharge.
It is important to recognize, nevertheless, that ground water overdraft may be
economically efficient in some instances. When the benefits of use are quite high
in relation to the costs of extraction (including the user cost), overdraft may be
efficient for some period of time. In periods of drought, for example, when
surface water supplies may be absent or scarcer than normal, overdraft may be
efficient. However, even in situations where overdraft is efficient, it will ulti-
mately be self-terminating. Moreover, in assessing the economic desirability of
overdraft, we must account for certain adverse impacts, such as land subsidence,
salt water intrusion, and deleterious effects on surface water and aquatic habitats
The geological substrate of aquifers differs from location to location, with
materials ranging from coarse sediments to fractured rock. Substrates that con-
sist of fine grained sediments such as clays tend to compact when water is
removed, resulting in elimination of the pore spaces that previously contained
water. Thus removing water reduces the aquifer’s water-holding capacity. In
addition the land surface may sink when compaction occurs in such aquifers.

This may cause severe disruption of utilities such as sewer and water lines and
damage to structures and roads. Subsidence can also cause flooding, particularly
in coastal areas. Between 1906 and 1987, land in the Houston/Baytown region of
Texas subsided by between 1 and 10 feet, resulting in pronounced flooding of
valuable land adjacent to Galveston Bay. When policy-makers recognized the
value of remaining ground water in preventing subsidence and concomitant flood-
ing, they formulated a plan to conserve ground water in situ by developing
sufficient surface supplies to accommodate 80 percent of the projected demand
for Houston by the year 2010 (Schoek, 1995). The most dramatic example of
subsidence is found in the San Joaquin Valley of California, where land surfaces
have fallen up to 40 feet in some areas.
A unique problem associated with subsidence caused by prolonged over-
drafting has been the development of sinkholes in some areas of Florida where
natural flow patterns in limestone aquifers have been perturbed. Land subsidence
generally occurs when aquifer pressure levels are significantly lowered in basins
where the substrate is primarily fine-grained material such as clays and silts,
which are more compressible than more rigid coarse grains such as sand or
limestone and sandstone formations. Subsidence caused by the consolidation of
fine-grained material cannot be reversed by artificially injecting additional water
into the formation. Subsidence is reversible only in aquifers usually dominated
by sands, gravels, or sandstone, which can accept the additional fluids.
Saline ground water is found in aquifers throughout the United States.
Ground water depletion may cause intrusion of poorer-quality water into high-
quality water supplies. In some coastal regions, particularly in California and
Florida, there are serious sea water intrusion problems caused by the attenuation
of fresh ground water flows toward the ocean. The in situ value of ground water
in these cases derives from providing a barrier to salt water intrusion. Overdrafting
can depressurize confined aquifers, leading to the intrusion of salt water into
portions of the aquifer that formerly contained high-quality water (see Figure
2.4). Salt water intrusion problems are not limited to coastal areas. Problems
with saline ground water have been documented in 41 states (Atkinson et al.,
1986). A number of methods are available to combat salt water intrusions,
including artificial recharge, reductions in extractions, establishment of a pump-
ing trough along the coast, formation of pressure ridges through artificial water
injection, and installation of subsurface barriers.
Discharges from unconfined aquifers are the source of about 30 percent of
the nation’s stream flow (Frederick, 1995). This source of surface water is
especially important in sustaining stream flow during dry periods, the so-called
base flow. Ground water levels have a direct impact on lake levels and on the
amount of freshwater flowing through estuaries to the oceans. Reductions in
surface water flows can have adverse impacts on the aesthetic values, recre-
ational potential, and use of surface waterways for transportation.

FIGURE 2.4 Salt water intrusion into a confined aquifer.
Surface water flows originating from ground water also support riparian
vegetation and play a major role in maintaining wetlands (NRC, 1995). Such
support constitutes a vital ecological service. Ground water depletions are known
to have eliminated surface water flows altogether in some areas. Many of the
flowing streams in Arizona have disappeared because of the overpumping of
ground water. High water tables may also support riparian species in areas where
surface flows are ephemeral. The ecological services of ground water are par-
ticularly dramatic in cases where ground water supports habitat for endangered
species. (An example of how ground water drawdown can affect stream flow
appears in Figure 2.3.)
The availability of ground water is thus determined by the interaction of
geological, hydrologic, and economic factors. The quantities of water available
now and in the future depend upon the interaction of recharge and extraction.
The cost of obtaining ground water is determined by pumping depths, energy
costs, and the cost assigned to the opportunity foregone as a consequence of
extracting ground water now rather than later. The value of ground water de-
pends upon both the cost of obtaining it and the willingness of users to pay, and
willingness to pay depends crucially on the quality of the water.

GROUND WATER QUALITY
Contamination
Because ground water exists in an environment that includes a mineral ma-
trix and perhaps some organic matter (even living organisms), the quality of the
water is controlled by the physical, chemical, and biological processes that inter-
act in the aquifer. Ground water exists in a variety of geological settings, ranging
from tiny cracks in otherwise solid rock to the (relatively) large voids between
grains of coarse sand or gravel. Geological formations that constitute aquifers
differ widely in the rocks and minerals they contain. Some contaminants occur
naturally, whereas others are derived from human activities: landfills, agriculture
wastes, industrial spillage, and many others (see Table 2.1).
In many areas the greatest threat to the potability of ground water is from
contamination by microorganisms such as bacteria and by disease-causing virus
particles. The presence of potentially pathogenic microbes (expanding the defi-
nition of microbes to include viruses) represents the most serious drinking water
contamination problem. The organisms of concern in potential ground water
contamination are those that are shed in fecal material, including bacteria, vi-
ruses, and protozoan parasites. These organisms are spread via the fecal-oral
route. Ingestion of organisms can occur through consumption of contaminated
food or water or by direct contact. Organic contaminants are wide ranging and
include chlorinated hydrocarbons (e.g., trichloroethylene, carbon tetrachloride),
fuel hydrocarbons (e.g., benzene, toluene, xylene), oxygenated compounds (e.g.,
phthalates and phenols), polynuclear aromatic hydrocarbons (PAHs, e.g.,
arochlor). Many times the contaminants are mixtures, e.g., gasoline, diesel fuel,
and creosote. In some cases, contaminant plumes may cover many square miles
of aquifer material (NRC, 1994b).
One of the major differences between surface water and ground water is the
time frame for contamination. Contamination in ground water develops slowly,
based on migration and flow rates. In addition, once contaminated, ground water
takes far more time to assimilate and recover than does surface water. Surface
water is generally contaminated rather quickly and has the ability to purge the
contaminant in a short period of time. Both natural and artificial cleanup of
ground water are lengthy processes because of slower flow rates, slower dilution,
and reduced capacity for reoxygenation.
Remediation: An Economic Outlook

Policy-makers cannot select an appropriate treatment technology until they
define the final use or disposal location of the water. As they evaluate possible
treatment, then, they must consider the water-quality objectives for the receiving
waters. They should identify feasible disposal options. Although most areas

TABLE 2.1 Sources of Ground Water Contamination
Category I Category II Category III

Sources designed to Sources designed to store, Sources designed to retain
discharge substances treat, and/or dispose of substances during
substances; discharged transport or
through unplanned transmission
release
Subsurface percolation (e.g., Landfills Pipelines

septic tanks and Open dumps Material transport and
cesspools) Surface impoundments transfer
Injection wells Waste tailings
Land application Waste piles
Materials stockpiles
Aboveground storage tanks
Underground storage tanks
Radioactive disposal sites
Category IV Category V Category VI
Sources discharging as Sources providing conduit Naturally occurring

consequence of other or inducing discharge sources whose discharge
planned activities through altered flow is created and/or
patterns exacerbated by human
activity
Irrigation practice Production wells Ground water-surface water

Pesticide application Other wells (nonwaste) interactions
Fertilizer applications Construction excavation Natural leaching
Animal feeding operations Salt water intrusion, brackish
De-icing salt applications water
Urban runoff
Percolation of atmospheric
pollutants
Mining and mine drainage
SOURCE: Office of Technology Assessment, 1984.
favor beneficial use of treated ground water, in certain instances disposal would
be cost-effective. Disposal options include placement in evaporation ponds (prob-
ably limited to the southwestern United States), deep-well injection, and ocean
discharge (limited to coastal areas).
As indicated, appropriate treatment depends on both the types of contami-
nants and the intended beneficial uses of the renovated ground water. Treatment
technologies commonly in use today and their effectiveness for removing spe-
cific contaminants and their associated costs appear in Table 2.2. The costs

TABLE 2.2 Effectiveness and Typical Costs of Treatment for Water Containing
Various Classes of Contaminants
Inorganic
Compounds Organic Compounds
Facility
Treatment Volatile Nonvolatile Cost Range Capacity Range
Process TDS NO3-, SO42- (TCE, PCE) (DBCP) ($/acre-foot) (MGD)
GAC − − − + 150-110 2-12

Air stripping − − + − 130-50 0.5-7

Ion exchange − + − − 130-60 1-15
Reverse osmosis + + − − 400-250 1-6
In situ
bioremediation − − + − Varies Varies
SOURCE: Orange County Water District, 1996.

GROUND WATER RESOURCES: HYDROLOGY, ECOLOGY, AND ECONOMICS

43
shown are only for the indicated treatment process, that is, the costs do not
include costs of extraction wells and collection systems or conveyance and dis-
posal costs. Note that the cost for each treatment process depends upon the size
of the facility. Thus the unit treatment cost will decrease as the size of the facility
increases. Bioremediation is not included in Table 2.2 because the costs are
controlled by the site at which the technology is being employed.
Aquifer Remediation
A recently published National Research Council study dealt with the cleanup
of contaminated aquifers and ground water (NRC, 1994b). That study was moti-
vated by the need to assess critically the feasibility of restoring ground water
quality at hazardous waste contamination sites, considering the limitations of
present technology as well as foreseeable advances in methodology. The need
for such an assessment stemmed in turn from disappointment in the slow rate of
progress in hazardous waste site remediation and its burgeoning cost.
The NRC committee found that the general frustration with the slow progress
and rising costs in hazardous waste site (sometimes referred to as Superfund site)
remediation is indeed justified. Only a very few sites have, in fact, been renovated
successfully, while efforts at many others have been hampered by inept planning,
unrealistic objectives, ponderous decision-making processes, and conflicts among
the various stakeholders. Nonetheless, at the bottom of the problem are intrinsic
technical difficulties that would be hard to counter even with near-perfect planning
procedures in an ideal institutional setting. Where complete restoration remains
elusive, it may be prudent simply to contain the contamination after removing the
portion of the contaminant mass that is amenable to cleanup.
In the face of these newly perceived difficulties, the task of restoring ground
water quality seems considerably more daunting than when the Resource Conser-
vation and Recovery Act (RCRA) and Comprehensive Environmental Response,
Compensation, and Liability Act (CERCLA) programs were instituted. Esti-
mates of total costs of cleanup in the range of hundreds of billions of dollars raise
the question of whether all contaminated ground water can and should be
remediated to the strictest criteria: that is, pristine conditions or health-based
standards. This in turn raises the question of the long-term economic and resource
impacts of permitting ground water resources to deteriorate in quality. Further-
more, it is necessary to take into consideration the observed tendency of subsur-
face contamination to become more intractable the longer it is left in place, so
that long-term contamination may be virtually irreversible.
Hydrologic Uncertainty
Hydrologic uncertainty results from the heterogeneity of natural systems and
from data inadequate to characterize and model the systems accurately. Uncer-

tainty arises regarding both the quantity and quality of ground water systems.
Uncertainties related to ground water flow include insufficient or erroneous data
from imprecise measurements and observations, sampling errors, or statistical
errors; inappropriate model assumptions; and inadequate characterization of sub-
surface hydrology. Uncertainty regarding quality arises from lack of information
on both the fate of the contaminants in the subsurface, and their health effects.
Additional uncertainties concern the role of ground water in providing eco-
logical services. Ground water supports microbial habitats in the subsurface and
surface flows that sustain riparian habitats. Connections between ground and
surface waters are better defined in theory than in application.
Mathematical models of ground water systems have been under develop-
ment for decades, but data are rarely if ever adequate to allow accurate prediction
of subsurface dynamics in three dimensions. Model uncertainty stems from
shortcomings in current theory or failure of models to incorporate the elements of
current theory, scarcity of field data for model calibration, inadequacies of com-
puter capacity for modeling complex systems, and failure to incorporate opera-
tional constraints into models (Anderson and Burt, 1985).
RECOMMENDATIONS
This review of hydrological concepts, ground water quality, the influence of
societal activities on ground water quantity and quality, and ground water treat-
ment scenarios suggests the following conclusions regarding implications for
ground water valuation.
• Decision-makers should proceed very cautiously with any actions that
might lead to an irreversible situation regarding ground water use and man-
agement. Ground water depletion, for instance, may often be irreversible.
Some aquifers (e.g., the southern edge of the Ogallala) do not recharge in
useful time scales, and thus any extractions constitute a form of mining. In
other cases the length of time needed for natural recharge of deep aquifers
where ground water removal rates are high leads to a continual reduction in
stock that will not be replenished in short time frames. Moreover,
overdrafting can sometimes lead to a collapse of the formation permanently
reducing the aquifer’s storage capacity.
• Decision-makers should also be cautious regarding contamination of
ground water. Restoration of contaminated aquifers, even when feasible, is
resource intensive and time consuming. Restoration methods are uncertain
and unlikely to improve significantly in the near future. As a result, it is
almost always less expensive to prevent ground water contamination than to
clean up the water.
• Ground water often makes significant contributions to valuable eco-
logical services. For example, in the Southwest, many flowing streams have

been eliminated by overpumping. Because the ground water processes that

affect ecosystems and base stream flow are not well understood, combined
hydrologic/ecologic research should be pursued to clarify these connections
and better define the extent to which changes in ground water quality or
quantity contribute to changes in ecologic values.
• Ground water management entities should consider appropriate poli-
cies such as pump taxes or quotas to ensure that cost of using the water now
rather than later is accurately accounted for by competing pumpers.
• Because ground water resources are finite, decision-makers should take
a long-term view in all decisions regarding valuation and use of the resources.
REFERENCES
American Water Works Association. 1990. Water Quality and Treatment. Blacklick, Ohio:
McGraw-Hill.
Anderson, M. G., and T. P. Burt. 1985. Hydrologic Forecasting. New York: John Wiley and Sons.
Atkinson, S. F., G. D. Miller, D. S. Curry, and S. D. Lee. 1986. Salt Water Intrusion: Status and
Potential in the Contiguous United States. Chelsea, Mich.: Lewis Publishers.
Burness, H. S., and W. E. Martin. 1988. Management of a tributary aquifer. Water Resources
Research 5(24):1339-1344.
Burt, O. R. 1970. Groundwater storage control under institutional restrictions. Water Resources
Research 6(6):1540-1548.
Cummings, R. G. 1970. Some extensions of the economic theory of exhaustible resources. Western
Journal of Economics 7(3):201-210.
Domenico, P. A., and F. W. Schwartz. 1990. Physical and Chemical Hydrogeology. New York:
John Wiley and Sons.
Fetter, C. W. 1994. Applied Hydrogeology. New York: Macmillan College Publishing.
Frederick, K. D. 1995. America’s water supply: Status and prospects for the future. Consequences
1(1):14-23.
Heath, R. C. 1983. Basic ground-water hydrology. Water-Supply Paper 2220. U. S. Geological
Survey.
Lloyd, J. W., and M. H. Farag. 1978. Fossil ground water gradients in and regional sedimentary
basins. Ground Water 16:388-398.
Morel-Seytoux, H. J. 1985. Conjunctive use of surface and ground water. Pp. 35-67 In Artificial
Recharge of Ground Water. T. Asano, ed. Chapter 3. Boston: Butterworths Publishers.
National Research Council. 1994a. Ground Water Recharge Using Waters of Impaired Quality.
Washington D.C.: National Academy Press.
National Research Council. 1994b. Alternatives for Ground Water Cleanup. Washington, D.C.:
National Research Council. 1995. Wetlands: Characteristics and Boundaries. Washington, D.C.:
Nether, P. A. 1990. Natural Resource Economics: Conservation and Exploitation. New York:
Cambridge University Press.
Office of Technology Assessment. 1984. Protecting the Nation’s Groundwater from Contamina-
tion, OTA-O-233. Washington, D.C.: U.S. Congress.
Provencher, B., and O. R. Burt. 1993. The externalities associated with common property exploita-
tion of groundwater. Journal of Environmental Economics and Management 24(2):139-158.
Schoek, J. M., ed. 1995. City cuts use of depleted ground water. The Ground Water Newsletter
24(12):6.

A FRAMEWORK FOR THE VALUATION OF GROUND WATER 47
3
5
A Framework for the

Valuation of Ground Water
This chapter provides a conceptual framework for valuing ground water

resources that in turn provides a basis for evaluating the tradeoffs that occur
whenever there are competing uses for the ground water resources. For example,
continued use of ground water as an input into agricultural production implies
that less ground water is available for municipal purposes. The “correct” or
economically efficient allocation of a scarce resource such as ground water among
competing uses depends in part on how the service flows are valued from each
use of the resource.
The framework proposed in this chapter is based on an overall economic
valuation approach that integrates the hydrological and physical components of
the valuation problem. More specifically, the framework links changes in the
physical characteristics (quantity and quality) of ground water resources to
changes in the level of services or uses of the resources and finally, to how
society values the changes in the services or uses. It is in establishing the
connections among the changes in quantity/quality of ground water and the
changes in service flows that collaboration among researchers (e.g., engineers,
hydrogeologists, and economists) is most essential. How society values the
changes in service flows or uses is primarily an economic valuation problem; its
outcome is influenced by institutions and individual tastes and preferences.
The steps involved in developing this integrative framework, delineated in
the following sections, highlight the needed input from both economics as well as
other relevant disciplines. Variations of this interdisciplinary framework have
been utilized for the valuation of other resources or resource-related assets, in-
cluding agricultural land resources, air quality, recreational resources, and wet-
47

lands. Boyle and Bergstrom (1994) proposed a similar framework for measur-
ing the economic benefits of ground water in a report prepared for the U.S.
Environmental Protection Agency. While the impetus for Boyle and Bergstrom’s
report was the need to incorporate the value of ground water resources when
conducting regulatory impact analyses, the framework they developed and the
variation of that framework outlined here are applicable to other policies and
programs that affect ground water resources.
SOME PRELIMINARIES
Ground Water as a Natural Asset

Ground water can be considered a natural asset. The value of such an asset
resides in its ability to create flows of services over time. As discussed in Chapter
1, there are two broad categories of resource services provided by ground water:
extractive and in situ. The relationships among these are illustrated in the sche-
matic diagram shown in Figure 3.1.
In each time period depicted in Figure 3.1, a ground water stock provides
each of the services and is subjected to various influences that affect its quality.
Of course extraction and/or addition of water today affects the quantity and
quality of stocks tomorrow, and it is critical to incorporate this intertemporal
element into the analysis of the valuation problem. Intertemporal issues are
related to each of these service flows, and understanding them is fundamental to
understanding the overall valuation problem.
The Concept of Total Economic Value

The total economic value (TEV) of ground water is a summation of its values
across all of its uses. Sources of values have been classified into use values
(sometimes called direct use values) and nonuse values (also known as passive
use values, existence values). The use values arise from the direct use of a good
or asset by consuming it or its services. For ground water, these would include
consumption of drinking water and other municipal or commercial uses. Nonuse
values arise irrespective of such direct use. Thus in the economist’s jargon the
total economic value of a given resource asset includes the summation of its use
and nonuse values across all service flows. The notion of total economic value is
fundamental to ground water valuation and should enter into management deci-
sions regarding use of water resources. Valuation is a useful tool if the values can
help inform decision-makers. The relevant issue is how the TEV of ground water
will change when a policy or management decision is implemented.
Prices are often used as a proxy for values. In settings where goods or
services (for example, eggs and haircuts) are traded through markets, prices are a
good proxy for the value of the last, or the marginal, unit that is traded. As more

FIGURE 3.1 Ground water services.
and more units are traded, the marginal value continues to decrease, as repre-
sented by a negatively sloped demand curve for the good in question. But the
total value, represented by the area under the demand curve out to the quantity
demanded increases.
Several important points about value have particular relevance to ground
water valuation. Values are specified at an individual level, and defining a social
value for ground water requires aggregating individual values. There are many
possible ways to weight individuals in forming such aggregates, including using
unweighted dollar-for-dollar sums. Assigning equal weights across all individu-
als (i.e., a dollar-for-dollar summation) is a common procedure in benefit-cost
analyses of public policies. Use of such a procedure assumes that the current or
existing distribution of incomes is socially acceptable. All values derive ulti-

mately from services to consumers, whether these services are consumed directly
or through produced goods. In this way ground water, ecosystems, and other
environmental resources generate value either directly or indirectly.
Economic valuation methods have concentrated on techniques for assessing
particular pieces of the total value puzzle. The easier pieces to value are those
associated with identifiable uses such as agriculture, municipal water supply, and
other commercial or industrial uses. The examples in Chapter 6 illustrate the
noncomprehensive approach to valuing a ground water resource, where the focus
has been primarily on valuing ground water resources in their direct use purposes.
Finally, there are no restrictions on why someone values a good. Economic
values are anthropocentric notions and are based on situations of choice. The
mechanism of choice might be a market or a negotiated explicit or implicit
contract or a public referendum. Because this valuation is based on human
choices, it does rule out some of what concerns some ecologists and environmen-
talists who believe that nature inherently has “rights.” Therefore the concept of
economic valuation does have some limitations in discourse about natural re-
source policy where the “rights” of nonhuman entities are given significant weight
compared to human use values.
Nonuse values are more controversial than use values when it comes to
measuring and validating them. Some of the techniques presented in Chapter 4
suggest ways to quantify the nonuse values as part of measuring the total eco-
nomic value. The issue of how to model and measure nonuse values cannot be
totally separated from the measurement of use values. And as Freeman (1993b:
161-162) indicates:
economic theory gives unambiguous guidance only on defining total values as
compensating income changes for changes in a resource. The question of
whether non-use values, however defined, are positive takes on meaning only
after some decision has been made about what use values measure, since non-
use values are simply total value minus whatever has been called use value...
Ultimately we want to be able to measure total value. Any distinction between
use and non-use values is itself useful only if it helps in the task of measuring
total value.
Although there is no a priori agreement on when nonuse values are likely to
be significant, economists often suggest that one factor would be whether the
resource in question is sufficiently unique, has no close substitutes, and has a low
price elasticity of demand. In certain locations ground water could satisfy these
requirements, particularly if it is valued as a source of “pristine” water. Even in
situations where the ground water by itself does not produce much in the way of
nonuse value, it may contribute to habitat for endangered species, which has
significant nonuse value. In such a case, the derived value of the ground water
will include this value as well.

Institutions and Decisions

The value of ground water, that is, its ability to produce valuable service
flows to people, is increased when any given amount of water is allocated effi-
ciently across potential water uses. Water is efficiently allocated when the incre-
ment to value that could be obtained from using a little more water in any one
way (called the marginal value of water in that use) is the same across all uses of
water. To understand this concept, assume that such a balance does not exist. For
example, suppose that one use (say, an industrial process) could generate $100 in
incremental value if a little more water is used there, while another use (say,
agricultural production) would lose only $50 in value if a little water is removed
from that use. Then transferring a unit of water from the agriculture to the
industrial use increases the total value of water services by $50.
Any inefficiencies in the allocation of ground water across uses or quality
will lower the value of the ground water. Poor quality will also reduce its value
to users. The value of ground water, then, is intimately tied to institutions that
govern how it is allocated (or misallocated) and protected in the current period,
through time, and according to its quality. That is why, in Figure 3.1, institutions
are depicted as a set of overarching influences that govern the value of ground
water.
One possible institution for allocating ground water is a set of private water
markets. Economists have shown that if these markets are organized in a particu-
lar fashion, then the allocation of water among uses will be efficient. Of course
the conditions underlying this result would be difficult to meet. Instead of a
market system, there presently exists a complex web of water resource institu-
tions that vary from jurisdiction to jurisdiction. These institutions are described
in more detail in Chapter 5. The analysis of how these institutions promote or
mitigate inefficient water allocations is an important but difficult task that is
beyond the scope of this committee’s investigation.
The total value of ground water is increased if it is efficiently allocated.
Identifying this efficient allocation depends on measuring the incremental value
of water in alternative uses and the incremental value of improvements in water
quality. When there are large gaps between these incremental values across uses,
then economic well-being is enhanced by altering the allocation. If the incremen-
tal costs and benefits of changing water quality are greatly different, then eco-
nomic well-being is enhanced by improving water quality or perhaps by allowing
a lower level of water quality for some uses.
Consider first the allocation decision. In Figure 3.2 the horizontal axis
shows the quantity of water that can be allocated to either of two uses: in-stream
flows, which provide ecological services; or landscaping, which provides aes-
thetic values that can also be considered a part of ecological services. At the right
edge of the diagram, at point Q, all water is allocated to in-stream flows, and none
goes to landscaping. The vertical axis measures incremental values. The line

FIGURE 3.2 Allocation decisions.
sloping downward to the right depicts the additional value one could obtain from
having more water for landscaping. It is initially very high, since some plants and
trees and degree of green is highly valued, but as more and more water is used in
this fashion, the additional value that can be obtained falls. Similarly, the incre-
mental value for ecological services is initially very high, since some water in
streams sustains basic biological functions, but it, too, falls as more water is
allocated to this purpose.
The efficient allocation of ground water balances incremental values across
the two uses. This is shown at a point qe in Figure 3.2. At point q1, more water
should be allocated to landscaping, while at point q2, stream flows should be
increased.
Currently, there is minimal information on the value of ground water in
many of its alternative uses. Much has been written regarding municipal, agricul-
tural, and industrial uses and the inefficient institutions that artificially depress
the value of ground water in agricultural uses in the American West. The idea is
that there are large gaps between incremental values of water across these uses.
Although extractive uses have been widely studied, almost nothing is known

FIGURE 3.3 Quality decisions.
about in situ ground water services and their values. Even the incremental value
of many municipal water uses, such as landscaping, is not well understood.
Consider now the quality decision. Figure 3.3 on quality decisions shows a
diagram similar to the last one but with a different interpretation. Suppose a
remediation decision is to be made. The horizontal axis shows the degree of
contamination of a ground water stock, with increasing contamination to the
right. The contaminated stock is at quality Q. Improving ground water quality
via treatment is, as explained in Chapter 2, a costly process. The incremental
costs are shown as moving upward to the left. Information is available about the
cost of alternative technologies for cleaning up ground water; for example, a
recent NRC report, Alternatives for Ground Water Cleanup (NRC, 1994), is
directed to this issue. However, this information does not address whether or
how much to remediate or treat.
The decision process requires value information. The relevant value is the
incremental value of enhanced water quality, shown by the line increasing to the
right in Figure 3.3. The efficient quality decision lies at quality level qe. Treat-
ment levels between Q and qe such as q2 (Figure 3.3) represent less than eco-

nomically optimal treatment since the benefits from additional treatment out-
weigh the costs. If water is left untreated (point Q), gains from treatment
outweigh costs up to a quality level qe . Treatment to achieve qualities greater
than that at qe (as, for example, to q1) is excessive since benefits are outweighed
by the costs.
These simple examples depict how valuation measures can be used in deci-
sion-making. Obviously, these are highly stylized. In practice these nice smooth
curves do not exist, and there are lumpy, nonincremental decisions to reach. But
the basic point remains. The valuation framework described later in this chapter
is of interest not in its own right as an academic exercise but rather as part of a
decision-making process. One set of relevant decisions involves ground water
management decisions within a given institutional structure. Values can also be
used for institutional reform, to reduce systematic inefficiencies.
A major question concerns the availability of value information for use in
decision-making. When assets and their services are exchanged in organized
markets, there is an observable link between the asset’s value and the values of
the services that the asset provides (Kopp and Smith, 1993). For example, the
current value of a commercial building (an asset) can be determined in the real
estate market. Its value can also be appraised by examining the present dis-
counted value of the stream of net incomes realized over time (as a result of
annual rentals), plus any residual value. If the building is damaged, the value of
the asset is reduced precisely because the present discounted value of the stream
of net rental incomes is reduced. In this case the existence of organized markets
provides information on how society values the asset.
In the case of ground water, however, other nonmarket institutions govern its
use. Neither the asset nor its services are traded on well-organized markets.
Thus, no ready source of information automatically provides a connection from
service values to asset values that would be similar to the information the market
provides.
The valuation process that managers and policy-makers undertake should, in
theory, be similar to the valuation process the market provides. One needs to
know the time stream of services ground water supplies, and the values that
society places on these services. These values are not straightforward for two
reasons. First, there are many services for which information on individual
values is not readily obtained. For example, because ecological services fall
outside of markets, they call for specialized valuation techniques. Second, values
are defined and measured at the individual level. The difficulty comes in decid-
ing how these should be aggregated across people.
Because services exist across time, an appropriate discount rate must be used
to determine the present value of this stream of annual service values. This is
rather like the problem of adding up values across people: now we need a way to
add up value across people alive at different points in time. The market rate of
interest serves as an approach for money assets, but things are not quite so simple

for natural assets provided through public institutions. This is a complex question
tied to issues of intergenerational equity.
The next step in the process is creating a link between the management
decision to be implemented and the resulting changes in the time path of services
the ground water stock will provide. Considerations must go beyond mere de-
scription of the services already used in one state of the world; they must also
involve predictions of future services.
Allocation over Time and Discounting

The provision of benefits or services over time requires that consumers and
other users “trade off” benefits (or costs) in one period, such as the present,
against benefits in a different time period. In other words, consumers/users of the
resource must balance the desire for current consumption against a desire for
consumption in the future. All else being equal, people would rather consume a
unit of a good today rather than wait to consume it in the future, say in a year’s
time. Having a unit of income today is worth more than having the same unit of
income a year in the future.
As indicated earlier, ground water is considered to be a common limited
resource that can be used at different rates over time. Water managers must be
concerned with the preferences society has for using that limited resource and the
manner in which the ground water will be mined under alternative institutional
arrangements. Both of these concerns lead to notions of intertemporal use and
discounting.
The traditional criterion used to address the problem of use rates over time is
to compare the net benefits (benefits minus the costs) received in one period with
the net benefits received in another period. The concept that allows for making
this comparison is called present value, which explicitly incorporates the time
value of money. The present value of a onetime net benefit received a year from
now is computed as
(net benefits in year 1)/ (1 + r),
where r is the appropriate interest rate. This process of calculating present value
is known as discounting, and r is referred to as the discount rate.
Using the notion of discounting, we can determine an economically efficient
allocation of a resource over time: an allocation of a resource across n periods is
efficient if it maximizes the present value of net benefits that could be received
from all possible ways of allocating the resource over the n periods. For water
managers, the challenge is to balance the current and subsequent uses of the
ground water stocks by maximizing the present value of the net benefits derived
from the limited resource. Knowing the total economic value of the ground
water is crucial for determining the net benefits.

Scarcity imposes an opportunity cost, which economists refer to as a mar-

ginal user cost. Greater use of the resource today diminishes future opportunities
for use, so the marginal user cost is the present value of these foregone opportu-
nities. Using ground water for watering lawns and agricultural purposes may not
be appropriate under conditions where drinking water supplies to future genera-
tions are denied but may be wholly appropriate in situations with sufficient
supplies of water. Failure to take higher scarcity value of water into account will
lead to extra costs to society by imposing extra scarcity on the future. Con-
versely, overconservation in areas with sufficient supplies will impose additional
costs on society today.
Allocation of the ground water resource over time is affected by the discount
rate. The higher the discount rate, the greater the amount of the resource that will
be allocated to the earlier periods. Higher discount rates skew consumption and
use toward the present because they give less weight to future net benefits. The
methodology for choosing an appropriate discount rate is a matter of continuing
debate: “after a lot of time trying to discover an unassailable definition of the
social rate of discount, economists are beginning to decide that a totally satisfac-
tory definition does not exist” (Page, 1977). The proper rate depends, in part, on
the context of the decision being analyzed (Lind, 1990) but the role of the dis-
count rate is to ensure that scarce resources are allocated efficiently over time.
Issues of whether resources are allocated fairly over time are different, albeit
important, issues. In Sustaining Our Water Resources (NRC, 1993a), Brown
Weiss notes that: “. . . the withdrawal of ground water in excess of recharge rates
to supply potable drinking water or rapid withdrawal of water from nonrecharge-
able aquifers, will cause conflicts between immediate satisfaction of needs and
long-term maintenance of the resources.” Brown Weiss notes further that in
these cases “means need to be developed to reconcile intergenerational concerns
with the demands of the living generation.”
Issues of whether allocations over time are fair are difficult to address through
the selection of a discount rate. Recent literature has raised questions about the
applicability of cost-benefit analysis as currently practiced to deal with inter-
generational issues. Smith (1988) suggests that many resource problems we face
today, including depletion of ground water resources, “stretch the conceptual
basis for benefit-cost analysis well beyond the bounds for what it was intended—
a single generation borrowing from itself.” Page (1988) suggest a fundamental
change in how economists evaluate allocation issues that span many generations.
In his view the question is not simply one of selecting the appropriate rate of
discount, but of basing policy decisions on an intergenerational social choice
rule, according to what society considers “fair.” In his earlier writings, Page
(1977) argues for preserving the opportunities for future generations as a com-
mon sense minimal notion of intergenerational justice. Preserving these opportu-
nities is critical in settings where there are irreversibilities and a large degree of
uncertainty with respect to both the size of the resource stock and the future

demands on the resource. These issues of fairness are distinct from issues of
allocative efficiency and, in general, selection of discount rates should be guided
by considerations of efficiency while issues of fairness should be resolved in
other ways.
Role of Economic Uncertainty

Economic uncertainties occur at both micro and macro scales. The value of
a particular ground water supply that supports an extractive use may be influ-
enced by events at local, regional, national, or international levels. For example,
the prices of water-intensive commodities such as cotton or copper are affected
by price supports and international markets. Changes in commodity prices affect
the value of the ground water used to produce those commodities. Farm policies
also have an impact on ground water use.
Economic uncertainty is commonly related to lack of data with which to
predict human behavior across time and space. Economic uncertainties relative
to nonmarket goods and services are even more substantial, because outside of a
market there is no documentation of monetary value. Various techniques have
been developed to estimate monetary value, but certain values may remain hid-
den, and there are multiple sources of error in these techniques as well. These
techniques and their flaws are discussed in greater detail in Chapter 4.
Externalities and Ground Water

The valuation of ground water involves considerations of external effects
inflicted upon ground water, such as the ecosystem side effects incurred when
ground water is extracted or contaminated, and the effects that ground water
extraction decisions have on ground water availability and cost.
The decisions of any number of consumers and firms may alter ground water
quality in unintended ways. Some of these result from point sources of pollution,
where a known, identified source is contributing to the problem. We can, at least
in principle, measure the quantity of emissions from point sources. Standard
approaches for controlling these problems are available, as will be discussed
below. Nonpoint source pollution is generated from farms, residences, and urban
runoff—a diffuse set of sources such that measurement of emissions from any
single source is impractical.
Ground water contributes services to the aquatic ecosystem that individual
extractors are not likely to take into account. Contamination of an aquifer may
lead to surface water contamination, and depletion may change wetlands, affect
water tables, cause land subsidence, and so on. A host of effects greatly compli-
cate the valuation problem; additional examples are in Chapter 2.
Certain externalities arise when one firm’s pumping causes other firms’
situations to change. These open access resource problems have basically two

types of effects. First, pumping may decrease pressure in the aquifer, implying
that the total amount of ground water available to all users is reduced. Second, an
increase in pumping today increases the pumping costs for all users.
SERVICES PROVIDED BY GROUND WATER

This section offers a brief overview of the different services that ground
water resources typically provide (see also Tables 1.4 and 1.5). It also discusses
information required to establish the values of such services and how they are
affected by changes in ground water policy and/or management.
Extractive Uses
Extraction in excess of net recharge in the current period, as depicted in
Figure 3.1 by arrow A, will reduce ground water stocks in the future. Water
managers need information to assess how the cost of extraction and distribution is
altered by changes in ground water stocks and hydrogeological information to
assess how given pumping rates will alter the pressure head in the future. Of
course the influence of pumping on future stocks and their quality is a complex
issue of hydrogeology and chemistry, since recharge rates, the quality of the
recharged water, and aquifer capacity all are involved.
The extractive services consist of municipal, agricultural, and industrial uses
of water. Clearly, the efficient allocation of water to alternative uses requires
information on relative values in these uses. The municipal uses include direct
human consumption, for which strict quality criteria must be met, and a host of
other uses with lesser demands on water quality, such as street cleaning, washing
cars, and water used for landscaping private residences, parks, and golf courses.
Deciding how to value changes in the quantity or price of water for these munici-
pal uses is fairly difficult. Data exist with which to value water for total house-
hold use, but how do people value green lawns relative to other uses? Are
watered fairways on public golf courses of high or low priority? Further, the
supply of water is one issue, the reliability of this supply another. Many ground
water development projects are in fact directed to the latter, thus policy-makers
need to give attention to valuing changes in the reliability of the water supply
along with valuing changes in the quantity of water supplied period by period.
Of greater methodological difficulty is understanding how quality changes
alter value, particularly if deteriorated conditions preclude future uses requiring
higher quality standards. What demands are placed on water quality by alterna-
tive uses? Economists have devoted considerable attention to determining the
value of protecting the quality of drinking water from various contaminants. This
research is not without controversy, and the committee addresses some of the
issues below. But experts also disagree on the health implications of ground

water contamination, and the public’s perception of the state of this knowledge is
even more variable.
Agricultural and industrial uses have a wide variety of water-quality needs
attached to them, and the relevant issue is the cost of supplying a sufficient
quantity of ground water of suitable quality. The values are fairly straightforward
to measure conceptually: the use of ground water contributes to the making of
products, and the incremental contribution of water to the value of production
measures ground water value in these uses. But of course policy-makers need
information from various sources to undergird these measurements. In particu-
lar, industrial process engineers or agricultural production specialists might help
determine how water quality and quantity changes will affect production. Alter-
natively, water managers might employ a statistical approach. Arrow B in Figure
3.1 involves interaction between economic and engineering information and,
regarding human uses, may involve input from psychometricians (a person skilled
in the administration and interpretation of psychological tests), and health ex-
perts, as well.
It should also be noted that ground water extraction can be influenced by
return flows and their associated quantity and quality. Naturally, this depends on
the uses to which ground water is put and on a host of biological, chemical, and
hydrological factors. Thus several types of information are needed to elucidate
Arrow C in Figure 3.1; such information could be based on input from hydrolo-
gists, chemists, soil scientists, and so on.
Further, ground water is subject to pollution from waste disposal and efforts
to mitigate such effects. These influences, represented by Arrows D and E in
Figure 3.1, are the province of all the current work on ground water contamina-
tion, fate and transport of pollutants, movement of pollution within aquifers,
effectiveness of alternative remediation or containment efforts, and so on.
Ground water systems are interrelated with surface water systems. There-
fore, in the taxonomy defined in this report (see Table 1.3), ecological services
are a subcategory of in situ services. Understanding of the linkages among
ground water resources, wetlands, and lake and stream levels is a complex task
for hydrologists, geologists, and aquatic biologists. This information is needed to
determine the magnitudes of effects depicted by Arrow F in Figure 3.1. Surface
water provides a number of ecological functions, including filtering and process-
ing of pollutants and providing habitat for a wide variety of species, both directly
aquatic and terrestrial. The importance of chemists and ecologists is self-evident.
Establishing the connections indicated by Arrows F and G in Figure 3.1 is thus a
multidisciplinary task.
Ground water contributes notably to many surface water services (see Table
1.5), notably, recreational services. Water in parks makes them more valuable,
and swimming, fishing, boating, bird-watching, and a host of other activities
either require water or are enhanced by it. There are a variety of methods for
measuring recreational values.

In Situ Services
The mere presence of ground water in an aquifer provides a number of
services referred to as in situ services. First, to some extent, waste products can
be added to ground water and their potentially harmful impacts can be mitigated.
This assimilative capacity can be thought of in terms of reductions in the cost of
other forms of waste disposal or treatment. Obviously, chemists and biologists
would determine the capacity of ground water to provide these services (Arrow F
in Figure 3.1), and economists and engineers would determine the cost savings
implied (Arrow G).
Second, ground water provides structure to the geologic environment. If
ground water is extracted, subsidence can occur. The degree to which this hap-
pens in any given circumstance is the province of geologists and geotechnical
engineers. Civil engineers can assess resulting effects on buildings and infra-
structure by direct damage or flooding. The primary economic measure of loss is
the dollar value of damage in lost property value or replacement cost for infra-
structure. To the extent that the exact degree of subsidence and associated dam-
age is uncertain for given amounts of extraction, economists must assist in ana-
lyzing plans for ground water extraction (Tsur and Zemel, 1995).
Very similar to subsidence is the role of ground water stocks in coastal areas
in avoiding salt water intrusion. At low levels of stock, reduced hydraulic pres-
sure can allow salt water to invade a coastal aquifer. The extent to which this
might happen and at what level of stock is uncertain, but hydrogeologists or
engineers can supply some information. The loss in services of ground water is
then a matter of the resultant changes in the salinity of ground water. Tsur and
Zemel (1995) offer an economic analysis of optimal response to uncertainties in
this area.
Ground water also provides a buffer, or insurance service, when managed
conjunctively with surface water stocks. Since surface water supplies can fluc-
tuate, ground water acts as important insurance to smooth overall supplies. In
times of low surface supply, ground water can be extracted relatively more heavily
to augment total supply, and in times of abundant surface supply ground water
extractions can fall, allowing the stock to replenish by recharge. Tsur and Gra-
ham-Tomasi (1991) have found that this buffer value can be significant. In one
example, buffer value constituted 84 percent of the total value of the ground
water stock, meaning that if this value were ignored, ground water would be
seriously undervalued.
THE CONCEPTUAL FRAMEWORK
This section summarizes the steps involved in an economic analysis of

ground water value, noting both the limitations of economic techniques and the
inherent uncertainties associated with this task.

Measuring “Values”
Any empirical analysis requires that some preliminary decisions be made
regarding the scope of the research. For the ground water valuation problem, this
means deciding what value to quantify. The economic concept of value, intro-
duced earlier in this chapter, is the cornerstone of this conceptual framework and
is grounded in neoclassical welfare economics. The basic premises of welfare
economics are that all economic activity is aimed at increasing the welfare of the
individuals in society and that individuals are the best judges of their own wel-
fare. Each individual’s welfare depends upon the consumption of private goods
and services as well as the consumption of goods and services provided by the
government and the consumption of nonmarket goods and services. The latter
might include service flows from resources, such as opportunities for outdoor
recreation, maintaining wildlife habitat, and visual amenities. Thus it follows
that the basis for deriving measures of the economic value of changes in a natural
resource, such as ground water, is its effect on human welfare.
The economic theory for measuring changes in human welfare was initially
developed for goods and services exchanged in private commodity markets, us-
ing observed prices and quantities. Over the past few decades, the theory of
measuring economic values has been extended to include nonmarket goods and
services. The basis for extending the theory to goods and services that are not
traded through private markets is that individuals do substitute among markets as
well as use nonmarket goods and services, and this process of substituting reveals
something about the values placed on these goods. The value measures are
commonly expressed in terms of willingness to pay (WTP) or willingness to
accept (WTA) compensation, either of which can be defined in terms of the
quantities of a good an individual is willing to substitute for the good or service
being valued or in terms of monetary units. (See Freeman, 1993a for a complete
discussion of WTP and WTA measures.) The approaches to measuring values
discussed in Chapter 4 are attempts to measure either WTP or WTA, when the
ground water service flows are not purchased in perfectly functioning markets
and have public good characteristics.
A Simple Conceptual Model

Although measuring values involves the use of techniques based on eco-
nomics, these values must be determined in conjunction with knowledge from
other disciplines. For example, estimates of the value of a ground water aquifer
in sustaining wildlife habitat must incorporate knowledge of the ecological and
hydrological links among the water level of the aquifer, recharge, and the ex-
ploited fish and animal species. Estimates of the value of ground water as a
source of municipal water depends upon the availability of substitutes, recharge,
and other information that water scientists can supply. Lack of knowledge con-

cerning these physical, biological, and/or hydrological relationships is a major

limitation to obtaining valid empirical estimates of value of the ground water
resource. The conceptual framework presented herein is an attempt to (1) empha-
size the importance of economics in valuing ground water resources and (2) make
clear that the economic technique and resulting values depend on the underlying
relationships that determine the quantity and quality of ground water service flows.
The economic values of the service flows from an aquifer can be viewed as
the outcome of three sets of functional relationships; these are functional repre-
sentations of the flow diagram (Figure 3.1). The first relates some measure of
ground water quality/quantity sensitivity to the human interventions that affect it,
the second relates the use of the ground water resource and the quality/quantity of
the resource, and the third relationship describes government policies and a man-
agement plan (Figure 3.4).
The first relationship can be represented as
(1) S (t + 1) = S [S(t), A(t), z],
where S(t) represents a quantifiable measure of the ground water resource (a
combination of quality and stock of water), A(t) represents actions taken by
people, such as extraction pollution events and remediation, and z represents
some random uncontrolled disturbances such as hydrologic events related to net
recharge of the aquifer. This relationship shows how the future state of the
ground water resource depends on its current state and what is done to it in the
meantime. This relationship summarizes a set of purely physical outcomes.
The second functional relationship can be written as
(2) A(t) = A[S(t), G(t), Y(S), I(t)],
where A(t) is as defined above, representing the set of human activities. G(t)
represents a set of governmental policies or management plans. Y represents
other background variables, such as the costs of inputs into the production pro-
cess including labor, capital, and materials that also depend on S, income levels,
population, etc. and I(t) is a set of institutional factors that show how decisions
are reached and actions taken. This second relationship can be viewed as a
decision function that maps the milieu within which ground water decisions are
made (government policies, prices of goods and services, income levels, popula-
tion, the ground water resource, and institutions) into actions (pumping rates,
remediation, waste disposal). This shows how changes in any of these factors
will alter how ground water is used.
The third set of functional relationships gives the economic value as a func-
tion of the uses or service flows. The first relationship in this set shows how the
dollar values of the services provided by ground water in any given period de-
pend on those flows and other variables. First, regarding the extractive values, B.
(3a) BEX(t) = BEX(A(t), S(t), Y, I(t), z),

FIGURE 3.4 Conceptual framework for ground water valuation.
which shows that the extractive benefits in the current period depend on the
actions taken, the status of the ground water stock, background variables, institu-
tions, and random events, such as rainfall.
Second, regarding in situ services, the benefits achieved are given by
(3b) BIS(t) = BIS(S(t), Y, I(t), z).
This shows that benefits from in situ services are determined by the status of the
ground water stock, background variables, institutions, and random events such
as salt water intrusion or subsidence events as well as fluctuations in rainfall.
The TEV of the ground water’s services in the current period is the sum of
the extractive and in situ values. Thus, we have
(3c) TEV (S(t)) = BEX(t) + BIS(t).

And finally, the value of the ground water stock itself, specified as the
present value of the benefits conferred by the service flows that the stock gener-
ates can be addressed. Discounting issues and the valuation of the ground water
asset will be further discussed in Chapter 4. Here, it can be noted that
T
B(t)
(3d) Value of Ground Water = V(S(t)) = Σ (l + r)
t
t
.
The importance of the discount rate is obvious here.

The set of relationships represented by equations 1 and 2 above are noneco-
nomic in nature and involve a variety of physical, biological, and hydrological
processes. The set of relationships represented by equations 3 above depict the
integration of the physical and economic sciences. Economists must work closely
with other scientists, for an essential input to valuation of in situ and ecological
services is the magnitude of those service flows.
The three stages in Figure 3.4 correspond to the three sets of relationships
discussed above. Stage 1 involves an assessment of the current quantity and
quality of the ground water resources in a particular area and an assessment of
how events or circumstances might alter the baseline quantity and quality. This
alteration could come about through underlying economic and social forces, such
as increased population, or arise from some explicit decision, such as a change in
management or policy or institutional structures. This stage represents a crucial
input in estimating the economic value of the stock and makes explicit the role of
natural sciences in the valuation process.
The second stage maps changes in ground water resources into changes in
the service flows from the use of the resource. Stage 3 represents the formal
economic analysis, equivalent to the third set of relationships. This third stage
quantifies the value of services and how these values are affected by changes in
service flows.
Each of the stages in Figure 3.4 requires in-depth research and is accompa-
nied by its own levels of uncertainty. The uncertainty with respect to the esti-
mates of the biophysical impacts on the quantity or quality of the resource will be
carried through the valuation process and will be compounded by the uncertain-
ties in the economic valuation methods. For example, the National Research
Council’s Ground Water Vulnerability Assessment (NRC, 1993b) attests to the
importance as well as the difficulties and uncertainties present in current vulner-
ability assessment methods available to predict changes in the quality and quan-
tity of ground water resources.
The conceptual framework involves the research of economists, building
upon the hydrological and biophysical analyses that preceded it. The uncertain-
ties and challenges associated with economic valuation techniques as they pertain
to valuing ground water assets are discussed in Chapter 4. The hydrological,

physical, and biological principles relevant to the economic valuation procedures

were discussed in Chapter 2.
As Boyle and Bergstrom (1994) indicate, “Economic valuation of ground
water therefore requires that progress be made on two fronts: establishing formal
linkages between ground water policies and changes in the biophysical condition
of ground water and developing these linkages in a manner that allows for the
estimation of policy-relevant economic values.” While each of the stages in
Figure 3.4 can be associated with specific disciplines, one cannot overemphasize
the need for interactions and cooperation among economists, other scientists, and
water managers to value ground water resources.
Relationship to Benefit-Cost Analysis

The framework proposed in this chapter for valuing ground water could just
as well be termed a framework for measuring the economic benefits of ground
water. Information obtained from an analysis of the benefits of ground water
would be used in a full fledged benefit-cost analysis (BCA) of regulatory actions
or management decisions affecting ground water quantity and quality.
Benefit-cost analysis has had a long history relating to water resources. The
U.S. Bureau of Reclamation and the U.S. Army Corps of Engineers initially
developed BCA to evaluate surface water investments. The overall objective was
to provide a picture of the costs and gains associated with investments in surface
water development projects.
In more recent years, BCA has been applied to environmental and resource
regulations. (For details see Kneese, 1984.) In these applications BCA should not
be used as a simple decision rule but rather as a framework and a set of proce-
dures to help organize available information and evaluate tradeoffs. Viewed in
this way, the framework proposed in this chapter is an approach to quantifying
the benefits of current and proposed management practices affecting ground
water. If this information were to be used in a decision-making framework, it
would need to be matched with information on the costs of alternative manage-
ment strategies.
RECOMMENDATIONS
• As noted earlier, some knowledge of a resource’s TEV is vital to the
work of water managers, and in the development of policies dealing with
allocation of ground water and surface water resources. For many pur-
poses, the full TEV need not be measured, but in all cases where a substan-
tial portion of the TEV will be altered by a decision or policy, that portion
should be measured.
• Policy-makers must recognize the role of the discount rate in ensur-

ing the efficient allocation of resources over time. As such, the discount rate
should reflect the opportunity cost of financing ground water projects. Is-
sues of equity or fairness should be addressed directly and not through
adjustments to the discount rate.
• An interdisciplinary approach, such as the conceptual model pre-
sented in Chapter 3, is useful in conducting a ground water value assess-
ment. The approach should incorporate knowledge from the economic,
hydrologic, health and other social, biological, and physical sciences. Every
assessment should be site specific and integrate information on water de-
mands with information on recharge and other hydrologic concerns, and to
the extent possible, should reflect the uncertainties in both the economic
estimates of the demand for ground water and in the hydrologic and bio-
physical relationships.
• There are many research needs related to natural resource valuation
concepts and methods. Research is needed to:
a. determine the general circumstances under which nonuse values
are likely to be significant;
b. provide a clearer understanding of how changes in water quality
alter value; and,
c. develop better methodologies for linking ground water policy and
changes in the biophysical properties of aquifers. Such research must be
multidisciplinary.
REFERENCES
Boyle, K. J., and J. C. Bergstrom. 1994. A framework for measuring the economic benefits of
ground water. Department of Agricultural and Resource Economics Staff Paper. Orono: Uni-
versity of Maine.
Freeman, A. M. III. 1993a. The Measurement of Environmental and Resource Values: Theory and
Methods. Washington, D.C.: Resources for the Future.
Freeman, A. M. III. 1993b. Non-use values in natural resource damage assessments. Pp. 161-162 in
Valuing Natural Assets, the Economics of Natural Resource Damage Assessment, Kopp and
Smith, eds. Washington, D.C.: Resources for the Future.
Kneese, A. V. 1984. Measuring the Benefits of Clean Air and Water. Washington, D.C.: Resources
for the Future.
Kopp, R. J., and V. K. Smith, eds. 1993. Valuing Natural Assets, The Economics of Natural
Resources Damage Assessment: Washington, D.C.: Resources for the Future.
Lind, R. C. 1990. Reassessing the government’s discount rate policy in light of new theory and data
in a world with a high degree of capital mobility. Journal of Environmental Economics and
Management 18(2):S8-S28.
National Research Council. 1993a. Sustaining Our Water Resources. Washington, D.C.: National
Academy Press.
National Research Council. 1993b. Ground Water Vulnerability Assessment. Washington, D.C.:
National Research Council. 1994. Alternatives for Ground Water Cleanup. Washington, D.C.: Na-
tional Academy Press.

Page, T. 1977. Conservation and Economic Efficiency. Baltimore, Md.: Johns Hopkins University
Press.
Page, T. 1988. Intergenerational equity and the social rate of discount. Pp. 71-89 In Environmental
Resources and Applied Welfare Economics: Essays in Honour of John V. Krutilla, V. K.
Smith, ed. Baltimore: Resources for the Future Press.
Smith, V. K., ed. 1988. Environmental Resources and Applied Welfare Economics: Essays in
Honour of John V. Krutilla. Baltimore: Resources for the Future Press.
Tsur, Y., and T. Graham-Tomasi. 1991. The buffer value of ground water with stochastic surface
water supplies. Journal of Environmental Economics and Management 21: 201-224.
Tsur, Y., and A. Zemel. 1995. Uncertainty and irreversibility in ground water resource manage-
ment. Journal of Environmental Economics and Management 29(2):149.

4
5
Economic Valuation of Ground Water
Chapter 3 presented an integrative framework for valuing ground water re-

sources. This chapter examines the key economic principles and methods used to
value various ground water services identified in the previous chapter. It is
divided into five major sections. The first offers a brief history of the science and
art of economic valuation of natural/environmental resources, including the role
of these methods in public policy development. This is followed by a review of
the methods for estimating the value of environmental amenities. The approaches
are discussed in terms of their relevance for the categories of service flows
generated from the integrative framework in Chapter 3. The fourth section re-
views selected ground water valuation studies with the aim of drawing conclu-
sions about the state of current knowledge of the value of ground water resources.
Finally, recommendations are made for using elements of the integrative frame-
work from Chapter 3 and the economic concepts and methods presented here to
estimate the value of ground water in specific contexts. The application of these
methods to a range of ground water services is explored in a series of case studies
in Chapter 6.
HISTORY OF ECONOMIC VALUATION OF

NATURAL/ENVIRONMENTAL RESOURCES
Since the 1960s economists have developed a variety of techniques for as-
sessing the value of nonmarket goods and services, not priced and traded in
markets. While most applications are to natural resources and environmental
assets, the concepts and methods of nonmarket valuation extend to a range of
68

ECONOMIC VALUATION OF GROUND WATER 69
goods not usually traded in markets. The ability to assign values to such goods
and services has improved the accuracy of benefit-cost analysis. Inclusion of
economic values for some important (and previously ignored) classes of environ-
mental services enables benefit-cost assessments to reflect more fully the conse-
quences of natural resource policies and regulations.
Some of the earliest attempts to value a nonmarketed natural resource in-
volved the value of water to agriculture in the western United States. Since water
has traditionally been allocated to farmers and other users according to the prior
appropriation doctrine (“first in time, first in use”), information was not available
on the user’s willingness to pay for water. To estimate (impute) a value for
irrigation water, economists used models and techniques borrowed from studies
of the behavior of firms, such as profit-maximizing models of farm behavior cast
as linear or other programming models. Specifically, economists had to infer
value by examining changes in returns to the farm associated with changes in the
amount of water applied. In this way they could estimate the value of both
surface and ground water.
These early water resource valuations used conceptual models and estima-
tion techniques that had been developed and used primarily for analyzing market-
related issues. These techniques worked well in assigning an economic value to
water use in agriculture, given that water is simply an input into the farm’s
production process and that abundant cost data (on other inputs) and revenue
information for farm operations existed.
The first application of techniques developed specifically for valuing non-
marketed commodities involved the travel cost method (TCM), Hotelling pro-
posed in 1946 as a means of valuing visits to national parks. The travel cost
method, in its numerous variants, has been used extensively to assess the value of
a commodity used directly by the consumer, namely outdoor recreation. Refine-
ments of the travel cost method and the development of new techniques, such as
the contingent valuation method (CVM) and hedonic price method (HPM),
enhanced the ability of economists to value a wider range of use values for
environmental commodities, including improvements in air and water quality.
Within the past decade, attention has shifted to estimating nonuse values, such as
what individuals are willing to pay to ensure the existence of species or unique
natural settings. The values elicited with these techniques for specific environ-
mental goods and services are being used in an increasing array of settings;
however, their use is not without controversy, as discussed later in this chapter.
The development of nonmarket valuation techniques enabled economists to
place values on individual environmental commodities. However, policy and
regulatory attention is now increasingly focused on the management of ecosys-
tems. Valuing complex hydrologic or ecological functions and the associated
range of service flows is relatively uncharted territory and raises a number of
conceptual and practical issues. For instance, natural scientists cannot unam-
biguously define and measure ecosystem performance and endpoints. Other

problems arise from the inability of economic science to measure adequately the
consequences of long-term and complex phenomena. A related problem is the
difference in disciplinary perspectives between economists and scientists from
other fields who provide knowledge about physical relationships required for
bioeconomic assessments, such as how a change in aquifer flow will alter surface
stream flow and how a change in stream flow will, in turn, affect items people
value, such as recreational fish catch. These issues and challenges affect the
ability of economists to assess the full range of service flows from ground water;
these challenges are discussed in the case studies in Chapter 6.
THE ECONOMIC APPROACH TO VALUATION

Economic values are only one type of assigned values (Brown, 1984). They
indicate human preferences for a good or service and are not inherent in the good
or service itself. Further, economic values are exchange values; they reflect the
terms of trade, dollars for services. Decision criteria which are based on eco-
nomic values, such as efficiency and benefit-cost analysis, demonstrate a utilitar-
ian philosophical perspective. Recognizing and using economic values does not
deny the existence or validity of alternative perspectives of value; however, the
foundations of economic analysis offer the only unifying approach in making
some types of private and public choices.
The Role of Time in Economic Valuation

Ground water services, like the services arising from many natural resources,
frequently occur over multiple time periods. The rate of conversion of value
between time periods is called a rate of time preference. The rate of time prefer-
ence is defined at the individual level, and is a feature of people’s desires. If an
individual’s rate of time preference is positive (greater than 0 percent), then the
individual prefers a dollar today to a dollar a year from today because the dollar
(or the consumption that dollar could purchase) in one year is worth less to the
individual than the value of a dollar (and its level of consumption) today.
To account for this, some economists like to discount the future values of
assets in order to compare them accurately to present assets. Discounting con-
verts future values to present ones. The present value (V) is related to a future
value (FV) received t years hence by the rule
(1) V = FV/(1+r)t
in which r is the role of time preference. Discounting thus reduces the future
value of an asset by a percentage equal to the rate of time preference. Note that
the two concepts of a rate of time preference and a bank rate of interest are
distinct. They are, of course, related to one another in a market system. (Indeed,

bank interest is an implicit recognition that people value a dollar more today than
the same dollar tomorrow.)
The role of changes in productivity, as discussed in the following section, is
also important in determining the appropriate discount rate. The following two
examples demonstrate how the concepts of rate of time preference, discounting,
and present value are used in measuring economic values over time. The ex-
amples include calculation of the value of an asset and the optimal rate of extrac-
tion of a resource over time. Both examples are relevant to the valuation of
ground water services.
The Value of an Asset

An asset, such as a piece of machinery or a ground water aquifer, is valuable
because of its contribution to producing a product of value (e.g., agricultural
crops or clean drinking water). The relationship between the value of the product
produced and the value of the machine or an aquifer is important. Suppose that a
machine or an aquifer lasts forever and that it contributes an increment to produc-
tion each year that the firm values at $R. Suppose further that the bank rate of
interest is i percent. Then value (V) of the asset is
(2) V = R + R/(1+i) + R/(1+i)2 + R/(1+i)3 + ....

(3) = R/i.
The value of the asset today is thus equal to the sum of the annual incremental
contributions the asset will make to production during its life, less an appropri-
ately discounted percentage for each year. This is the value (V) of the machine or
aquifer to the firm; and the firm would be willing to pay up to this amount (but no
more) today for the asset. In short, the value of any productive asset is the present
value of the increment to the owner’s objectives that it will generate. The rela-
tionship in (3) holds exactly only for infinitely lived assets that do not depreciate,
but the same idea holds in general. In this special case, we can see that the
machine’s value is such that the yearly increment to the value of production, R,
(called the rental value of the machine, for that is what the company would be
willing to pay to use the asset for one year) is the interest rate times the value of
the asset.
The Dynamic Price of Water

The example above shows one way of placing a value on the services pro-
vided by a ground water aquifer that produces a finite stream of benefits. A
somewhat more complex dynamic decision involves the optimal time rate of use
(exploitation) of a natural resource. Optimizing involves balancing marginal gains

against marginal costs. Suppose a single private firm owns an aquifer. For now,
suppose further that the aquifer is confined, with no recharge. Thus it is a finite
exhaustible resource, like a mineral deposit. The stock of water contained in the
aquifer is known to be S (for stock) gallons initially. After t years of extraction,
there are S(t) units of water left in the aquifer. The firm extracts an amount E (an
action corresponding to extraction) of water; in year t, this amount is E(t). Sup-
pose this extracted water can be sold for a price of $P per unit. The dollar cost of
pumping and distribution depends on both the amount extracted and the size of
the stock. A larger stock means lower pumping costs. To capture this idea, let
C(S) be the unit cost of pumping and distributing water when the stock size S
gallons; total cost is E(t)C(S(t)).
The objective of a private water supply company is to maximize the present
value of extraction. To do so, the firm will balance the benefits of an additional
(marginal) unit of extraction against the (rising) costs of removal; that benefit
will be P, the price the unit sells for. The marginal costs of extraction will be of
three kinds. First there is the marginal pumping and distribution cost C(S).
Second, there is the opportunity cost of current extraction: that is, the loss of the
option to extract that unit of water later. Third, pumping water today increases
the cost of pumping at all future times. Thus there is a “dynamic” cost of
pumping water that includes not just the usual cost of extraction and distribution
but opportunity costs and the “cost” of driving up future pumping costs.
The dynamic cost of water increases as the ground water is depleted. Let
R(t) be the dynamic cost at year t. Balancing price and marginal extraction cost
will involve accounting for both the unit cost of pumping (C(S)) and the dynamic
cost (R(t)) as in
(4) P = C(S) + R(t).
As extraction continues, C(S) rises while S declines. In the market, the price of
water will rise. The dynamic term R(t) also increases over time to reflect increas-
ing scarcity of water.
If there is recharge, the details of the model change, but not its fundamental
lessons. There still is a dynamic price of water, R(t), but its behavior over time is
modified to reflect recharge. At some point the aquifer may enter a steady state,
in which the amount of extraction and the amount of recharge are equal and no
net change in the stock takes place. Then, assuming energy and other costs
remain stable, the price of water becomes a constant as well, equal to the stable
extraction and dynamic costs C(S) + R. It should be noted that in circumstances
where aquifers discharge naturally to a stream, assuming that extraction does not
affect future uses or users, and the level of the water table is unaffected—then
ground water is not scarce and R(t) equals zero.
The term R(t), the dynamic cost of the additional water, is also the rental
value of the ground water stock. It is the amount the firm would pay for another
unit of ground water stock. As such, it measures the value in the market of having

another unit of ground water in terms of the extra value the ground water will
produce either as a consumption good or as an input to the production of other
goods. This is the value the marketplace places on additional ground water
resources. This may or may not correspond to the best thing for society, depend-
ing on society’s objectives.
The dynamic price of water, R(t), gives the value of having another unit of
stock. It is also a price for balancing the (dynamic) supply of water against the
demands for water, present and future. Obviously, its magnitude depends on
several things. First, R(t) depends on the stock of water. If all else is equal, as the
stock goes up, R(t) goes down and vice versa. In instances where ground water is
not scarce, it commands no rental value and R(t) is zero. What is relevant to
proper water pricing in a market is the size of the stock relative to demand for it.
Anything that increases the demand for the ground water stocks (e.g., population
growth or increased allocation of water to produce environmental services) in-
creases R(t). And conversely, decreases in demand (by water conservation or
development of substitute sources) will reduce the efficient water price.
Contamination events also will drive up the dynamic water price, R(t) by
reducing usable supply. This allows a method for determining the social cost of
contamination. If contamination makes ground water useless for some purpose
(e.g., drinking) but it leaves it acceptable for another (e.g., irrigation), the stock
relative to the second demand will increase. This will automatically be built into
changes in the dynamic price.
METHODS FOR ESTIMATING THE ECONOMIC VALUE OF

NATURAL/ENVIRONMENTAL RESOURCES
The preceding section provided a brief introduction to economic concepts
and constructs central to the measurement of benefits and costs. Applied eco-
nomic analysis uses these theoretical concepts and constructs in combination
with models and quantitative techniques, to answer questions involving private
and public choice. Specifically, theories of firm and consumer behavior are used
to develop testable hypotheses and as a guide to model specification. Quantita-
tive methods, such as econometric and operations research techniques, provide a
means of testing the hypotheses and models against real-world data. This combi-
nation of models and techniques has been successfully used for decades to ad-
dress a wide range of economic issues, including the estimation of values for
nonmarketed commodities.
The place to start any valuation effort is to look for situations where prices
for natural/environmental resources are already revealed as a result of competi-
tive market or simulated exchange arrangements (Freeman, 1993). Many natural
resources are sold in markets and therefore the prices that result offer opportuni-
ties for valuing natural resources. These markets must be well-functioning and
competitive in order for the prices to reveal reliable information. It should be

remembered that prices represent only a marginal value and steps must be taken
to calculate the total value by estimating the demand for the good (see Chapter 3).
Nonuse values cannot be captured through this approach.
Recent developments in negotiated land transactions also offer an opportu-
nity to gain some important information about the value of a natural resource.
For example, some municipalities in the West bought up agricultural land in
order to obtain water rights. These negotiated transactions over water rights
provide evidence of the value of ground water in these areas.
Nonmarket valuation techniques consist of two basic types. Indirect ap-
proaches rely on observed behavior to infer values. Direct approaches use sur-
vey-based techniques to directly elicit preferences for nonmarket goods and ser-
vices. Both sets of techniques share a foundation in welfare economics, where
measures of willingness to pay (WTP) and willingness to accept (WTA) compen-
sation are taken as basic data for individual benefits and costs.
Indirect Valuation Approaches

Indirect approaches, sometimes referred to as revealed preferences ap-
proaches, rely on observed behavior to infer values. This section begins with an
overview of two general classes of indirect methods: derived demand and pro-
duction cost techniques, which impute the value of a nonmarketed environmental
input, such as ground water, into a production process; and the opportunity cost
approach, which quantifies the economic losses associated with the impacts envi-
ronmental degradation has on human health. The discussion then turns to more
detailed presentations of three techniques that are commonly labeled as indirect
methods: the averting behavior method, the hedonic price method, and the travel
cost method. These methods depend upon the ability of individuals to discern
changes in environmental quality and adjust their behavior in response to these
changes. Recent summaries of indirect approaches can be found in Braden and
Kolstad, 1991; Mendelsohn and Markstrom, 1988; Peterson et al., 1992; Smith,
1989, 1993; and Freeman, 1993. A summary of the advantages and disadvan-
tages of the indirect as well as direct methods is given in Table 4.1.
Derived Demand/Production Cost Estimation Techniques

Where water is an important component of a production process and a firm’s
cost structure is known, the water’s implicit value can be calculated by measuring
water’s contribution to the firm’s profit. If water supply is unrestricted, a firm
will continue to use units of water up to the point where the contribution to profit
of the last unit is just equal to its cost to the firm. Even if water is “free,” there
will be costs to the firm associated with water use (including pumping and deliv-
ery costs). If water supply is restricted (for example, by quotas or water rights),
the firm may cease use of water before the equality is met.

TABLE 4.1 Advantages and Disadvantages of Selected Valuation Methods
Method Advantages Disadvantages
Derived demand/production Based on observable data Not possible to measure in

cost estimation techniques from firms using water situ or nonuse values.
as an input or from Understates WTP.
household consumption.
Firmly grounded in
microeconomic theory.
Relatively inexpensive.
Cost-of-illness method Relatively inexpensive. Omits the disutility

associated with illness.
Understates WTP because it
overlooks averting costs.
Limited to assessment of the
current situation.
Travel cost method (TCM) Based on observable data Need for easily observable
from actual behavior and behavior.
choices. Limited to resource use
Relatively inexpensive. situations including travel.
Ex post analysis; limited to
assessment of the current
situation.
Does not measure nonuse
values.
Possible sample selection
problems and other
complications relate to
estimate consumer
surplus.
Averting behavior method Based on observable data Estimates do not capture full
from actual behavior and losses from environmental
choices. degradation.
Relatively inexpensive. Several key assumptions
Provides a lower bound must be met to obtain
WTP if certain reliable estimates.
assumptions are met. Need for easily observable
behavior on averting
behaviors or expenditures.
Ex post analysis; limited to
assessment of current
situation.
Does not estimate nonuse
values.
Hedonic pricing method Based on observable and Difficulty in detecting small,

(HPM) readily available data or insignificant, effects of
from actual behavior and environmental-quality
choices. factors on housing prices.
continued

TABLE 4.1 Continued
Method Advantages Disadvantages
Hedonic pricing method Connection between

(HPM) implicit prices and value
measures is technically
complex and sometimes
empirically unobtainable.
Market prices or negotiated Based on observable data Does not provide total
transactions from actual choices in values (including non-
markets or other use values) ex post in
negotiated exchanges. nature, limited to assess-
ment of current situa-
tion. Potential for
market distortions to
bias values.
Contingent valuation Ex ante technique: it can Since hypothetical, not

method (CVM) be used to measure the actual, market transac-
value of anything without tions or decisions are the
need for observable focus of CVM, various
behavior (data). sources of errors (i.e.,
Only method to measure incentives to misrepre-
existence or bequest sent values, implied
values. value cues, and scenario
Technique is not generally misrepresentation) may
difficult to understand. be introduced.
Expensive due to the need
for thorough survey
development and pre-
testing.
Concerns about reliability
for calculating nonuse
values (particularly for
such calculations to
support natural resource
damage assessments for
use in litigation).
Controversial, especially
for nonuse value
applications.
xxx
The level of water use at varying costs to the firm defines a “derived”
demand relationship, given that the demand for the input (water) is derived from
the demand for the output (e.g., agricultural commodities). Simple budgeting or
more complex linear programming and other optimization methods have been
applied to calculate use value and derived demand for ground water in agricul-

tural production to gauge efficiency of water allocation or to manage ground

water extraction rates (Snyder, 1954; Ciriacy-Wantrup, 1956; Burt, 1964, 1966;
Bain et al., 1966; Kelso et al., 1973).
Production/cost techniques have also been applied to municipal water deliv-
ery and use (Teeples and Glyer, 1987). A related and important category of
research on water values focuses on the demand for municipal water. Such
studies do not use indirect techniques or processes to impute water value; rather,
they combine concepts from the theory of consumer behavior with econometric
(statistical) procedures to estimate the demand for water. This line of inquiry has
documented consumers’ willingness to pay for water under a range of prices and
delivery systems (e.g., Wong, 1972; Berry and Bonen, 1974; Foster and Beattie,
1979; Cochrane and Cotton, 1985). These types of studies have also been helpful
in understanding the “price-responsiveness” or price elasticity of water demand
(Martin and Wilder, 1992; Renzetti, 1992). Application of these techniques to
measure demand for (and value of) water requires sufficient variation in water
prices across time and/or space to elicit statistically robust results. This condition
is often lacking in municipal water pricing, where consumers or households often
face a fixed price, regardless of quantity consumed.
Some of these input-oriented valuation techniques are conceptually similar
to the averting behavior approach discussed in the next section, in that a lower
bound on the value of water is indicated by what a firm spends to acquire water of
acceptable quality. For agriculture, this expenditure may be for energy to pump
ground water or for delivery systems to transport water to the site of use.
This general class of techniques can also be used to assess buffer value and
other dynamic functions of an aquifer, such as the value of a ground water supply
to supplement surface water during times of drought. Tsur and Graham-Tomasi
(1991) used dynamic programming methods to estimate the buffer value of ground
water to wheat growers in southern Israel’s Negev region. Using certain assump-
tions, they found that buffer values were positive and in some scenarios were a
significant component (up to 84 percent) of the total value of ground water. This
application also highlighted the potential for uncertainty in surface water avail-
ability, acting through the buffer role of ground water, in influencing ground
water extraction over time. This influence is a function of size of the aquifer
stock, its extraction cost, and uncertainty. Moreover, differences in the magni-
tude of the buffer value of ground water have important implications for the
dynamic behavior of ground water extraction (Tsur and Graham-Tomasi, 1991).
Using this class of static and dynamic optimization techniques requires de-
tailed production and cost data. Such data are most likely to be associated with
the production of marketed goods, such as agricultural production. Since the
majority of potential ground water services do not fall into this use class (of
inputs used in the production of marketed goods), the use of these techniques is
restricted to some of the potentially less important ground water services.

Using Opportunity Costs to Value Health Losses (Cost-of-Illness Method)

Human health effects are a prime concern in ground water contamination
incidents. Exposure to unsafe levels of substances in water through ingestion in
drinking water or other routes (e.g., skin absorption) can lead to increased mor-
bidity or mortality. In most cases contaminant levels are not high enough to
produce acute health effects. Rather, consumption of relatively low levels of
harmful substances in water may lead to long-term or chronic illnesses, such as
cancer, and possibly to premature death. In addition to mortality losses, contami-
nation of ground water creates losses due to increased morbidity, such as the
costs of medical treatment and care, loss of leisure-time activities, and pain and
suffering associated with illnesses (Spofford et al., 1989). The theory underlying
WTP approaches to valuing mortality is summarized in Freeman (1993).
The two main approaches economists have used to value morbidity are based
on either individual preferences (WTP or required compensation) or the resource or
opportunity cost approach (Freeman, 1993). In the latter, known as the cost-of-
illness (COI) approach, the analyst attempts to measure benefits of pollution reduc-
tion by estimating the possible savings in direct out-of-pocket expenses resulting
from the illness (e.g., medicine, and doctor and hospital bills) and opportunity costs
(e.g., lost earnings associated with the sickness). For example, the costs per illness
or losses in wages per day associated with cancer caused by drinking water contain-
ing a volatile organic chemical would be multiplied by the number of days of illness
in the population to arrive at an aggregate benefit figure.
The cost-of-illness approach has several important limitations. First, it does
not consider the actual disutility of those afflicted with illnesses. Second, it
overlooks that individuals faced with pollution undertake defensive or averting
expenditures to protect themselves. Harrington and Portney (1987) demonstrated
theoretically under a set of plausible assumptions that without the inclusion of
expenditures on averting behaviors, the COI benefit estimation method will un-
derestimate true willingness to pay for a reduction in pollution.
Averting Behavior Method

Actions taken to avoid or reduce damages from exposure to ground water
contaminants are another category of economic losses. Theoretical explanations
of averting expenditures are based on the household production function theory
of consumer behavior. In the context of averting behavior models, the household
produces consumption goods using various inputs, some of which are subject to
degradation by pollution. The household may respond to increased degradation
of these inputs in various ways that are generally referred to as averting or
defensive behaviors.
The adverse impacts of ground water contaminants can be avoided in at least
three ways: (1) buying durable goods (e.g., point-of-use treatment system); (2)
buying nondurables (e.g., bottled water); and (3) changing daily routines to avoid

exposure to the contaminant, such as (a) boiling water for cooking and drinking
or (b) reducing frequency or length of showers if a volatile organic chemical were
present (Dickie and Gerking, 1988). Households, businesses, and other organiza-
tions may undertake averting actions to protect individuals from exposure to
contaminants.
Several theoretical analyses (Courant and Porter, 1981; Bartik, 1988) of the
averting behavior methods have concluded that under certain conditions such
expenditures can provide a lower bound estimate of the true cost of increased
pollution. Averting expenditures and true benefits of a pollution reduction differ
because such expenditures do not measure all the costs related to pollution that
affect household utility. While this approach measures household production
costs, it fails to capture direct utility losses related to pollution (Musser et al.,
1992). Courant and Porter (1981) found that when the level of ambient environ-
mental quality conditions is valued directly by individuals, it is uncertain whether
averting expenditures are not necessarily an accurate lower bound estimate of
pollution reduction benefits. Bartik (1988) concluded that theoretically correct
measures of WTP can be estimated using averting expenditures for both marginal
and nonmarginal pollution changes. The ability of this valuation approach to
provide a lower bound to WTP depends on the following assumptions: averting
inputs should not serve in the production for only one output that is valued by the
household (i.e., no jointness in household production); households should not
obtain direct utility from the averting behavior; no income effects occur as a
result of loss of work through illness; and the purchases of durable goods do not
lower costs. In many ground water contamination situations, at least one of these
assumptions is not likely to hold. Care must be taken in interpreting averting
expenditures alone as a lower bound estimate of the value of a ground water
function or service. In most cases information from averting cost studies will
need to be coupled with and in some cases compared to results from studies using
other valuation techniques to arrive at a complete measure of value of the ground
water (Abdalla, 1994).
Hedonic Price Method

The hedonic pricing method (HPM) is based on the premise that people
value a good because of the attributes of that good rather than the good itself. For
example, the decision to purchase a particular house may be influenced by the
attributes of that house (number of bedrooms, square footage, view, quality of the
neighborhood, etc.). If one of those attributes is an environmental commodity,
such as clean air, comparison of the price consumers pay for houses in areas of
“clean air” (all other attributes of the house being equal) may provide information
on the value of clean air.
Hedonic price models encompass both land (housing) price models and wage
models that account for variations due to environmental attributes (e.g., air and

water quality, noise, aesthetics, and environmental hazards). Wage models can
be used to infer values for environmental attributes by examining the relationship
between wage rates and the quality of the environmental attributes across jobs
and locations. Hedonic models can only measure use values. The measurement
of use values is based on one fairly strong assumption (weak complementarity),
which holds that the purchase of some market good is associated with consump-
tion of an environmental good or service, and when consumption of the market
good is zero, then demand for the environmental good or service is also zero
(Adamowicz, 1991).
The hedonic technique, like other indirect nonmarket valuation methods,
depends on observable data resulting from the actual behavior of individuals. An
advantage of the HPM is that market data on property sales and associated char-
acteristics are readily available from county or municipal sources (e.g., assessor’s
office) as well as from private real estate services. These data can usually be
linked to other secondary sources of data for the same geographical area (e.g.,
data on water quality, air quality, or a range of physical attributes). These sec-
ondary sources of data can be used to construct indices of environmental quality
for use in a statistical analysis.
Despite the advantage of readily available data, several problems limit the
use of the HPM in many settings. One problem is that the effect of an environ-
mental attribute or characteristic on price may be small and hard to detect statis-
tically or to disentangle from the effects of all other variables. Another problem
with the technique is that it is difficult to derive value measures from the esti-
mated hedonic price function (the basic first-stage equation where the sale price
of a house is regressed on the set of attributes of that house). Derivation of the
value of an attribute requires a second-stage procedure to obtain a demand or
WTP function built around market segmentation (to address an estimation prob-
lem known as identification). To date, few empirical studies have successfully
completed the second stage. Thus most studies report only the results from the
hedonic price function, which gives an estimate of the marginal effect of an
environmental variable on price.
A brief hypothetical example illustrates the use of an indirect approach to
measuring nonmarket value. The HPM can be applied to housing prices to
estimate the value of environmental attributes, such as well (drinking) water or
proximity to wetlands, which vary across a region. It is assumed that variations
in housing prices can be linked to real or perceived variations in these environ-
mental attributes (controlling for a variety of other statistical determinants). In
practice the approach involves collection of cross-sectional data on house sales
(or possibly assessed values) and information on a menu of potential determi-
nants of value (lot size, number of bedrooms, etc.). These factors would include
one or more indices of environmental attributes or services. Through multivari-
ate statistical techniques, analysts can infer the marginal value of either positive
or negative environmental externalities. For example, a researcher might find

that the average homeowner in a particular county would pay $X to be Y yards

closer to an open-water wetland and would require a reduction in price of $Z to
purchase a house in an area of contaminated ground water.
There have been few hedonic price studies on ground water contamination
problems and the results have not been conclusive. While they have found
statistical differences for industrial sites (due to cleanup costs and liability con-
cerns), researchers have been less successful in isolating the effect of contami-
nated ground water upon residential property values (Malone and Barrows, 1990;
Page and Rabinowitz, 1993).
Travel Cost Method

Travel cost methods (TCM) encompass a variety of models, ranging from
the simple single-site travel cost model to regional and generalized models that
incorporate quality indices and account for substitution across sites. The basic
premise behind all versions of the travel cost model is that the travel costs in-
curred in traveling to a site can be regarded as the price of access to the site.
Changes in the travel cost to a site can then be viewed as having the same effect
on visits to the site as would a change in an access fee or a price. Under a set of
assumptions involving opportunity cost of travel time, purpose of the trip, avail-
ability of substitute site, and time spent at the site, it is possible to derive the
individuals’ demand for visits to a site as a function of the price of admission
using the simple or basic travel cost model.
In many situations the analyst is interested in understanding the effect of
substitute sites on demand for a given site or the effect of changes in quality of
certain site attributes on visits to the site. These types of concerns can be ad-
dressed using more complex versions of the travel cost model. For example, the
role of substitute sites on visitation can be addressed with multiple-site travel cost
models or with discrete-choice travel cost models. Changes in site quality, such
as improvements in water quality, fish catch, and so forth, can be estimated using
the generalized travel cost model, the hedonic travel cost model, or similar speci-
fications. Because of the flexibility of travel cost methods and the relative ease of
collecting data necessary for estimation, researchers have relied extensively on
these methods in deriving use values for a wide range of recreational activities.
Since most extractive uses of ground water do not involve travel, TCM has
limited applications to valuing these uses. However, ground water can provide in
situ services, such as recharging surface water and wetlands and dilution of
contaminants that may support recreational services. Since many ground water
aquifers are a source of recharge into surface water and wetlands, ground water
may support a number of recreational services. The TCM could conceivably be
employed to value such services, although its use may be limited because of the
difficulty of determining the share of recreational value attributable to ground
water.

Direct Valuation Approaches

Direct approaches to nonmarket valuation use survey-based techniques to
directly elicit preferences. The hypothetical nature of these experiments requires
that markets be “constructed” to convey a set of changes to be valued. While
there are a number of variants on these constructed markets, the most common is
the contingent valuation method (CVM). CVM is a survey-based procedure
designed to elicit a respondent’s WTP or WTA for an environmental change (see
Appendix B).
A method related to CVM is conjoint analysis, which includes contingent
ranking of behavior. Conjoint analysis refers to a general approach marketing
researchers employ to predict behavior based on studies of consumers, using
contingent comparisons of product attributes, including price. Federal decision-
makers concerned with valuation issues as well as environmental economists are
giving greater attention to conjoint analysis. For example, a recent statement by
the National Oceanic and Atmospheric Administration (NOAA) recommends the
use of conjoint analysis, indicating that attributes may be valued in terms of price
and if replacement costs were used would provide decision-makers the ability to
compare alternative service flows (NOAA, 1995). Environmental economists
are exploring several variants of this approach, including contingent ranking and
contingent behavior, as a way to improve upon the CVM. These survey-based
techniques derive information about an individual’s preferences between alterna-
tives with varying levels of environmental attributes. The contingent ranking
method goes beyond the simple yes/no of a referendum format and asks individu-
als to reveal more information about their preferences by asking them to rank the
hypothetical alternatives. If one attribute of the good is measured in monetary
terms, subsequent statistical analysis allows the calculation of the WTP for
changes in the attribute. A disadvantage of contingent ranking is that it is time-
consuming and potentially difficult for a respondent to rank several goods and
multiple attributes.
The contingent behavior (or activity) method involves the use of hypotheti-
cal questions about activities related to environmental goods or services. The
main use of contingent behavior surveys has been to support other valuation
analysis. For example, it can be used to support a TCM study of benefits by
assessing how participation in recreational activity changes as environmental
quality changes. Such contingent choice information can then be used to estimate
a shift in the demand curve for recreational visits (Freeman, 1993).
An Introduction to the Contingent Valuation Method

The contingent valuation method (CVM) can be viewed as a highly struc-
tured conversation (Smith, 1993) that provides respondents with background
information concerning the available choices of specific increments or decre-

ments in environmental goods. Values are elicited directly in the form of state-
ments of maximum WTP or minimum WTA compensation for hypothetical
changes in environmental goods. Typically, multivariate statistical techniques
are used to model a WTP function. Such models allow the analyst to control for
variation in the personal characteristics of the respondents, check for consistency
of results with economic theory, and possibly estimate an entire WTP response
across varying levels of environmental goods.
The contingent valuation method is applied when calculating for both use
and nonuse values. The flexibility it provides in constructing hypothetical mar-
kets accounts for much of the technique’s popularity. There are numerous meth-
odological issues associated with application of CVM including how the hypo-
thetical environmental change is to be specified, how valuation questions are
formulated, the appropriate welfare measure to be elicited (i.e., WTP or WTA),
and various types of response biases. Randall (1991) argues that because of the
importance of nonuse values, CVM is likely to be the primary tool for measuring
the environmental benefits of biodiversity. The CVM is also capable of measur-
ing the disutility associated with some types of environmental degradation that
indirect methods are unable to capture. Recent summaries of CVM can be found
in Mitchell and Carson, 1989; Carson, 1991; Portney, 1994; Hanemann, 1994;
and Diamond and Hausman, 1994.
CVM for Estimating Use and Nonuse Values

The contingent valuation method is a direct valuation technique: researchers
ask people about their willingness to make certain trades and use the answers to
estimate willingness to pay. Its appeal is that it is the only method that (in
principle) can be used to estimate nonuse values for goods that do not yet exist or
quality changes for goods that are outside the bounds of experience. It can also
help estimate use values for goods traded on markets (in which it is called mar-
keting research) or nonmarket goods such as ground water quality or recreation
sites.
Three important classes of errors can bias the results of CVM studies (Free-
man, 1993). First, participants may have an incentive to misrepresent their value
for the hypothetical environmental good or service. For example, some respon-
dents may state low values in order to reduce their obligation to pay for the goods
or service even if they value it (i.e., free-rider behavior). Others may overstate
the actual value if they believe the bid will affect the level of provision and the
good is desired. A second category is implied value cues. This bias is particu-
larly troublesome for unfamiliar goods or ones for which the respondent has not
yet developed clear preferences. In such cases, the respondent may look for clues
regarding a “correct” choice or value from the information provided by the re-
searcher. When such “value cues” are present, they are likely to systematically
bias the values elicited. One type of this problem is known as “starting point”

bias. However, this bias can be overcome by using a referendum or voting

approach to the bid question. Another form of bias, called “yea saying,” may
even exist in the voting format (Mitchell and Carson, 1989). A third category of
possible error in CVM studies comes from mispecification of the scenario. This
causes the respondent to have a different definition of the environmental good or
service than the researcher intended.
Researchers have employed many versions of the CVM, but CVM practitio-
ners now agree on certain best practices. The basic idea is to have an individual
vote yes or no on a public program which provides a change in the provision of
some good, such as air quality, and that will cost households like theirs $X. The
amount X is then varied across the sample. If a person votes yes, then WTP>X,
while if they vote no, then WTP<X. Statistical techniques are then used to
uncover willingness to pay. Sometimes, a follow-up question is asked: “If you
vote yes at X, how would you vote at X+c, or if you vote no at X, how would you
vote at X−c?” These “double-bounded” estimators provide more information on
WTP.
This voting approach is called a dichotomous choice format. Most CVM
studies use some form or adaptation of an open-ended question such as: “How
much would you be willing to pay in increased fees, taxes, or prices, for q?” The
voting approach has some desirable properties. First, it gives incentives to tell
the truth. Second, people are familiar with voting on public programs, at least in
many places: we do not purchase education; we vote on property tax increases. A
disadvantage of this format is that it makes inefficient use of a sample and thus
increases cost. However, this disadvantage can be at least partly overcome by
asking respondents follow-up questions (Freeman, 1993).
A sound CVM study requires careful attention to development of the ques-
tionnaire (see Appendix B). Advances in psychology have enabled researchers to
recognize circumstances in which individuals who say they intend to do some-
thing (e.g., vote yes on a public program) actually will do so. This intended-
actual behavior link is what CVM attempts to establish: if respondents say they
would pay $t for the program and were actually faced with the choice, they really
would pay.
In addition, people must understand exactly the good on which they are
voting and that they are voting only on that good. This can be difficult, since
people are aware that we have only a limited understanding of how elements of
the environment are interconnected. Thus statements that something does not
now and never will do something else may not be plausible. Further, care must be
taken that one program is not symbolic of a larger, implied program. Second,
respondents must have some confidence that the program will actually supply the
good. They should be considering the change in environmental quality, not
whether there is some better means to provide that change than the proposed
program. And third, respondents must search their preferences, taking the matter
seriously and comparing a payment for this good to other things they can do with

their money: both other public programs (education, crime fighting, etc.) as well
as their own consumption.
To ensure these things, researchers must conduct qualitative research via
focus groups and one-on-one interviews. Researchers need to make sure that the
language they used in the final survey conveys exactly what they intend, and this
can be a formidable task. Therefore, investigators must spend time with people,
talking through “What were you thinking when I asked why?” and uncovering
the impact of alternative approaches.
When the survey deals with past events, such as ground water contamination,
the researcher must decide what type of program to present. One possibility is a
hypothetical prevention program that would have protected the ground water if it
had been in place before the contamination; another is an accelerated recovery/
restoration program. The former is more what the investigator would like to sell,
since it captures the whole event, but the latter may be more believable and easier
to describe.
Much more can be said about CVM studies of particular types of issues, but
such a detailed review is beyond the scope of this chapter. A large amount of
research has been done on CVM over the past 25 years, and our understanding of
it has expanded dramatically. It is clear that many CVM studies have produced
meaningless WTP estimates and that adding a CVM question to the end of a
telephone or mail survey without benefit of qualitative research to test the ques-
tion is bad practice. It also seems clear that careful CVM research can generate
reliable results, at least for some types of goods and values (e.g., use values).
While most economists accept CVM for direct use values, its application to
measure nonuse values has been very controversial. Exactly how far CVM
reliability can be extended to encompass unfamiliar goods and nonuse values has
become the key issue. The feasibility of using CVM to measure some types of
ground water services therefore remains in question.
A Special Problem: Estimation of Nonuse Values

Nonuse values are the most difficult to measure of TEV components. The
contingent valuation method is the only technique available for assessing these
values. The topic of existence values for environmental assets is one of the most
controversial in environmental economics (Bishop and Welsh, 1992; Edwards,
1988; Kopp, 1992; Rosenthal and Nelson, 1992; McFadden, 1994; Hausman,
1993).
Examples of some of the ambiguities in existence value estimation can be
seen in a CVM study on bald eagles, wild turkeys, and Atlantic salmon in New
England. While Stevens (1991) found substantial economic benefit from protec-
tion and restoration programs, the results also indicated that in a setting of poten-
tial irreversibility, existence values were difficult to quantify and sensitive to how
the species were aggregated. Further, a majority of respondents viewed species

protection as important but were unwilling to pay for such programs. Follow-up
questions indicated that many respondents were uncertain of their values or pro-
tected the WTP question for ethical reasons.
Much of the recent controversy over CVM and its use in eliciting nonuse
values has been stimulated by questions surrounding natural resource damage
assessment (NRDA) and liability cases. Sparked by the government’s use of
CVM in the Exxon Valdez oil spill case, the debate has focused on whether CVM
can provide plausible estimates of value for individuals who may not be familiar
with the good in question (i.e., individuals whose total value is made up entirely
or largely of nonuse values). In 1992 NOAA, part of the U.S. Department of
Commerce, convened a panel of blue-ribbon economists to provide guidance
concerning the potential use of CVM in measuring lost nonuse values in promul-
gating regulations, pursuant to the Oil Pollution Control Act of 1990. The NOAA
panel essentially reaffirmed application of CVM, provided rigorous guidelines
are followed (Arrow et al., 1993). The panel recommended high-quality survey
research (e.g., appropriate sampling and thorough pre-testing of instruments,
etc.) and concentrating on more specific concerns related to CVM. The overall
effect of the NOAA panel report is to make CVM very expensive and limit its
application in many settings. A litigation-quality study conducted by a consult-
ing firm for an NRDA in accord with the NOAA guidelines could cost several
million dollars. Perhaps because of the increased cost of CVM studies and the
continuing controversy surrounding the theoretical basis of CVM-based mea-
surement of nonuse values, NOAA proposed new rules for assessing natural
resource damages under the Oil Pollution Control Act of 1990 (NOAA, 1995).
The new proposed rules eliminate “compensable values” in natural resource dam-
age claims and instead focus on actions to restore natural resource services. The
proposed rules thus downplay valuation of resources (including nonuse values).
Values, including those from CVM studies, may still be used in making restora-
tion decisions.
Not all CVM studies need be done with the exacting care required for NRDA
litigation. One of the open questions in this area is the reliability of less expensive
CVM studies (done via mail rather than by in-person surveys, for example)
regarding goods familiar to people (like water availability).
CURRENT KNOWLEDGE OF GROUND WATER VALUES

Chapters 2 and 3 of this report discussed the interdisciplinary nature of the
ground water valuation process. Each discipline has made significant progress in
understanding and modeling components of this valuation process. To obtain an
accurate accounting of the value of ground water resources, we must combine
these components into an assessment framework. This in turn means that each
discipline must understand what information the other disciplines need in the
assessment process.

For the economic component of the assessment framework, we need reliable

and valid estimates of the benefits to society of ground water protection. This
requires correct application of economic valuation techniques. This section re-
views selected studies of ground water valuation, with emphasis on two catego-
ries of studies: those based on CVM and those that use averting behavior ap-
proaches. At the outset, we should note that past ground water valuation studies
have focused primarily on a small part of the known ground water functions and
services identified in Chapter 3. Thus our current empirical knowledge of the
values of ground water is quite limited.
Results of Indirect Approaches

Relatively few empirical studies of ground water values have been con-
ducted employing indirect methods. Of the studies that focus on services related
to ground water quality, the averting behavior approach has been most commonly
used.
Ground Water Studies Using the Averting Behavior Method

At least five studies have used the averting behavior approach to measure
household-level costs associated with ground water contamination. As noted
earlier, depending upon whether key assumptions are met, the results of such
studies may not accurately represent lower bound estimates of WTP for ground
water services. Also, values obtained from averting behavior methods must be
combined with estimates of other ground water services to get an estimate of the
total value of ground water. Despite these limits, results from carefully done
averting behavior studies can provide important information needed for policy-
making. For example, as a lower bound estimate of benefits of ground water
protection, they can be used as an initial screening step in comparing benefits and
costs of protection alternatives and in helping to decide if more in-depth valua-
tion efforts are needed (Abdalla, 1994). The results of five averting behavior
studies are highlighted below. Additional information on the studies can be
found in Table 4.2.
Smith and Desvouges (1986) found in a sample taken in the Boston area that
bottled water and water filters were purchased for the sole purpose of avoiding
hazardous waste by 30 and 7 percent of households, respectively. Losses due to
water quality degradation were not estimated, however, since they lacked de-
tailed data on household averting behaviors and their costs.
Abdalla (1990) and Abdalla, Roach, and Epp (1992) documented averting
expenditures of households served by public water systems in two Pennsylvania
communities that had organic chemicals in their water supplies. At a central
Pennsylvania site, 96 percent of the households were aware of water contamina-
tion and 76 percent of those with such knowledge undertook averting behaviors.

TABLE 4.2 Summary Information on Averting Behavior Studies
Author(s) Current Ground Type of

Publication Date(s) Study Location Water Condition Contamination
Smith and Suburban Boston Uncertain—one Hazardous waste

Desvouges, 1986 town had
experienced several
prior episodes of
contamination of
drinking water by
hazardous wastes
Abdalla, 1990 Township in Centre Contaminant in Perchloroethylene

County, water for 26 weeks No drinking water
Pennsylvania before new source standard in effect at
provided. 96% time of
knew of drinking contamination
water contamination
Abdalla, Roach, and Borough in Bucks Contaminant in Trichlorethylene

Epp, 1992; Roach, County, water for 88 Drinking water
1990 Pennsylvania weeks—43% knew standard exceeded
of drinking water
contamination
Powell, 1991 Selected 7 Communities Trichlorethylene in

communities in New experienced 6 communities;
York, Pennsylvania, contamination in diesel fuel in one
and Massachusetts past 10 years. community (NY)
16% of households
knew of
contamination
within last 10 years
Collins and West Virginia Private individual Bacteria, minerals,

Steinbeck, 1993 (statewide) well owners with organics
contamination
problems that agree
to survey
aPercent of households taking averting actions of those aware of contamination

Average Annual Average Annual

Source of Drinking Avoidance Household Household Bottled
Water Actionsa Avoidance Cost Water Purchases
Public water supply Bottled water NA NA

Water filters
Public water supply New bottled water $252 (1987) $142 (1987)
serving 1,600 purchase (47.8%)
households Increased bottled
water purchase
(15.2%)
Boiling water
(23.0%)
Hauling water
(29.3%)
Water filter (3.3%)
Public water supply New (11.1%) $123 (1989) $75 (1989)

serving 2,760 Increased (19.1%)
households Boiling water
(27.8%)
Hauling water
(18.9%)
Water filter
(10.4%)
Restricted water
use (31%)
18% private wells; Boiled water NA $32 (1990)
82% public water (26%)
supplies Bottled water
purchase (17.5%)
Supply cutoff
(6.3%)
Clean/repair water
systems (56%)
Private individual Water treatment, $320 to 1090 NA
water systems. 90% new source, (1990)
used ground water contaminant source depending on
as source contol (45%) contaminant type

Only 43 percent of the households in the southeast Pennsylvania site were aware
of contamination. Of those, 44 percent undertook avoidance actions. Costs
averaged $252 and $123 for each household that chose to avoid the contaminant
in the central and southeast study sites, respectively.
Powell (1991) documented household bottled water expenditures as part of a
CVM study of ground water benefits in eight “clean” and seven “contaminated”
communities in Massachusetts, New York, and Pennsylvania. Even though al-
most half of the communities had recent contamination problems, only 16 per-
cent of mail survey respondents indicated that their water had been contaminated.
For those that were aware, the average household bottled water expenditure was
$32 per year, about three times that spent in uncontaminated areas. Respondents
aware of contamination were willing to pay $82 per year for increased water
supply protection compared to $56 for those that were not. Households relying
on private wells were willing to pay $14 per year more for protection than those
served by public systems.
Collins and Steinback (1993) documented responses to knowledge of water
contamination of rural households relying on individual wells in West Virginia.
Eighty-five percent of those who were informed about their household’s con-
tamination problem were found to engage in averting activities. The most fre-
quent actions were cleaning and repairing water systems, hauling water, and
treatment. Information from mail and telephone surveys was used to compute a
weighted average annual economic avoidance cost of $320, $357, and $1090 for
households with bacteria, minerals, and organic contamination problems, respec-
tively.
Direct Methods: CVM Studies of Ground Water Values

CVM, given its potential ability to measure all components of economic
value, has been used in a number of studies to estimate ground water protection
benefits. Boyle (1994) compared eight CVM-based ground water valuation stud-
ies as part of a review by EPA’s Science Advisory Board of an EPA-funded study
of the national level benefits of cleaning up ground water contaminated by leach-
ing from landfills. He compared the results of a CVM study completed in 1992
by researchers at the University of Colorado (McClelland et al., 1992) on the
national level benefits of cleaning up ground water degraded by landfill leachate
to seven other quite diverse ground water valuation studies conducted using
CVM. The national-level McClelland et al. study results were compared with
estimates from state and community-level studies in Massachusetts (Edwards,
1988); Michigan (Caudill, 1992; Caudill and Hoehn, 1992); Georgia (Jordan and
Elnagheeb, 1993); Wisconsin (Poe, 1993; Poe and Bishop, 1992); New York,
Pennsylvania, and Massachusetts (Powell, 1991; and Powell and Allee, undated);
New Hampshire (Shultz, 1989; Shultz and Lindsay, 1990; Shultz and Luloff,
1990) and Georgia (Sun, 1990; Sun et al., 1992). A more recent review of these
CVM-based estimates is provided in Crutchfield et al. (1995). These authors also

TABLE 4.3 Summary of CVM Studies—Major Characteristics
Author(s), Dates
Study Site Contaminant Value Focus
McClelland et al., (1992) unspecified option price NA

national sample WTP to remediate
contamination from
landfills
Caudill (1992) unspecified option price NA

Caudill and Hoehn (1992) WTP to reduce the
Michigan probability of
contamination
Doyle (1991) unspecified WTP to remediate $114-$163/HH/yr

contamination
Edwards (1988) nitrates option price $815/HH/yr for 25%

Falmouth, Woods Hole, WTP to reduce the reduction in risk
Mass. probability of
contamination
Jordan and Elnagheeb (1993) nitrates option price medians

Georgia WTP to reduce public $65.88/HH/yr
nitrate contamina- private $88.56/HH/yr
tion to safe levels means
public $120.84/HH/yr
private $148.56/HH/yr
Poe (1993) nitrates option price NA

Poe and Bishop (1992) WTP to prevent
Portage County, Wisconsin nitrate contamination
Powell (1991) TCE in 6 option price mean annual WTP

Powell and Allee (undated) communities current value of $81.31 Mass $42.19 PA
15 communities in N.Y., diesel fuel in 1 respondents subjec-
Pa., Mass. tive perceptions of
safety
Schultz (1989) unspecified option price $40/HH/yr median

Schultz and Lindsay (1990) WTP protect/
Schultz and Luloff (1990) maintain ground
Dover, New Hampshire water quality
Sun (1990) nitrates and option price means

Sun and Dorfman (1992) pesticides log model $998/HH/yr
Dougherty County, Georgia linear model $930/HH/yr
empirical model $961/
HH/yr
Clemons et al. (1995) unspecified WTP for a Well- median for nitrates
Martinsburg, West Virginia head Protection $21.20/HH/yr
Program median for VOC
$13.68/HH/yr

use selected estimates from this literature to derive potential benefits of ground
water quality protection in four areas of the United States.
Table 4.3 provides a general summary of some CVM ground water valua-
tion studies completed to date. The table is adapted from Boyle and Bergstrom
(1994) plus others studies cited above. The table, along with the following
sections, summarize what has been added to the body of knowledge of benefits
estimation using CVM. The next few pages focus on three important themes: 1)
comprehensiveness of ground water functions and services; 2) effects of informa-
tion on valuation responses, essentially the commodity definition problem; and 3)
the ways that the studies have dealt with uncertainty.
Comprehensiveness of Ground Water Functions and Services

Measurement of the total value of the benefits of ground water protection
requires a succinct definition of the services that ground water offers. These
services include extractive services and in situ services (both use and non-use
values). While it is generally recognized that measuring use values can be ac-
complished with several methods, the challenge of measuring nonuse values for
nonmarket goods is daunting. CVM offers flexibility and the ability to measure
nonuse values of public goods whereas other nonmarket valuation techniques
such as the travel cost and hedonic pricing models are intended to measure use
values (Powell, 1991). Most studies to date have focused on the health effects of
ground water contamination, without including some other important functions
from which humans derive value.
Most studies presented information on the health effects of ground water
contamination (e.g., McClelland et al., 1992; Jordan and Elnagheeb, 1993; Poe,
1993; Sun, 1990). The others purposefully omitted references to the effect of
contamination on human health by either telling respondents that their water was
being monitored (Edwards, 1988) or eliciting respondents’ perceptions of the
safety of drinking. There is significant uncertainty as to the susceptibility of
human health to ground water contamination, compounded by the difficulties of
measuring dispersion of contaminants in ground water. Nitrate contamination
provides a good example. The EPA has established upper limits for nitrate in
drinking water because nitrates in drinking water are linked to two health prob-
lems, methemoglobinemia and gastric cancer. The incidence of illness and pos-
sibly death for the former is extremely low, and recent scientific evidence shows
that the link to the latter is not statistically significant. Isolating the dose response
effects of nitrates in drinking water is further complicated by the fact that humans
also consume nitrates from other sources (e.g., preserved meat products).
All CVM studies to date have attempted to measure option price relative to
the good’s future availability in some cases and to its safety from the human
health perspective. Option price is the maximum sum an individual would be
willing to pay to change from their present level of risk to one of no risk (Free-

man, 1993). As noted above, the human health focus ignores other functions of
ground water that humans might value such as the use of ground water as a buffer
stock, its role in other ecological functions, and its importance to economic
development and agriculture. The exclusion of these other services and values
may be a function of the current state of knowledge. Few studies have attempted
to measure the value that people place on the ecological services that ground
water supplies. Some of these functions have been addressed only in the physical
sciences and measurement is complex. The time lag between a contamination
event and its effects on ground water and the services it provides varies substan-
tially according to physical characteristics of aquifers as well as the nature of the
contaminant (Kim et al., 1993; Fleming et al., 1995). Moreover, the interplay
between site specific characteristics, ecological functions, and resultant service
flows makes possibility of benefits transfers difficult to assess.
Effects of Information on Valuation Responses

Commodity definition in CVM surveys often involves striking a compro-
mise between a definition that is understandable and one that is technically accu-
rate (Bishop and Heberlein, 1990). However, accurate information and defini-
tions are essential in deriving accurate measures. When evaluating unfamiliar
commodities, the less well-defined the commodity is, the greater the potential
measurement error. Indeed, the likelihood that a respondent can even come up
with a value decreases with lack of clarity of the commodity.
In general, the descriptions of the current, reference, and subsequent ground
water conditions are quite vague in the eight studies. This vagueness makes it
difficult to establish the linkages between changes in ground water policies,
ground water conditions, services provided, and estimated values. Of particular
concern is the difficulty of ascertaining how the value estimates correspond to
actual biophysical changes in ground water resources and the resulting service
flows. (Boyle and Bergstrom, 1994)
Resolving this vagueness is problematic given the uncertainty surrounding
measurement of ground water resources and the effects of contamination levels
on human health. Reducing the uncertainty of actual biophysical changes may
not be possible given the current state of knowledge. Also, it may run contrary to
how individuals make decisions. For example, the individual may not understand
contamination in parts per billion, but instead makes decisions about willingness
to pay based upon subjective perceptions. Knowing that large portions of the
water supply do not meet federal safety requirements would affect WTP. Know-
ing what those requirements are does not necessarily affect preferences, just as
knowing that crossing a highway is dangerous does not require precise knowl-
edge of the physics involved when a car meets a human or the probabilities of
serious injury. The problem with subjective perceptions is that the baseline

reference condition changes for each respondent; grouping respondents into a

range of safety categories does not solve the problem since the difference be-
tween “somewhat safe” and “safe” is not the same for each respondent. Hence a
change in condition from the initial to an improved environmental state cannot be
compared nor aggregated for respondents.
There is some disagreement on what information should be presented in the
hypothetical market (Boyle, 1994; Lazo et al., 1992). Specifically, what types of
information, the quantity of information, and an appropriate presentation of tech-
nical information must be determined so that respondents provide valid and reli-
able valuation responses. Boyle (1994) recommends a hybrid of expert and
respondent’s subjective perceptions. The problem with this approach is that it is
still not certain whether one or the other should be the starting point, which
creates a lack of clarity regarding the effects of the different approaches on
estimated values.
The baseline ground water condition is the foundation for determining val-
ues. Since many of the studies focus on option price (McClelland et al., 1992;
Caudill, 1992; Edwards, 1988; Jordan and Elnagheeb, 1993; Poe, 1993; Poe and
Bishop, 1992; Powell, 1991; Shultz, 1989; Sun, 1990; Sun et al., 1992), it is
imperative that the baseline condition is well defined so that researchers can
determine the welfare change from the initial condition to the proposed change.
If the initial condition is not well defined, then it is questionable whether re-
searchers are measuring what they intend to measure, and the validity of the
results are called into question.
There are two general schools of thought regarding the presumed knowledge
of respondents. The first (McClelland et al., 1992; Poe and Bishop, 1992) main-
tains that experts should be used to provide background information for survey
design. This approach generates more consistent estimates, but suffers from
testing bias and often results in informing respondents as to what they should
answer. This information bias decreases the validity of results by making it
difficult to generalize results from the informed sample to the general population.
A second approach (Caudill, 1992; Edwards, 1988; Powell, 1991; Shultz, 1989)
rests on the belief that consumers make decisions based on the information they
have on hand, that is, their subjective perceptions of ground water characteristics
(specifically safety). This approach may be more appealing from the standpoint
that the validity of responses may increase but the random nature of responses
about goods with which consumers have very little experience increases.
Clemons et al. (1995) show that information on nitrates does not significantly
alter value estimates, a finding contrary to those of Bergstrom and Dorfman
(1994) and Poe and Bishop (1992).
Boyle (1994) recommends testing experts’ opinions in focus groups with
sample respondents to filter out highly technical information. Poe (1993) took
steps to this end with a two-tiered study that provided respondents with water
testing kits in the first stage so as to nail down the baseline condition. This

approach allows a more reliable and valid measurement of the change in ground
water condition from the initial condition to the new condition resulting from a
ground water protection program because the initial condition is defined pre-
cisely through self-administered tests of well water quality.
Dealing with Uncertainty

The two preceding themes suggest that uncertainty is a common feature of
existing CVM studies of ground water protection benefits. In measuring eco-
nomic welfare under conditions of uncertainty, several factors must be consid-
ered when evaluating benefits estimates: future prices, future income, opportu-
nity costs, uncertainty about future human health responses to prevent exposures,
future use, and future availability.
Uncertainty about future states is compounded by any inability to measure
present states. The studies reviewed here attempted to derive the option price or
the maximum amount an individual would be willing to pay to maintain the
option to consume the good. The conceptual model underlying the treatment of
uncertainty uses the measurement of option prices for risk changes. Caudill
(1992), Poe (1993), and Sun (1990) measured respondents’ subjective percep-
tions of uncertainty of future supply, while Edwards (1988) found option prices
for a range of probabilities and Powell (1991) asked respondents about their
subjective perceptions of safety. Few studies have attempted to capture quasi-
option value or the measurement of option price when there is a possibility of
having better information in the future.
What We Know About Ground Water Values Based on

Existing CVM Studies
The major issues of agreement and disagreement found in our review of
these diverse CVM studies are presented in the next section. The framework
established by Boyle and Bergstrom (1994) is a helpful guide to this discussion.
Useful discussions of the strengths and weaknesses of CVM studies completed to
date can be found in Boyle and Bergstrom (1994) and in Crutchfield et al. (1995).
Areas of Agreement (Strengths)

The CVM’s ability to measure use values is generally accepted in the eco-
nomics profession. Its ability to capture nonuse values remains controversial,
even though the NOAA panel defined conditions under which CVM may gener-
ate reliable estimates of such values (e.g., adequate survey design and commodity
definition). Efforts towards a consensus of survey design incorporating the use
of verbal protocol and focus groups have led to the acceptance of CVM estimates

in some policy settings (but not necessarily in litigation or judicial settings).

There is also significant agreement that local context factors are important (e.g.,
Poe, 1993; Powell, 1991; Sun et al., 1992). For example, site-specific informa-
tion is important to respondents when faced with a contingent decision.
Areas of Disagreement (Weaknesses and Areas for Future Research)

There is still some disagreement over payment vehicles, although most stud-
ies have focused on referendum type questions. Mitchell and Carson (1989)
maintain that the chosen payment vehicle must be both realistic and neutral.
Most studies have focused on either a referendum format (to pay for a bond for
some type of protection or remediation program) or an increase in water or tax
bills. Use of the latter presents difficulties because in instances where the respon-
dent does not own property the vehicle is not realistic. Similarly, neutrality is
problematic because a tax increase may invite scenario rejection. A referendum
valuation question asks whether respondents would vote for the referendum given
a specified cost for the referendum.
The dichotomous choice valuation question format has received consider-
able support (see Table 4.4). Valuation questions using dichotomous choice
appear to elicit more consistent responses than open-ended questions or bidding
games. Bishop and Heberlein’s Wisconsin Sandhill study (1990) suggests that
there is no significant difference between valuations collected from a hypotheti-
cal market using binary choice vs. actual cash transactions. At the same time,
dichotomous choice questions lead to consistently higher estimates than open
ended questions. Further research is necessary to determine the source of this
error. The literature indicates a controversy surrounding CVM survey respon-
dents’ estimates of health risks and their comparability with expert opinion (Boyle
et al., 1995; Boyle, 1994; Lazo et al., 1992). This controversy arises not only in
the design of survey instruments but also in the use of results. It is generally
acknowledged that individuals need a full information set that includes both
general and specific information to identify their own best interests with respect
to ground water protection programs (Poe and Bishop, 1993). Overly general
information in the survey instrument appears to lead to biased estimates of will-
ingness to pay. An illustrative example of the problems arising from differences
between expert opinion and CVM estimates is sketched in Portney’s 1992 study,
where experts believed a chemical in ground water to be harmless, whereas
citizens held the chemical responsible for above-average incidence of cancer and
were willing to pay $1,000 for what experts say will be a costly and unnecessary
treatment.
Very little empirical research has been devoted to establishing a minimum
standard of information adequacy for CVM studies (Poe and Bishop, 1993;
Powell, 1991; Boyle, 1994). The question remains as to what type of information
should be presented to respondents and how that information affects estimated

TABLE 4.4 Summary of CVM Studies—Survey Characteristics
Response Rates
Author(s) Usable Responses
Dates (Percent) Payment Vehicle Valuation Question
McClelland et al. 60 water bill payment care

(1992) 44
Caudill (1992) 67 higher taxes dichotomous choice

Caudill and Hoehn 60
(1992)
Doyle (1991) NA bond payment card
Edwards (1988) 78 bond dichotomous choice,

58 open ended
Jordan and Elnagheeb 35 water bill payment card

(1993) 34 water purification
equipment
Poe (1993); Poe and 76-91 increased taxes, lower dichotomous choice
Bishop (1992) profits, higher prices
Powell (1991) 50 water bill payment card

Powell and Allee higher taxes
(undated)
Clemons, Collins, 64 bond dichotomous choice

and Green (1995)
SOURCE: Reprinted with permission from Boyle (1994).
values of the benefits of protecting ground water (Boyle, 1994). Lazo et al.
(1992) provide guidelines for reducing information biases using verbal protocols.
The increasing costs of conducting benefit studies and decreasing support for
research efforts have led to renewed efforts to minimize costs by establishing
some method for transferring benefits from study sites to policy sites. Prelimi-
nary evidence (VandenBerg et al., 1995) indicates the challenges inherent in
benefits transferability with ground water resources.
While complete transferability of benefits estimates is an impossible goal
given the site-specific nature of most ground water valuations, the debate itself is
leading to collaborative interdisciplinary efforts which may create benefits in and
of themselves.
A final area, though not specifically an area of disagreement, is the dearth of

TABLE 4.5 A General Matrix of Ground Water Functions/

Services and Applicable Valuation Methods
Ground Water Function/Service Flow Applicable Valuation Method
A. Extractive values Cost of illness

1. Municipal use (drinking water) Averting behavior
a) Human health - morbidity Contingent valuation
b) Human health - mortality Averting behavior
2. Agricultural water use Derived demand/production cost
3. Industrial water use Derived demand/production cost
B. In situ values
1. Ecological values Production cost techniques
2. Buffer value Dynamic optimization
3. Subsidence avoidance Production cost
Hedonic pricing model
4. Recreation Travel cost method
5. Existence value Contingent valuation
6. Bequest value Contingent valuation
SOURCE: Adapted from Freeman, 1993. (Reprinted with permission from Resources
for the Future, 1993. Copyright by Resources for the Future.)
information on nonuse values of ground water. For example, only one study
(McClelland et al., 1992) has attempted to address existence value of ground water,
and the approaches used in the study have been criticized. The estimates for
existence and bequest values found in this study were smaller than use values
found from other studies using indirect or direct methods. Additional research is
needed to further document the existence and size of nonuse values for ground
water resources. Table 4.5 illustrates the applicable valuation methods for address-

ing various potential ground water values. It is not an exhaustive list. Following
Table 1.3, it is organized according to extractive and in situ services of ground
water. Nonuse values are treated as a subcategory of in situ values in this scheme.
Such values can only be measured using direct methods, such as CVM or a variant.
Two cautions should be kept in mind when examining Table 4.5. In some
cases, several different methods can be used to measure the same ground water
function. This permits the potential for checking the consistency of estimates of
the same function or service. However, it also raises the potential that some
decision-makers will double-count value estimates of the same service when
attempting to arrive at a total value estimate of a particular ground water re-
source. Use of a comprehensive list of ground water functions and services can
serve as a guide to keep correct calculations of total values from individual
studies. Finally, the reader should recall the advantages and disadvantages of
each of the techniques (summarized in Table 4.1) when considering their use in
decision-making.
CONCLUSIONS AND RECOMMENDATIONS

• For valid and reliable results to be obtained, the valuation method
must be matched to the context and the ground water function or service of
interest.
• It is hard to make generalizations about the validity and reliability of
specific valuation approaches in the abstract. The validity of the approach
depends on the valuation context and the type of ground water services in
question. Different approaches are needed to value different services; care
must be taken not to double count values resulting from different services.
• Previous ground water valuation studies have focused primarily on a
small part of the known ground water functions and services (identified in
Chapter 3). Thus current empirical knowledge of the values of ground
water is quite limited and concentrated in a few areas, such as extractive
values related to drinking water use.
• If data are available and critical assumptions are met, indirect valua-
tion methods (e.g., TCM, HPM averting behavior) can produce reliable esti-
mates of the use values of ground water.
• The contingent valuation method (CVM), when used correctly, has
the potential for producing reliable estimates of ground water use values in
certain contexts. However, few, if any, studies to date meet the stringent
conditions, as established by a NOAA panel of Nobel-Laureate economists,
that are required to produce defensible estimates of nonuse values. More
research is needed to compare use values from CVM with those of other
methods to determine whether CVM will consistently yield reliable esti-
mates. CVM does have the advantage of allowing researchers to be precise
in focusing on the total resource attribute to be valued, compared to the

results from other indirect approaches that generally fail to capture total
economic value.
• The EPA, and other federal agencies as appropriate, should develop
and test valuation methods for addressing the use and nonuse values of
ground water, especially considering the ecological services provided by
ground water.
• Given the problems in using CVM to measure ground water values,
EPA and other appropriate government agencies should encourage ways of
enhancing the utility of CVM. For example, contingent ranking or behavior
methods may be useful in improving the robustness of CVM estimates and
may expand the potential for benefits transfer.
• Technical, economic, and institutional uncertainties should be con-
sidered and their potential influence delineated in ground water valuation
studies. Research is needed to articulate such uncertainties and their poten-
tial influence on valuation study results.
• Ground water values obtained from both indirect and direct methods
are dependent on the specific ground water management context. Attempts
to generalize about or transfer values from one context to another should be
pursued with caution.
• Traditional valuation methods such as cost of illness, demand/analy-
sis, and production cost can be used for many ground water management
decisions that involve use values. Such methods offer defensible estimates of
what are likely to be the major benefits of ground water services.
• The pervasiveness and magnitude of nonuse values is uncertain. Few
and limited studies have been conducted, and little reliable evidence exists
with which to draw conclusions about the importance of nonuse values for
ground water. Additional research is needed to document the occurrence
and size of nonuse values for ground water systems.
• What is most relevant for decision-making regarding ground water
policies or management is knowledge of how the TEV of ground water will
be affected by a decision. Pending documentation of large and pervasive
nonuse values for ground water, it is likely that in many, but not all, circum-
stances, measurement of use values or extractive values alone will provide a
substantial portion of the change in TEV relevant for decision-making.
• In some circumstances the TEV is likely to be largely composed of
nonuse values. At the current time, pending documentation of large and
pervasive nonuse values for ground water systems, this appears to be most
likely when ground water has a strong connection to surface water and a
decision will substantially alter these service flows. In these situations, fo-
cusing on use values alone could seriously mismeasure changes in TEV and
will ill serve decision-making. Decision-makers should approach valuation
with a careful regard for measurement of TEV using direct techniques that
can incorporate nonuse values.

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LEGAL CONSIDERATIONS, VALUATION, AND GROUND WATER POLICY 105
5
5
Legal Considerations, Valuation, and

Ground Water Policy
This chapter outlines the fixed ground water allocation and quality policies
that affect ground water valuation. The chapter also describes how new policies
are trying to balance environmental protection with the corresponding economic
consequences. It concludes with a section that addresses research needs based on
the lack of information relating valuation information to ground water manage-
ment decision. American ground water policy is a combination of state, local and
federal laws dealing with ground water allocation and ground water quality pro-
tection. Ground water allocation is almost exclusively the province of state law,
whereas ground water quality protection is a mixture of state, local, and federal
laws. State ground water allocation laws date back to 19th-century court deci-
sions (Murphy, 1991; Tarlock, 1995), while most modern ground water quality
laws date from the 1970s and 1980s (Beck, 1991).
An important ground water allocation issue is how to evaluate current versus
future use of ground water. Unfortunately, states rarely consider future ground
water uses in establishing ground water allocation policies dealing with ground
water depletion. The states that do have explicit policies to limit ground water
depletion typically simply prohibit additional ground water uses and do little to
regulate current ground water uses to extend aquifer life (Aiken, 1982). There is
unfortunately too little attention given to regulating existing ground water uses to
lengthen aquifer life, let alone any explicit quantitative evaluation of the trade-off
between current and future ground water use. Consequently, ground water valu-
ation has historically played almost no role in state ground water allocation
policies. Ground water policies in most states could be strengthened by acknowl-
edging ground water’s future value.
105

Valuation has played a more significant role in ground water quality policies,
however. Under state and federal Superfund programs, valuation is a critical
factor in determining the amount of money recoverable for natural resources
damages. Valuation has also implicitly (through cost-effectiveness analyses)
become a significant factor in determining ground water remediation levels in
Superfund cleanup sites and future drinking water standards.
Valuation may become an even more important consideration in ground
water protection policy if formalized regulatory benefit-cost studies become a
more significant part of developing and selecting federal environmental regula-
tions. Critics of current federal environmental policies contend that those poli-
cies should have as their primary objective risk reduction rather than environ-
mental protection. Focusing environmental regulations on risk reduction and
subjecting proposed environmental regulations to regulatory benefit-cost studies
has been required administratively since the Carter administration. Proposed
federal legislation would elevate risk reduction and regulatory cost-benefit tests
to the highest environmental policy objectives, raising the policy significance of
resource valuation. Such a change would represent a fundamental shift in federal
environmental policy.
VALUATION AND GROUND WATER ALLOCATION

As stated earlier in this report, most states treat ground water as if it were a
free good: well owners are subject to few if any pumping restrictions except in
unusual circumstances. Where no use restrictions are established, ground water
tends to be undervalued. In most eastern states ground water use is subject only
to court decisions, which effectively means there are no legal constraints on
ground water development and use. Eastern and western states that require state
permits as a condition of ground water use seldom impose pumping limits that
take aquifer life into account. Only rarely are current ground water uses balanced
against future water needs.
Ground Water Allocation Law Doctrines

Ground water law in the United States is the result of a bewildering mix of
state court decisions and state statutes. While some generalization is possible,
each state’s ground water law is unique. This overview broadly categorizes state
ground water laws primarily as they relate to allocation, and briefly surveys state
and federal ground water protection policies.
Common Law States

The common law doctrines of absolute ownership, reasonable use, correla-
tive rights, and eastern correlative rights are based on state court decisions and

are implemented through litigation or private negotiation. While prior appropria-

tion was initially adopted in a few western states by court decision, it will be
discussed separately as a statutory rather than a judicial doctrine.
Absolute Ownership. The earliest judicial theory of ground water rights is

the doctrine of absolute ownership, also referred to as the English rule. Under the
absolute ownership doctrine the landowner is, by virtue of land ownership, con-
sidered owner of the ground water in place. Thus in absolute ownership jurisdic-
tions a landowner may pump as much ground water as possible, without regard to
the effect his pumping has on neighboring landowners.
The English rule of absolute ownership reflected 19th-century judicial obser-
vations that the movement of ground water was unknowable and thus it was
unfair to hold a landowner liable for interfering with a neighbor’s well when it
was not knowable whether the defendant’s pumping actually affected the
plaintiff’s well or not. The English rule was once quite popular in the United
States, but now only Texas among the western states remains an absolute owner-
ship jurisdiction; although Texas now has a number of sub-state districts where
ground water use is now regulated, e.g. Houston/Galveston area, High Plains,
San Antonio. Some eastern states may still be English rule jurisdictions, but the
judicial trend is toward adoption of the eastern correlative rights doctrine.
Reasonable Use. The reasonable use rule, or American rule, was developed
in the 19th century. Under the American rule landowners are entitled to use
ground water on their own land without waste. If their use exceeds this “reason-
able use,” the landowner is liable in damages. The American rule may still be
followed in a few eastern states, although it is being judicially replaced by the
eastern correlative rights doctrine. The reasonable use doctrine is part of the
ground water jurisprudence of Nebraska, Arizona, and California.
Western Correlative Rights. The California doctrine of correlative rights

also initially developed in the 19th century but has continued to develop. Under
the correlative rights doctrine, if the ground water supply is inadequate to meet
the needs of all users, each user can be judicially required to proportionally
reduce use until the overdraft is ended. The policy significance of correlative
rights is that each well owner is treated as having an equal right to ground water
regardless of when first use was initiated.
The correlative rights doctrine is part of the ground water jurisprudence of
California and Nebraska, although its sharing feature has been incorporated into
the ground water depletion statutes of a few other western states.
Eastern Correlative Rights. The eastern correlative rights doctrine, inspired

by the Second Restatement of Torts, states that when conflicts between users
occur, water will be allocated to the “most beneficial” use, giving consideration

to a wide variety of factors, including priority of use. Several factors are enumer-
ated to be considered in a judicial determination of whether a water use at issue is
“unreasonable”: (1) the purpose of the interfering use, (2) the suitability of the
interfering use to the watercourse, (3) the economic value of the interfering use,
(4) the social value of the interfering use, (5) the extent and amount of harm it
causes, (6) the practicality of avoiding the harm by adjusting the use or method
of use of one riparian proprietor or the other, (7) the practicality of adjusting the
quantity of water used by each proprietor, (8) the protection of existing values of
water uses, land, investments, and enterprises, and (9) the justice of requiring the
user causing the harm to bear the loss.
Statutory States
Permit States. A few states, including Florida, Iowa, Wisconsin, and Minne-
sota, require a state permit as a condition of well construction and use. Typically,
users become subject to a rationing program during periods of shortage so that
public water supplies are protected at the expense of other uses.
Appropriation States. With the exception of the major ground water using
states (e.g., Texas, Nebraska, Arizona, and California), western states apply the
doctrine of prior appropriation to ground water. This means that the right itself is
dependent upon obtaining a state permit rather than simply owning land overly-
ing the ground water supply. Between ground water users, priority of appropria-
tion gives the better right. This means that first in time is first in right.
Ground Water Allocation Law Issues

Ground water rights conflicts between well owners, and problems caused by
surface-ground water interference are among the issues addressed by allocation
law issues.
Ground Water Rights

In the common law states, ground water rights are based upon owning land
overlying the ground water supply and are defined by court decision. In the
statutory states, including the eastern permit states, ground water rights are based
upon obtaining a state permit and complying with its terms. In the permit and
appropriation states, state statutes generally define the extent of ground water
rights.
Common Law States. In all common law states, the right to use ground water
is based on owning land overlying the ground water supply. In absolute owner-
ship states, pumping is not restricted to avoid harm to others or to avoid waste.

(However, in Texas, malicious pumping may be judicially restrained.) In reason-

able use jurisdictions there is generally no ownership interest in the ground water
itself until it has been captured. Pumping may be judicially restrained to prevent
waste or non-overlying uses. In correlative rights jurisdictions the right to use
ground water is also based on owning land overlying the ground water supply,
although in California prescriptive rights can be obtained for nonoverlying uses.
Pumping may be judicially restrained to prevent waste or to apportion an inad-
equate supply. In eastern correlative rights states, pumping may be judicially
restrained during shortages, although the basis upon which shortages will be
allocated is not predictable. Ground water rights are least well defined in the
eastern correlative rights statutes, since judicial notions of what may constitute
the “most beneficial” use of ground water may change over time.
Statutory States. In both eastern permit states and appropriation states, rights
to use ground water are based on obtaining and complying with the terms of a
state permit. However, most existing ground water uses were automatically
grandfathered into the permit system. Pumping rates may be limited in a permit
and further limited during shortages. In eastern permit states, public water supply
uses and domestic uses will generally be protected during shortages. In appro-
priation states, senior users (i.e., those with an earlier priority date, or in other
words, an older well) are protected during shortages without regard to use. A
junior user with a higher use, however, may be able to condemn a senior’s use
right during shortages and thus pump water out of priority.
Well Interference Conflicts

Well interference is where the cone of depression of one well intersects with
the cone of depression of another well, reducing the yield of both wells. In an
artesian aquifer, well interference may occur when the pumping from one well
drops the water level below the pump of another well. Well interference may
occur even when there is sufficient water available to supply all users—it may be
the result of inadequate wells rather than an inadequate supply. Most ground
water disputes have tended to be well interference disputes.
Common Law States. In absolute ownership states, a landowner is not liable

for interfering with a neighbor’s well. Thus the neighbor’s only recourse is to
drill a new well deeper than the neighbor’s well. This has been described as “the
race to the pumphouse.” In reasonable use states a landowner complaining of
well interference is entitled to relief only if the complained-of use is wasteful or
not on overlying land. Thus plaintiffs complaining of well interference have little
legal remedy in the absence of gross waste or nonoverlying uses. The courts’
definition of what constitutes a wasteful use is rather generous. Arizona courts
have defined overlying land to include only the tract of land where the well is

located. Nebraska, a reasonable use state, minimizes well interference conflicts

between high-capacity wells through statutory well-spacing restrictions. In cor-
relative rights states, competing pumpers have equal rights during shortages.
Statutory States. In eastern permit states and appropriation states, well inter-
ference conflicts may be reduced through permit conditions such as well-spacing
restrictions and pumping restrictions. Further, in eastern permit states public
water supply and domestic uses are generally protected during shortages. Other-
wise, correlative rights principles will likely be applied.
Prior appropriation is primarily a surface water doctrine that has been ap-
plied rather uncritically to ground water. As ground water problems developed,
the principles of prior appropriation were modified to better apply to the ground
water context. Two modifications that were made in response to well interfer-
ence conflicts are establishment of reasonable pumping depths and problem area
regulations.
Sometimes the senior or oldest wells may not be fully penetrating. To allow
senior appropriators to insist upon original pumping depths being maintained
could seriously constrain ground water development. Thus several appropriation
states do not strictly maintain priority during well interference disputes, but only
protect “reasonable pumping depths” through well permit restrictions on pump-
ing. If a senior’s well cannot pump at that depth, typically the senior appropriator
is responsible for replacing the well.
In some appropriation states ground water development and use has resulted
in chronic well interference problems. Special pumping and development restric-
tions may be imposed by the state engineer in designated problem areas. Regula-
tions can include a ban on new high-capacity wells and pumping restrictions to
maintain reasonable pumping depths and reduce interference conflicts.
Ground Water Depletion

Ground water depletion occurs when withdrawals from the aquifer exceed
recharge. This is sometimes referred to as ground water overdraft or mining.
Overdraft is significant in the Ogallala aquifer region, including Nebraska, Kan-
sas, Colorado, Texas, and New Mexico, as well as in California, Nevada, and
Arizona.
The amount of water that can be safely withdrawn without leading to long-
term aquifer depletion is sometimes referred to as the safe-yield amount.
Common Law Doctrines. Of the overlying rights doctrines, only the correla-
tive rights doctrine addresses depletion. In absolute ownership states pumpers
can completely ignore depletion and in reasonable use states they need be con-
cerned about depletion only to the extent that their uses are wasteful or non-

overlying. In eastern correlative rights states, courts can apportion water between
competing users. Florida (a permit state) is the primary eastern state with signifi-
cant ground water depletion concerns.
In theory, courts in correlative rights states can limit withdrawals to an
aquifer’s safe yield, thus preventing depletion. In practice, in California safe-
yield adjudications are used primarily to define baseline pumping rights so that
ground water recharge agencies can charge pumpers a pumping fee for using
more than their safe-yield allocation.
Problem Area Regulations. Dealing with ground water depletion has not
been a major feature of eastern permit state ground water administration. Most
ground water shortages are seasonal rather than perennial. In appropriation
states, the most common way to deal with depletion is to establish special prob-
lem area regulations. Once the problem area has been administratively defined,
typically no new high-capacity wells may be drilled within the problem area.
Less frequently are the uses of existing appropriators limited, a significant policy
failing. Initial ground water appropriation allocations are typically generous, not
requiring a high degree of water use efficiency. Where problem area allocations
have been established, they typically are high enough to allow current irrigation
practices to be maintained with little or no change. Any increases in irrigation
efficiency typically come only as well yields decline.
Nebraska and Arizona, both reasonable use states, have adopted problem
area statutes to deal with ground water depletion. Through statute and regulation,
Arizona identified areas with depletion problems and instituted water-use reduc-
tions in phases. Nebraska’s depletion statute is a local option for natural resource
districts (NRDs). In one area the NRD has required well metering and pumping
reductions. Most NRDs, however, have opted to ignore their depletion problems.
Texas, an absolute ownership state, has a similar local option approach in which
runoff irrigation controls and education programs have been implemented by
local ground water conservation districts.
Conjunctive Use. In California, the courts have recognized the rights of

entities storing water underground to control the use of that water. As a result,
when ground water pumpers have received their safe-yield allocation through a
court adjudication, they are typically required to pay a fee to the recharge entity
pumping water stored underground, i.e., for pumping ground water in excess of
their safe yield allocation. Where both surface water and ground water are
available to ground water pumpers, the recharge entity can raise or lower ground
water pumping fees to encourage surface water use during periods of ample
surface supplies or to discourage surface water use during periods of surface
water shortage.

Surface-Ground Water Interference

Where ground and surface water supplies are hydrologically connected,
courts typically have followed the “underground stream” doctrine to interrelate
surface and ground water rights of use. This means that wells will be treated as
surface diversions and governed by surface water law. Riparian rights jurisdic-
tions basically follow a theory similar to the reasonable use doctrine of ground
water rights, although the eastern correlative rights doctrine has been applied to
both surface and ground water. Where surface water rights are appropriative,
priority would govern surface-ground water disputes.
Under the “Templeton” doctrine, the New Mexico State Engineer has re-
quired a junior ground water appropriator to purchase and retire sufficient surface
appropriations to compensate for the expected stream depletion effect of a pro-
posed well. Colorado has an elaborate system for integrating surface appropria-
tions and appropriations of subflow and tributary ground water. Generally junior
ground water appropriators are expected, through plans of augmentation, to com-
pensate the stream for their expected stream depletion effects of well pumping.
Ground water pumping that reduces stream flows upon which endangered
species depend for habitat may be regulated under the federal Endangered Spe-
cies Act. In Texas, the Sierra Club has sued the U.S. Fish and Wildlife Service,
arguing that well pumping from the Edwards Aquifer near San Antonio has
reduced stream flows to the detriment of endangered species. Municipal and
irrigation uses of ground water are currently under federal court order to be
reduced to meet endangered species stream flow requirements.
In some instances, prevailing ground water laws impose constraints on indi-
viduals and institutions from assigning the appropriate TEV to ground water in
operationally meaningful ways. Among the constraints that can be found in pre-
vailing ground water law are: failures to vest clearly the right to use ground water
(i.e., provisions which allow the law of capture to prevail); prohibitions or con-
straints on the marketing of ground water; forfeiture provisions in which the failure
to apply the water to beneficial use may risk forfeiture of right; provisions which
encourage individual users to ignore the social costs of use; and provisions which
encourage the exploitation of ground water in a competitive fashion (virtually all of
these barriers to accurate depiction of TEV apply to surface water as well).
Water Rights Transfers

In most western states, where water supplies are short, irrigation is the pre-
dominant use. To accommodate new uses for municipal, industrial, recreational,
and environmental purposes, water rights in most western states can be bought
and used for a different purpose. Typically this involves quantifying the original
consumptive use, and allowing that amount to be transferred to another party so it
can be used for a different purpose and perhaps in a different location. Restricting

transfers to consumptive use preserves return flows from the original use to other
appropriators on the stream.
Water marketing has been hailed as the modern, environmentally friendly
way to deal with water shortages in the arid West, as opposed to dam construc-
tion. Most water right transfers involve surface water rights. However, ground
water transfers are common in Arizona. Water markets provide flexibility in
water use and management while also providing “real world” prices for water,
which can be useful in attempting to value ground water. More states should
consider the authorization and promotion of water marketing, including transfer
of ground water rights when appropriate.
An emerging policy issue is how to deal with adverse community impacts
from transferring water from irrigation to nonagricultural uses (NRC, 1992). A
principal concern is that as water is transferred away from irrigated agriculture to
other uses, the community’s agribusiness economic base may be threatened.
A variation on the water right transfer theme is for an entity, typically re-
ferred to as a water bank, to purchase water rights from users willing to sell them,
and then resell the water to whoever needs it. Water right sales to a water bank
may be temporary, whereas most water right transfers are permanent.
Water marketing and banking are important to valuation in that such water
right transfers provide actual market values for water, which in turn provide
crucial information for valuing ground water.
Valuation and Ground Water Management

Arizona’s Ground Water Management Act of 1980 reflects a series of con-
scious water allocation choices to a much greater degree than most state water
allocation legislation does. Arizona’s Act mandates the goal of eliminating ground
water overdraft by the year 2025. Overdraft is to be reduced by a series of 5- and
10-year plans that apply to Arizona’s most populated areas and agricultural cen-
ter. Thus Arizona’s Ground Water Management Act is a rare example of state
legislation that implicitly values ground water. Such legislation can help pave
the way for other states to use valuation studies in determining ground water’s
future economic worth. Florida also regulates ground water uses to protect public
water values, including environmental services from ground water.
The principal consequence of the law of capture ground water allocation
policy relied on by many states is that potential future uses of ground water are
not taken into account. Valuation plays no significant role in ground water
allocation policy under the law of capture. Indeed, the extent to which state water
law fails to deal effectively with ground water depletion indicates the degree to
which its policies ignore valuation.
Valuation as an analytical tool has typically been more important to water
suppliers in helping them evaluate water supply alternatives. A recent study
involving ground water valuation was prepared for the city of Albuquerque to

help it evaluate water supply alternatives, it is described further in Chapter 6

(Brown et al., 1996).
VALUATION AND GROUND WATER QUALITY PROTECTION

Ground water quality protection law is perhaps even more fragmented than
ground water allocation law. While federal law provides a legal umbrella, no
single unifying federal ground water quality protection law exists. The federal
Clean Water Act does not establish a basic program for ground water quality
protection the way it does for surface water. Rather, federal ground water quality
protection programs are scattered throughout a variety of federal environmental
statutes.
For example, resource valuation plays a significant role in Superfund policy.
First, valuation is implicitly involved in benefit-cost analyses of Superfund
cleanup alternatives. Second, valuation is critical in recovering damages caused
to natural resources. Under the 1996 Safe Drinking Water Act amendments,
benefit-cost analysis will be used in establishing new drinking water standards.
Ground Water Quality Protection

Ground water quality protection measures generally address either point
source or non-point source pollution.
Point Source Pollution

CWA. Section 502(14) of the Clean Water Act (CWA) defined a point
source of water pollution to include “any discernible, confined and discrete con-
veyance. . . from which pollutants are or may be discharged.” This would include
a discharge pipe into a stream or an injection well. The CWA thoroughly regu-
lates point discharges into waters of the United States, including streams and
wetlands. However, the CWA does not regulate point source discharges to
ground water.
SDWA. The Safe Drinking Water Act requires public water suppliers to
periodically test the quality of the drinking water they supply to their customers.
If testing reveals violations of one or more of the EPA drinking water standards
(also referred to as maximum contaminant levels or MCLs), remedial action must
be taken.
Under the 1996 SDWA amendments, new MCLs will be established by EPA
at a slower pace, and they will be subject to benefit-cost analyses and risk assess-
ment. (More on this later.) States can grant waivers for drinking water system

violations to communities of up to 3,300 people, and to communities up to 10,000

with EPA approval.
The SDWA has three provisions relating to ground water. First, MCLs are
used by EPA as reference points in determining Superfund ground water cleanup
standards. Second, EPA may designate aquifers as sole source aquifers for drink-
ing water supply and prohibit federal activities adversely affecting the sole source
aquifer. Finally, underground waste injection is regulated through the SDWA
underground injection control program.
A 1996 amendment to the SDWA may further affect ground water quality
protection. The 1996 amendments provide funding for communities to enter into
source protection programs to protect the community’s drinking water quality from
contamination. Where ground water is the source of a community’s water supply,
SDWA funding will be made available for ground water quality protection.
CERCLA. The federal Superfund program of the Comprehensive Environ-

mental Response, Compensation, and Liability Act (CERCLA), and the
Superfund Amendments and Reauthorization Act (SARA), requires cleanup of
ground water contaminated by waste disposal. Ground water remediation may be
required to comply with MCL standards, although less stringent cleanup stan-
dards may be approved by EPA on a case-by-case basis through a technical
waiver process.
The issue of “how clean is clean” under CERCLA is very contentious. In
addition, significant CERCLA effort is expended to receive or recoup cleanup
costs from responsible parties and potentially responsible parties. Many have
argued that a more no-fault approach would result in faster cleanup than the
current approach, which encourages litigation.
RCRA. The Resource Conservation and Recovery Act (RCRA) provides for
cradle to grave regulation of hazardous waste transport and disposal. In addition,
underground storage tanks (USTs) storing petroleum products and other hazard-
ous chemicals, are regulated under RCRA. Cleanups from leaky underground
tanks may be paid for through state UST cleanup funds if the leaky tank complies
with cleanup eligibility requirements (which vary considerably among states).
Private Cleanup Liability. In addition to ground water cleanup liability

imposed under CERCLA and RCRA, those guilty of ground water contamination
may be liable under state cleanup statutes or court decisions for the costs of
ground water cleanup. Most states have state Superfund laws for ground water
cleanup as well as state UST cleanup funds. However, state laws vary consider-
ably regarding the degree of financial responsibility imposed, ranging from a no-
fault approach to a CERCLA approach.

Nonpoint Source Pollution

The term nonpoint source water pollution is not defined in the CWA. A draft
EPA guidance document, however, defines NPS pollution:
NPS pollution is caused by diffuse sources that are not regulated as point sourc-
es and normally is associated with agricultural, silvicultural and urban runoff,
runoff from construction activities, etc. Such pollution results in human-made
or human-induced alteration of the chemical, physical, biological, and radiolog-
ical integrity of water. In practical terms, nonpoint source pollution does not
result from a discharge at a specific, single location (such as a single pipe) but
generally results from land runoff, precipitation, atmospheric deposition, or per-
colation. Pollution from nonpoint sources occurs when the rate at which pollut-
ant materials entering water bodies or ground water exceeds natural levels.
The CWA does not directly regulate NPS (which can be a significant source
of ground water contamination). However, EPA encourages states to control
NPS pollution of surface and ground water through the Section 319 program
(successor to the Section 208 program). EPA also requires states to implement
NPS control strategies through the Coastal Zone Management Act (CZMA).
Many observers expected EPA NPS authorities to be expanded in the anticipated
CWA reauthorization along the lines of the CZMA NPS authorities. The CWA
will not be reauthorized before 1997 at the earliest, however, and whether EPA
NPS authorities will be extended beyond the current Section 319 program is
uncertain.
FIFRA. EPA has broad authority to regulate and prohibit pesticide use under
the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA). Most states are
also authorized by state statutes to regulate pesticide applications to protect
ground water quality. In addition, EPA, under its FIFRA Pesticides in Ground
Water Strategy, is requiring states to prepare management plans to further regu-
late pesticide use to protect ground water quality when EPA determines that
ground water quality will not be adequately protected by simply following pesti-
cide label directions.
Fewer states are authorized to regulate fertilizer applications to protect
ground water quality. EPA currently lacks legal authority to regulate fertilizer
application to protect ground water quality.
Prevention of Ground Water Contamination

EPA’s principal strategy for dealing with ground water pollution is to prevent
its occurrence, due principally to the very high costs of ground water remediation.
Through grants to states, EPA can encourage ground water pollution prevention
despite EPA’s lack of a general ground water protection authority.

Watershed Management. Under Section 319 of the CWA, EPA makes grants
to states to address surface and ground water NPS pollution on a watershed basis.
States typically make cost-sharing funds available to farmers to implement con-
servation measures to reduce erosion and sedimentation, and to implement agri-
cultural chemical best management practices (BMPs).
Wellhead Protection. Under the SDWA, EPA provides some funding to

states to support local wellhead protection (WHP) programs. States help public
water suppliers identify the WHP area, typically the 20-year time of travel area
for the community’s wellfield. Once the WHP area has been identified, commu-
nities are encouraged to inventory potential contaminant sources and to use their
zoning authorities to keep incompatible land uses and practices outside of the
WHP area. Existing incompatible uses are encouraged to take extra precautions
to prevent contamination or to relocate outside the WHP area.
Planning and Zoning. Local communities and counties may exercise their
zoning authorities to regulate or limit land uses that may contaminate ground water.
Some states may use their facility licensing authority to protect ground water when
licensing the location of hazardous waste disposal and similar facilities.
Valuation and Superfund Site Cleanup

The original 1980 Superfund ground water remediation policies were cost
insensitive: cleanup cost was not heavily considered in establishing site cleanup
standards. This changed in the 1986 Superfund amendments (SARA). Under the
current federal Superfund program, remediation actions must be “cost-effective
over the period of potential exposure or contamination” (42 U.S.C.A. 9605(a)(7);
Seiver, 1996). Thus as a basic principle, ground water contamination cleanups
must be “cost effective.” Of course, cleanup standards also significantly influ-
ence cleanup costs. In addition, EPA must establish national cleanup priorities
for potential cleanup sites. Cleanup priority criteria include: (1) the affected
population, (2) the specific health risk associated with the hazardous materials to
be remediated, (3) the potential for direct human contact, (4) destruction of
sensitive ecosystems, and (5) natural resource damage affecting the human food
chain (42 U.S.C.A. (a)(8)(A)). These cleanup priority criteria suggest that some
ground water may be more valuable than other ground water based on the eco-
nomic and environmental demand for the ground water.
Perhaps the most controversial Superfund issue revolves around quality ob-
jectives. Ground water, for example, is generally required to be cleaned up to
drinking water standards, regardless of the expected future use of the water.
Critics contend that such policies ignore the real, more limited risk of the con-
taminated costs, and drive up cleanup costs to the point that the Superfund pro-
gram may face bankruptcy (NRC, 1994). EPA may, however, relax ground water

cleanup standards for particular cleanup sites from 10-6 (i.e., the estimated health
risk is one additional cancer out of 1 million persons exposed over 70 years) to
10-4 (i.e., the estimated health risk is one additional cancer out of 10,000 persons
exposed over 70 years). Accepting the higher health risk would significantly
lower cleanup costs. The fundamental policy issue is the following: What level
of contamination represents an acceptable risk?
Valuation and Natural Resource Damages

Superfund and other federal environmental programs (Olson, 1989) autho-
rize states and the federal government, among others, to sue (as “natural re-
sources trustees”) polluters for damages for natural resources destroyed or in-
jured by hazardous substance releases and oil spills. Superfund also requires
federal regulations to be developed for assessing the value of injured or destroyed
natural resources. Any natural resource damage assessments conducted by trust-
ees and following the regulations adopted by the U.S. Department of the Interior
receive a rebuttable presumption of accuracy. Trustees may use other valuation
techniques, but the damage assessment would not enjoy a rebuttable presumption
of correctness.
The Department of the Interior adopted its natural resource damage assess-
ment regulations in 1986 and 1987 (Copple, 1995). The damage assessment
regulations were invalidated in part in federal court in 1989. Among other things,
the court ruled that damages recovered by trustees should not be limited to the
lesser of (1) the cost of restoring or replacing the equivalent of the injured re-
source or (2) the lost use value of the resource. However, the court did sustain the
use of the contingent valuation method in natural resource damage assessment.
Amendments to Department of the Interior regulations on damage assessment
regulations are pending.
CHANGING ENVIRONMENTAL PRIORITIES:

POLICY DIMENSIONS OF GROUND WATER VALUATION
A fundamental environmental policy issue is whether pollution control or
other environmental regulations are health-based or technology-based. Health-
based regulations begin with the premise that once a desired level of environmen-
tal quality has been determined, polluting activities will be regulated to whatever
extent necessary to accomplish the specified environmental quality. Thus the
resulting pollution control requirements are established (1) without regard to the
availability of pollution control technology to accomplish the specified environ-
mental standard and (2) without regard to the economic costs imposed on pollut-
ing entities. The health-based approach is favored by those placing a high prior-
ity on environmental protection. Critics, however, contend that health-based
environmental standards disregard the economic cost of environmental controls

and are likely to result in pollution controls too costly relative to the environmen-
tal benefits they yield.
Technology-based regulation offers a different model. Under this approach
polluting entities are required to adopt currently available pollution control tech-
nology that is affordable. Whether adoption of this technology yields the desired
level of environmental quality remains secondary to technological and economic
feasibility. Technology-based regulations are favored by those subject to pollu-
tion control requirements. Critics of technology-based regulations contend they
will not reduce pollution levels sufficiently to protect human health and the
environment. Economists have also criticized the technology-based approach as
being economically inefficient: the same amount must be spent on pollution
control regardless of the actual amount of pollution being abated.
Critics of current environmental policy contend that even technology-based
regulations pay too little attention to the economic costs imposed by environmen-
tal regulations. Beginning with the Reagan administration, increasing efforts
have been made to explicitly quantify the economic and environmental costs and
benefits of proposed environmental regulations to balance those costs and ben-
efits. Regulatory impact assessments (RIAs) of proposed EPA environmental
control regulations have been conducted to determine whether the economic and
environmental benefits of proposed regulations justify the regulations’ proposed
costs. Similar analyses are being conducted to see whether environmental regu-
lators are focusing their attention and resources on those problems posing the
greatest risk to human health and the environment.
The RIA and similar evaluation processes require a more explicit balancing
of often competing environmental and economic objectives in the regulatory
process. Critics of current environmental policies are forcefully contending that
those policies should focus on reducing risk and should impose only those regu-
lations that can achieve their objectives in a cost-effective way.
Regulatory Impact Assessment

One controversial environmental policy issue is the extent to which federal
pollution control requirements should balance protecting human health and the
environment with compliance costs. Most federal environmental laws are cost
insensitive, subordinating compliance costs to the protection of human health and
the environment. Only a few federal laws require formal balancing of environ-
mental protection and compliance costs. Critics contend that the costs of many
pollution control (and similar) programs impose costs that are not commensurate
with the environmental benefits achieved; that billions of dollars are spent to
guard against relatively trivial risks.
President Reagan initiated a formal balancing of environmental protection
and regulatory compliance costs through his controversial Executive Order 12291,
which required EPA and other agencies to prepare regulatory benefit-cost analy-

ses for proposed regulations imposing public and private costs of at least $100
million annually. Agency benefit-cost analyses were reviewed by the Office of
Management and Budget (OMB). Environmentalists opposed Executive Order
12291 as administratively imposing benefit-cost criteria on federal environmen-
tal rules when such criteria were not authorized by Congress. However, both
Presidents Bush and Clinton adopted similar Executive Orders.
The House of Representatives in 1994 adopted regulatory impact assessment
legislation, HR9, which would require RIAs for major rules imposing public and
private costs of at least $25 million annually ($50 million for small business
costs) and on Superfund cleanups costing over $5 million. The RIA requirements
would apply to all new federal environmental, health, and safety regulations,
including new regulations under existing laws.
Risk assessment refers to identifying how many lives will be saved or other
benefits achieved by the proposed regulation. Benefit-cost analysis in the RIA
context refers to determining how much it will cost per life saved under the
proposed regulation. The RIA process is intended to identify proposed regula-
tions with “high” cost-benefit ratios.
HR9 stalled in the Senate and is unlikely to be adopted in 1997. Nonetheless,
the bill raises fundamental environmental policy issues that relate directly to
ground water valuation. The overall effect of RIA requirements would be to
discourage rules for which a positive benefit-cost analysis cannot be generated or
is marginal.
Unfunded Mandate Act of 1995

While general RIA legislation has not been enacted, elements of the HR9
RIA process were incorporated in the Unfunded Mandates Act of 1995. Federal
programs often require state and/or local governments to bear a significant por-
tion of program implementation costs. This practice is now referred to by critics
as creating an “unfunded federal mandate.” An example of an unfunded mandate
is the Safe Drinking Water Act. Communities whose water supplies violate
SDWA standards must either treat their water to EPA levels or obtain a new
water supply. No federal funding is available to meet these costs, hence the
SDWA imposes an “unfunded mandate.”
President Clinton has signed legislation requiring that unfunded (or
underfunded) federal mandates be identified before they are adopted by Congress
(109 Stat. 48, March 22, 1995; Fort, 1995). Unfunded mandates costing states
and/or local governments at least $50 million annually are subject to a separate
vote on establishing the unfunded mandate if a vote is requested. Cost estimates
are prepared by the Congressional Budget Office. When faced with an unfunded
mandate “point of order,” Congress has several options: (1) provide the funding,
(2) delete the mandate, (3) reduce the mandate to fit the funding, or (4) approve
the unfunded mandate.

The Unfunded Mandates Act also requires federal agencies to prepare as-
sessments of any proposed regulations imposing more than $100 million in com-
bined compliance costs for states, local governments, and the private sector.
Federal agencies are prohibited from issuing regulations containing federal man-
dates that do not (1) employ either the least costly or most cost-effective method
or (2) do not have the least burdensome effect on the governments or private
sector, unless the agency also publishes an explanation of why the more costly or
more burdensome method was adopted. These regulatory review requirements
are subject to judicial review.
The act is not retroactive but would apply when existing laws are reenacted.
Most federal environmental, health, and safety programs contain program re-
quirements that may be considered unfunded mandates. Accurate information
regarding ground water values would make unfunded mandate regulatory re-
views better relative to evaluation of the economic and environmental trade-offs
involved in ground water protection policies.
LEGAL ISSUES IN REDEFINING GROUND WATER RIGHTS

Clearly, how private rights for ground water use are legally specified affects
the value of that property right and the associated land. Changes in ground water
right specifications may threaten property values and may likely be resisted by
ground water users. Ground water users traditionally have resisted legal changes
that affect the quantity they can pump, even though these restrictions (often little
more than required improvements in ground water use efficiencies) may signifi-
cantly extend aquifer life. Political barriers to reforming ground water law often
are significant, and reform efforts unfortunately are most successful in response
to a perceived ground water crisis.
One often criticized aspect of ground water rights is uncertainty. However,
the lack of specificity regarding ground water rights most often reflects a lack of
scarcity. As ground water becomes more scarce, its rights to use will become
more sharply defined through litigation and/or legislation.
Takings and Property Rights

Another legal issue is that of takings. Often when property rights are modi-
fied, for example, through environmental regulation, the takings issue is raised.
Simply stated, the U.S. Constitution requires that if government regulation of a
property interest amounts to a complete destruction of that property interest, the
property owner must be compensated or the regulation not implemented. Tradi-
tionally, states have enjoyed broad discretion to regulate property rights in the
public interest. Recently, however, federal courts have begun to consider with
more favor landowner complaints that some government regulations constitute a
regulatory taking or partial taking of private property. While takings jurispru-

dence is hardly settled, this trend in takings law may make government agencies
less inclined to take aggressive actions to protect ground water and more ame-
nable to negotiating policies with all stakeholders, rather than simply imposing
predetermined ground water policies. However, ground water regulations are
routinely upheld in court, and efforts to defeat ground water regulations as tak-
ings will likely fail.
REDUCING RISK AND VALUING GROUND WATER

As noted in Chapter 1, more than half of the United States depends upon
ground water as a source of drinking water, and the nation’s reliance on ground
water for drinking purposes is increasing. Moreover, ground water supplies
contribute 30 to 40 percent of the flow of the nation’s streams, an important
ecological factor. The base flow provided by ground water contributes signifi-
cantly to stream flow during periods of low precipitation. During drought periods
stream flow may be entirely or largely derived from ground water discharge.
Thus even the significant 30 to 40 percent contribution of ground water to total
stream flow understates the significance of base flow. During droughts, most or
all of the water in a stream is likely to derive from ground water discharge.
Moreover, ground water plays a crucial ecological role in sustaining wetlands
(NRC, 1995)
Despite the obvious strategic importance of ground water to human health
and the environment, the EPA Science Advisory Board (SAB), in its influential
report Reducing Risk, somewhat surprisingly concluded that ground water pollu-
tion represented a relatively low risk to natural ecology and human welfare (U.S.
EPA, 1990, page 13). Despite acknowledgment that the natural recovery time
from ground water contamination was centuries (U.S. EPA, 1990), the SAB
seemed unaware of the significance of ground water both as the nation’s primary
drinking water source and as a major source of stream flow. The Board’s conclu-
sions are inconsistent with the drinking water and ecological services provided by
ground water.
This study, on the other hand, finds that ground water is a resource critical to
the nation’s future, both as the our primary source of drinking water and as a
significant source of stream flow. Because of these crucial human welfare and
ecological functions performed by ground water, and because of the acknowl-
edged difficulty of ground water remediation, protecting and maintaining the
quantity and quality of the nation’s ground water supplies must receive a high
priority.
RESEARCH NEEDS
The published literature related to ground water valuation is limited. The
studies on the use of valuation methods mentioned in Chapter 4 are characterized

by a limited focus and budget (the one exception being the national study by
McClelland et al., 1992). None of the studies completely address ground water’s
TEV; rather, attention was given to the valuation of extractive services or other
specific components within the TEV. And since most of the case studies were
conducted in academia, funding was limited. Further, most of the published
literature and case studies were authored by economists and if an interdiscipli-
nary approach was utilized, it was not documented.
Environmental economics, particularly as related to ground water valuation,
must be seen as an emerging profession. It must be based on an interdisciplinary
approach when applied to ground water development, protection, or remediation
projects. However, several barriers to such interdisciplinary efforts exist. Two of
particular significance are the absence of any standardized terminology to facili-
tate verbal and written communications, and internal organizational structures
within regulatory, governmental, the private, and consulting sectors that tend to
isolate economists into small groups with specific and narrow functions. There-
fore, there is a need for capacity building related to professionals who can address
ground water valuation. In other words, ground water professionals who are not
trained economists should learn enough economics to be able to understand and
use another professional’s ground water valuation. As additional information
becomes available, it should be transferred to practitioners.
At present, no integrated and comprehensive research program on ground
water valuation exists. For example, comparative studies of common ground
water management decisions that could be aided by valuation have not been
completed. Likewise, for a given type of decision, such as whether or not to
initiate a remediation program, a range of solutions should be explored.
Accordingly, a fundamental recommendation resulting from this NRC study
is that the EPA, along with the National Science Foundation, DOE, DOD, and
other agencies as appropriate, should plan and implement an integrated and com-
prehensive research program focused on ground water valuation. Following are
suggestions of ways that this research need could be addressed:
• Pertinent federal agencies such as EPA, DOE, and DOD should jointly
sponsor a series of research and case studies that examine: (1) a range of ground
water-related decisions that could be facilitated by valuation information; and (2)
a range of hydrogeological and contamination conditions that could be used to
reflect both go/no go and prioritization decisions related to remediation. Such
studies should include the integration of remedial investigation/ feasibility stud-
ies, risk (or endangerment) assessments, impact studies, and valuation infor-
mation. An additional research question that could be explored based on both
existing studies and the proposed research and case studies is exactly how the
valuation information is used in each decision context; that is, was valuation the
sole factor, an equal consideration, or a supplemental item of information?
• The appropriate composition of interdisciplinary teams to conduct ground

water valuation research needs to be explored. Participants should include envi-

ronmental economists, ground water scientists and engineers, and political scien-
tists. The roles of such disciplines and the constraints related to interdisciplinary
endeavors need to be studied. Also, the public’s perception of the use of valua-
tion methods and its understanding of valuation study results should be gauged.
• Attention should be given to developing and improving methods for quan-
tifying the value of ecological services and for determining existence and bequest
values for ground water resources. These topics have so far received minimal
attention. Of particular significance is both the recognition of ecological services
and the development of integrated methods to quantify such services. Efforts
should also be focused on developing TEV information for ground water re-
sources.
• Technical and economic uncertainties must be recognized in efforts to
develop site-specific information regarding the benefits and costs of decisions
related to development, protection, and/or remediation of ground water. For
example, in relation to remediation decisions, the stochastic modeling of the
contamination problem and the potential effectiveness of cleanup measures should
be used to develop ranges of information that can be viewed together as an
indicator of “sensitivity analysis.” The possible influences of uncertainties and
nondelineated costs and benefits (or ground water services) should also be con-
sidered in a qualitative manner.
• Finally, because we are only recently recognizing the importance of valu-
ing ground water, there are extensive educational and technology transfer needs
for ground water professionals, environmental economists, regulators, and ground
water managers. As noted earlier, the planning and conduct of such valuation
studies requires interdisciplinary involvement. While the leadership should come
from EPA, other federal, state, and local agencies, along with appropriate profes-
sional groups such as the Association of Ground Water Scientists and Engineers
(AGWSE), American Geophysical Union (AGU), American Water Resource
Association (AWRA), and others, should jointly participate in technical and
policy conferences and in generating a body of published literature on the value
of ground water and the advantages and limitations of valuation methods. Hand-
books related to planning such studies should be developed. Such efforts would
help to increase awareness of ground water’s value and to demonstrate how
valuation information could improve decision-making.
It is recognized that many of these stated research needs are broad. Such
needs could be made more specific upon the development of a research strategy
focused on ground water valuation. The strategy which should be spearheaded
by EPA, should include an overall goal, specific objectives, delineation of mul-
tiple agency involvements (e.g., EPA, USGS, Corps of Engineers, NOAA, and
nongovernmental organizations), specific problem statements on needed research
topics, and budgetary requirements and time schedule.

RECOMMENDATIONS
These institutional considerations, suggest several areas of governmental
action:
• Federal, state, and local agencies should give consideration to the
TEV of ground water in their deliberations on new or amended legislation or
regulations related to ground water management.
• States should consider the authorization and promotion of water
marketing, including transfer of ground water rights when appropriate.
Although a transition to a market that adequately captures the full value of
the resource may be difficult, water markets provide flexibility in water use
and more efficient allocation of water among uses. Water markets also pro-
vide real world prices of water for current use values, and their prices aid
decision-makers in valuing ground water. Helping to drive water marketing
is the fact that the importance of ground water has changed in the context of
conjunctive use. Recharge of surface water and effluent to replenish ground
water is now common in southern California.
• States should be encouraged to develop clear and enforceable rights
to ground water where such rights are either lacking or absent. A system of
clear and enforceable extractive rights to ground water is prerequisite to
economically efficient use of that water. Without such rights users will not
have the incentive to value ground water correctly either now or in the
future.
• Because of many uncertainties related to ground water valuation as
demonstrated in both the methods chapter (Chapter 4) and this chapter,
EPA and other pertinent agencies should plan and implement an integrated
comprehensive research program on ground water valuation. Federal agen-
cies should conduct research and develop case studies in ground water valu-
ation that includes a range of environmental conditions and economic cir-
cumstances. In addition, federal, state, and local agencies should develop
valuation methods that quantify ecological services and bequest and exist-
ence values. Such research will help states manage and protect their ground
water resources and could help to demonstrate improvements in decision-
making that would occur with valuation information.
REFERENCES
Aiken, J. D. 1982. Ground water mining law and policy. Colorado Law Review 53(3):505-528.
Beck, R. E. 1991. Environmental controls. Waters and Water Rights 5: Chapters 52-57.
Charlottesville, Va.: Mitchie Company.
Brown, F. L., S. C. Nunn, J. W. Shomaker, and G. Woodard. 1996. The value of water: A report to
the city of Albuquerque in response RFP95-010-SV. Albuquerque, NM: City of Albuquerque.
Copple, R. F. 1995. NOAA’s latest attempt at natural resource damages regulations: Simpler... but
better? Environmental Law Reporter 25:10671.

Fort, D. D. 1995. The unfunded mandate reform act of 1995: Where will the new federalism take
environmental policy? Natural Resources Journal 35(3):727-730.
McClelland, G. H., W. D. Schulze, J. K. Lazo, D. M. Waldman, J. K. Doyle, S. R. Elliott, and J. R.
Irwin. 1992. Methods for Measuring Non-Use Values: A Contingent Valuation Study of
Groundwater Cleanup. Boulder: University of Colorado.
Murphy, E. F. 1991. Quantitative Ground Water Law. Waters and Water Rights 3: Chapters 18-24.
Charlottesville, Va.: Mitchie Company.
National Research Council. 1992. Water Transfers in the West. Washington, D.C.: National
Academy Press.
National Research Council. 1994. Ranking Hazardous Waste Sites for Remedial Action. Washing-
ton, D.C.: National Academy Press.
National Research Council. 1995. Wetlands: Characteristics and Boundaries. Washington, D.C.:
Olson, E. D. 1989. Natural resources damages in the wake of the Ohio and Colorado decisions:
Where do we go from here? Environmental Law Reporter 19:10551-10557.
Seiver, D. W. 1996. Law of chemical regulation and hazardous waste. 1:§6.06[2]. Deerfield, Ill.:
Clark Boardman Callaghan.
Tarlock, A. D. 1995. Law of Water Rights and Resources. Chapters 4, 6. Deerfield, Ill.: Clark
Boardman Callaghan.
U.S. Environmental Protection Agency Science Advisory Board. 1990. Reducing Risk: Setting
Priorities and Strategies for Environmental Protection. Washington, D.C.: Environmental Pro-
tection Agency.

CASE STUDIES 127
6
5
Case Studies
This report has emphasized the importance of valuing ground water re-
sources and suggested a framework and valuation methods that could be used to
quantify the economic values associated with a suite of ground water services.
This chapter provides brief descriptions of seven existing situations that highlight
the importance of valuing ground water resources. These case studies also in-
clude some information on applicable valuation methods. The chapter offers
some insight into the difficulties that water managers (and policy-makers in
general) face in attempting to translate recommendations regarding valuation
methods into usable estimates of ground water values. Such difficulties can
derive from institutional constraints or conflicts in specific locales; political con-
siderations; terminology and conceptual problems related to communicating in-
formation; and uncertainties associated with technical analyses, determination of
effects, and economic assumptions.
These site-specific studies are brief and are not intended to offer solutions for
any other case. Instead, these examples demonstrate that valuing ground water
resources is not a recipe that can simply be followed at any site. The planning
and implementation of economic valuation studies requires the interdisciplinary
efforts of economists, engineers, scientists, and policy-makers. These studies
show that although a complete accounting for all components of the TEV of
ground water is often impossible to obtain, quantifying some components can
provide information to improve decision-making and increase the efficiency of
the use of scarce ground water resources. Table 6.1 summarizes the theme of
each case study.
The first case study illustrates the link between surface water use and the
127

TABLE 6.1 Comparative Information on Seven Case Studies
Case Study Theme Comments
Treasure Valley, Linkage between surface water Illustrates importance of ground

Oregon usage for agriculture and the value water valuation in designing
of ground water services whose allocative and management poli-
quantity and quality may be influ- cies for the conjunctive use of
enced by agricultural practices. surface and ground water.
Laurel Ridge, Use conflicts that may arise among Illustrates need for systems ap-
Pennsylvania local governmental agencies coor- proach in defining hydrogeology,
dinating various combined uses of surface and ground water re-
surface and ground water. sources, and competing uses
within a multi-institutional frame-
work in a local geographical area.
Albuquerque, Development of long-term water Includes information on both use
New Mexico use strategy for a city that relies on and nonuse value of ground water
ground water for its water supply; and how this can be incorporated
also includes buffer value of in long-term water supply plan-
ground water. ning in an area where ground
water mining occurs.
Arvin-Edison, Buffer value of ground water in an Demonstrates buffer benefits of a
California area subject to periodic droughts. ground water resource in an
agricultural area.
Orange County, Use of ground water recharge in a Addresses the value of ground
California coastal area to avert sea water water in storage as a deterrent to
intrusion in a viable ground water sea water intrusion.
basin.
Woburn, Incorporation of the value of Illustrates numerous uncertainties
Massachusetts ground water in deciding on associated with local
remediation for a Superfund site. hydrogeological conditions, pol-
lutant transport, the effectiveness
of remediation strategies, and
direct and perceived health conse-
quences of drinking contaminated
ground water.
Tucson, Arizona Planning for application of valua- Illustrates the variety of consider-
tion framework to decisions for ations associated with a ground
meeting water demand; options water valuation study, including
addressed are ground water re- the need to incorporate engineer-
charge and/or surface water treating estimates along with valuation
ment. methods; also focuses attention on
the importance of substitute water
supplies.

CASE STUDIES 129
quantity and quality of ground water in the Treasure Valley area of eastern
Oregon and southwestern Idaho. In this setting, which is typical of many areas in
the West, agriculture relies primarily on surface water supplies, and ground water
is used mainly for human and industrial consumption. The presence of pollutants
from agriculture in an aquifer reduces the value of the ground water for human
consumption and poses challenges for water resource managers. Without esti-
mates of the value of the services associated with unpolluted ground water,
managers may design allocation and management policies that could lead to
suboptimal use of both the scarce ground water and the surface water supplies.
The Laurel Ridge, Pennsylvania, case study is an example of competing uses
of an aquifer and the interplay between ground water and surface water supplies.
In this area the user conflicts are between development (mining) and tourism and
among the many fragmented local governments whose jurisdictions overlay the
watershed. Economic valuation is a crucial component to achieving a more
systematic approach to planning in this watershed.
The next two case studies deal with the buffer value of ground water. In
Albuquerque, New Mexico, ground water is the primary source for municipal
water supply, although the city also has rights to surface water from nearby
rivers. Recent concerns with both the size of the aquifer and increased population
growth along with ground water mining have initiated a series of engineering and
economic studies to assess the long-term strategies for water use. This example
provides concrete evidence of the role that economic values can play in formulat-
ing policy alternatives for water use management.
The Arvin-Edison Water Storage District in southern California is another
example of a buffer value success story, where the surplus water from wet years
is being used to recharge the aquifer. This water management system in the
Bakersfield area has been in place for nearly 30 years and by some estimates has
generated millions of dollars in net returns to agricultural interests that would
have been foregone during critically dry years.
The second California example deals with the issue of irreversibilities asso-
ciated with the intrusion of seawater in the ground water basin underlying Orange
County, in southern California. Loss of the basin to sea water intrusion would
require the Orange County Water District to rely more heavily on imported water
and would preclude the use of the aquifer for water storage. Knowing the value of
the ground water was clearly an important component in the decision to construct
and operate Water Factory 21 (an advanced wastewater treatment plant) and two
water injection projects. Combinations of imported water and highly treated
municipal wastewater are recharged as a barrier to sea water intrusion.
The sixth case study, a Superfund example, illustrates the importance of
ground water valuation to federal regulations regarding remediation of contami-
nated aquifers. Policy decisions on the extent to which ground water remediation
should be pursued need to be based on a careful assessment of the costs and
benefits of proposed actions. The benefits of restoring the quality of a contami-

nated aquifer will be reflected in the potential gains or value of improvements to

the ground water resource and will be site-specific.
The empirical findings of this Woburn, Massachusetts, case study refute
conventional wisdom concerning the economic efficiency of ground water
remediation at Superfund sites for the sole purpose of restoring drinking water
supplies (i.e., that the costs of remediation far outweigh the benefits). In some
cases ground water remediation can be the efficient alternative; it should not be
dismissed without conducting a cost-benefit analysis. This case study also high-
lights the complexities involved in conducting an empirical analysis of the value
of restoring ground water resources and the impacts of uncertainties in the eco-
nomic and physical dimensions, and in potential health consequences, and the
public response to ground water usage.
The final case study concerns the potential application of the valuation frame-
work described in Chapter 3 and some valuation methods described in Chapter 4.
Options in this Tucson, Arizona, case include ground water recharge using Cen-
tral Arizona Project (CAP) water or treatment of CAP water prior to usage. This
study provides information on the types of methods that could be used to value a
complete suite of ground water services for both options.
CHALLENGES IN WATER QUALITY MANAGEMENT

Treasure Valley, Oregon
Background
The Treasure Valley of eastern Oregon and southwestern Idaho is high desert
(10 inches of precipitation on average per year) that is intensively irrigated using
surface water from the Owyhee, Malheur, and Snake Rivers. All the water of the
Owyhee and Malheur Rivers (tributaries of the Snake River) is diverted to irriga-
tion. Stream flow below the diversions is maintained by irrigation return flows
and recharge from a shallow aquifer supported in part by irrigation recharge
(Gannett, 1990).
Crop agriculture in the area is characterized by a range of high valued crops
including potatoes, sugar beets, and onions, as well as cereal grains and hay. In
the Oregon portion of the valley, approximately 180,000 acres are in irrigated
crop production (Schneider, 1992). The primary source of water irrigation is
from federal (U.S. Bureau of Reclamation) reservoirs and distribution systems.
In terms of total agricultural sales, animal agriculture (cattle and dairy) accounts
for 36 percent of sales, onions 25 percent, potatoes 11 percent, sugar beets 9
percent, cereal grains 9 percent, and the remaining crops 10 percent.
Ground water is used largely for industrial or human consumption. Between
1983 and 1986, the Oregon Department of Environmental Quality (ODEQ) tested
water wells in the study area. Elevated nitrate levels were found in 67 percent of
the wells tested; 35 percent of the wells exceeded the federal drinking water

CASE STUDIES 131
standard for public water supplies of 10 mg/l. In 1989 ODEQ declared Malheur
County a ground water management area and ordered that ground water nitrate
levels be 7 mg/l or less by the year 2000. The ODEQ and local water quality
management groups have identified agriculture as the primary contributor to
ground water nitrates. Pesticides (dacthal) associated with onion production have
also been found in test wells.
Valuation/Management Issues
The geohydrological link between surface water applications and ground
water quality and quantity found in Treasure Valley is typical of many ground
water situations in the West. Specifically, percolation of irrigation water serves to
recharge the ground water aquifer (and in this case surface water percolation
augments the natural flow in the aquifer). This ground water recharge/augmenta-
tion process serves a number of beneficial purposes. For example, recharge
increases seepage from the aquifer into lowlands, creating wetlands for wildlife.
Irrigation returns, whether through surface runoff or through eventual seepage of
ground water to the Snake River and its tributaries, helps to stabilize stream
flows. However, unwelcome consequences may accompany this recharge, in-
cluding the elevated levels of agricultural pollutants of concern to the ODEQ.
Ground water is the primary source of water for household and industrial
uses around Ontario, Oregon, located near the center of the valley (Gannett,
1990). The presence of pollutants from agriculture, with associated health con-
cerns, reduces the value of water for human consumption. Pollutants in ground
water also degrade water quality in streams, with possible adverse consequences
for fish and wildlife. Given present concerns about endangered salmon fisheries
in the Snake River (the U.S. Fish and Wildlife Service have listed Snake River
sockeye and chinook salmon as endangered), water quality has assumed increased
importance.
A number of strategies to reduce the amount of agricultural effluents reach-
ing the aquifer have been proposed. A feature common to most strategies is
“better” irrigation water management, which implies less total water application
per acre and hence less deep percolation. Such practices, however, also reduce
the volume of water moving into the aquifer. This in turn affects the volume of
seepage into wetlands and return flows to rivers. Further, if irrigation water
“saved” by improved irrigation management is used to expand irrigated acreage,
the total return flow and hence stream flow may be markedly reduced. Reduction
in stream flow and wetlands will exacerbate some wildlife problems.
Assessment of the Value of Ground Water

The interplay of surface water use, ground water quality, and, ultimately,
stream flow, creates challenges for public water resource managers as they try to

achieve multiple objectives. Institutional constraints, including the nature of wa-

ter rights (prior appropriation doctrine) and below-cost pricing of water in public
supply projects, further complicates water management. A plan that achieved
optimal use across all water resources in the basin would likely vary dramatically
from the use pattern typically observed in such settings. Assessment of the
values from one type of water resource, such as ground water, in isolation will
lead to suboptimal resource use.
To date, the benefits of ground water quality or ground water services in
general have not been estimated for this area because of the focus on human
health issues. Specifically, federal and state regulations require that water quality
in the aquifer be brought into compliance with state water-quality standards.
Economic analysis has been limited to assessment of the consequences to farmers
of meeting the standards (Fleming et al., 1995; Connor et al., 1995). An under-
standing of the values of ground water could aid in comprehensive management
of water.
Against this backdrop of complex geohydrologic linkages, institutional con-
straints, and a regulatory mandate to improve water quality, it is instructive to
consider whether the valuation techniques discussed in Chapter 3 can be used to
estimate the value (benefits) of the ground water services provided here. The
answer is a qualified yes. For example, the value of unpolluted ground water for
household uses can be estimated through expenditures on averting behavior, such
as purchase of bottled water or purification systems. Values of stream flow for
recreational fishing can be estimated through travel cost procedures. Direct
elicitation of nonuse values to maintain or enhance a species (e.g., existence
values) could be estimated by the contingent valuation method, although the
costs of performing defensible CVM surveys are quite high. Similarly, TCM or
CVM can be used to determine the value of ground water recharge of wetlands
for both use and nonuse services the wetlands provide. A compilation of these
use and nonuse values would supply information on the trade-offs between man-
agement goals across water users, including protection of ground water services.
References
Connor, J. D., G. M. Perry, and R. M. Adams. 1995. Cost-effective abatement of multiple produc-
tion externalities. Water Resources Research 31:1789-1796.
Fleming, R. A., R. M. Adams, and C. S. Kim. 1995. Regulating groundwater pollution: Effects of
geophysical response assumptions on economic efficiency. Water Resources Research 31:1069-
1076.
Gannett, M. W. 1990. Hydrogeology of the Ontario Area, Malheur County, Oregon. Ground water
Report 34. Salem: Oregon Department of Water Resources.
Schneider, G. 1992. Malheur County Agriculture. Ontario: Oregon State University Extension
Service.

CASE STUDIES 133
COMPETING USES OF AN AQUIFER

Laurel Ridge, Pennsylvania*
Background
Laurel Ridge covers 330 square miles in southwestern Pennsylvania. The
generally forested, mountainous topography forms a distinct break with the sur-
rounding plateau lowlands. An estimated 15 million tourists visit Laurel Ridge
each year. Recreational activities such as hunting, fishing, boating, and skiing
are supported by abundant, clean water and large holdings of public land (41
percent of the area). The dominant land uses of Laurel Ridge, such as recreation,
water supply, wildlife habitat, and forestry, contrast with those of the peripheral
lowlands, which are largely devoted to agricultural pursuits and coal mining.
While tourism is an invaluable resource to communities within the area, high
rates of unemployment and slow growth in other economic sectors persist. This
area also has the highest acidic deposition in Pennsylvania. The Allegheny and
Pottsville rock units are influenced by acid deposition and yield ground water
high in hydrogen ion concentration and dissolved aluminum. Buffering from the
Mauch Chunk/Burgoon aquifer and its discharges into area streams help support
aquatic life (Beck et al., 1975).
Pennsylvania government is fragmented. With over 2,500 minor civil divi-
sions, the state ranks second in the nation in terms of the number of local govern-
ment divisions. The Laurel Ridge region reflects this fragmentation: parts of four
counties (Somerset, Cambria, Fayette, and Westmoreland) come together along
the historic ridge-line boundary; within these counties, 22 townships and two
boroughs form an intricate web of administrative jurisdictions. Thus the natural
resources of the Laurel Ridge are not managed as a cohesive region.
Ecosystem Characteristics
The Mauch Chunk/Burgoon aquifer is the only source of high-quality ground
water in the Laurel Ridge. It supplies most of the total public and domestic water
supply and provides base flow to many of the region’s exceptional surface wa-
ters. Compliance with the 1986 amendments to the federal Safe Drinking Water
Act requires that all surface water used as drinking water for public water systems
be filtered. From 1990 to 1995, some 30 high-yield municipal water wells were
drilled in the area. The aquifer supplies high-quality upland streams through
*William Delavan, Graduate Research Assistant, and Charles Abdalla, Associate Professor, De-
partment of Agricultural Economics and Rural Sociology, Pennsylvania State University, prepared
this case study. Information in this case study was obtained through personal interviews with faculty
at Pennsylvania State University and with Pennsylvania Department of Environmental Protection
staff.

artesian head-water springs. The effect of this development on streams has raised
concerns about both the quantity of water withdrawn and the impact on water
quality. Specifically, changes in withdrawal patterns have threatened aquatic
environments that support fish and other organisms. Water quality is further
affected by a combination of geographic and geologic factors that create in one of
the highest rain acidities in the country.
Water Users and Use Conflicts

The rapid development of the aquifer, the lack of rules to allocate ground
water among competing uses, and, in most cases, the absence of local water
management and planning has led to a situation where it seems the person with
the biggest pump or deepest well wins. Currently, there is little economic incen-
tive for users to conserve. Since regulation is likely to occur in the future, users
who establish an early claim to the resource stand to win by drilling before
regulations are developed and carried out.
There are several conflicting interests. The legacy of coal mines is prevalent
throughout Pennsylvania. On both sides of the ridge in the lowlands there is
degradation from coal mining; the aquifer is thus threatened on its boundaries.
Assigning responsibility for past damage from coal mining is problematic from
both a political and economic standpoint.
The region is home to two destination resorts whose ground water with-
drawals are generally substantial from late November to early April. The resorts
have recently established golf courses that have increased off season withdraw-
als. A rise in the number of second homes on the ridge (“suburbanization”) has
multiplied water demand. The impacts of the resorts’ usage are not well under-
stood. Some parties argue that efforts to recycle runoff and sewage serve to
increase or maintain ground water levels by replacing water on the ridge, in effect
performing an environmental service. Others deny this claim and fear that the
resorts’ usage threatens water quality down slope. Furthermore, the ground water
pumping may move waters out of areas favorable toward fish stocks and re-
charges areas unfavorable to fish stocks, compromising wildlife habitat.
The resorts have a significant economic impact in providing employment as
well as an influx of tourist dollars. Are the benefits of development greater than
the costs in terms of resource degradation and other foregone opportunities? If,
on the other hand, development inspires resource decisions that have high costs
or are irreversible, such as ground water contamination by toxics, the
sustainability of the local economy and its ecological systems is called into
doubt. If, on the other hand, restrictive regulations or the absence of a plan to
provide for long-term water and sewer requirements inhibits development, then
attempts to attract new industry and lower the unemployment rate will be sty-
mied.

CASE STUDIES 135
Issues Related to Economic Valuation

Efforts to understand the physical systems of the watershed must be com-
bined with equal efforts to measure how people value these systems. Policy-
makers must address four issues:
• How much water is safely available from this aquifer system, and are
there areas where the aquifer is potentially overdeveloped?
• What is the impact of ground water withdrawals on the quality and base
flow of the upland surface water systems fed by Laurel Hill Spring?
• How can economic values for different uses be measured so that decision-
makers may adequately take into account competing uses?
• Can effective watershed management increase the potential for optimiz-
ing the different uses? What is the best way to develop institutions to help carry
out comprehensive planning?
Economic Values and Decision-Making

Regional watershed organizations have stepped up to meet these challenges,
but their efforts may be insufficient to educate the public and measure and map
resources. Even armed with accurate knowledge of ground water functions,
policy-makers face complex decisions. The fragmented nature of municipal
government in Pennsylvania poses serious challenges to intercommunity com-
munication and cooperation, challenges that may be overcome only by a more
systematic watershed approach to planning and policy implementation.
In April 1992, the Laurel Ridge Forum was created in recognition of the
region’s vast public holdings, outstanding natural resources, and recreational
opportunities. Composed of members from state and local government, business,
and water suppliers, the forum focuses on future development in the area. Water
rights conflicts between residents and second-home owners are at the center of
the development debate. Research is beginning to define the physical impact of
recreational uses and the extent of past degradation from coal and limestone
mining, brine disposal, and road salting. Economic valuation is necessary to
interpret how different members of the community value these environmental
changes. New or different institutional arrangements among the layers of gov-
ernment could facilitate the comprehensive and systematic management of natu-
ral resources. The Laurel Ridge Forum’s Coordinated Resource Management
Plan (CRMP) attempts to deal with governmental fragmentation.
Decision-makers must identify and study alternative policies for effectively
managing these water resources. It might make sense, for example, to manage
the watershed as well as the basin as a whole. As research defines the aquifer’s
physical limits and capabilities, stakeholders and decision-makers must continue
to ask questions about the economic value of ground water. Specifically, they

need to better understand and quantify the economic benefits of protecting the
aquifer from depletion or degradation.
The Laurel Ridge area offers a unique and challenging context for ground
water valuation. Rapid development and competing interests have brought the
water issue to the forefront, forcing increased efforts to understand and measure
water resources and begin constructive public debate. Economic values will allow
local officials to make more informed decisions relative to resource use by helping
them gauge the community’s values regarding water resources and the tradeoffs
between protecting these resources and economic development. Economic valua-
tion coupled with a comprehensive systems approach to the watershed should
guide decision-makers toward effective water resource management choices.
Reference
Beck, M, G. Cannelos, J. Clark, W. Curry, and C. Loehr. 1975. The Laural Hill Study: An Applica-
tion of the Public Trust Doctrine to Pennsylvania Land Use Planning in an Area of Critical
State and Local Concern. Department of Landscape Architecture and Regional Planning. Phila-
delphia: University of Pennsylvania.
THE BUFFER VALUE OF GROUND WATER

Albuquerque, New Mexico
Background
The city of Albuquerque, New Mexico, like many other rapidly growing
metropolitan areas in the arid Southwest, draws much of its municipal water
supply from ground water. Unlike most other cities, however, Albuquerque does
have rights to surface water supplies from the nearby middle Rio Grande and to
waters from the Colorado River basin (San Juan and Chamba Rivers) that are
diverted to the Rio Grande basin. The city’s historical reliance on pumping
ground water in lieu of accessing available surface water reflects a mix of
geohydrological, institutional, and cultural forces. These forces are changing and
call into question the economic and physical sustainability of Albuquerque’s
water use patterns.
In response to concerns over the long-term viability of ground water pump-
ing, the city commissioned a series of engineering and economic valuation stud-
ies to assist managers in developing sustainable management strategies (CH2M-
Hill, 1995; Boyle Engineering, 1995; Brown et al., 1995). In addition, other
agencies involved in water issues in the area have issued or commissioned studies
pertaining to water (Middle Rio Grande Conservancy District, 1993;
EcoNorthwest, 1996). Albuquerque’s strategies for water use, as described in

CASE STUDIES 137
these studies, provide examples of the role economic values can play in assisting
policy formation.
The middle Rio Grande valley has been inhabited and intensively farmed by
Native Americans for at least 500 years. In addition to providing a stable water
supply for irrigation, the riparian, tree-lined areas, or bosque, along the River
were important to Native Americans for wood for fuel and shelter as well as
cultural and spiritual purposes. Hence, communities (pueblos) sprang up at points
on or near the River and its tributaries. Europeans were also attracted to the
riverine environment of the Rio Grande valley and established settlements on the
sites of present-day cities such as Albuquerque.
As settlement progressed and the region grew, residents encountered new
water issues. Competition among states (Colorado, New Mexico, and Texas) and
between the United States and Mexico for the scarce surface water supplies of the
basin resulted in a series of compacts and agreements allocating water among the
parties. Albuquerque was given rights to 48,000 acre-feet of water from the Rio
Grande and 22,000 acre-feet of imported water from the Colorado River basin.
Total surface allocations in the middle Rio Grande basin exceed 350,000 acre-
feet; they are used primarily for irrigated agriculture.
While agriculture relies heavily on surface water, the settlements in the
valley, including Albuquerque, have relied heavily on ground water to meet the
needs of the increasing population. Albuquerque sank deep wells as early as 1910
to secure municipal water. This use of ground water was motivated in part by the
high quality of ground water, the steady supply (even in years of drought) and the
belief that the aquifer supply was large and recharge rapid. Rapid recharge of the
aquifer from the River led city water managers to believe that they were simply
pumping their surface water allocation, albeit with a slight lag time.
Present Situation
Recent geohydrological information that challenges past assumptions, in-
creased competition for water, continuing population pressures, and concerns
over the environmental health of riverine habitat in the middle Rio Grande valley
cast doubt on the wisdom of Albuquerque’s reliance on ground water. Perhaps
the most important development was a 1993 U.S. Geological Survey study that
revealed that the aquifer was not as large as originally believed nor is recharge
(from surface flows) as rapid as assumed. This meant that Albuquerque was not
using its surface water supplies but was instead mining or overdrafting its ground
water. Inventory information also suggested that if Albuquerque continued to
rely on the aquifer to meet its urban needs, the aquifer would be economically
exhausted by 2060. During this same time period, the U.S. Fish and Wildlife
Service (USFWS) listed the Rio Grande silvery minnow, found in the middle Rio
Grande, as an endangered species. To ensure survival, the USFWS proposed

increases in instream flows and protection of riparian habitat. Meeting these

instream and other habitat needs implies changes in water use patterns.
Once city water managers understood that Albuquerque was mining ground
water and not using its surface water supplies, they reexamined the long-term
water management strategy. The city’s failure to use its surface water supplies
meant that someone else had been using those supplies. The significance of the
use issue is contained in western water law; specifically, western water law
requires that users demonstrate a beneficial use of water within a specific time
period. While cities may be treated differently from other (private) users of
water, increased competition for this water places pressure on the city to begin
actively using its allocation. However, the total water allocation (of 70,000 acre-
feet) is not adequate to meet future needs. Thus some combination of policy
options, including securing alternative surface water supplies, most likely from
agriculture, and increases in urban rates to reduce consumption, will be needed if
the city wishes to develop a sustainable aquifer management policy.
Valuation Issues
The situation in Albuquerque is similar to that in many other cities in arid
regions of the West. Historical preference for use of ground water in meeting
urban needs reflects some of the advantages ground water provides, including
stability of supply, high water quality (no treatment of ground water is required in
Albuquerque), and ease of access (no collection and transport system is required,
as in the case of most surface water supplies). The value of these advantages is
typically not reflected in the “price” of ground water (the “price” that cities
charge consumers is usually set at the cost of pumping and distributing the
water). A low price for ground water encourages higher use of the resource.
If ground water were not scarce (i.e., were available in unlimited quantities),
then its price would simply be the cost of extraction. However, ground water,
like surface water, is scarce; and when water is used in one setting, such as urban
use, it is not available for another purpose, such as in riparian habitat enhance-
ment. Ground water price should thus reflect not only extraction costs but also
foregone benefits from its use in some other setting or in the same use but at some
future time (its opportunity cost). Until recently, most cities did not include such
values in the price of water.
In the presence of mining, as is occurring in Albuquerque, potential long
term adverse effects jeopardize the flow of future services. The lost benefits
(costs) from the reduced flow of these services should be reflected in water
pricing. One of these effects is land subsidence (due to compaction of the pore
spaces in the aquifer). Subsidence may lead to damages to buildings, roads, and
other structures. Mining also affects water quality; water quality in aquifers tends
to decline as pumping depth increases. Falling water levels in the aquifer also
reduce the ability of the aquifer to maintain or support stream flows and maintain

CASE STUDIES 139
riparian zone health. Such drawdowns of water levels also increase pumping
costs to all users. Eventually, mining eliminates the potential use of an aquifer as
a buffer against drought. In arid regions, which are typically characterized by
high annual variation in precipitation and surface water supplies, the use of
ground water to meet needs during drought may be one of the most valuable
ground water services.
Brown et al. (1995) examine a series of options or scenarios for the city to
reduce aquifer use to a long-term, sustainable level by limiting use to periods of
extended drought. Sustainability (to build up the aquifer to a level sufficient to
provide a buffer against an extended drought) requires that the city live within its
annual water budget as defined by renewable surface water supplies (again, ex-
cept for periods of drought). The implications of ongoing use of the aquifer are
short-term gains, accruing primarily to present users, with costs (of overdrafting)
delayed to some future period (future generations), when the adverse effects
described above would begin. Alternative strategies imply costs to present users
but with potential long-term benefits. To weigh the benefits and costs of alterna-
tive actions requires the measurement of economic values, over time, for the
array of services under the range of options available to the city.
In planning conjunctive management of the water resources of this region,
policy-makers can benefit from an understanding of the value of water in its
various uses. As they consider alternative water strategies, they should, as is
practical, look at the full range of economic consequences associated with each
alternative. The range of services affected by each option includes the potential
for changes in both use and nonuse values. Use values in this case are as input in
production (e.g., agriculture, manufacturing) and recreation; nonuse values are
associated with the Rio Grande bosque, such as riparian habitat, endangered
species, and aesthetic or visual services. Estimates of some use values in the
region are discussed in Brown et al. (1995). Researchers have also measured
nonuse (existence) values for provision of instream flows for preservation of the
silvery minnow (Berrens et al., 1996). Thus information is available to assess
some economic trade-offs involved in moving to a sustainable aquifer manage-
ment policy.
The choice among alternative policies for ground water management should
reflect, at a minimum, the opportunity costs of that decision (what is given up in
selecting that option, or the benefits foregone from some other use of the water).
A full accounting would include the willingness to pay for changes in services
associated with each option (the maximum benefit or value associated with those
services). The costs (lost benefits) are not likely to be spread uniformly or
equally across affected parties. The political and judicial process can address
some equity issues but typically does not reflect the interests of future genera-
tions. Only by achieving sustainability (by establishing a safe minimum reserve
capacity in the aquifer) can the interests of future generations be guaranteed.

References
Berrens, R. P., P. Ganderton, and C. Silva. 1996. Valuing the protection of minimum instream flows
in New Mexico. Journal of Agricultural and Resource Economics. In press.
Boyle Engineering. 1995. Water Conservation Rates and Strategies. Report prepared for Albuquer-
que, New Mexico.
Brown, F. L., S. C. Nunn, J. W. Shomaker, and G. Woodard. 1995. The Value of Water: A report
submitted to the city of Albuquerque, New Mexico. Albuquerque, N.M.: City of Albuquerque.
CH2M-Hill. 1995. Albuquerque Water Resources Management Strategy: San Juan-Chama Options.
Report prepared for the city of Albuquerque, New Mexico.
EcoNorthwest. 1996. The Potential Economic Consequences of Designating Critical Habitat for the
Rio Grande Silver Minnow. Draft report prepared for the U.S. Fish and Wildlife Service, New
Mexico field office.
Middle Rio Grande Conservancy District. 1993. Water Policy Plan; Working Document.
THE BUFFER VALUE OF GROUND WATER

Arvin-Edison Water Storage District, Southern California
The Arvin-Edison Water Storage District is located at the southern end of
California’s Central Valley, about 20 miles south of the community of Bakers-
field. The district contains approximately 132,000 acres of highly productive
agricultural land. The economy of the area is almost wholly dependent on agri-
culture, as there is little other industry. The value of agriculture in the district
approaches $300 million annually, and land values range from $1,600 to $2,300
per acre. The principal crops include grapes, potatoes, truck crops, cotton, citrus,
and deciduous fruit. Seventy-five percent of California’s carrot acreage is found
here. The climate is hot and arid, with average annual precipitation totaling only
8.2 inches. Almost all precipitation occurs between October and April. The
sparseness and seasonality of precipitation means that irrigation is essential. On
average growers apply 3 acre-feet of water per acre (Arvin-Edison Water Storage
District, 1996).
Development of the area began after the turn of the century, and growers
relied primarily on ground water supplemented by small and erratic flows from
minor local streams. Most growers had their own wells and were responsible for
providing their own supplies of irrigation water. As agriculture in the region
grew, ground water extractions began to exceed rates of recharge and growers
experienced declining ground water tables. Between 1950 and 1965, for ex-
ample, water tables fell from an average depth of 250 feet to 450 feet. In 1965,
average annual overdraft in the district totaled 200,000 acre-feet, which accounted
for almost half the water applied districtwide. Continued overdrafting threatened
the area’s economic base.
Some years earlier local growers anticipated this situation and organized the
Arvin-Edison Water Storage District to bring supplemental surface water sup-

CASE STUDIES 141
plies to the area to offset the overdraft. Beginning in 1966, Arvin-Edison re-
ceived imported surface water from the Friant-Kern Canal, the southernmost
component of California’s Central Valley Project (CVP). The advent of signifi-
cant surface water deliveries did not fully solve the area’s water supply problems,
however.
The district’s water service contract called for annual importation of 40,000
acre-feet of firm (guaranteed) supply and up to 311,675 acre-feet of interruptible
or nonfirm supply on an as-available basis. Although the district was subse-
quently able to increase the quantity of firm supply through an exchange arrange-
ment, actual deliveries from 1966 to 1994 ranged from 30,000 acre-feet to almost
270,000 acre-feet. The problem lies with the significant portion of supply that is
interruptible and therefore not available in years when precipitation is below
average. This problem was resolved by percolating surplus supplies in wet years
to recharge the underlying aquifer through the district’s water-spreading facili-
ties. Dry-year deficiencies were then offset by pumping previously percolated
waters from the aquifer and delivering them to growers through the district’s
canal system (Vaux, 1986).
Over the period 1966-1994, more than 4 million acre-feet were imported to
the district, 1 million of which were percolated to the underlying aquifer. Despite
significant withdrawals to meet demands in the dry years of 1976-1977, 1982,
and 1986-1992, net aquifer recharge has totaled 372,000 acre-feet and water table
levels have stabilized. This has provided direct use benefits in the form of
reduced pumping costs to approximately 20 percent of the growers in the district
who are not connected to the distribution system and must continue to rely on
direct ground water pumping. Perhaps more significant, the operation of Arvin-
Edison’s water supply system provides a clear illustration of the buffer value of
ground water (Arvin-Edison Water Storage District, 1994).
In California less-than-average precipitation occurs with a frequency of about
four years out of seven. To the extent that precipitation shortfalls are reflected in
reductions in deliveries of surface water, ground water buffering values will be
realized in each year that precipitation is less than average. The magnitude of the
value will depend upon the degree to which surface water deliveries are deficient.
In the critically dry years of 1977 and 1991, the surface water imports available to
Arvin-Edison were 22 and 26 percent of average, respectively. Yet the district
was able to make deliveries to water users that amounted to 85 and 90 percent of
average annual deliveries, respectively. Rough calculations suggest that in 1991
more than 26,000 acres would have been fallowed had water stored in the aquifer
not been available. Assuming typical cropping patterns and typical prices (in
1991 dollars) the gross value of production on this acreage exceeded $38 million.
The returns to growers net of fixed and operating costs were almost $6 million
(Arvin-Edison Water Storage District, 1994).
The use of ground water and aquifer storage capacity by the Arvin-Edison
Water Storage District has yielded both direct use benefits and buffering benefits.

However, there are a number of issues that await resolution. The Metropolitan
Water District of Southern California (MWD) is considering a long-term contract
that would allow MWD to store water in the Arvin-Edison aquifer in wet years
and withdraw it in drier years to meet urban and industrial demands in the Los
Angeles area. Such a contract would increase the buffering value of the aquifer.
Growers in the district face the issue of whether to renew contracts with the
federal government for surface water supplies at prices reflecting full cost. These
increased costs of surface water imports will need to be weighed against the
present and future costs of pumping ground water as the sole source of irrigation
water. It is clear that the availability of low-cost surface water that could be used
for aquifer replenishment has sustained the agricultural economy of the Arvin-
Edison District on a larger scale than would have been possible if ground water
were the sole source of supply. The issue of whether the buffering value of
imported supplies will be sufficient to offset potential increases in the cost of
imported surface water remains to be resolved.
References
Arvin-Edison Water Storage District. 1994. The Arvin-Edison Water Storage District, Water Re-
sources Management Program. Arvin, California.
Arvin-Edison Water Storage District. 1996. The Arvin-Edison Water Storage District, Water Re-
sources Management Program. Arvin, California.
Vaux, H. J., Jr. 1986. Water scarcity and gains from trade in Kern County, California. Pp. 67-101 in
Scare Water and Institutional Change, K. D. Frederick, ed. Washington D.C.: Resources for
the Future.
THE VALUE OF AVERTING SEA WATER INTRUSION

Orange County, California
Background
The Orange County Water District (OCWD) operates and maintains a 15-
million-gallon-per-day (mgd) reclamation sea water barrier project that protects a
350-square-mile ground water basin. OCWD constructed Water Factory 21 in
1973 for the purpose of protecting the quality of the county’s extensive ground
water resources by preventing sea water intrusion.
Loss of the basin beyond any possible use would require the district to rely
on imported water for its entire water supply. However, this is not the only value
of a ground water basin: the basin also provides storage and distribution, supply-
ing water for peak and emergency use.

CASE STUDIES 143
Sea Water Intrusion

Sea water intrusion occurs in ground water basins located along the coast.
As overdrafting of a basin continues, the sea water front is drawn inland, threat-
ening the ground water basin. Two fundamental conditions must exist before a
ground water basin can be intruded by sea water. First, the water-bearing mate-
rials comprising the basin must be in hydraulic continuity with the ocean; second,
the normal seaward ground water gradient must be reversed or at least too flat to
counteract the greater density of sea water.
Sea Water Intrusion in Orange County

The largest body of ground water in Orange County is the coastal basin of the
Santa Ana River, which yields most of the ground water produced in Orange
County. The Santa Ana Gap is a coastal lowland lying between the Huntington
Beach and Newport Mesas. This gap was formed by the Santa Ana River, which
begins high in the San Bernardino Mountains and flows over 100 miles south-
westerly to discharge into the Pacific Ocean at Huntington Beach.
The gap is an alluvial valley about 2.5 miles in width and extends about 4.5
miles inland. Its surface elevations range from sea level at the coast to about 25
feet at its inland portions, while the adjoining mesa surfaces have elevations
ranging from 50 to 110 feet above sea level.
During the 1890s, agricultural interests were attracted to the flat fertile sur-
face of the Santa Ana Gap, where artesian wells yielded water of excellent min-
eral quality. Until about 1920, water flowed freely from these wells. By the mid-
1920s the increased production of ground water had led to the lowering of pressure
levels in the shallow water-bearing zone to elevations below sea level. Conse-
quently, encroachment of water from the ocean began to occur in the shallow
zone, called the Talbert aquifer.
A wet period from 1936 to 1945 replenished the ground water basin and
partially restored historic high water levels. During the period immediately
following 1945, ground water was extracted in quantities that exceeded natural
annual fresh water recharge, and a rapid decline in ground water levels ensued.
In addition, upstream diversions from the Santa Ana River were reducing the
flows to Orange County, resulting in less recharge to the basin. As the saline
waters intruded from 1930 to 1960, a number of wells tapping the zones below
the Talbert aquifer also began to experience intrusion.
The Orange County Water District

The Orange County Water District was formed in 1933 by a special act of the
California legislature. The district has a broad authorization to protect and man-

age the ground water basin in Orange County. OCWD functions as a manager of
the basin for those agencies that provide retail water service to consumers.
The district initially covered 163,000 acres inhabited by 60,000 people. Total
water use in 1933 was 150,000 acre-feet, of which 86 percent was used for
irrigation of agricultural land. Today the district covers nearly 220,000 acres and
has a population of more than 2 million. Water usage has completely reversed
since 1933, and urban use constitutes 94 percent of the district’s total water
demand. The basin supplies approximately 75 percent of northern Orange
County’s annual water demand, averaging 300,000 acre-feet. Although the basin
contains between 10 million and 40 million acre-feet of water, its usable storage
is limited by sea water intrusion and possible subsidence to approximately 1
million acre-feet.
Innovations to Prevent Seawater Intrusion
Recharging the Basin

With the importation of Colorado River water in 1940-1941 the district’s
water demands on the ground water basin were reduced. However, ground water
levels continued to drop until 1954, when imported water was used to supplement
the district’s ground water replenishment program.
In 1956, with an accumulated overdraft of 705,000 acre-feet, water levels
were at an historic low. The purchase of imported replenishment water escalated
dramatically from approximately 80,000 acre-feet in 1957 to 235,000 acre-feet in
1963. More than 1.165 million acre-feet of imported water from the Colorado
River was purchased for replenishment of the ground water basin during the
period 1956 to 1965. After 1956, water levels began to recover and rose through
1964, despite the continuing drought.
The replenishment program was a success, reducing the accumulated over-
draft to approximately 15,000 acre-feet. By 1964, average water levels in the
basin were 24 feet above sea level, up from 20 feet below sea level in 1956 and
equal to the average water level in the landmark year of 1944. Because of
changes in the distribution of water in the aquifers, however, the average water
levels inland were far above 1944 levels while those along the coast were far
below what they were in 1944. Despite replenishment efforts, sea water intrusion
continued along two areas of the coast, at the Alamitos Gap and the Talbert Gap.
Intrusion Barrier Projects

Together with the Los Angeles County Flood Control District, OCWD con-
structed the Alamitos Barrier Project located near the mouth of the San Gabriel
River. By 1950 the ground water level in the Alamitos Gap, which straddles the
boundary between Los Angeles and Orange Counties, was 30 feet below sea

CASE STUDIES 145
level. By the spring of 1962, sea water intrusion had proceeded more than 3
miles up Alamitos Gap. Barrier operation began in 1965 with 14 injection wells
and has expanded to 26 wells.
An average of 5,000 acre-feet of imported water purchased from MWD is
injected at the Alamitos Barrier Project each year. The barrier has halted salt
water intrusion in the Central Basin located in Los Angeles County and the
Orange County basin, protecting them from further degradation. Operation of the
barrier continues to be a joint project of the Los Angeles County Department of
Public Works and OCWD.
By the late 1960s, district officials recognized that sea water intrusion of the
Talbert Gap could not be averted solely by replenishment of the basin through its
recharge operations and began construction of the Talbert Barrier Project. To
provide a supply source for the Talbert Barrier, an advanced wastewater treat-
ment plant, Water Factory 21, was built in 1973. The project includes a 15 mgd
advanced wastewater treatment plant and a hydraulic barrier system consisting of
23 multipoint injection wells with 81 injection points. At present, injection water
for Water Factory 21 is a blend of 14 mgd reclaimed wastewater and 9 mgd of
ground water pumped from a deep aquifer zone that is not subject to sea water
intrusion.
Water Factory 21 treats secondary effluent using lime recalcination, multi-
media filtration, carbon adsorption, disinfection, and reverse osmosis. All com-
ponents of the reclamation system and hydraulic barrier facilities have functioned
well since operations began in 1976. The quality of the injected water has
consistently met or exceeded all health regulatory agency requirements.
With the completion of the two sea water intrusion injection barriers, the
ground water levels in the two basins now can be safely kept below sea level,
which allows for a more efficient ground water management plan. The Alamitos
Barrier and the Talbert Barrier have effectively halted sea water intrusion in the
basin so that it can be used as a ground water storage reservoir, providing more
access to available local supplies.
The Value of Averting Sea Water Intrusion

The principal economic effects on an area where the ground water basin is
subjected to seawater intrusion are the impairment of the basin as a storage
reservoir, the degradation and loss of the potable water supply stored in the basin,
and the loss of the basin’s value as a fresh water distribution system. Each of
these functions, which can be impaired or completely destroyed by sea water
intrusion, has tremendous economic value in a large basin area such as Orange
County. If protected from intrusion, this water supply would continue to be fully
available for use.

The Value of the Basin as a Storage Reservoir

The absence of precipitation during summer months reinforces the seasonal
variation in the demand for water in southern California. Furthermore, average
annual precipitation is not only modest but also highly variable. Dry years often
come in succession for a decade or more. Thus ground water basins have func-
tioned as natural regulators of runoff and as storage reservoirs for daily, cyclical,
and seasonal peaking requirements. These requirements must be met either from
surface storage facilities or from ground water basins.
In southern California standby pump and well capacity is much more eco-
nomical to develop and maintain than surface storage and distribution facilities.
When the additional sizing costs necessary to meet peaking requirements in
surface distribution facilities are considered, the critical economic importance of
ground water basins for peaking purposes in southern California becomes appar-
ent. If ground water storage is not continuously available for peaking purposes,
alternative surface facilities would be required. Based on the present value and
scarcity of land and construction costs, these facilities would represent a cost of
hundreds of millions of dollars.
Underground storage is also preferable in several respects to storage in sur-
face reservoirs. Water stored underground does not evaporate, as it does in sur-
face storage and aqueducts. If the water needs to be stored for long periods,
evaporation losses can be a serious concern, especially in arid regions where
evaporation rates are high.
In addition, natural runoff that percolates into a ground water basin loses
economic value if it flows into a basin degraded by sea water. This fresh water
supply of approximately 270,000 acre-feet per year in Orange County would
become unusable as a potable source.
Value of the Fresh Water Distribution System

The ground water basin acts as a distribution system because water may be
extracted in a wide area overlying the basin. If the basin is lost, then a distribu-
tion system to deliver the alternative surface supply to the consumers must be
constructed. In addition, the abandonment of the capital investment in wells and
pumping facilities would represent a substantial economic loss.
Value of Potable Water Supply in Basin

The dependency on imported sources is becoming less desirable for southern
California. The Metropolitan Water District provides the region with two sources
of imported water. One is from northern California through the State Water
Project and the other is from the Colorado River. Environmental concerns over
the San Joaquin/Delta River system have had an impact on State Water Project

CASE STUDIES 147
FIGURE 6.1 Estimated annual cost of water to retail producers: With or without ground
water basin.
resources, and Arizona and Nevada are looking to increase their allotment of
Colorado River water. Access to Orange County’s valuable local ground water
resource decreases the district’s dependence on this more costly, less reliable
imported water supply.
Ground water is generally less expensive than imported water, primarily
because of the development and transmission costs of the imported supplies. As
seen in Figure 6.1, it is projected that the value of Orange County’s ground water
over a 20-year period will be approximately $1.39 billion, and the value of
imported water will be as high as $4.80 billion. Figure 6.1 shows the annual cost
of water for the district with and without a ground water basin and indicates that
the present value difference of the two scenarios is approximately $3.41 billion;
this is one measure of the value of the ground water basin although it presumably
represents a lower bound estimate of the true value.
Under current conditions with the ground water basin, retail producers within
the district are able to meet approximately 75 percent of their demands by pump-
ing from the ground water basin. The price of this water is estimated at $138 per
acre-foot. which includes a pumping assessment of $85 per acre-foot and an
energy cost of $53 per acre-foot.
In 1995 approximately 300,000 acre-foot of water was pumped from the
ground water basin. Approximately 130,000 acre-foot of imported water was
purchased from MWD. Of the water purchased from MWD, approximately
100,000 acre-foot was noninterruptible treated water at a price of $426 per acre-
foot. The remaining 30,000 was purchased as seasonal shift water at a price of
$286 per acre-foot. By having access to a ground water basin, retail producers
are able to participate in the MWD seasonal shift program, which allows them to
purchase imported water at a discount during the winter months.

The total cost of purchasing these three types of water (ground water, im-
ported, and imported “seasonal shift”) by the retail producers to serve their cus-
tomers was approximately $92.6 million in 1995. Alternatively, if the ground
water basin were not available, the entire 430,000 acre-foot of necessary supplies
would have to be purchased from the MWD at the rate of $426 per acre-foot. The
total cost of this water is approximately $183 million, which is roughly twice the
water supply cost when the ground water basin is available.
In addition, the savings derived from the use of the ground water basin,
compared to the cost of sea water intrusion facilities, offsets the cost of construct-
ing and operating a barrier. For instance, capital and construction costs for Water
Factory 21 were approximately $57 million (in 1995 dollars), with an average
operation cost of $6 million per year.
Although a dollar value cannot readily be assigned to it, the value of the
ground water basin for an emergency water supply and distribution system con-
stitutes an important justification for protection. If the surface distribution sys-
tem should become unusable because of a natural or human-made emergency or
the imported supply were interrupted, reduced, or contaminated, ground water
could eliminate tremendous economic loss or even assure survival. The value of
an emergency supply would also be enormous during a period of extended
drought. The value of the basin would increase with the severity and duration of
the emergency.
Conclusion
Ground water and ground water basins are valuable resources because of the
quantity of supply and the possibility for storage and distribution. William
Blomquist stated in “Dividing the Waters,” “When a ground water basin is de-
stroyed, water users not only lose the comparative advantages of underground
water storage and distribution, but they also suffer enormous financial costs.
Replacement of ground water storage and distribution capacity, even if feasible,
would be an economic disaster” (Blomquist, 1992).
Communities in Orange County would be forced to turn to more costly
imported water to meet their water supply needs if the ground water basin were
lost to sea water intrusion. To replace local ground water supplies in Orange
County with enough imported water from the MWD of southern California to
maintain current levels of use for a 20-year period would cost water users at least
$4.8 billion dollars.
Reference
Blomquist, W. A. 1992. Dividing the Waters: Governing Ground Water in Southern California.
San Francisco: ICS Press.

CASE STUDIES 149
INCORPORATING THE VALUE OF GROUND WATER IN

SUPERFUND DECISION-MAKING
Woburn, Massachusetts
Background
Knowing the value of ground water is important in evaluating remediation
alternatives for Superfund sites involving ground water resources. Unlike other
case studies where the primary concerns are maintaining the quantity and/or
quality of the ground water, in the Superfund setting the ground water resource
has been contaminated and the issue is primarily one of restoring quality. Thus
the value of the ground water will be reflected in the values associated with
moving from a situation where the aquifer is not usable to situations where some
uses can be made of the aquifer.
In this section a brief overview is provided of a study on the costs and
benefits of ground water remediation for a Superfund site located in Woburn,
Massachusetts (Spofford et al., 1989). This study, conducted by Resources for the
Future (RFF), illustrates the importance of valuing ground water as a component
in a cost-benefit analysis of ground water remediation decisions and the com-
plexities that such an assessment involves.
In 1980 the Comprehensive Environmental Response, Compensation, and
Liability Act (CERCLA) was enacted to facilitate cleanup of the nation’s worst
hazardous waste sites. CERCLA and the subsequent 1986 Superfund Amend-
ments and Reauthorization Act (SARA) created a fund, the Superfund, to pay for
site cleanup when parties who caused the contamination could not be found or
could not pay for the cleanup themselves.
Many of the Superfund sites involve contamination of ground water re-
sources or are listed as potential threats to local public water supply wells (Canter
and Sabatini, 1994). Contaminants found in public ground water supplies are
mainly volatile organic contaminants (VOCs) such as TCE (trichloroethylene),
PCE (tetrachloroethylene), 1,2-DCE (dichloroethylene), vinyl chloride, and ben-
zene; other contaminants commonly present in various combinations included
heavy metals (chromium, lead, and arsenic) and polynuclear aromatic hydrocar-
bons (PAHs).
Economic considerations should play a key role in determining the extent to
which ground water remediation is pursued at these sites. If the expected costs of
cleanup exceed the expected benefits of improving the quality of the ground
water, then the economically rational alternative is not to remediate the ground
water. This might be the case if the contaminated ground water resource is not
used and is perceived to have a low potential for future use or if there are
relatively low-cost substitutes. Alternatively, there may be different levels of
remediation depending upon the future uses and expected costs of the ground
water resources. Thus, in the context of Superfund remediation, the value of

ground water is reflected in the benefits associated with improvements in the

quality of the contaminated aquifer, and the value will depend upon the level of
remediation. In addition, the benefits of remediation cannot exceed the total
economic value of the ground water for that level of remediation.
Analysis of the Woburn Superfund Site

The Superfund site in east Woburn, Massachusetts, included two municipal
water supply wells, which had been found to be contaminated with chlorinated
solvents in 1979. Prior to contamination, the local aquifer segment had served as
a drinking water supply for the city of Woburn and as a water source for several
industrial users. Possible levels of remediation included restoring the aquifer to
drinking water quality as well as maintaining the aquifer for nonconsumptive
purposes only.
Because of measured contaminant concentrations and related health con-
cerns, TCE had been identified as the key contaminant for remediation planning.
The costs of remediation that were analyzed in the RFF study were based on
withdrawal of the contaminated ground water from the aquifer using extraction
wells, treatment using aeration towers, and return of the treated water to the
aquifer using injection wells.
In estimating the benefits of remediation, the RFF study considered only
those benefits that were associated with direct use of the aquifer. The benefits
that were not measured in the RFF study but that should be considered in a study
designed to measure the TEV of the contaminated aquifer include reductions in
losses of recreational opportunities; reductions in ecological damages; reduc-
tions in losses of intrinsic value, including bequest and existence values; reduc-
tions in health damages due to morbidity as opposed to losses due to mortality
(these were included in the assessment of health damages in the RFF study); and
reductions in fear and anxiety associated with switching from a water supply that
is perceived to be safe (bottled water or a municipal water source) to a water
supply that may be perceived as unsafe (the remediated ground water). As the
authors indicate, estimates of these benefits were not included in the report since
the primary purpose of the research was to illustrate the impact of uncertainties
on measures of net benefits as opposed to replicating the true benefits and costs
for a specific site, and study funds were limited (Spofford et al., 1989).
To estimate the benefits of remediation, the researchers hypothesized two
management contexts. The first is fairly simple and basically involved using an
alternative water supply for the entire city of Woburn. The contaminated ground
water supply was assumed to be replaced with water purchased from the Massa-
chusetts Water Resources Authority (MWRA), which was the least expensive
alternative available to the city. The additional cost per gallon of using MWRA
water as opposed to pumping the aquifer multiplied by the total use of water in
the city provides a lower bound on the value of the aquifer in a given year. (The

CASE STUDIES 151
study estimated this cost to be approximately $0.32 per 1,000 gallons in 1986.)
This method of valuing the ground water resource is basically a replacement cost
approach, which does not reflect the values people may attach to clean ground
water or the disutility attached to knowing that the aquifer is contaminated.
The second management context developed in the study was more complex
and was based on the underlying assumption that all the households that had
previously relied on private wells as opposed to a municipal water supply system
would continue to use “contaminated” water, although the extent of uses by these
households could vary. The study hypothesized a range of situations from ones
in which consumers avoided using the water for drinking, food preparation, and
personal hygiene, in which case the direct use value of the ground water would be
reflected in the costs of purchasing alternative drinking water supplies, to situa-
tions where individuals continued to consume the contaminated ground water. In
the latter situation, the direct use value of the ground water would be reflected in
the health costs, or damages, associated with the consumption of contaminated
water.
To implement this second management context, a model of consumer deci-
sion-making under uncertainty that incorporated perceived health risks associ-
ated with consumption of contaminated water and the costs of alternative drink-
ing supplies (such as bottled water) serves as the basis for determining how
individuals made their consumption choices and for constructing a demand curve
for ground water. The value of ground water can then be measured as the area
under the demand curve. The consumers’ demand for ground water depends
upon many factors, including the normal demand determinants (income, price of
substitutes, etc.) as well as attitudes toward perceived health risks and the levels
of TCE in the water. Over time, the demand for ground water may shift as these
underlying factors change, and thus the value of the ground water will change.
The direct use value of the ground water in this second management context
will depend upon the extent to which the contaminated ground water is consumed
as a source of drinking water. For example, if the water is not consumed as a
source of drinking water, then the direct use value of the ground water would be
reflected primarily in the costs of bottled water, which substitutes for the human
consumption component of per capita water consumption. RFF estimated this
level of use to be approximately 3.65 gallons per person per day out of a total use
level of 130 gallons per person per day. In this context the direct use value of
ground water can be estimated using the estimates of avoidance costs, but as in
the first management context, this value does not reflect any of the indirect or
nonuse values of the aquifer.
If consumers continue to drink the contaminated water from the private
wells, there are no avoidance costs per se, and the value of the ground water is
reflected in the health costs associated with its consumption as drinking water
plus the indirect or option value. These two extremes provide some bounds on
the direct use value of ground water or, alternatively, provide bounds on the

average benefits of ground water remediation for the management context where
households in the area still continue to use private wells.
As the RFF study noted, estimates of the benefits of ground water remediation
depend on many assumptions. For example, in specifying the model of consumer
behavior, assumptions are needed regarding the level of the potential health
damages, discount rates, concentrations of TCE over time in the aquifer, and
future costs of alternative drinking water supplies. These assumptions affect
decisions on avoidance costs and measures of health damages and thus the direct
use value attached to ground water by individuals who have private water supply
wells.
An additional source of uncertainty relates to the behavior of individuals
confronted with different levels of TCE in drinking water that exceed the stan-
dard. The extent to which individuals will avoid contaminated well water and
their willingness to pay for such avoidance varies with perceived risks to health
of different levels of TCE in the drinking water. The authors cite the lack of an
adequate methodology for measuring perceived health risks as a major limitation
in using this approach to quantify the value of ground water or using this manage-
ment context as a basis for remediation decisions (Spofford et al., 1989).
The general findings of the RFF report indicate that for the first management
context the net benefits of remediation were positive, indicating that from an
economic perspective it is more efficient to remediate the aquifer than to continue
using an alternative water supply. This finding also held true for the second
management context, where it was assumed that all the households affected by
the contaminated aquifer had previously relied on private wells: it is more effi-
cient to remediate the ground water than it is to permit the exposed population to
continue to use contaminated well water. Comparisons among the net benefits
for alternative remediation designs would shed some light on the relative effi-
ciency of alternative cleanup options.
Conclusions
Several conclusions pertaining to the value of ground water can be drawn
from the Woburn case study:
• Economic valuation of ground water for the specific hazardous waste site
is crucial to making informed decisions regarding the status of remedial action.
The conclusions reached will be site specific, depending on the nature of the
contaminant and the current uses of the aquifer.
• Determining the full economic value of the aquifer will often be difficult
because of the indirect nature of many of the benefits. However, assessing the
direct use benefits poses a much simpler task and may serve as a lower bound on
the benefit estimates.
• Technical and economic uncertainties must be recognized in quantifying

CASE STUDIES 153
the value of the ground water resource. While the RFF study noted many uncer-
tainties, those that pertain to the benefit side of the equation are substantial
enough to warrant further research.
References
Canter, L. W., and D. A. Sabatini. 1994. Contamination of public ground water supplies by
Superfund sites. International Journal of Environmental Studies, Part B 46:35-57.
Spofford, W. O., A. J. Krupnick, and E. F. Wood. 1989. Uncertainties in estimates of the costs and
benefits of ground water remediation: Results of a cost-benefit analysis. Discussion Paper QE
89-15. Washington, D.C.: Resources for the Future.
APPLYING GROUND WATER VALUATION TECHNIQUES

Tucson, Arizona
Background
The objective of this case study is to illustrate how incorporating the eco-
nomic concepts and techniques developed in Chapters 1 through 4 of this report
can assist in management of ground water resources over the long term. Unlike
the previous case studies, which are limited to reviews of existing work and
demonstrations of value of ground water in various contexts, the Tucson case
study illustrates the application of the conceptual valuation framework described
in Chapter 3.
The Tucson case study is notable both for the diversity of ground water
services it illustrates as well as for the urgency of policy attention the area’s water
management system requires. The intent is not to calculate the incremental
change in value of services provided by ground water in the “with treatment” and
“without treatment” condition but to identify the steps required to implement the
valuation process in a real-world context. This case study simplifies and ab-
stracts information from the actual Tucson situation in order to better illustrate
the role of economic valuation in improving management of ground water re-
sources.
Ground water provides numerous extractive services in Tucson, including
residential, commercial, agricultural, and industrial water uses. The region’s
ground water resources also provide a range of in situ services, such as preven-
tion of land subsidence, reservoir functions that will buffer future drought asso-
ciated with shortages in surface water supplies, bequest value, and ecological
services such as maintenance of riparian habitat. Policy-makers in Arizona have
struggled to reduce the extent to which ground water supplies in the region are
mined. Ground water policies have been put in place as a mechanism to ration
and conserve supplies for future use. Alternative renewable surface water sup-

plies to augment and substitute for ground water have been developed at great
cost in anticipation of future demands.
As is the common practice, the price of ground water in Tucson does not
reflect any of the commodity values, including the extractive and in situ service
flow values. It is based on the cost of distribution, including capital, operations
and maintenance, and administrative costs. Ground water is thus the least expen-
sive and highest-quality water supply available. In a dynamic pricing environ-
ment, water would be priced to incorporate marginal extraction cost and user cost
and would reflect the values of all use and nonuse service flows.
Instead of relying on price to ration scarce ground water supplies, Arizona
water managers have focused on regulations and other nonprice policies to re-
duce water use. The total economic value of ground water supplies in any
location is affected by the institutional, policy, and hydrological constraints that
shape current and future use and define management options. Policy-makers
must recognize this institutional and political context in order to make an accu-
rate assessment of the services ground water provides.
Tucson’s Water Resources

Tucson has relied on a high-quality ground water supply to meet all of its
demands for water. Ground water use has exceeded natural recharge (precipita-
tion and return flows) annually since 1940, leading to a situation in which over
half of annual use is from mined ground water. In Tucson’s desert climate, there
are no viable local renewable surface supplies (other than municipal effluent) to
substitute for ground water resources.
Although there is a substantial amount of ground water in the aquifer, depen-
dence on mined ground water has a number of negative consequences. Falling
ground water levels have eliminated many of the free-flowing rivers, streams,
and associated riparian habitat in most of southern Arizona. The risk of subsi-
dence with continued depletion of ground water is quite severe in the central
Tucson wellfield that underlies the city of Tucson; a worst-case estimate is that
the ground level will drop by 12 feet by 2024 (Hanson and Benedict, 1994). In
addition, the most productive parts of the aquifer are nearly exhausted, which can
be expected to lead to substantial increases in pumping costs. As a consequence
of municipal pumping in the central Tucson wellfield, ground water levels have
fallen as much as 170 feet.
Legal and Institutional Constraints

Legal and institutional constraints on ground water use frame the valuation
context. The Tucson Active Management Area (AMA) is one of five AMAs in
the state established pursuant to the 1980 Groundwater Management Code. The
Tucson AMA has a statutory goal of safe yield by 2025. The safe yield goal

CASE STUDIES 155
requires that the amount of ground water used on an average annual basis must
not exceed the amount that is naturally or artificially recharged.
The code established stringent limitations on ground water use within AMAs.
Farmers receive an allocation based on historic cropping patterns assuming maxi-
mum irrigation efficiency. No irrigation of new agricultural land is allowed.
Allocations to municipal water providers are on the basis of their average histori-
cal use in gallons per capita per day. A “reasonable” reduction is required within
each water company, based on an evaluation of conservation potential. All large
industries are directly regulated, using an approach based on either allotment (for
golf courses) or best management practices (for copper mines, sand and gravel,
electric power, etc.).
In addition to demand management policies, there are economic incentives
to discourage development of new ground water uses and encourage use of re-
newable supplies, primarily imported surface supplies (from the Central Arizona
Project, or CAP) and wastewater effluent. One of the primary tools for moving
from the current state of overdraft to the safe-yield condition is the 100-Year
Assured Water Supply (AWS) Program. This program, administered by the
Arizona Department of Water Resources, severely limits the amount of ground
water that can be used for municipal purposes. The cumulative amount of ground
water that the city of Tucson can legally withdraw as part of its AWS is approxi-
mately 3.5 million acre-feet. If the city were to rely solely on ground water for its
supply, its cumulative ground water withdrawals would exceed this amount be-
fore 2030. Without utilization of Tucson’s CAP allocation, Tucson would not
qualify for a designation of AWS.
Demand for Water

The population of the Tucson AMA is estimated at 750,000 for 1995 and is
projected to reach 1.3 million by 2025. The majority (78 percent) of the popula-
tion in the Tucson AMA is served by Tucson Water, the water utility operated by
the city of Tucson.
Total water use in the AMA is currently close to 300,000 acre-feet per year
(see Table 6.2); more than half of the total water supply is mined ground water.
TABLE 6.2 Tucson AMA Water Demand
Sector 1994 USE (in acre-feet) Percent
Agricultural 97,900 31
Municipal 148,500 47
Industrial 18,600 6
Mining 45,000 14
SOURCE: Arizona Department of Water Resources, 1996.

Under current population projections, total demand for water in the Tucson AMA
is expected to be approximately 427,000 acre-feet per year by 2025 (Arizona
Department of Water Resources, 1995 and 1996), increasing by 50 percent from
the 1995 levels.
Development of Alternative Renewable Water Supplies:

The Central Arizona Project
The Central Arizona Project is a 330-mile canal built by the U.S. Bureau of
Reclamation, with pumping stations and associated distribution and flood control
facilities. It extends from Lake Havasu to Tucson; the total cost, including
federal, local, and private investment, exceeds $4 billion. A major feature that
has not been constructed is a reliability feature for Tucson, a terminal storage
reservoir. Tucson has the largest municipal allocation of Colorado River water—
148,200 acre-feet.
Applying the Economic Valuation Framework in Tucson
Policy Constraints on Use of Renewable Supplies

At the end of 1992, nearly half of Tucson Water’s customers (84,000 me-
tered connections) began receiving CAP water. After unanticipated water-qual-
ity problems arose (rusty water, turbidity, taste and odor problems, and bursting
pipes), 37,000 metered connections in the older parts of town were returned to
ground water in October 1993. Water-quality problems were attributed to old
cast iron and galvanized steel water mains and household plumbing, combined
with pH and other chemical attributes of the imported surface water that encour-
aged corrosion.
In January 1995, the Tucson City Council voted not to directly deliver CAP
water to customers until the water-quality problems were fixed. On November 7,
1995, the citizens of Tucson approved a citizen’s initiative (Proposition 200; the
Water Consumer Protection Act) prohibiting direct delivery of CAP water to
customers unless it is treated to the same quality as ground water for hardness,
salinity, and dissolved organic material. This can be accomplished only through
advanced treatment, probably reverse osmosis or nanofiltration.
Defining the Management Options Within Current Constraints

Under the existing constraints, Tucson’s water planners must define feasible
options for meeting Tucson’s present and future water needs. These options are
constrained by the above policies and laws.
In this application of the conceptual framework, recharging the untreated
CAP water supplies into overdrafted aquifers is the base or “without-treatment”

CASE STUDIES 157
case. Water to meet all demands would continue to be pumped from ground
water supplies in a conjunctive management scheme. Treating surface water
with advanced membrane filtration to remove salinity and organic material prior
to direct delivery to customers is the “with-treatment” option. It is important to
note that in this example the valuation techniques are not used to calculate the
TEV for ground water. Rather, they are used to evaluate the change in ground
water value that results from a particular policy decision.
Identifying Changes in the Quantity and Quality of Ground Water

Initially, hydrologists must establish the quantity and quality of Tucson’s
ground water resources. Policy-makers need to assess how the “with-treatment”
management option would change this baseline quantity and quality. Since the
recharge option is considered the baseline, an accurate assessment of the impacts
of artificial recharge potential is also needed.
The quality of the water that is pumped depends on where the CAP water is
recharged relative to the location of recovery, the nature of the aquifer materials,
the degree of blending with local ground water, the distance the water travels in
the subsurface, and the presence of any source of contamination. The Groundwa-
ter Management Code allows an entity to recharge in one location and recover at
a distant location within the same AMA, provided certain criteria are met.
Identifying Changes in Service Flows

The next step is to link the management decision with the changes that result
in the time path of services that the ground water will provide under the alterna-
tive. This is where the critical input from scientists and hydrologists is required.
The “without” scenario describes the services provided in the base case and the
incremental changes that result from substituting treated surface water supplies.
Incremental Changes in Extractive Service Flows

Although Colorado River water is viewed as a high-quality water source for
millions of people in the Southwest, there are several ways in which recharge
using CAP water can reduce the quality of the water available for extractive uses.
CAP water as treated with conventional surface water treatment methods meets
all of the EPA maximum contaminant levels (MCLs), but the aesthetics, taste,
and hardness of CAP water were a major issue for Tucson Water when the supply
was directly delivered to customers from 1992 to 1994. Any use of CAP water in
the basin, whether through direct delivery or recharge, will increase the salinity
level of the aquifers within the Tucson AMA. The only way to avoid the increase
in salinity is to utilize an advanced treatment approach (probably using mem-
brane technology) to remove the salts. This technology is expensive; it is there-

fore important to identify the value of the changes in service flows that would be
provided to decide whether the additional expense is justified. Unlike native
ground water, surface water tends to contain pathogens, some of which are diffi-
cult to remove.
CAP water has roughly twice the total dissolved solids (TDS) and salinity of
the local ground water, and it contains organic precursors that can, in combina-
tion with chlorine, cause formation of trihalomethanes, a group of chemicals
known as carcinogens. Depending on the contact time and travel through aquifer
materials, the recharge process may reduce the organics and disease-causing
organisms (bacteria and viruses), but it does not affect the salinity and hardness
of the water. Therefore, recharge of untreated CAP water is likely to influence
the quality of the water in the aquifer. To the degree that this same water is
recovered for delivery to municipal customers, costs for end users will increase,
because higher salinity and hardness translate into the need to replace appliances
more frequently and increase the maintenance of irrigation and cooling systems.
Depending on the location of the recharge, impact on water quality may not
be substantial. For example, there are areas in the AMA where the end users may
not experience negative effects from the higher salinity (agriculture usually has
few problems with 700 mg/l TDS). However, it is important to note that the salt
load brought in with the CAP water will be distributed in the vicinity of the
recharge facilities and could migrate over time to surrounding aquifer materials
unless the withdrawal facilities are in the same location.
Recharge will have a positive effect on extractive values if the water is
recharged in the vicinity of wells supporting extractive uses. However, several of
the prime recharge locations are not near the central Tucson wellfield.
The treatment option requires the development of an advanced water treat-
ment facility, probably nanofiltration or reverse osmosis, to remove the salts,
organics and solids as required by Proposition 200. Aside from the capital cost of
the facility, which is several hundred million dollars, a major concern is disposal
of the brine stream. Depending on how this salt-laden wastewater is directed, the
effect on ground water service flows varies. The brine stream from such plants is
normally discharged into surface water or injected into deep wells. Neither of
these options is available in Tucson. The most likely disposal alternative is
evaporation ponds, with the sludge deposited in lined landfills.
The advanced treatment option provides the highest-quality water for mu-
nicipal uses. It would not affect the quality or quantity of water for agriculture or
mining. Direct delivery has many benefits, since it leaves the ground water in
place and should allow for at least partial recovery of all of Tucson’s wellfields.
Advanced treatment will limit the avoidance costs of many municipal end users,
who would otherwise buy bottled water, resort to point-of-use treatment devices,
or replace their appliances more frequently as a result of using CAP water either
directly or after recharge. Membrane treatment will also eliminate the possibility
of Cryptosporidium or Giardia outbreaks, if the treated water is blended with

CASE STUDIES 159
ground water rather than surface water before delivery to customers. Blending of
membrane-treated water is generally recommended to improve the taste, reduce
corrosiveness, and reduce costs.
Depending on the brine stream disposal method (most likely through evapo-
ration ponds), there could be localized impacts on water quality in the aquifer.
Another option is to deliver the brine to existing wastewater treatment plants, to
be blended with less salty effluent before discharge. This would result in high
salinity downstream from the wastewater facilities. The ground water quality in
these areas could be degraded, affecting service flows.
Incremental Changes in In Situ Service Flows

In situ service flows can be categorized as use and nonuse. For Tucson, in
situ uses include use of the stock to: (1) assimilate contaminated runoff from
extractive uses and attenuate existing areas of ground water contamination; (2)
buffer future drought on the Colorado River system in a conjunctive use scheme;
and (3) support the soil structure in the aquifer and prevent subsidence. Addi-
tional in situ services include: existence value (based on a desire to protect the
aquifer as part of the natural system); bequest value (the intent to protect water
for future generations); and ecological services in which ground water supports
surface water flows and riparian habitat.
Recharge Effects
If recharge is used to limit water-level declines in areas that are prone to
compaction, it will help support in situ uses. There are two ways to limit the
subsidence potential in the central Tucson wellfield: reduce the amount of future
pumping there by withdrawing ground water elsewhere and recharging within the
central wellfield. The former is easier in this case, since Proposition 200 pre-
cludes an effective way to recharge in the central basin (injection recharge).
Surface recharge in areas of subsidence can actually accelerate subsidence, since
its weight adds stress to the aquifer materials.
Recharge results in the storage of water for future use, which increases the
buffer value of the aquifer. If the water is available for future generations, then it
supports the bequest value as well. Those who stress the existence value of the
aquifer would likely prefer that higher-quality ground water be maintained rather
than degraded by CAP water through recharge. However, it is not clear what the
quantity/quality trade-off is for existence value.
If recharge occurs in the vicinity of streambeds, it is likely to support riparian
habitat or provide for an expansion of habitat values. Recharge facilities can
easily be designed with a habitat/recreation component, guaranteeing a positive
impact on ecological values. However, there are costs associated with increasing
habitat values, particularly if threatened or endangered species become a compo-

nent of the new habitat. The costs are associated with endangered species regu-
lations, which could require permanent maintenance of the artificially created
habitat to protect a particular species. This introduces a cost associated with
irreversibility—the decision to recharge could be legally required to continue
even if another water use option were more desirable from other perspectives.
Advanced Treatment Effects

Substitution of treated surface supplies for pumped ground water means that
most of the wellfields in the vicinity of key riparian areas would not be used
often. In addition, the regional water tables should rise in the wellfields because
of natural recharge. Both of these occurrences should increase the quantity of
water available for ecological service flows.
The direct delivery option with advanced treatment protects both the quality
(depending on the disposal of the brine stream) and the quantity of water in the
aquifer. The buffer value of ground water would be the highest in this option,
since there will definitely be future supply shortages, during which consumers
will rely on ground water. By ending the current pumping in the central wellfield,
additional subsidence is likely to be avoided. Ground water will be available for
future generations, and those who value existence of the aquifer would have the
quality as well as the quantity protected (at least in theory).
Valuing Changes in Extractive Service Flows

Incremental Extraction Costs (Marginal Benefits of Quality Changes). In
the Tucson example, the difference in the extractive service flows between the
two options is related primarily to the reduced pumping costs and the reduced
number of wells required to serve the community, as well as the water-quality
issues caused by recharge of untreated CAP water that occurs in the one option.
If the recharge does not occur in the vicinity of existing wellfields, water levels
will continue to decline in those areas. Lowering the water level has two eco-
nomic effects: it increases the amount of energy required to pump each acre-foot
of water, and it results in the need to drill more wells since the most productive
part of the aquifer may be exhausted. Direct delivery after treatment eliminates
these costs because there would be little dependence on ground water as a supply
except during infrequent CAP shortages and canal shutdowns.
The only methods identified for evaluating the change in services related to
pumping costs for extractive purposes were standard engineering analysis tech-
niques—increased energy costs associated with increased head and well drilling
and system extension costs. The major issues associated with this type of analy-
sis are uncertainty and discounting. It is unclear how productive deeper parts of
the aquifer will be and how many wells will be required to replace the capacity of
the existing high-capacity wells. The time element is also uncertain; it is not

CASE STUDIES 161
known how many years will pass before expanded infrastructure is required to
maintain current production levels. Since the growth rate on the city’s system is
1-2 percent per year and long-term outages may occur on the CAP canal, pump-
ing capacity must be expanded to meet the increased demand as well.
Incremental Quality Costs (Marginal Benefits of Quality Changes). There is

an additional reduction in service flows as the water level drops (assuming that
recharge does not occur in the vicinity of production wells). The water that is
withdrawn at greater depth in the Tucson basin is higher in salinity and TDS.
This lower quality, like that of CAP water, will increase costs for end users in the
residential, commercial, and industrial sectors. Households and firms may buy
bottled water or in-home treatment devices (avoidance costs) or replace appli-
ances more frequently. Industries and individuals with private wells will be
similarly affected. These costs do not occur in the case of the direct delivery with
advanced treatment option.
Possible techniques to evaluate the costs associated with reduced water qual-
ity include the averting behavior method and the contingent valuation method.
To the extent that wellhead treatment or well replacement is required, standard
engineering techniques must be used.
Opportunity Costs (Marginal User Costs). Ground water in the Tucson area
is essentially a stock resource, since it is not naturally replenished at a high rate.
Using a unit of ground water today means that it will not be available for future
use. Methods that can be used to measure this “dynamic” opportunity cost
include dynamic programming and intertemporal (optimal) control techniques.
Although these methods are limited to measuring use values, they may be valu-
able in evaluating alternative options.
Valuing Changes in In Situ Service Flows

Subsidence Avoidance. The risk of subsidence is high in the central Tucson
basin, where 60 percent of the city’s water supply is currently pumped. In the
recharge option, some pumping in the central wellfield would continue without
replenishment in the same location. Subsidence costs include disruption of all
utilities (sewer, water, electric, gas, etc.); damage to roads and buildings; and a
possible permanent reduction in storage capacity of the aquifer. The direct deliv-
ery with treatment option eliminates the pumpage in the central wellfield, thereby
essentially eliminating the possibility of increasing the rate of subsidence.
There are two techniques that can be used to measure the benefits associated
with subsidence reduction. To the extent that utilities must be repaired or re-
routed and roads and buildings must be repaired, standard production cost esti-
mates can be prepared. The other method is the hedonic price (property value)
method, since some areas are at considerable risk of subsidence and others are

unlikely to experience any damage. Differences in market prices across these

zones may begin to reflect these costs.
The degree of uncertainty associated with predicting subsidence damage is
high. It is unclear how long it will take after an aquifer is dewatered for the
compaction to occur. It is also unclear whether the whole basin will settle as a
unit or whether it will settle differentially, causing subsidence cracks and sub-
stantially more damage. The normal pattern is that the cracking occurs near the
edge of the basin, and downtown Tucson is near the base of the Tucson moun-
tains. A risk/probability assessment may be required.
Reservoir Function. In some aquifers subsidence causes irreversible damage

to the water-holding capacity because rewetting these areas fails to have any
rebound effect. The irreversible aspects of subsidence need to be taken into
account, at least from a qualitative perspective. Engineering analyses can be used
to compare lost storage capacity to the costs of alternative storage facilities, such
as reservoirs.
Buffer Value. A ground water value that is lost under the recharge option is
the ability to buffer the effect of drought on the CAP system. This value is not as
high in the recharge option, since all customers are receiving pumped ground
water and continuous delivery is not critical. If a direct delivery option were
selected in the future, however, the buffer value of the aquifer would have been
lost if most of the ground water supply in the vicinity of the wells had been
removed.
Methods associated with estimating buffer value, such as intertemporal opti-
mization, may be applied (Tsur and Graham-Tomasi, 1991).
Existence Value. Certain values associated with maintaining the ground

water aquifer intact are unrelated to any function or service the aquifer provides.
This value is difficult to describe, so methods of estimating it are limited. The
most likely technique to establish this value is the contingent valuation method.
Habitat Values Related to Water Quantity. Higher water levels in the vicin-
ity of some proposed recharge sites are likely to enhance habitat values. In
addition, recharge sites can be designed with habitat enhancement as a compo-
nent. However, in comparing the two options, it should be noted that it may be
possible to create habitat using the brine stream from the advanced treatment
facility. The options for improving local habitat due to recharge are offset by the
probability that existing mature riparian habitat (such as the Tanque Verde Creek
area) in the Tucson basin could be destroyed by continued pumping of the ground
water.
Because impacts on habitat are visible only in limited areas, the hedonic
price method (based on differences in property values) may be useful. Other

CASE STUDIES 163
methods that can be employed for evaluating the recreational/aesthetic values of

habitat include contingent valuation and travel cost. Sources of uncertainty in-
clude lack of definitive information about the relationship of ground water level
and habitat quality, the length of time it will take for dewatering to occur, and the
limited number of remaining high-quality habitats to evaluate.
Habitat Values Related to Water Quality. The recharge of untreated CAP

water will increase the aquifer salinity in the vicinity of the recharge site and in
areas that are down-gradient from the recharge site. It is unclear whether the
increased salt levels will have any negative effect on the development or mainte-
nance of high-quality ecosystems. However, it is unlikely that salinity and TDS
concentrations in the CAP will have a measurable effect on mature vegetation. If
it can be demonstrated that mature riparian vegetation or mammals and birds are
affected, it is possible that salt-avoidance ecological values can be measured
using the contingent valuation or travel cost method.
Conclusions
Based on this descriptive approach for applying the valuation framework
presented in Chapter 3, the following conclusions can be drawn:
• The treatment option is likely to have a higher benefit/cost ratio when the
TEV of ground water is considered.
• Engineering analyses (changes in production costs) may continue to be
used to establish costs where extractive services are a large component of cost, so
long as costs are assessed at both the household level and the utility level.
• Quality issues may represent a more crucial impact on service flows than
do quantity issues.
• There are any number of scientific and economic uncertainties associated
with the use of ground water valuation methods.
References
Arizona Department of Water Resources. 1995. Proposal to Increase the Use of Colorado River
Water in the State of Arizona. Arizona Department of Water Resources, Tucson, Arizona.
Arizona Department of Water Resources. 1996. State of the AMA: Tucson Active Management
Area. Arizona Department of Water Resources, Tucson, Arizona.
Hanson, R. T., and J. F. Benedict. 1994. Simulation of ground water flow and potential land
subsidence, Upper Santa Cruz Basin, Arizona. U.S. Geological Survey Water Resources In-
vestigations Report 93-4196.
Tsur, Y., and T. Graham-Tomasi. 1991. The buffer value of ground water with stochastic surface
water supplies. Journal of Environmental Economics and Management (21):201-224.

LESSONS LEARNED
Even though the case studies presented in this chapter are diverse, they share
themes that provide the basis for observations and lessons.
• Each study involves unique hydrogeological features, ground water qual-
ity, uses of the resource, institutional requirements and constraints, and political
contexts. Although the principles of the valuation framework described in Chap-
ter 3 can be transferred, then, limited opportunities exist for transfer of benefits in
subsequent studies.
• The case studies clearly demonstrate a range of ground water services
even if comprehensive valuation studies have not yet been accomplished. Trade-
offs in decision-making can be made based on descriptive (qualitative) informa-
tion about this range. Clearly, quantification of the values of such services would
provide more complete information for decision-making.
• These case studies highlighted the extractive value (service) of ground
water. Several studies, however, recognized other services and TEV, and some
focused on changes in value at the margin. Accordingly, ground water valuation
studies should consider all components of TEV even though not all can currently
be quantified. This approach would provide more complete information for
subsequent decisions.
• Several cases illustrate the classic natural resource scarcity phenomenon
where market indicators have been given only limited consideration relative to
depletion. A price regime that more nearly mimics the market appears to be at
least one of the ingredients of more rational water management. If that course is
to prove fruitful for the long run, we probably must find a way to unbundle water
demand and supply among such major extractive uses as drinking, bathing, laun-
dry, lawn watering, and car washing—the variety of water uses likely to be
valued very differently. Unbundling could involve dual water systems, or a
single system with special treatment measures for drinking water, or creative
water use accounting schemes.
• Some of the case studies identified concerns associated with human health
risks from extractive uses of contaminated ground water. These concerns under-
score the importance of carefully designed epidemiological studies, though even
these are scarcely conclusive by themselves. Further, in the absence of epidemio-
logical studies or information, debate will continue regarding actual and per-
ceived health risks associated with degraded ground water.
• Ecological services provided by ground water are recognized in several
cases; however, there appears to be a dearth of information on how to quantify
and value ecological benefits. This need can be further emphasized by consider-
ing the contributions of ground water to the base flow of streams, maintenance of
wetlands and their associated hydrological and biological functions, and the pro-
vision of riparian habitat.

CASE STUDIES 165
• Technical and economic uncertainties must be recognized in efforts to

develop site-specific ground water valuation information. Each of the case stud-
ies provides illustrations of such uncertainties. For example, in ground water
valuation studies for Superfund sites, stochastic modeling of the contamination
problem and potential effectiveness of cleanup measures should be used to de-
velop ranges of resultant information that can be viewed as a type of “sensitivity
analysis.” Decision-makers should also consider the possible influences of un-
certainties and nondelineated costs and benefits (of ground water services) as
they interpret information.
• Ground water valuation studies must recognize the importance and limi-
tations of the institutional and political context, which can lead to conflicts in
conducting valuation studies and interpreting their results and influence on sub-
sequent policies and decisions.
• Planning and implementation of valuation studies require the interdisci-
plinary efforts of hydrogeologists, engineers, environmental scientists, and econo-
mists, who must be able to interact with and learn from related disciplines.


APPENDIX A 169
APPENDIX
5 A
Glossary
If you wish to converse with me, define your terms.

Voltaire
aquifer—an underground geologic unit that stores ground water.

aquifer capacity—the amount of water that is stored in an aquifer; sometimes
used loosely to indicate the amount of water an aquifer can deliver under
a specified set of pumping conditions.
averting behavior model (ABM)—an assessment approach in which costs in-
curred by households to offset or mitigate environmental hazards (e.g.,
expenditures on water purifiers to remove pollution from ground water)
are used to infer value of clean water (Young, 1996).
base flow—that portion of a stream’s flow derived from ground water (as op-
posed to surface runoff and interflow).
basins and watersheds—areas of drainage in which all collected water ulti-
mately drains through a single exit point. Basins differ from watersheds
only in the perception of their size: basins are usually considered to be
much larger, composed of many watersheds. Within a watershed or basin,
water moves both on and below the surface. Topographic “highs” prevent
surface water from crossing from one watershed (aquifer) to another.
benefits—the gains, often measured as the sum of the monetary values of the
direct and indirect uses, associated with the use of a resource or with
improvements in the quality of a resource unit.
benefit-cost analysis (BCA)—a technique to compare the economic efficiency
of different alternatives, usually applied to individual projects or policies.
A BCA comprises the gross benefits of a project or policy and with its the
opportunity costs. Benefits and costs are measured as changes in con-
sumer and producer surpluses accruing to individuals in society.
169

bequest value (BV)—a willingness to pay to preserve the environment for the
benefit of one’s descendants.
buffer value—the difference between the maximum value of a stock of ground
water under uncertainty and its maximum value under certainty where the
supply of surface water is stabilized at its mean. Thus, this value arises
from the ability of ground water to provide supplemental water supplies
during short-term periods of drought or other supply disruptions.
cone of depression—a localized depression of the water level in an aquifer as a
result of pumping. The depression may be confined to a small area or
spread over a large area depending on the pumping rate and transmissivity
of the aquifer. See Figure 2.4.
confined aquifer—an aquifer bounded above and below by units of distinctly
lower hydraulic conductivity and in which the pore water pressure is
greater than atmospheric pressure. An unconfined aquifer is not bounded
above and is the uppermost aquifer. See Figure 2.2.
consumptive use—a use of water that does not return water (polluted or not) to
system. For example, drinking water is consumed, while shower water
returns to the treatment system.
contingent valuation method (CVM)—a method determining money measures
of change in welfare by describing a hypothetical situation to respondents
and eliciting how much they would be willing to pay either to obtain or to
avoid a situation. Although well accepted for use values, CVM has many
limitations when used to calculate nonuse values (Young, 1996).
costs—the mirror image of benefits, that is, what is lost when a resource in-
creases or decreases in quantity or quality. In this context one can think of
costs as damages. Costs also refer to the value of any resources used to
change the quality or quantity of the resource stock, for example, the costs
of ground water remediation.
direct approaches—valuation approaches that use survey-based techniques to
elicit preferences for nonmarket goods and services (e.g., the contingent
valuation method).
discounting—a procedure that adjusts for future values of a particular good by
accounting for time preferences. It aims to determine the present value of
benefits or costs in relation to the benefits or costs at different times in the
future.
drawdown—lowering of the water table or potentiometric surface as a result of
pumping.
existence value (EV)—a pure nonuse value that is the amount an individual
would pay to know that a resource exists.
extractive value—a value calculated by adding up the benefits (across time) of
removing water from an aquifer.

APPENDIX A 171
future value (FV)—the value of a time-dependent benefit or cost obtained by

discounting the values out into future.
hedonic price method (HPM)—a technique to estimate implicit prices for envi-
ronmental attributes of a market commodity. Usually applied to levels of
clean air or water or similar environmental attributes as components of
the total value (sales price) of real estate (Young, 1996).
incremental value—see marginal value.
indirect approaches—approaches that rely on observed behavior to infer non-
market values. Examples include the travel cost method and the hedonic
price method.
in situ—in place, that is, within the aquifer.
intergenerational equity—the concept that one generation should consume in a
manner that allows an equal opportunity for future generations.
irreversibility—an effect that cannot be restored to its original state.
law of capture—as applied to common property resources is the tenet that who-
ever gets to the ground water first gets to use it.
marginal value—the value of another (hypothetical or last) increment of water
when used in the most efficient manner.
nanofiltration—a membrane filtration process designed to desalinate (or soften)
water at relatively low pressure.
natural discharge—ground water that reaches the surface (streams, lakes, wet-
lands, etc.) in the absence of pumping, excavation, or other human action.
neoclassical welfare economics—a school of economic thought in which the
basic premises are that all economic activity is aimed at increasing the
welfare of the individuals in society and that individuals are the best
judges of their own welfare.
nonmarket—describes goods and services not priced and traded in markets.
nonmarket and market value—a market value is the value ascertained in a
system where supply and demand forces are free to work and set the value
of a good. A nonmarket value is the value of a good outside of a market
system (for example, the value of the air you breathe or of the beautiful
stream in the park).
nonpoint source pollution—pollution that is caused by diffuse sources that are
not regulated as point sources and are normally associated with agricul-
tural, silvicultural, and urban runoff.
nonuse value—values that are independent of the people’s present use of the
resource. (See bequest value and existence value.)
open access resource—a resource that has unlimited access which causes over-
exploitation of the resource.
option value—often categorized as a nonuse or passive use value, and refers to
the fact that an individual places a certain current value on the option to

use a resource in the future. Option value is often considered “closest” of

the preservation values to use values.
overdrafting—ground water supply that is being used in excess of its natural
recharge rate.
potentiometric surface—represents the height of rise of the water due to hydro-
static pressure when the constraint of the confining layer is removed (see
Figure 2.2). Sometimes referred to as the piezometric surface.
present value—the value of a time-dependent benefit or cost obtained by dis-
counting the values back through time to the present.
rate of time preference—rate of conversion of value between time periods. It is
defined at the individual level; it is a feature of peoples’ desires.
recharge—the replenishment of water beneath the earth’s surface, usually
through percolation through soils or connection to surface water.
recreational value—one of the use values provided by water. It is rooted indi-
rectly to the value of ground water, which plays a role in providing sur-
face water.
regulatory impact analysis (RIA)—a required analysis to be performed to de-
termine the benefits and costs of a proposed regulation.
renovated ground water—ground water from which certain contaminants have
been removed, synonymous with remediated ground water.
reverse osmosis—is a highly efficient removal process for inorganic ions, salts,
some organic compounds, and in some designs, microbiological contami-
nants. Reverse osmosis resembles the membrane filtration process in that
it involves the application of a high feed water pressure to force water
through semipermeable membrane. In osmotic processes, water sponta-
neously passes through semipermeable membrane from a dilute solution
to a concentrated solution in order to equilibrate concentrations. Reverse
osmosis is produced by exerting enough pressure on a concentrated solu-
tion to reverse this flow and push the water from the concentrated solution
to the more dilute one. The result is clear permeate water and a brackish
reject concentrate (NRC, 1997).
riparian—associated with stream banks.
service flows—indirect and direct benefits to consumers attributable to a provi-
sion of services over time.
total economic value (TEV)—the sum of the extractive and in situ values. From
the perspective of how to calculate the total economic value, it is the sum
of use and nonuse values.
travel cost method—an indirect valuation method that values a recreation site by
estimating the demand for access to the site; expenditures on the travel
required to reach a recreational site are interpreted as a measure of will-
ingness to pay for the recreational experience (Young, 1996).
unconfined aquifer—see confined aquifer.
use value—determined by a resource’s or environmental asset’s contribution to

APPENDIX A 173
current production or consumption. Values may take the form of changes

in income to producers (e.g., increases in agricultural output) or changes
in services not usually traded in markets, such as recreation. Use values
thus involve both marketed and nonmarketed commodities. Changes may
also involve “intermediate” commodities that affect final consumption or
production (e.g., natural filtration of polluted water or other ecosystem
functions).
value—what one is willing to give up in order to obtain a good, service, experi-
ence, or state of nature. Economists try to measure this in monetary terms.
value taxonomies—a classification through which resource value or benefits re-
flect the economic channels through which a resource’s service is valued
(for example, use and nonuse values or extractive and in situ values).
welfare economics—a field of inquiry within the broad scope of economics that is
concerned with money measures of individual and social well-being, par-
ticularly changes in well-being due to implementation of public policies.
willingness to accept (WTA) and willingness to pay (WTP)—willingness to
accept is the minimum amount an individual must be paid to accept a
certain risk or a change (decrement) in environmental quality. Willing-
ness to pay is the maximum amount an individual would pay to obtain a
change (increment) in environmental quality.
References
National Research Council. 1997. Safe Water From Every Tap. Washington, D.C.: National Academy Press.
Young, R. A. 1996. Measuring Economic Benefits for Water Investments and Policies. World Bank Technical
Paper No. 338. Washington, D.C.: World Bank.
Acronyms
ABM—averting behavior method
BCA—benefit-cost analysis
BV—bequest value
CVM—contingent valuation method
EV—existence value
HPM—hedonic price method
RIA—regulatory impact analyses
TEV—total economic value
TCM—travel cost method
WTA—willingness to accept
WTP—willingness to pay

APPENDIX B
5
A Portion of a Sample Contingent Value
Methods Questionnaire
John Reed Powell
1. There are many ways to protect public water supplies, and communities
vary greatly in the extent to which they protect water supplies. We would like
your opinion on how well you feel the drinking water supply in your community
is protected from contamination.
Study the chart below and circle one letter (A, B, C, or D) that corresponds to
how safe you feel about your household drinking water supply.
HOW SAFE PROTECTION

I FEEL LEVEL DESCRIPTION
VERY SAFE A I feel absolutely secure. I have no worries

about the safety of the community water
supply at present. I am certain the level of
protection is excellent and I cannot foresee
any contamination occurring in the near
future.
SAFE B I feel secure. I am confident the communi-
ty water supply is safe at present. I am
sure the level of protection is good and I
am reasonably sure the water will not be
contaminated in the near future.
SOMEWHAT SAFE C I feel apprehensive. I am unsure about
the safety of the community water sup-
ply. I think the level of protection is ade-
quate at present, but I am uneasy about
the future. There is a possibility it could
become contaminated in the near future.
174

APPENDIX B 175
UNSAFE D I feel troubled. I am anxious about the

safety of the community water supply. I
have doubts about the level of protection
and I think it is very likely the water will
become contaminated in the near future.
2. One way to prevent pollution of the supply is to establish an areawide

special water protection district. This district would develop and implement
pollution prevention policies specifically designed to suit your community’s
needs. Those in the district who would benefit from the increased protection
would make an annual payment, which would be added to their water utility bill.
We are interested in discovering what you would be willing to pay, in higher
water utility bills, per year to increase the level of protection for your community
water supply. Take into account your household income and the fact that the
money would have come from some part of your budget.
Using the payment card below, please indicate how much you are willing to
pay, per year, to go from your present protection level, which you indicated on
the chart in Question 1, to the highest level (For example, if you feel “SOME-
WHAT SAFE” now, what would you pay to move to “VERY SAFE”)? Circle
one dollar range as your annual payment.
$0 $51-75 $201-225
$0-10 $76-100 $226-250
$11-20 $101-125 $251-275
$21-30 $126-150 $276-300
$31-40 $151-175 $301-325
$41-50 $176-200 $326-350
If you would be willing to pay more than $350, what is the maximum amount per
year that would pay $____________.
3. If you answered “$0” to Question 2, please indicate which one of the

following reasons best describes why you answered the way you did:
[ ] I AM ALREADY AT THE HIGHEST PROTECTION LEVEL.

[ ] I NEED MORE INFORMATION TO ANSWER THE QUESTION.
[ ] I DO NOT WANT TO PLACE A DOLLAR VALUE ON WATER
SUPPLY PROTECTION.

[ ] I AM ALREADY PAYING ENOUGH.

[ ] OTHER (Please specify)____________________________________
4. Many individuals and groups supply information about water quality.

How much trust do you have in information from each of the following different
sources? Circle one letter for each item.
TRUST IN SOURCE
DO NOT GREAT
TRUST SOME DEAL OF
AT ALL TRUST TRUST UNSURE
Business and Industry a b c d

Citizen Groups a b c d
Municipal Water Supplier a b c d
Farmers a b c d
State Agency Officials a b c d
Newspapers a b c d
Local Government Officials a b c d
Scientific Experts a b c d
Environmental Groups a b c d

APPENDIX C 177
APPENDIX C
Biographical Sketches of
Committee Members
Larry W. Canter, who chaired the committee, is the Sun Company Chair of
Ground Water Hydrology, and Director of the Environmental and Ground
Water Institute at the University of Oklahoma, Norman, Oklahoma. He
holds a B.S. in civil engineering from Vanderbilt University, an M.S. in
sanitary engineering from the University of Illinois, and a Ph.D. in Environ-
mental Health Engineering from the University of Texas, Austin, Texas.
Over the last 30 years, Dr. Canter’s research has addressed a wide range of
technical and policy issues relating to ground water quality and quantity. He
has published over 110 papers in refereed journals or conference proceed-
ings and is author of over 135 research reports. Dr. Canter is a former
member of the U.S. Army Corps of Engineers Environmental Advisory Board
and the Governor of Oklahoma’s Coordinating Committee on Water Re-
sources Research. He served as associate editor of Environmental Profes-
sional and on the International Advisory Board of EIA Review. He was a
principal contributor to the WSTB’s 1989 colloquium on “Ground Water
and Soil Contamination Remediation: Toward Compatible Science, Policy,
and Public Perception.”
Charles W. Abdalla is an associate professor in the Department of Agricultural

Economics and Rural Sociology at Pennsylvania State University. He earned
his B.S. in environmental resource management from Pennsylvania State
University, and his M.A. in economics, M.S. in agricultural economics, and
177

Ph.D. in agricultural economics from Michigan State University. His re-

search and extension programs address public choice about natural resources
and the environment. His recent studies include the economic assessment of
institutions for water management, measuring ground water values, and im-
plications of industrialization of the U.S. food system for environmental
policy design. He has written several book chapters, articles, and reviews,
his work appearing in journals such as American Journal of Agricultural
Economics, Land Economics, and Water Resources Bulletin. Also he served
as guest editor of an award-winning issue of the Journal of Soil and Water
Conservation entitled “Rural Groundwater Quality Management: Emerging
Issues and Public Policies for the 1990s.” Dr. Abdalla is the co-founder of
the Pennsylvania Groundwater Policy Education Project and has worked
with organizations at the national, state, and local levels to inform citizens
and public officials and increase their involvement in water resources deci-
sion-making. He is a recipient of the Gilbert White Fellowship awarded by
Resources for the Future and the Berg Fellowship awarded by the Soil and
Water Conservation Society.
Richard M. Adams is a professor of agricultural and resource economics at

Oregon State University, Corvallis. He holds a B.S. in resource manage-
ment, and an M.S. and Ph.D. in agricultural economics from the University
of California, Davis. His current research interests include economic assess-
ments of the effects of environmental change on agricultural and natural
ecosystems, assessments of agricultural costs and social benefits of reducing
ground water pollution from agriculture, valuation of water across compet-
ing uses, and valuation of fish and wildlife resources. He has served as
associate editor of Water Resources Research, editor of the American Jour-
nal of Agricultural Economics, and chair of the Policy Sciences Committee
of the American Geophysical Union’s Hydrology Section. Dr. Adams is
author of approximately 200 publications and has provided consulting ser-
vices on numerous natural resource assessment projects.
J. David Aiken is a professor of water and agricultural law at the University of

Nebraska, Lincoln. He is a lawyer and has written extensively on ground
water policy, including topics such as the depletion of the Ogallala aquifer,
ground water protection, and conjunctive use. He has made extensive study
of the various approaches to ground water allocation and protection taken in
the western states. In addition, he has served as a legal consultant in the
development of Nebraska’s recharge appropriation legislation, and on a vari-
ety of agricultural and water law cases. He was a member of the Nebraska
Water Independence Congress, and currently serves on the Water Quality
Technical Advisory Committee of the Nebraska Department of Environmen-
tal Quality.

APPENDIX C 179
Sandra O. Archibald earned her B.A. and M.S. in Public Policy from the Univer-
sity of California at Berkeley, and her M.S. and Ph.D. in Agricultural Eco-
nomics from the University of California at Davis. She is an associate
professor of public affairs and planning at the University of Minnesota. Her
research on the economic valuation of water resources has been conducted
primarily in California where she heads a large study examining the impacts
of changing federal water policy on ground water value. Her research has
addressed issues such as ground water and surface water interactions, spatial
and temporal dimensions, institutional roles, surrogate use indicators, and
sustainability. In addition, she has examined economic issues related to
irrigation drainage in the San Joaquin Valley, and the economic impacts
associated with the ecological effects of ground water mining. Dr. Archibald
has also published in the area of pesticide use and associated economic
benefits and health risks. She is a member of the American Agricultural
Economics Association, and has served on committees of the Transportation
Research Board and Institute of Medicine.
Susan Capalbo is an associate professor in the Department of Agricultural Eco-

nomics and Economics at Montana State University in Bozeman, Montana.
She has also held positions at the University of California, Davis; Resources
for the Future; the University of Maryland; and the National Marine Fisher-
ies Service. Dr. Capalbo’s current research examines the interface among
agricultural practices and the environment, with a specific emphasis on
ground water, surface water, erosion, and farm worker health. She has
served as director of the Western Agricultural Economics Association and
associate editor of the American Journal of Agricultural Economics. She is
a member of the American Agricultural Economics Association, American
Economic Association, Canadian Economic Association, Western Agricul-
tural Economics Association, and Association of Environmental and Re-
source Economists. She recently won the Outstanding Journal Article Award
in the Northeastern Journal of Agricultural and Resource Economics.
Patrick A. Domenico (a committee member through November 1995) is the

David B. Harris Professor of Geology at Texas A&M University’s College
Station Campus where he specializes in teaching and research in ground
water hydrology. He earned his B.S. in geology and M.S. in engineering
geology from Syracuse University, and his Ph.D. in hydrology from the
University of Nevada. Dr. Domenico has authored more than 40 profes-
sional publications, including a textbook on ground water hydrology. He has
consulted on projects dealing with hydrologic, ground water supply, geother-
mal, and environmental issues for many private and governmental organiza-
tions including the International Bank for Reconstruction and Development,
DuPont Chemical Company, and the Edison Electric Institute. He has re-

ceived many prestigious awards, including the Birdsall Distinguished Lec-

turer in Hydrogeology, the Distinguished Teaching Award from the College
of Geoscience, and the Distinguished Teaching Award from Texas A&M
University.
Peter G. Hubbell has formed a private consulting firm, Water Resource Associ-
ates, Inc., focusing on water resource engineering and planning. He was
formerly Executive Director of the Southwest Florida Water Management
District (SWFWMD). He holds a B.S. in Water Resource Management from
the University of Maryland, and completed the Program for Senior Execu-
tives at Harvard University’s John F. Kennedy School of Government. At
the SWFWMD he was responsible for the development of water resource
programs and overall management of District operations. He has also held
positions as a water resource analyst with a major environmental and engi-
neering consulting firm, with the U.S. Bureau of Land Management, and
with the U.S. Geological Survey. He was the chair of Florida’s Bluebelt
Commission on Aquifer Recharge, a founding member of the International
Water Resource Network’s Policy Council, a member of the board of the
Florida Conflict Resolution Consortium, and holds memberships in the
American Water Resources Association, American Water Works Associa-
tion, and Interstate Council on Water Policy.
Katharine L. Jacobs is the Director of the Arizona Department of Water Re-

sources Tucson Active Management Area. She holds a B.A. in Biology from
Middlebury College, and an M.L.A. in environmental planning from the
University of California, Berkeley. As Director of the Tucson Active Man-
agement Area, she is involved in ground water policy development and
coordination, and consensus building in solving water resource management
problems. She represents southern Arizona in statewide water issues and
works with community leaders and other agencies to address a variety of
local resource problems. She was a primary author in the development of
Arizona’s “assured and adequate water supply” rules. She serves on the
Board of Directors of the Southern Arizona Water Resources Association
and the Tucson Regional Water Council; and is a member of the Arizona
Hydrologic Society, American Water Works Association, and American
Water Resources Association.
Aaron L. Mills is a professor of environmental sciences at the University of

Virginia. He earned his B.A. in biology from Ithaca College, and his M.S.
and Ph.D. in soil science, with minors in microbiology and ecology, from
Cornell University. Dr. Mills’ areas of research address the transport of
bacteria through porous media and biogeochemical reactions pertinent to
ground water systems and he has over 80 professional publications. He has

APPENDIX C 181
served as the chair of the aquatic and terrestrial microbiology section of the
American Society for Microbiology and is an active member of the Ameri-
can Academy of Microbiology and the American Geophysical Union. He
has also served as a member of the editorial board of Applied and Environ-
mental Microbiology and Microbial Ecology. He has also served as a con-
sultant on a number of sites where bioremediation efforts have been pro-
posed and undertaken.
William R. Mills, Jr. has been the General Manager of the Orange County Water
District (OCWD) since the fall of 1987. OCWD is responsible for manage-
ment of the ground water basin in northern Orange County. Prior to his
appointment at OCWD, Mills was a private consulting engineer between
1984 and 1987, specializing in water resources management, surface and
ground water investigations, water quality, and water rights. From 1967 to
1984 Mills was employed by PRC Engineering, Inc. in Santa Ana, California
in technical capacities up to and including President of the Planning and
Development Division. Prior to joining PRC Engineering, Inc., Mills worked
for the California Department of Water Resources and Los Angeles County
Flood Control District. He is a graduate geological engineer from the Colo-
rado School of Mines, with an M.S. degree in civil engineering from Loyola
University of Los Angeles, and is a registered engineer and geologist.
Paul V. Roberts is the Clair Peck Professor of Environmental Engineering at

Stanford University. He holds a B.S. in chemical engineering from Princeton
University, a Ph.D. in chemical engineering from Cornell University, and an
M.S. in environmental engineering from Stanford University. His research
focuses on the transport and fate of contaminants in subsurface porous me-
dia, as well as water treatment technology. Previously, he headed the engi-
neering department of the Swiss Federal Institute of Water Supply and Water
Pollution Control. He has also worked as a research engineer at Stanford
Research Institute, and as a process engineer at Chevron Research Company.
He was a member of the WSTB’s Committee on Ground Water Clean-Up
Alternatives and has served three terms on the Environmental Engineering
Committee of EPA’s Science Advisory Board.
Thomas C. Schelling is a Distinguished Professor of Economics and Public

Affairs at the University of Maryland, and the Lucius N. Littauer Professor
of Political Economy, Emeritus, at Harvard University. He earned an A.B.
in economics from the University of California, Berkeley, and a Ph.D. in
economics from Harvard University. He has served in the U.S. Bureau of the
Budget, the Economic Cooperation Administration in Europe, and the White
House Executive Office of the President. He joined the faculty at Harvard
University after serving five years on the faculty at Yale University. He is a

member of the National Academy of Sciences, Institute of Medicine, and a

fellow of the American Academy of Arts and Sciences, the American Asso-
ciation for the Advancement of Science, and the Association for Public
Policy Analysis and Management. Dr. Schelling currently serves as a mem-
ber of the NRC’s Commission of Geosciences, Environment, and Resources.
Theodore Tomasi is a Research Scientist in the College of Marine Studies at the

University of Delaware, and a Principal in the consulting firm Environmen-
tal Economics Research Group. He earned his B.A. in environment and
public policy and an M.A. in economics from the University of Colorado,
and a Ph.D. in natural resource economics from the University of Michigan.
Dr. Tomasi’s research focuses on environmental economics with special
emphasis on methods for assessing the value of nonmarket goods and ser-
vices. Prior to joining the University of Delaware, he held positions at the
University of Minnesota, University of Michigan, and Michigan State Uni-
versity. He has served as a consultant on various issues of conducting
natural resource damage assessments to NOAA, the U.S. Fish and Wildlife
Service, the U.S. Department of Justice, the State of Michigan, and the State
of Florida.

INDEX 183
Index
A transmissivity of, 170

unconfined, 33-35, 39, 172
ABM. See Averting behavior model Arizona, 40, 109-113, 147
Absolute ownership, 107 Ground Water Management Act of 1980,
Acceptable risk, 118 113-114, 154, 157
Agricultural uses, 15, 17, 27, 69, 113, 130-131, Tucson, 12, 128, 130, 153-163
140-141. See also Nonpoint source Asset value. See Stock value
(NPS) pollution Association of Ground Water Scientists and
AGU. See American Geophysical Union Engineers (AGWSE), 124
AGWSE. See Association of Ground Water Averting behavior model (ABM), 7, 9, 75-79,
Scientists and Engineers 87-90, 169
Air stripping, 43 AWRA. See American Water Resource
Allocation of ground water, 1-2, 51-57, 106- Association
114
laws regulating, 10, 105-113
American Geophysical Union (AGU), 124 B
American Water Resource Association
(AWRA), 124 Bacterial contaminants. See Pathogenic
Appropriation doctrine. See Regulatory microbes
measures Base flow, 32, 169
Aquifers, 21, 31-36, 169. See also individual Basins, 31-32, 169
aquifers benefits of, 36
capacity of, 169 Benefit-cost analysis (BCA), 56, 65, 106, 114,
confined, 33-35, 39, 170 120, 169
deep, 3, 34, 45 Benefits, 169
as managed storage facilities, 21, 146 direct versus indirect (See Service flows)
recharge capability of, 26 (See also Bequest value (BV), 98, 170. See also
Recharge) Intergenerational equity
as three-dimensional, 32 Best management practices (BMPs), 117
183

184 INDEX
Bioeconomic assessment, 28 Consumptive use, 170

Bioremediation, 43 Contamination, 4, 41-42. See also Hazardous
Brackish reject concentrate. See Reverse waste contamination; Hydrologic cycle,
osmosis anthropogenic modifications of;
Buffer value, 2, 21, 60, 77, 139, 141, 146, 159- Maximum contaminant levels (MCLs);
162, 170 and specific contaminants
Bush, President George, 11 containing, 44
BV. See Bequest value filtering out, 2, 35
laws regulating, 10
protecting against, 15, 17, 116-117
C Contingent valuation method (CVM), 6-9, 27-
28, 69, 76, 82-87, 90-100, 170
California, 21, 39, 109-111
cautions about using, 83-85
Arvin-Edison, 12, 128-129, 140-142 questionnaire, sample of, 84, 174-176
Orange County, 12, 128-129, 142-148
Corps of Engineers, 124
San Joaquin Valley, 39
Correlative rights, 107-108
Capture, law of, 4, 37, 113, 171 Cost-benefit analysis. See Benefit-cost analysis
Case studies, 12, 127-165. See also specific
(BCA)
states
Cost of illness (COI) method, 7, 9, 75, 78
lessons learned, 164-165 Costs, 14, 25-26, 31, 35, 37, 74-77, 160, 170
summarized, 127-130
dynamic, 72
CERCLA. See Comprehensive Environmental
of water treatment, 42-44, 118-119
Response, Compensation, and Liability Current use value. See Use value
Act
CVM. See Contingent valuation method
Chlorinated hydrocarbons. See Organic
CWA. See Clean Water Act
contaminants CZMA. See Coastal Zone Management Act
Clean Water Act (CWA), 10, 114, 116-117
Clinton, President William, 11
Coastal Zone Management Act (CZMA), 116 D
COI. See Cost of illness method
Colorado, 112 Deep aquifers. See Aquifers
Command-and-control approaches, 10 Deep-well injection, 42
Commerce Department. See U.S. Department Defense Department. See U.S. Department of
of Commerce Defense
Committee on Ground Water Cleanup Depletion, 32-35
Alternatives, 26 Depression. See Cone of depression
Commodity prices, 57 Derived demand method. See Costs
Common law doctrines, 106-111 Desalination, low pressure. See Nanofiltration
Comprehensive Environmental Response, Direct approaches, 28, 82-86, 90-99, 170
Compensation, and Liability Act Discharge. See Depletion
(CERCLA), 1, 10, 44, 115, 149 Discounting, 5-6, 54-56, 65-66, 170. See also
Computer capacity, inadequate, 45 Future value (FV); Risk premiums
Cone of depression, 35, 109-110, 170 Disposal options, 42
Confined aquifer. See Aquifer Disutility, measuring. See Contingent valuation
Conjoint analysis. See Contingent valuation method (CVM)
method (CVM) Diversity. See Wildlife habitat
Conjunctive use, 35-36, 111 Double counting errors, 8, 20, 99
Conservation efforts, 15, 39 Drawdown, 139, 170
little incentive for, 37 Drought, 4, 38. See also Buffer value
Consumers, basis of valuation, 49-50 Dynamic price, 71-73

INDEX 185
E G
Eastern correlative rights. See Correlative rights Global cycles, 32
Ecological diversity. See Wildlife habitat Gross benefits. See Benefit-cost analysis (BCA)
Economics of environmental resources, 2, 4, Ground water, 58-60. See also Allocation of
65, 68-86 ground water; Economics of ground
history of, 68-70, 123 water use; Quality of ground water;
methods for, 73-86 Value of ground water
Economics of ground water use, 37-40, 57 balance of, 32-35, 52
analyzing, 60-65 defined, 169
current knowledge of, 86-99 dependence on, 21
Edwards Aquifer, 112 flow diagram, 49, 62-65
Effluent, treated, 21, 155 managing, 65
Energy Department. See U.S. Department of rights, 121-122
Energy saline (See Intrusion of sea water)
Environmental economics. See Economics of Ground Water Vulnerability Assessment, 64
environmental resources; Economics of
ground water use
Environmental Protection Agency, 1-2, 9-11, H
17, 28, 90, 100, 114-119, 123-125
Habitat value, 162-163
Environmental quality. See Quality of ground
water; Willingness to accept (WTA); Habitats
aquatic, 38
Willingness to pay (WTP)
riparian, 137-139, 164, 172
Estimating implicit prices. See Hedonic price
method (HPM) wildlife (See Wildlife habitats)
Hazardous waste contamination, 26. See also
EV. See Existence value
Evaporation ponds, 42 Superfund sites
Health-based regulation, 118-119, 164
Executive Orders, 10-11, 119
Hedonic price method (HPM), 9, 69, 75-76, 79-
Existence value (EV), 85-86, 98, 132, 162, 170
Exploitation. See Open access resource; 81, 161-162, 171
HPM. See Hedonic price method
Optimal time rate of use
Human health perspectives. See Health-based
Extractive costs. See Costs
Extractive rights, 11, 37 regulation
Hydraulic conductivity, 33-35, 170
Extractive uses, 58-59
Hydrocarbons. See Organic contaminants
history of, 14-19
Extractive value, 2, 8, 17, 20, 62-63, 164, 170 Hydroelectric uses, 15
Hydrologic cycle, 31-36
Exxon Valdez oil spill, 86
anthropogenic modifications of, 32-33, 41-
42, 57, 62
F Hydrologic uncertainty, 44-45
Hydrostatic pressure. See Potentiometric
Fairness issues, 56-57 surface
Farm policies, 57. See also Policy-making
Fecal material. See Pathogenic microbes
Federal Insecticide, Fungicide and Rodenticide I
Act (FIFRA), 116
Illness, cost of. See Cost of illness (COI)
Flood flows, 21
Implicit prices, estimating. See Hedonic price
Florida, 21, 39, 111, 113
Flow value, 20 method (HPM)
Incremental value, 160-161, 171
Fossil water. See Aquifers, deep
Indirect approaches, 7, 9, 27-28, 74-81, 87-90,
Free-rider behavior errors, 83
Fuel hydrocarbons. See Organic contaminants 171
Infinite value, 1
Future value (FV), 70-71, 105, 171

186 INDEX
In situ services, 17, 20, 63, 159, 171 Membrane filtration. See Nanofiltration;
defined, 2, 60 Reverse osmosis
In situ value, 2, 63 Model uncertainty, 45
Institutions, decision-making by, 51-55, 154- Municipal water use, 77, 137, 142, 146-148
156
Integrated plan. See Conjunctive use
Interactions. See Conjunctive use N
Interdisciplinary study, 165
Nanofiltration, 156-158, 171
Interflow, 32
National Oceanic and Atmospheric
Intergenerational equity, 5, 56, 171
Interior Department. See U.S. Department of Administration (NOAA), 8, 82, 86, 124
National Research Council (NRC), 2, 26, 28-
the Interior
29, 44
Intertemporal optimization, 48, 162
Intrusion of sea water, 2, 21, 39-40, 60, 142- National Science Foundation, 123
National Water Research Institute, 2
145
Natural assets, 48, 54-55
Ion exchange, 43
Irreversibility, 171 Natural discharge, 171
Natural recharge. See Aquifers, deep
Irrigation uses, 15
Natural resource damage assessment (NRDA),
Israel, 77
86
Natural resource districts (NRDs), 111
K Natural resource valuation. See Economics of
environmental resources
Knowledge of respondents, presumed, 94 Nebraska, 110-111
Negotiated transactions value. See Market
value
L Neoclassical welfare economics. See Welfare
economics
Land subsidence. See Subsidence of land Nevada, 110, 147
surface
New Mexico, 34, 112
Land use planning, 17
Albuquerque, 12, 128-129, 136-140
Law of capture. See Capture Nitrate contaminants, 92, 130-131
Legal considerations, 10, 121-122
NOAA. See National Oceanic and Atmospheric
Long-term view, 4, 6, 46
Administration
Nonmarket value, 8, 27, 54, 69, 74-86, 171
Nonorganic contaminants. See Nitrate
M contaminants
Management practices. See Best management Nonpoint source (NPS) pollution, 32, 116-117,
practices (BMPs); Ground water; 171
Watersheds; Wildlife habitats Nonrenewable resource. See Safe yield
Mandates. See Unfunded mandates Nonuse value, 6-9, 17, 20, 49-50, 98-99, 171
Marginal user cost. See Opportunity costs estimating, 28, 69, 85-86
Marginal value, 171 NPS. See Nonpoint source (NPS) pollution
Market value, 6, 13-14, 76, 171. See also Water NRC. See National Research Council
marketing NRDA. See Natural resource damage
Massachusetts assessment
Boston, 87-90 NRDs. See Natural resource districts
Woburn, 12, 128-130, 149-153
Maximum contaminant levels (MCLs), 114-
115, 157 O
MCLs. See Maximum contaminant levels
Ocean discharge, 42
Measurements, imprecise, 45
Office of Management and Budget (OMB), 120

INDEX 187
Ogallala aquifer, 34, 45, 110 Pumping rate. See Aquifers, transmissivity of;
Oil Pollution Control Act of 1990, 86 Cone of depression
Oklahoma, 34 Pumping technology, 15, 37
OMB. See Office of Management and Budget Pump taxes. See Taxes, pump
Open access resource, 4, 37, 171
Opportunity costs, 56, 78, 161
Optimal time rate of use, 71-72 Q
Option value, 92, 171-172
Quality of ground water, 10, 24-26, 40-45, 53.
Oregon, Treasure Valley, 12, 128-132
See also Contamination; Remediating
Organic contaminants, 41, 43, 79, 149
Osmotic processes. See Reverse osmosis ground water
effect on value, 58, 161
Overdrafting, 4, 38-39, 45, 137, 172
protecting, 114-118
Quantity of ground water. See Ground water,
P balance of
Quotas, 5, 38, 46
PAHs. See Organic contaminants
Parasites. See Pathogenic microbes
Passive use value. See Nonuse value R
Pathogenic microbes, 41, 158
Payment vehicle, 96-97 Rainfall, 62-63
Rate of time preference, 172
Pennsylvania, 87-90
RCRA. See Resource Conservation and
Laurel Ridge, 12, 128-129, 133-136
Percolation. See Recharge Recovery Act
Reagan, President Ronald, 10, 119
Permeability. See Hydraulic conductivity
Reasonable use, 107, 109
Permits. See Regulatory measures
Phenols. See Organic contaminants Recharge, 32-35, 122, 159-160, 172. See also
Aquifers, deep; Safe yield
Phthalates. See Organic contaminants
Piezometric surface. See Potentiometric surface rate of, 3, 33
Recommendations, 45-46, 66, 100, 125. See
Point source pollution, 15, 57, 114-115
also Research needed
Policy-making, 5, 8, 14, 24. See also Water
marketing; Welfare economics Recreational value, 2, 59, 134, 172. See also
Travel cost method
changing priorities, 118-121
Recycling, 15. See also Remediating ground
Pollution. See Contamination; Nonpoint source
(NPS) pollution; Point source pollution water
Reducing Risk, 1, 122
Polynuclear aromatic hydrocarbons (PAHs).
Regulatory impact assessments (RIAs), 119-
See Organic contaminants
Pore water pressure, 170 121, 172
Regulatory measures, 108-111. See also
Potentiometric surface, 33-35, 172
Quotas; Taxes, pump
Prescriptive rights, 109
Present value, 55, 172 Remediating ground water, 25, 172. See also
Bioremediation; Effluent, treated;
Presumed knowledge. See Knowledge of
Restoration
respondents, presumed
Price elasticity, 77 laws regulating, 10
Renovating ground water. See Remediating
Production costs. See Costs
ground water
Property rights, 121-122
Property values. See Hedonic price method Research needed, 9, 11, 46, 122-124
Resource allocation. See Allocation
(HPM)
Resource Conservation and Recovery Act
Protozoan contaminants. See Pathogenic
microbes (RCRA), 10, 44, 115
Resource units, 169
Public perceptions, 26, 59, 90, 95-97, 174-175
Restoration, 4-5, 44-45
Public policy. See Policy-making

188 INDEX
Revealed preferences approaches. See Indirect Superfund sites, 44, 117-118, 149-152
approaches Supply development, 26, 156
Reverse osmosis, 43, 156-158, 172 Supply disruptions. See Buffer value
RIAs. See Regulatory impact assessments Surface water, 21, 33. See also Value of surface
Rights. See Correlative rights; Extractive rights; water
Ground water rights; Prescriptive rights; flow reductions in, 39-40
Property rights Surfical aquifers. See Aquifers, unconfined
Riparian habitats. See Habitats, riparian Surrogate measures, 3
Risk assessment, 8, 106, 114, 120. See also Survey-based techniques. See Contingent
Acceptable risk valuation method (CVM)
Risk premiums, 8 Sustainable yield. See Safe yield
Riverine habitats. See Habitats, riparian
Runoff. See Nonpoint source (NPS) pollution
T
S Takings, 121-122
Taxes, pump, 5, 38, 46
SAB. See Science Advisory Board TCE. See Trichloroethylene
Safe Drinking Water Act (SDWA), 10, 17, 114- TCM. See Travel cost method
115, 117, 120, 133 TDS. See Total dissolved solids
Safety of public water supplies Technology-based regulation, 119. See also
perceptions of (See Public perceptions) Treatment technologies
willingness to pay for, 175-176 TEV. See Total economic value
Safe yield, 35, 136, 139, 154 Texas, 34, 111
Salt water intrusion. See Intrusion of sea water Houston/Baytown region, 39
Sampling errors, 45 San Antonio, 112
SARA. See Superfund Amendments and Time-dependent benefit or cost. See Dynamic
Reauthorization Act price; Future value (FV); Intertemporal
Scarcity, 56 optimization; Present value
Science Advisory Board (SAB), 1 Total dissolved solids (TDS), 158, 161
SDWA. See Safe Drinking Water Act Total economic value (TEV), 2-12, 48-50, 63-
Semipermeable membrane. See Reverse osmosis 65, 100, 112, 123-125, 150, 164, 172
Service flows, 49, 62-65, 172 Transaction value. See Market value
changes in, 36, 47, 160-161 Transferring water rights. See Water marketing
potential, 21-24 Transfer value, 9, 11
Shortages, buffering. See Buffer value Travel cost method (TCM), 27, 69, 75, 81, 172
Silvicultural use. See Nonpoint source (NPS) Treatment technologies, 42-43
pollution Trichloroethylene (TCE), 149, 151-152
Starting point bias, 83-84
Statistical errors, 45
Steady-state equilibrium, 4, 36, 38 U
Stochastic modeling, 165
Uncertainty, 95, 151-153, 163. See also
Stock value, 20
Subsidence of land surface, 2-3, 21, 38, 138, 154 Hydrologic uncertainty
Unconfined aquifer. See Aquifer
disruptions caused by, 39, 60, 161
Underground storage tanks (USTs), 10, 115
Superfund Amendments and Reauthorization
Act (SARA), 10, 117, 149 Unfunded mandates, 11, 120
Unfunded Mandates Act of 1995, 120-121
Superfund laws, 11, 17, 106. See also
U.S. Bureau of Reclamation, 156
Comprehensive Environmental
Response, Compensation, and Liability U.S. Constitution, 121
U.S. Department of Commerce, 86
Act; Superfund Amendments and
U.S. Department of Defense, 2, 17, 123
Reauthorization Act (SARA)

INDEX 189
U.S. Department of Energy, 2, 17, 123 Water marketing, 10, 112-113

U.S. Department of the Interior, 118 Water protection district, 175-176
U.S. Fish and Wildlife Service (USFWS), 137 Water quality, sources of information about,
U.S. Geological Survey (USGS), 15, 124, 137 175-176
Use conflicts, 134 Water rights. See Ground water, rights
Use value, 6-7, 11, 17, 20, 172-173 Watersheds, 31-32, 169
USGS. See U.S. Geological Survey managing, 35
USTs. See Underground storage tanks Water table. See Potentiometric surface
Welfare economics, 74, 171, 173
Well drilling, laws regulating, 24
V Wellhead protection (WHP) programs, 17, 117
Well interference conflicts, 109-110
Validity issues, 8
Western correlative rights. See Correlative
Valuation framework, 5-6, 47-67. See also rights
Total economic value (TEV)
WHP. See Wellhead protection (WHP)
Valuation of natural resources. See Economics
programs
of environmental resources Wildlife habitats
Value. See also Transfer value
destruction of, 25
Value of ground water. See also Bequest value
diversity of, 2
(BV); Buffer value; Existence value managing, 21, 61
(EV); Extractive value; Flow value;
Willingness to accept (WTA), 6-7, 74, 82, 173
Future value (FV); Habitat value;
Willingness to pay (WTP), 6-7, 31, 40, 74-75,
Incremental value; Infinite value; In situ 78-82, 93, 173
value; Marginal value; Market value;
meaningless estimates of, 85
Nonmarket value; Nonuse value; Option
Withdrawals. See Extractive uses
value; Present value; Recreational WTA. See Willingness to accept
value; Stock value; Total economic
WTP. See Willingness to pay
value (TEV); Use value
alternative methods, 25
defined, 1, 64, 173 Y
history of, 13-28
taxonomies of, 17, 20, 49, 59-60, 173 Yea saying bias, 84
Value of surface water, 14 Yield. See Safe yield
Viral contaminants. See Pathogenic microbes
Volatile organic contaminants. See Organic
contaminants Z
Zoning, 117
W
Waivers, 114
Waste disposal sites. See also Hazardous waste
contamination
laws regulating, 10


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THE NATIONAL ACADEMIES PRESS

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Valuing Ground Water: Economic Concepts and Approaches

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Committee on Valuing Ground Water

Water Science and Technology Board

Commission on Geosciences, Environment, and Resources

National Research Council

NATIONAL ACADEMY PRESS

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Copyright 1997 by the National Academy of Sciences. All rights reserved.

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COMMITTEE ON VALUING GROUND WATER

LARRY W. CANTER, Chair, University of Oklahoma, Norman

HENRY J. VAUX, JR., University of California, Riverside

STEPHEN D. PARKER, Study Director (September 1994 through January

JOEL DARMSTADTER, Resources for the Future (September 1994 through

Copyright National Academy of Sciences. All rights reserved.

WATER SCIENCE AND TECHNOLOGY BOARD

DAVID L. FREYBERG, Chair, Stanford University, California

STEPHEN D. PARKER, Director

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COMMISSION ON GEOSCIENCES, ENVIRONMENT, AND

GEORGE M. HORNBERGER, Chair, University of Virginia, Charlottesville

STEPHEN RATTIEN, Executive Director

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The National Academy of Sciences is a private, nonprofit, self-perpetuating soci-

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and, as a result, economic valuation and future considerations have historically

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obvious extractive services. Finally, it was recognized that common terminology

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1 INTRODUCTION AND BACKGROUND 13

2 GROUND WATER RESOURCES: HYDROLOGY,

3 A FRAMEWORK FOR THE VALUATION OF GROUND WATER 47

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4 ECONOMIC VALUATION OF GROUND WATER 68

5 LEGAL CONSIDERATIONS, VALUATION, AND GROUND

6 CASE STUDIES 127

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Ground water in the United States is usually considered as either an invalu-

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2 VALUING GROUND WATER

management and protection devote inadequate attention and funding to maintain-

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GROUND WATER RESOURCES:

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4 VALUING GROUND WATER

In other circumstances ground water overdraft can be economically efficient