Invasive species change ecosystems and the economic services such ecosystems provide. Optimal policy will minimize the expected damages and costs of prevention and control. We seek to explain policy outcomes as a function of biological and economic factors, using the case of Hawaii to illustrate. First, we consider an existing invader, Miconia calvescens, a plant with the potential to reduce biodiversity, soil cover, and water availability. We then examine an imminent threat, the potential arrival of the Brown treesnake (Boiga irregularis). The arrival of the snake in Guam has led to native bird extirpations, power outages, and health costs.

We model welfare gains from efficient allocation of groundwater over space and time relative to the status quo policy of financial cost recovery. In order to promote political feasibility, an intertemporal compensation plan is devised that renders the reform Pareto-improving. Gainers from the reform finance the compensation in proportion to their benefits through a block-pricing scheme. For the Honolulu case, only 7% of the $441 million in gains to winners is needed to compensate losers from the reform. Future winners from the reform also repay the deficit created by the compensation package, much as state and local governments finance capital improvements. Copyright 2009, Oxford University Press.

Conserving the watershed can help to preserve ground water recharge. Preventing overuse of available water through pricing reforms can also substantially increase the value of an aquifer. Inasmuch as users are accustomed to low prices, efficiency pricing may be politically infeasible, and watershed conservation may be considered as an alternative. We estimate and compare welfare gains from pricing reform and watershed conservation for a water management district in Oahu that obtains its water supply from the Pearl Harbor aquifer. We find that pricing reform is welfare superior to watershed conservation unless the latter is able to prevent very large recharge losses. Watershed conservation that yields net gains in combination with pricing reform may cause net losses without the pricing reform. If adoption of watershed conservation delays the implementation of pricing reform, the benefits of the latter are significantly reduced.

Watershed conservation creates benefits within and beyond the management area of interest. Direct benefits are those realized in the watershed itself, such as improved water quality and quantity, and biodiversity protection. Additionally, the health of a watershed has profound implications on near-shore resources below its reaches, including beaches and coral reefs. This chapter reviews the major benefits of watershed conservation and discusses the economic value of these activities. Within the watershed itself, conservation activities assist in protecting important groundwater sources by maintaining healthy canopies, native plant cover, reducing erosion, and fending off nuisance plant and animal species that degrade the system. These activities are a vital part of overall watershed maintenance and are reviewed in the introduction to this volume. Systems that often are excluded from the discussion of watershed management are those downstream from the area of interest. Improved watershed health leads to less runoff to ecosystems below and therefore cleaner and more valuable beaches and reefs. Perhaps the most direct benefit from tropical watershed conservation is that of aquifer recharge. The Hawaiian island of Oahu gets about 90% of its fresh water supply from groundwater. Alternative production techniques such as desalination are costly and postponement of their need is a valuable policy goal. Postponement can occur through the supply side by maintaining or potentially enhancing forest quality. The Ko`olau conservation district is a 97,760 acre area along the Ko`olau mountain range running the entire windward (Eastern) side of the island. There are hundreds of inches of rain each year in some locations, and the general trend is for high levels of rainfall along the crest of the range declining with elevation. The form and composition of the forest in large part determines how much of the water will run off, how much sediment it will carry, and how much will recharge the aquifers from which Oahu draws its water supply. Kaiser et al. (1999) calculate that the net present value lost from a decrease in recharge of 41 MGD to the Pearl Harbor aquifer may be between $1.42 billion and $2.63 billion dollars, depending on the assumptions made regarding the social discount rate. If the current levels of groundwater recharge are maintained, the scarcity rents will rise from $0.6 thousand gallons in year 2000 to nearly $3 in year 2072. On the other hand, if the forest damage reduces the recharge by 41 MGD, the scarcity rents in year 2000 jump to over $1 thousand gallons and rise to nearly $3 by 2057. They also calculate that if recharge to the aquifer from the Ko`olaus ceased altogether, the reduction of inflow to the Pearl Harbor aquifer would be approximately 133 MGD. The lost net present value from such a disruption would amount to $4.57 to $8.52 billion. Biodiversity and aesthetics are among the other direct benefits provided by tropical watersheds.

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