Option Value: Empirical Evidence From a Case Study of Recreation and Water Quality

Abstract

A procedure for measuring option value and other preservation values of water quality is developed and applied to a case study area in the South Platte River Basin, Colorado. Benefits from water-based recreation activities are the focus of the study. The results provide an empirical test and confirmation of Weisbrod's proposal that option value and other preservation values represent important social benefits, and should be added to the aggregate consumer surplus of recreation activities to determine the total benefit of environmental amenities to society. In the absence of such an estimate, insufficient resources would be allocated by society to preservation of unique environments such as pristine mountain streams where mineral and energy development may irreversibly degrade water quality.

The Value of Forest Conservation for Water Quality Protection

“…The focus of this study is the value of protecting unimpaired aquatic systems, where the policy action (e.g., forest conservation) would help dampen an increase in pollution due to factors like population growth [68] or increased mining activity [44,51]. Valuing unimpaired aquatic systems is important in establishing a baseline for understanding the potential economic benefits of preventing nutrient pollution as well as support for various kinds of forest-related water resource protection programs [22].…”

“…Other economic valuation studies that measure WTP to protect water quality propose the use of nonspecific "environmental programs" and do not disclose if the program intends to use specific forest conservation tools [27,32,35,[43][44][45][46][47]. These studies focus on valuing the benefits or outcomes of resource protection and WTP to protect water quality independent of detailed information regarding the policy process or make vague references to policy implementation techniques [27,44,[47][48][49]. In a few cases the primary purpose of a valuation study is not to directly provide policy makers with information on measures of discrete welfare outcomes to different management alternatives, but to empirically test different stated preference methods or the effect of biophysical factors on WTP [50,51].…”

Valuation and management of wetland ecosystems

“…This premium is referred to as option value, and is due either to uncertainty surrounding the individual's preferences or to uncertainty regarding the price or availability of the resource. This premium may be positive, negative, or zero (as in the case of preference uncertainty) but it will always be positive in the case of supply availability for a risk averse person -see Greenley et al (1981), Bishop (1982) and Brookshire et al (1983) for the theory and empirical studies of option value. The passage of time will likely reduce the uncertainty surrounding resource usefulness.…”

Evaluating value of natural landscapes in China

“…UV relates to the benefits directly derived from recreation, while NUV refers to value that has not been used previously, but can be used in the future, including option, existence, and bequest values (Greenley et al, 1981).…”