ECONOMIC ANALYSIS / ENVIRONMENTAL LAW

A Study of the Economic Values of the Surface Waters of New Hampshire

August 1, 2001

By Dr. Lisa K. Shapiro and Heidi L. Kroll

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lakes.pdf (46 pages, 276 kb)

Executive Summary

The study on the economic values of the surface waters of New Hampshire has been divided into multiple phases. As described more fully in this report, Phase I includes a preliminary assessment of the existing literature, data, and methodological approaches to estimating the economic value of surface water. This assessment provides a roadmap for Phase II of the project, which will involve estimating a range of values for the total economic activity associated with surface water use in New Hampshire, and Phase III, which will assess the "net economic value"1 of surface water and the potential economic impacts of changes in water clarity.

The Phase I assessment reveals that water-related studies address the value of economic activity as well as net economic value. These values come from multiple uses of surface water, both recreational and non-recreational, and from the aesthetic, spiritual, and cultural value that individuals derive from their experiences on or around these bodies of water or just knowing that they exist for current and future generations. These uses can be looked at from both qualitative and quantitative perspectives, as well as under static or impact assessment scenarios. (Refer to Section II and Table 1 of this report).

The Phase I assessment also reveals that several different approaches can be used to estimate the value of economic activity associated with surface water use. (Refer to Section III and Table 2). In broad terms, the value of recreational uses can be estimated either in the aggregate or for each separate use, while the valuation of non-recreational uses can only be accomplished using the use-by-use approach. The net economic value of surface water can often be captured through surveys of the public's preferences and priorities for this natural resource. The availability of data required by these approaches to make a New Hampshire-specific estimate varies considerably. (Refer to Section IV and Table 2). Nonetheless, it appears that sufficient data is available for Phase II to estimate a range of values for the total economic activity associated with the State's surface water, as discussed further below.

The findings from Phase I, taken as a whole, indicate that one viable approach for Phase II would be to estimate a range of economic values based on swimming, fishing, and boating (i.e., three separate recreational uses), as well as waterfront property owners and public drinking water supplies (i.e., two non-recreational uses). (Refer to Table 3). The range would be estimated under a static assessment scenario using readily available data as well as data collected through New Hampshire-specific primary research. This overall approach takes into account the findings of the other studies regarding the economic activity associated with a given use relative to the total economic activity value of all uses, the quality of data that can reasonably be obtained, and an appropriate first round of monetary estimates of value.

Many studies, including surveys in New Hampshire, have identified swimming, fishing, and boating as top recreational uses of surface water, and therefore important contributors to the water's economic value. The Maine Study found that direct annual expenditures for recreational uses of Maine's Great Ponds totaled $1.09 billion. Of this, swimming contributed around 25 percent, fishing 14 percent, and boating more than 59 percent. (Waterfowl hunting contributed the remainder). The Maine Study estimated that the $1.09 billion in direct recreational expenditures resulted in $1.7 billion in total economic activity and $208 million in net economic value per year. The Maine Study did not address other recreational uses, such as snowmobiling or sight-seeing, because it was not possible to isolate the role of lakes in these activities and seemed unlikely that the omissions would affect the magnitude of the economic estimates. The proposed Phase II New Hampshire Study would follow a similar rule of thumb relative to estimating the value of economic activity.

Similarly, with respect to non-recreational uses, public drinking water and waterfront properties are believed to be primary contributors to overall economic value. For example, the Maine Study2 found that direct annual expenditures for non-recreational uses totaled $742 million, of which 43 percent was attributed to public drinking water and 47 percent to lakefront properties. (Private drinking water and youth camps contributed the remainder). The Maine Study estimated that this $742 million in direct expenditures resulted in $1.1 billion in total economic activity and $6.5 billion in net economic value, which was largely driven by lakefront properties. It is recommended that a Phase II Study of economic activity not address other non-recreational uses beyond these two because of data constraints and the likelihood that the total estimates of economic activity would not increase significantly.

A Phase III Study would include an assessment of net economic value and impact assessment scenarios, and could include some of the other uses of surface water, as well. (Refer to Table 3). Primary research would be required to improve the quality and quantity of available data in these areas, and would be coordinated to the extent possible with the primary research for Phase II. A phase III Study would yield a more precise estimate of the economic value of New Hampshire's surface water rather than a range, which is all that is possible under a Phase II Study. These are the types of trade-offs that are inherent in the types of studies that can be conducted for New Hampshire's surface waters under different scopes-of-study and funding levels.

The proposed Phase II budget is a little more than $28,000, including professional services, modeling software, and out-of-pocket expenses. (Refer to Table 4). Specifically, the Phase II tasks, coupled with the work conducted in Phase I of this project, will provide the New Hampshire Lakes Association and stakeholders groups with an estimated range of values for economic activity associated with the State's surface water that will help guide important public policies regarding these water bodies.

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lakes.pdf (46 pages, 276 kb)

Covering:

1. The "net economic value" measures the difference between an individual's total willingness to pay for the use or existence of something and the amount that the individual actually pays.

2. Kevin Boyle, Jennifer Schuetz, and Jeffery Kahl, "Great Ponds Play an Integral Role in Maine's Economy," April 1997. We will refer to this study as "the Maine Study."

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