Academic journal article Contemporary Economic Policy

Whose Losses Count in Natural Resource Damages?

Academic journal article Contemporary Economic Policy

Whose Losses Count in Natural Resource Damages?

Article excerpt


In recent years, economists have debated various issues associated with assessing natural resource damages from oil spills and hazardous-substance releases, including trade-offs between restoration costs and forgone use values, the strengths and weaknesses of various valuation methodologies, the appropriate discount rate for converting future damages into their present value, and the measurement of nonuse damages using contingent valuation. However, natural resource economists give almost no attention to perhaps the most fundamental issue that arises in a damage assessment: whose losses are included in natural resource damages and whose losses are excluded. Whittington and MacRae (1986) refer to this as a "standing" question. They assume that if a person's losses are included, then that person has standing. This definition of standing is much broader than the legal definition, which focuses on who can pursue a lawsuit or other cause of action against another party.

Since the publication of the Whittington and MacRae (1986) article on the role of benefit-cost analysis in cases when rights are uncertain, other economists have expressed different viewpoints. For instance, Zerbe (1991) supports the belief that standing cannot be separated from the legal context in which it is used for benefit-cost analysis. He reasons that "the question of standing is part of the more basic and fundamental question of the pattern of rights that are assumed in performing an analysis" (Zerbe, 1991, p. 97). This argument has a clear role in natural resource economics because of the importance of correctly defining the population who has standing.

Trumbull's (1990) approach for determining standing in benefit-cost analyses leads to the perspective that legal and economic constraints define the appropriate "welfare space" for natural resource damages. The losses experienced by all affected people within the appropriate welfare space should be included in natural resource damages. However, the vague nature of natural resource damage laws allows for various interpretations concerning the definition of this welfare space in natural resource damage assessments (NRDAs). This article develops an economic interpretation of these laws and some of the legal and economic constraints that help to shape this welfare space. In addition, it provides some discussion of alternative interpretations by other natural resource economists.


Economic standing for use values is probably the most clearly defined area of standing in natural resource damage cases. However, economists disagree about treatment of the welfare change experienced by two subpopulations: children and observers (i.e., people who visit a recreation area to observe the cleanup or the effects of injury on a natural resource).

A. Children

Economists have differing views concerning whether children should have economic standing. In several oil spill cases, the trustees estimate forgone use at injured recreation areas for all users, including young children, and then multiply by an average consumer surplus value per user day, which they obtain from travel-cost or contingent-valuation studies of other recreation areas. This approach is inappropriate for estimating the natural resource use damages experienced by children.

The basic economic question regarding children's use damages is whether the concept of consumer surplus applies to their use of natural resources. Consumer surplus is a function of the shape and position of demand curves, which are determined by the tastes and preferences of consumers, their income, and prices of substitutes and complements. While children undoubtedly have tastes and preferences, many children do not have their own income and have limited discretion over the allocation of their time and money. In such situations, the concept of consumer surplus may not apply to their uses of natural resources. …

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