Academic journal article Contemporary Economic Policy

Compensatory Restoration in a Random Utility Model of Recreation Demand

Academic journal article Contemporary Economic Policy

Compensatory Restoration in a Random Utility Model of Recreation Demand

Article excerpt

I. INTRODUCTION

Natural Resource Damage Assessment (NRDA) cases often call for compensation in non-monetary or restoration equivalent terms. For example, users of a damaged recreational fishery may seek a new fishing pier, expanded parking space, new launch sites, added natural areas, or increased stocking of fish in compensation for their losses. Although it is natural for economists to think in terms of monetary compensation for damages, a shift in legislation favoring restoration over monetary payment has moved the discussion into the non-monetary realm. Jones and Pease (1997), for example, discuss two approaches for non-monetary valuation using conventional welfare theoretic analysis: service-to-service scaling and value-to-value scaling.

Service-to-service scaling seeks restoration projects that deliver in-kind resource flows of equivalent value to those damaged. In cases where the restored resource is nearly the equivalent in function and location, the scaling is not difficult, although some discounting may have to be applied and the baseline level of the resource must be considered. In more common cases, the restored resources vary in function and location to the damaged resource, and the analysis becomes more complex. The restoration, for example, may involve improved access to a site or expanded protection of an open space in an entirely different area and with different uses. In these cases, some type of equivalency metric is needed. Habitat equivalency is a good example (Unsworth and Bishop 1994; Strange et al. 2002; Penn and Tomasi 2002). In any case, an explicit rendering of an individual's preferences is conspicuously missing from the service-to-service approach.

Value-to-value scaling, on the other hand, seeks restoration projects that are equivalent in absolute terms to the discounted present value of the damages in question. This approach, while non-monetary in the actual compensation, requires the knowledge of an individual's preferences to implement (Flores and Thacher 2002). The analyst must value the losses from the injury and the gains from the restoration project to conduct an evaluation. In principle, the calculation on both sides of this equation would use the usual welfare theoretic measures of compensating or equivalent variation.

In this article, we present a value-to-value scaling analysis using a travel cost random utility model of site choice to determine compensatory restoration equivalents for hypothetical beach closures on the Gulf Coast of Texas. Our focus is on closures of beaches on the Padre Island National Seashore and compensation for day-trip users. Our approach follows principles laid out by Flores and Thacher (2002) and Jones and Pease (1997). The only other analysis we are aware of that is close in approach to ours is an NRDA by Triangle Economic Research in 1998. Interestingly, their application is also on the Gulf Coast of Texas. They consider compensatory restoration for a fishing site closure on Lavaca Bay. The restoration involved new facilities (better boat launches, parking, and restrooms, and bait shop) for the population of users. They developed restoration indexes based on a random utility model for comparing restoration alternatives to the loss.

In our analysis, we seek compensatory restoration projects that pass a Kaldor-Hicks Test. Does the monetary value of the restoration project equal or exceed the monetary value of the loss due to the beach closure? If so, the restoration project is potentially Parteo improving (ignoring the cost of restoration itself). After estimating a random utility model of beach use in Texas, we identify the characteristics of beaches that are most valued to users and then systematically alter these characteristics at beaches seeking improvements larger in absolute value than the losses due to closure of Padre Island. Our most valued beach characteristics are beach cleaning programs, vehicle-free zones, and rest rooms. …

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