Academic journal article Agricultural and Resource Economics Review

Valuing Lake Erie Beaches Using Value and Function Transfers

Academic journal article Agricultural and Resource Economics Review

Valuing Lake Erie Beaches Using Value and Function Transfers

Article excerpt

(ProQuest: ... denotes formulae omitted.)

Benefit transfer is a valuation method in which values calculated for a resource in a primary study are used to estimate values for a similar resource at a different policy site. It is especially useful when answering urgent policy questions in situations in which constraints on time and/or money preclude the ability to collect primary data for the site in question because it allows researchers to respond quickly to a need for estimates of the value of the resource (Freeman, Herriges, and Kling 2014). One such site is the Western Lake Erie Basin, where beaches have had to be closed periodically in recent years because of harmful algal blooms (HABs) spurred primarily by phosphorus from agricultural run-off. The algae (Microcystis sp.) produce a toxin that is dangerous for humans, pets, and wildlife, and policymakers and stakeholders urgently need information regarding the causes and impacts of the blooms (International Joint Commission (IJC) 2014).

We apply two benefit-transfer methods-value transfer and function transfer-to estimate the value of Lake Erie's beaches and then analyze the relative merits of those methods when the availability of behavioral and economic data in the policy setting and the scale of the environmental damage being assessed (the number of beach sites closed) vary. When selecting a benefit-transfer method, researchers face a tradeoff between the simplicity of a value transfer and the ability of a function transfer to represent the unique characteristics of the policy site and the affected population more accurately. Our study contributes to an understanding of the relative advantages and disadvantages of each method for various policy environments.

The simplest method is value transfer, which involves assigning a single point estimate of value from a study site to a policy site. Value transfer is quick and straightforward but does not account for differences between the sites and assumes that the conditions of the study site are representative of the conditions of the policy site. So, for example, value transfer does not capture how choice sets differ. In the case of Lake Erie beaches, accounting for the availability of alternative beach sites is important-fewer sites in the choice set limit the substitute beaches available when some beaches are closed and can lead to substantial welfare losses.

Benefit function transfer is a more complex approach in which a value function estimated in one or more primary studies is used to value a resource at a different policy site (Boyle et al. 2010). Broadly speaking, function transfers are preferable to value transfers because they are more flexible and can account for heterogeneous population characteristics and amenity attributes (Kaul et al. 2013, Boyle et al. 2010, Johnston and Rosenberger 2010, Brouwer and Spaninks 1999). However, function transfers are more time-consuming and require additional data about the policy site to calibrate the value function.

When conducting a benefit-transfer study, researchers must decide if the function transfer is worth the additional time and effort required. To evaluate the merit of the more complicated transfer method, we compare estimates of welfare losses from the closing of Lake Erie beaches using a value transfer and a function transfer. We estimate losses for single closures for each public Lake Erie beach site along the Michigan and Ohio coasts and for simultaneous regional closures of groups of beaches. Parsons et al. (2009) showed that group closures cause greater per-trip welfare losses than individual closures. In Lake Erie, bacterial contamination typically leads to one or a small number of beaches being closed while HABs typically affect much larger areas. We determine how the transfer method and number of beaches closed affect the value estimates in hypothetical closure scenarios.

We find that function transfer is preferred over value transfer to estimate trip demand when reliable data about trips are not available and to estimate welfare losses from regional closures. …

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