and carry away agricultural, industrial, and municipal waste. Given increasing demands for water from the Columbia River and its tributaries, it is important to understand how the value of water varies across each of these different types of water use.
Water resources in the western United States have traditionally been allocated across competing uses via legal or institutional means, not by markets. As noted in Chapter 5, water resources in the western U.S. are typically allocated by the prior appropriation doctrine, which tends to fix the allocation of water across a specific set of uses. In an attempt to add flexibility to the prior appropriation doctrine, traditional definitions of “beneficial use” are being reconsidered in many western U.S. states by specifying how water rights holders use water. This requires some understanding the economic value of water across a range of different uses. There is a rich literature on the value of water in a number of uses, including agricultural, industrial, municipal, recreational, and hydropower uses. Estimates of water value can be influenced by a variety of factors. These include measurement techniques employed, the nature of the data used in the assessment, and assumptions made in the estimation. Spatial and temporal aspects of water use also affect its value.
The economic definition of value is tied to the concept of willingness to pay. This concept holds that the value of an item is equal to what an individual is willing to pay for it (in monetary terms) or in terms of what the individual would give up to obtain the item. This concept of willingness to pay is also related to the notion of “demand” and is related to the relationship between the demand for a good and its price. Specifically, a price-demand relationship can be viewed as an expression of marginal willingness to pay for the item (the term “marginal” refers to the value of the next or incremental unit demanded). This marginal willingness to pay usually declines with units consumed. In addition to the direct measurement of marginal willingness to pay for water, the concept of alternative cost can be used to assign values to water in various uses. With this concept, the value of water is defined as the cost of the least expensive alternative to water (Gibbons, 1986). The following values for various use categories are derived primarily from a review of the literature (Gibbons, 1986), in which values from several studies in each water use category were synthesized. Values listed in this section are expressed in 1999 U.S. dollars unless indicated otherwise.