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Valuing Ground Water: Economic Concepts and Approaches
physical, and biological principles relevant to the economic valuation procedures were discussed in Chapter 2.
As Boyle and Bergstrom (1994) indicate, "Economic valuation of ground water therefore requires that progress be made on two fronts: establishing formal linkages between ground water policies and changes in the biophysical condition of ground water and developing these linkages in a manner that allows for the estimation of policy-relevant economic values." While each of the stages in Figure 3.4 can be associated with specific disciplines, one cannot overemphasize the need for interactions and cooperation among economists, other scientists, and water managers to value ground water resources.
Relationship to Benefit-Cost Analysis
The framework proposed in this chapter for valuing ground water could just as well be termed a framework for measuring the economic benefits of ground water. Information obtained from an analysis of the benefits of ground water would be used in a full fledged benefit-cost analysis (BCA) of regulatory actions or management decisions affecting ground water quantity and quality.
Benefit-cost analysis has had a long history relating to water resources. The U.S. Bureau of Reclamation and the U.S. Army Corps of Engineers initially developed BCA to evaluate surface water investments. The overall objective was to provide a picture of the costs and gains associated with investments in surface water development projects.
In more recent years, BCA has been applied to environmental and resource regulations. (For details see Kneese, 1984.) In these applications BCA should not be used as a simple decision rule but rather as a framework and a set of procedures to help organize available information and evaluate trade-offs. Viewed in this way, the framework proposed in this chapter is an approach to quantifying the benefits of current and proposed management practices affecting ground water. If this information were to be used in a decision-making framework, it would need to be matched with information on the costs of alternative management strategies.
As noted earlier, some knowledge of a resource's TEV is vital to the work of water managers, and in the development of policies dealing with allocation of ground water and surface water resources. For many purposes, the full TEV need not be measured, but in all cases where a substantial portion of the TEV will be altered by a decision or policy, that portion should be measured.
Policy-makers must recognize the role of the discount rate in ensur-