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Valuing Ground Water: Economic Concepts and Approaches
tion for hypothetical changes in environmental goods, such as ground water quantity or quality. The CVM can be applied to both ground water use and nonuse values. There are numerous methodological controversies associated with application of CVM, including how the hypothetical ground water change that people are being asked to value is to be specified, the elicitation format for asking valuation questions, the appropriate measure to be elicited (i.e., WTP or WTA), and various types of response biases.
The advantage of the contingent valuation method, however, is that it allows analysts to focus precisely on the total resource attribute (e.g., quantity or quality changes) to be valued. CVM provides reliable estimates of value when an individual has a close connection to the resource being valued. When there is a large nonuse component to the TEV being elicited, application of CVM is difficult, making it one of the most controversial areas in the valuation literature. CVM practitioners believe that it is the only method capable of capturing a substantial part of value when nonuse value is a large part of the TEV. However, the continuing controversy over both the theoretical validity and the practicality of CVM-based studies of nonuse values raises questions regarding its use in natural resource damage assessments and litigation situations. Table 1.6 in Chapter 1 and Table 4.5 in Chapter 4 compare the advantages and disadvantages of CVM along with other valuation methods.
In contrast to direct elicitation via CVM or some other stated preference technique, economists also have developed indirect methods (e.g., hedonic price models), which infer values from other behaviors associated with the good. A strength of indirect methods is that they rely on observed behaviors of producers and consumers. Examples of observed behaviors, such as how much water is applied in irrigation or as drinking water at a given cost, expenditures on water purification systems, or how much people will spend to travel to a recreational resource, help to establish a water resource's value. However, because indirect approaches generally measure only one component of the TEV (use value) and in some cases require large amounts of data, care must be taken when employing them.
In any case, for valid and reliable results to be obtained, the valuation method must be well-matched to the context and the ground water function/service of interest. (Chapter 4, Table 4.5 provides a summary of potential matches.) Methods for valuing the quality of drinking water include cost of illness, averting behavior, contingent valuation, and conjoint analysis (e.g., contingent ranking or behavior).
The decision-maker attempting to value ground water faces significant uncertainties regarding hydrologic, institutional, economic, and human health aspects of ground water management. One source of uncertainty lies with the