Environmental and Resource Economics

, Volume 64, Issue 1, pp 59–80 | Cite as

Valuing Water Purification by Forests: An Analysis of Malaysian Panel Data

  • Jeffrey R. VincentEmail author
  • Ismariah Ahmad
  • Norliyana Adnan
  • Walter B. BurwellIII
  • Subhrendu K. Pattanayak
  • Jie-Sheng Tan-Soo
  • Kyle Thomas


Water purification might be the most frequently invoked example of an economically valuable ecosystem service, yet the impacts of upstream land use on downstream municipal water treatment costs remain poorly understood. This is especially true in developing countries, where rates of deforestation are highest and cost-effective expansion of safe water supplies is needed the most. We present the first econometric study to estimate directly the effect of tropical forests on water treatment cost. We exploit a rich panel dataset from Malaysia, which enables us to control for a wide range of potentially confounding factors. We find significant, robust evidence that protecting both virgin and logged forests against conversion to nonforest land uses reduced water treatment costs, with protection of virgin forests reducing costs more. The marginal value of this water purification service varied greatly across treatment plants, thus implying that the service offered a stronger rationale for forest protection in some locations than others. On average, the service value was large relative to treatment plants’ expenditures on priced inputs, but it was very small compared to producer surpluses for competing land uses. For various reasons, however, the latter comparison exaggerates the shortfall between the benefits and the costs of enhancing water purification by protecting forests. Moreover, forest protection decisions that appear to be economically unjustified when only water purification is considered might be justified when a broader range of services is taken into account.


Ecosystem service Water purification Forest Malaysia Valuation 



This study was funded by the Global Environment Facility through the United Nations Development Programme (MAL/04/G31), with additional support from the Government of Malaysia (through the Ministry of Natural Resources and Environment and the Forest Research Institute Malaysia) and the Center for International Forestry Research (CIFOR). The cooperation of numerous Malaysian government agencies is gratefully acknowledged: the Forestry Department Peninsular Malaysia; the Departments of Agriculture, Drainage and Irrigation, and Statistics; the National Water Services Commission; and the Perak Water Board. We also thank David James and two anonymous reviewers for helpful comments.


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Copyright information

© Springer Science+Business Media Dordrecht 2015

Authors and Affiliations

  • Jeffrey R. Vincent
    • 1
    Email author
  • Ismariah Ahmad
    • 2
  • Norliyana Adnan
    • 2
  • Walter B. BurwellIII
    • 1
  • Subhrendu K. Pattanayak
    • 1
  • Jie-Sheng Tan-Soo
    • 1
  • Kyle Thomas
    • 1
  1. 1.Nicholas School of the EnvironmentDuke UniversityDurhamUSA
  2. 2.Forest Research Institute MalaysiaKepongMalaysia

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