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Benefits Transfer: Current Practice and Prospects

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Abstract

This paper introduces a special issue devoted to the benefits transfer methods used as part of benefit costs analysis for policy analysis. Benefits transfer methods, as they are applied for environmental policy analyses, use economic concepts together with existing empirical estimates to predict the incremental benefits from a change in some feature of an environmental resource. After giving two examples of the decisions that analysts confront in performing these analyses, I discuss the interconnections between the papers in this issue and the research challenges that emerged from discussions of them.

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Notes

  1. The Planning Committee included, in addition to Elena and me, Allen Ashley, Julie Hewitt, Al McGartland, Steven Newbold, David Simpson, Michael Trombley, and William Wheeler.

  2. “Appendix” section provides the program for the conference.

  3. I summarized the comments of the two discussants for each paper and provided my own review and the composite of these suggestions lead to revisions in each of the papers. The papers by EPA authors and by Kuminoff were also reviewed and revised. All this process added time to the overall time span for completing the research effort.

  4. The 2015 accidental spill of mine waste in the Animas River in Colorado is a more complex example resembling the generic features of the stylized example in the text. That spill affected waterways in other states and impacted other uses than recreation which would require additional benefits transfer methods. Kopp and Smith (1989) discuss an early natural resource damage case for the Eagle River (also in Colorado) that illustrates how the plaintiff and defendant’s experts estimated the losses from mine waste contamination thru some primary research and from benefits transfer methods.

  5. Unless there is an entrance fee or some type of limit imposed on how users can access, information on patterns of use depend upon periodic surveys such as the U.S Fish and Wildlife Agency’s survey of hunting and fishing activity in the US. This survey does not identify specific sites. It reports participation and expenditures by type of activity. The lowest level of geographic disaggregation is usually the state.

  6. The Costanza et al. (1997) infamous Nature paper can be seen as an extreme example of the dangers associated with adopting constant unit values for services available outside markets using arbitrary physical units to normalize estimates and to define the resources being valued.

  7. This condition assumes non-satiation.

  8. In a response to a comment on Bishop et al. (2017) published as a letter on July 28, 2017, the authors provide a simple example. Paraphrasing their example—suppose a person buys a piece of toast with jelly (A+B) at a price, and also is observed buying toast without jelly (A) at a different, lower price. If she refuses jelly alone (B) at the price difference between the two previous options, this decision tells us nothing about whether this was an irrational choice. The jelly is simply worthless to her without the toast.

  9. This term appears to have been first used in Smith et al. (2002).

  10. Their approach parallels Hausman’s (1981) approach using Roy’s identity and Marshallian demand functions to derive the quasi indirect utility function. See Larson (1992) for the case of nonmarket goods. This paper is the first to my knowledge to demonstrate how the logic can be used to advance benefits transfer.

  11. The form of this condition is given by: \(U\left( {x_{10} ,X_k ,q_t } \right) =U\left( {x_{1t} ,X_{kt} } \right) +\alpha _t x_{1t} \), where U is the preference function, \(x_{10} \) is the initial level of the private good linked to the environmental quality, q. \(X_k \) is a vector of all other goods. The second subscript designates another value different from the base level (0).\(\alpha _t \) is the change in marginal utility and can be very general. This structure can be consistent with repacking restrictions to allow quality or other commonly used revealed preference restrictions, such as translating or cross product translating models. It may be possible to consider weak complementarity restrictions in this format as well. This issue remains for future research.

  12. See Boyle et al. (2017) for further discussion.

  13. Private correspondence with Dr. Albert McGartland, Director of National Center for Environmental Economics.

  14. This was originally labeled the Air Pollution Emission Experiments and Policy analysis (APEEP) model and documented in Muller and Mendelsohn (2007).

  15. This set of issues was developed in response to some penetrating questions raised by Kevin Boyle.

References

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Authors and Affiliations

  1. Arizona State University, Tempe, AZ, USA

    V. Kerry Smith

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  1. V. Kerry Smith
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Correspondence to V. Kerry Smith.

Additional information

The research discussed in the papers in this special issue was funded by the United States Environmental Protection Agency through contract No. EP-C-13-039 to Abt Associates Inc. This research has not been subject to the Agency’s formal review process and therefore does not necessarily reflect the views of the Agency. The findings, conclusions, and views expressed in the papers in this special issue are those of the authors and do not necessarily represent those of the U.S. EPA. No Agency endorsement should be inferred. Thanks are due Elena Besedin for contributing to all aspects of the research design, implementation, and organization of the conference at the end of the process. Thanks are also due all the discussants and panelists who participated in the workshop. They are listed in the appendix with the program. I especially appreciate Kevin Boyle’s help with this introduction. He provided a careful and detailed review as well as a number of constructive suggestions for improving it, but should not be held responsible for what resulted.

Guest Editor: V. Kerry Smith.

Appendix

Appendix

Benefit Transfer: Evaluating How Close is Close Enough

December 12–13, 2016

Day 1—Monday, December 12, 2016

8 : 30:

AM Welcome and Goals

  • Julie Hewitt

  • Branch Chief, Economic and Environmental Assessment Branch

  • Office of Science and Technology

  • Office of Water

  • U.S. Environmental Protection Agency

8 : 45:

AM Panel: Benefit Transfer Challenges—Impacts of Analysis Scarcities—Time and Resources

  • Julie Hewitt

  • Branch Chief, Economic and Environmental Assessment Branch

  • Office of Science and Technology

  • Office of Water

  • U.S. Environmental Protection Agency

  • Brett Day

  • Director Land, Environment, Economics and Policy Institute (LEEP)

  • Professor of Environmental Economics

  • University of Exeter, UK

  • Robert J. Johnston

  • Director, George Perkins Marsh Institute

  • Professor, Department of Economics

  • Clark University

  • Norman Meade

  • Office of Response and Restoration

  • National Oceanic and Atmospheric Administration

  • Randall Rosenberger

  • Associate Dean for Undergraduate Studies, College of Forestry

  • Professor, Department of Forest Ecosystems and Society

  • Oregon State University

10:15 AM Break

10 : 45:

AM Theme 1: “Scope and Adding Up: How Can Micro Theory and Survey Design Better Inform Benefit Transfer?”

  • Catherine Kling

  • Director, Center for Agricultural and Rural Development

  • Professor, Department of Economics

  • Charles F. Curtiss Distinguished Professor in Agriculture and Life Sciences

  • Iowa State University

  • Daniel Phaneuf

  • Professor, Agricultural and Applied Economics

  • University of Wisconsin-Madison

  • Discussant: Matthew J. Kotchen

  • Faculty Research Fellow, National Bureau of Economic Research

  • Professor of Economics, School of Forestry and Environmental Studies

  • Yale University

  • Discussant Christopher Moore

  • Economist

  • National Center for Environmental Economics

  • U.S. Environmental Protection Agency

12:30 PM Lunch

1 : 45:

PM Theme 2: “A Revealed Preference Approach to Measuring the Value of Environmental Quality”

  • Sir Richard Blundell

  • Director, ESRC Centre for the Microeconomic Analysis of Public Policy

  • Institute for Fiscal Studies

  • Ricardo Professor of Political Economy, Department of Economics

  • University College London

  • Laura Blow

  • Senior Research Economist

  • Institute for Fiscal Studies, UK

  • Discussant: H. Spencer Banzhaf

  • Research Associate, National Bureau of Economic Research

  • Senior Research Fellow, Property and Environment Research Center

  • Professor, Department of Economics

  • Andrew Young School of Policy Studies

  • Georgia State University

  • Discussant: William Wheeler

  • Economist

  • National Center for Environmental Economics

  • U.S. Environmental Protection Agency

3:30 PM Break

3 : 45:

PM Theme 3: “Developing Common Sense Tests of the Validity of Benefits Transfer”

  • Kenneth E. (Ted) McConnell

  • Professor Emeritus, Department of Agricultural and Resource Economics

  • University of Maryland

  • Juha Siikamäki

  • Associate Research Director

  • Thomas J. Klutznick Senior Fellow

  • Resources for the Future

  • Discussant Roger von Haefen

  • Associate Director, Center for Environmental and Resource Economic Policy

  • Associate Professor, Department of Agricultural and Resource Economics

  • North Carolina State University

  • Discussant Matthew Massey

  • Economist National Center for Environmental Economics

  • U.S. Environmental Protection Agency

5:30 PM—Close of first day

Day 2 - Tuesday, December 13, 2016

8 : 30:

AM “What Did We Hear and How Can We Use It?”

  • Alan J. Krupnick

  • Co-Director, RFF Center for Energy and Climate Economics

  • Senior Fellow

  • Resources for the Future

  • V. Kerry Smith

  • Distinguished Sustainability Scientist, Julie Ann Wrigley Global Institute of Sustainability Emeritus Regents’ Professor and Emeritus University Professor of Economics, Department of Economics

  • W. P. Carey School of Business

  • Arizona State University

9 : 00:

AM Theme 4: “Benefits Transfer and Spatial Equilibrium”

  • Matthew Turner

  • Professor, Department of Economics

  • Brown University

  • Discussant Nicolai V. Kuminoff

  • Faculty Research Fellow, National Bureau of Economic Research

  • Associate Professor, Department of Economics

  • Arizona State University

  • Discussant David Simpson

  • Director, Ecosystem Economic Studies

  • National Center for Environmental Economics

  • U.S. Environmental Protection Agency

10:45 AM Break

11 : 00:

AM Theme 5: “Econometric Issues in the Estimation of Credible Benefit Transfers”

  • Kevin Boyle

  • Director, Program in Real Estate

  • Professor, Department of Agricultural and Applied Economics

  • Principle Faculty, Myers – Lawson School of Construction

  • Virginia Tech

  • Jeffrey Wooldridge

  • Co-Director, Economics of Education Specialization

  • University Distinguished Professor of Economics, Department of Economics

  • Michigan State University

  • Discussant Joseph Herriges

  • Professor, Department of Agricultural, Food, and Resource Economics

  • Professor, Department of Economics

  • Michigan State University

  • Discussant Steven Newbold

  • Economist

  • National Center for Environmental Economics

  • U.S. Environmental Protection Agency

12:45 PM Lunch

2 : 00:

PM Panel: Implications for Practice of Benefits Transfer and Future Research

  • Maureen Cropper

  • Senior Fellow, Resources for the Future

  • Research Associate, National Bureau of Economic Research

  • Faculty Associate, Maryland Population Research Center

  • Chair, Department of Economics

  • Distinguished University Professor, Department of Economics

  • University of Maryland

  • Klaus Moeltner

  • Professor, Department of Agricultural and Applied Economics

  • Virginia Tech

  • George Van Houtven

  • Director, Ecosystem Services Research

  • RTI International

4:00 PM Adjourn

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Smith, V.K. Benefits Transfer: Current Practice and Prospects. Environ Resource Econ 69, 449–466 (2018). https://doi.org/10.1007/s10640-017-0206-8

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