Scenario Identification and Survey Design

Abstract

The COS study team undertook this research effort in order to construct a monetary measure of the total ex ante economic value for preventing a specified set of natural resource injuries. There are two standard (Hicksian) monetary welfare measures used by economists: minimum willingness to accept (WTA) compensation to voluntarily give up a good and maximum willingness to pay (WTP) to obtain a good. These measures are defined in relation to an economic agent, for us, the public. Which of these two is the appropriate measure depends on who holds the relevant property rights in a particular good. If the public wishes to prevent oil spills along the coast and the oil companies have a right to spill oil along the coast, the public must purchase from the oil companies their rights to spill oil; and therefore the maximum WTP of the public is the appropriate measure of how much the prevention of oil spills along the coast is worth to the public. But if the public has the right to an unoiled coastline that the oil companies must purchase in order to spill oil, the minimum WTA compensation of the public is the appropriate measure of how much the prevention of oil spills is worth to the public. Since oil companies do not have the right to spill oil along the coast and the public holds the property right to California’s tidelands, submerged lands, and natural resources, WTA is the appropriate measure of economic value. However, using CV to measure WTA entails design features that are difficult to implement successfully;¹ hence, a choice measure based on WTP was adopted instead. The WTP measure used here represents a lower bound on the desired WTA measure.²