GENERAL VALUATION AND ECONOMICS

Fausold, Charles J. and Robert J. Lillieholm. 1996. "The Economic Value of Open Space: A Review and Synthesis." Lincoln Institute of Land Policy Research Paper.

* Do not cite without permission of authors

CONCEPTS OF VALUE, PUBLIC GOODS, AND COMMON PROPERTY RESOURCES

"Attempting to assign values to open space functions presents several challenges. First, open space typically provides several functions simultaneously. Second, different types of value are measured by different methodologies and expressed in different units. Converting to a standard unit (such as dollars) involves subjective judgments and is not always possible. Third, values are often not additive, and 'double counting' is an ever-present problem. Finally, some would argue that it is morally wrong to try to value something which is by definition invaluable. At a minimum, open space will always possess intangible values which are in addition to any calculation of monetary values."

"Open space often plays a role in the provision of 'public goods' and 'common property resources'. Public goods ... are nonexcludable, meaning that once they are produced, it is impossible, or very costly to exclude anyone from use. ...and nonconsumptive, meaning that one person's enjoyment of the good does not diminish its availability for others.

"Examples include clean water, clean air, biological diversity scenic vistas, community character and viewing wildlife that typically depend in part on the habitat provided by open space.

"Open space can also produce common property resourcesresources that are owned in common, rather than privately, by some defined group of co-owners. In the case of wildlife, open space produces both public goods (e.g., birds and animal watching) and consumptive resources (e.g., hunting and fishing).

" land use and resource management decisions imply tradeoffs between marketed and non-marketed goods and services, making it difficult to compare relative values and, through tradeoffs, arrive at socially optimal decisions.

"Much of the economic value associated with open space-related activities like recreation can be broken into two broad categories: 'use value' and 'nonuse value.' Use value results from current use of the resource."

Examples include "'consumptive uses' like hunting, fishing , and trapping, 'non-consumptive uses' like hiking, camping, ... photographing wildlife..., and indirect uses' like reading books or watching programs on open space related resources or activities..."

"Non-use values consider an individual's possibility for future use, or their altruism. Two types of nonuse value are recognized: 'option value' and 'existence value.'(Weisbrod 1964, and Krutilla 1967). Option value represents an individual's willingness to pay to maintain the option of using a resource at some time in the future. Existence value represents an individual's willingness to pay to ensure that some resource exists." (even if the individual never visits or uses the resource)

"The Presidents Commission on American's Outdoors (1987) found natural beauty was the single most important factor in deciding tourist destination. In addition, New England's governors have recognized open space as an important factor in the region's quality of life and tourism industry (New England Governors Conference, Inc. 1988)."

Examples of the economic value of open space (methods of measuring) discussed in this report:

fiscal impact analysis, Market value and enhancement value, the value of open space as a natural system, use and nonuse values of open space, the production value of open space (agricultural production, orchards, pasture and grazing lands, and forestlands, wetlands and fish production, revenues generated by open space activities, and the intangible values of open space.

"One concern environmentalists have with traditional attempts to calculate the value of open space is the use of a discount rate to arrive at the net present value of future benefits over a specified timeframe. Present value calculations are well-suited to capital equipment with a measurable life of 50 years or less. However, when applied to the benefits provided by natural systems (which continue indefinitely), positive discount rates effectively 'discount' the interests of future generations. To the extent that the use of a discount rate cannot be avoided, however, a low rate should be utilized."

Turco, Douglas M. December 1994. "Measuring the Economic Impact of Recreation Special Events." Bureau of Tourism & Recreation Research, Illinois State University.

Key Terms in Economic Impact Assessment

1. Economic Impact

"..the net change in a host economy directly attributed to a leisure service. There are basically two components which contribute to the economic impact of leisure services on local communities. ...the degree to which the service stimulates sales by non-residents" and "the degree to which residents and local businesses purchase their goods and services locally."

2. Multiplier Principle

"There are essentially three multipliers used in determining economic impact of recreation and tourism activities; output or sales, income, and employment. Most economic impact studies use an aggregate output or sales multiplier to demonstrate the total economic impact of the service in question.

"... the multiplier is simply defined as the total effects of a leisure service (direct + indirect) divided by the direct effects. A local economy is comprised of many businesses which buy from and sell to other businesses within the area and outside the region. The multiplier takes into account the interrelationships of businesses within a local economy. The more independent or self-sufficient the local economy under study (i.e., state v.s.. local economy) the larger will be the multiplier.

Thomas, Holly L. February 1991. "The Economic Benefits of Land Conservation", Technical Memo of the Dutchess County Planning Department.

"Too often our communities are presented with a false choice between economic growth and environmental protection. Successes in attaining and sustaining economic health depends on recognizing the economic contribution that undeveloped land already makes."

Miller, Stephen. May 1992. "The Economic Benefits of Open Space," Islesboro Islands Trust, Maine.

Study addressing the concern of municipal governments about the effect open space and conservation easements may have on local taxes- often their primary source of revenue.

"Property tax incentives recognize some of the common property economic benefits of open space. These benefits, such as aquifer recharge or scenic vistas, are public. All members of the community benefit equally. Since development precludes or threatens these open space environmental services, discussions about growth and preservation should include them. Implied is a shift in perspective away from seeing natural resources and environmental services as free or incapable of being measured (and therefore of no empirical economic value) toward seeing open space values as integral to long-term economic well-being. Government seeks to protect the greatest social benefit. Maximization of total social welfare, with municipal revenues a part of that greater picture, will need to assess open space benefits. A true accounting of these benefits will list all measurable attributes of the open space, estimate the value of each, then discount for any costs."

"Some techniques used to estimate the value of environmental services (attributes of open space such as wildlife habitat, clean drinking water and clean air, recreation, flood control, scenic views, biological diversity, quality of life, rural character, etc.) include "market and surrogate-market price valuations, property value techniques, travel-cost approach, and survey based techniques.... a 1981 cost-benefit study in Massachusetts found annual wetlands values as high as $170,000 per acre. A survey-based cost-benefit analysis measuring the value of a scenic view and clean air threatened by a coal-fired power plant found those open space benefits to be in the range of $400,000 to $700,000 per year. Recreation values coming from unpaid use of a private swimming area were, in one instance, $685,000 annually."

"Since current use assessment reduces the total amount of municipal tax revenue from open space land, municipal officials often see the difference between tax revenues before current use assessment and revenues after current use assessment as a cost. However, the values of the environmental services flowing from the open space land, as measured by the cost-benefit analysis, more than compensate municipalities for this loss. Therefore, cost-benefit analysis can help determine the future direction of public policy."

"Open space provides additional positive economic benefit by supporting tourism; encouraging more cost-efficient development; allowing nature to perform its life-giving, valuable work; and establishing a quality of life that attracts businesses and others to relocate."

"An important additional conclusion is that environmental integrity and stability determine economic integrity and stability; that ecological welfare determines human welfare; that sustainable social benefits are inexorably tied to sustainable environmental benefits."

Paddock, Richard C. August 1994. "How Much is a River Worth?" California Lawyer.

"The most controversial approach to damage assessment is called contingent valuation, which is a way of estimating value of lost use. Using this method, economists pose hypothetical questions to members of the public to learn how much they would pay to preserve a place such as the upper Sacramento River, even if they might never visit it."

"'Contingent valuation is basically a survey approach where you construct the missing market for whatever the environmental amenity is and offer it to people at different prices,' explains Richard Carson, an economics professor at the University of California. If members of the public are willing to pay even a small amount in taxes, economists can arrive at a value of hundreds of millions of dollars- on top of restoration costs. A contingent valuation study conducted after the Exxon Valdez oil spill in 1989 found that the public valued Alaska's devastated Prince William Sound at more than $3 billion- a figure much higher than alternative methods of damage assessment would have come up with. This helped Exxon to settle for $1 billion."

In 1991 a Southern Pacific freight train derailed in Dunsmuir, California and one of the cars fell from a bridge into the Sacramento River. "More than 19,000 gallons of the weed-killer metam sodium surged downstream, turning the river a virulent, roiling neon green and wiping out the entire aquatic ecosystem for 40 miles within a few hours" The spill killed "more than 1 million fish in a section of the river long prized for its native rainbow trout" The accident also "poisoned the trees along the banks and killed thousands of mammals, amphibians, and birds that had made the river canyon their home."

"the state filed suit against Southern Pacific seeking compensation for the damage caused by the spill."

"State officials did some preliminary research that suggested (a contingent valuation) study could produce an estimated value of as much as $150 million -probably far more than the estimated cost of restoration would be."

"In the end, the two sides agreed to settle the case for $40 million, the largest settlement in an environmental case in California."

"About $13 million of the settlement will pay for the damage assessment, the state's initial emergency response, and litigation costs. Another $5 million will be spent on promoting and monitoring the river's recovery, while $14 million will go toward enhancing the river and acquiring new habitat"

Rypkema, Donovan. January 1994. "Place, Community, and Economic Development: A Presentation by Donovan Rypkema to alumni of the Mayor's Institute on City Design."

"We are in the midst of a major shift in how the economy functions. There are four interrelated elements that make up this shift: first, globalization; second, localization; third, quality of life as the critical factor in economic growth; and fourth, location dependency being replaced by innovation and place dependency."

"What constitutes 'quality of life'? Quality of life is the amalgam of those things that make a place out of a location and a community out of a bunch of houses. Today, for lots of reasons, economic growth will only take place on a sustainable basis where there is a high quality of life; and securing quality of life is at the heart of what preservation and community design is all about."

PKF Consulting, Analysis of the Economic Impacts of the Northern Central Rail Trail, June 1994, Maryland Greenways Commission, Maryland Department of Natural Resources, Annapolis Maryland.

(section II, "The National Perspective", by Edward T. McMahon, Director of the American Greenways Program)

"Numerous studies demonstrate that linear parks can increase property values, which can in turn increase local tax revenues. Spending by residents on greenway- related activities helps support recreation-oriented businesses and employment, as well as other businesses that are patronized by greenway users. Greenways often provide new business opportunities and locations for commercial activities like bed and breakfast establishments, and bike and canoe rental shops. Greenways are often major tourist attractions which generate expenditures on lodging, food, and recreation-oriented services. Finally, greenways can reduce public expenditures by lowering the costs associated with flooding and other natural hazards.

Page last updated 04/03/2000