An assessment of methodologies to evaluate flood losses and impacts

An Assessment of Methodologies to

Evaluate Flood Losses and Impacts

First Draft

January 2008

Co-ordinator: Paul Samuels, HR Wallingford, UK Project Contract No: GOCE-CT-2004-505420

Integrated Flood Risk Analysis

and Management Methodologies

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Title An assessment of methodologies to evaluate flood losses and _impacts Lead Author Michael Beckmann

Contributors Hocine Oumeraci, Andreas Kortenhaus Distribution FLOODsite project team

Document Reference v1_3

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Date Revision Prepared by Organisation Approved by Notes

15/04/06 v1_0 mb, ak LWI converted from diploma thesis 22/09/07 v1_2 ak, ho LWI review & changes

31/01/08 v1_3 ak LWI change of title

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This report is a contribution to research generally and third parties should not rely on it in specific ap-plications without first checking its suitability.

In addition to contributions from individual members of the FLOODsite project consortium, various sections of this work may rely on data supplied by or drawn from sources external to the project

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A prerequisite for the implementation for any flood risk analysis is the determination of the expected damages and losses which build the second component of the risk. The main difficulty is the quantifi-cation of the so-called “intangible” losses which are hardly amenable to a monetary valuation.

The objective of this report is therefore to critically review and analyse the current published and un-published knowledge on the methods to valuate the intangible losses associated with both environ-mental and social/health impacts of coastal and estuarial floods, including the techniques for Cost-Benefit-Analysis, Multi-Criteria-Analysis, and Life Quality Index approaches. Particular focus is placed on identifying holistic concepts, methods and techniques which are most appropriate to build a consistent and transparent framework for the rational estimation of intangible losses.

As a result, the currently available valuation methods, which have been used for some specific pro-jects, are found to be not objective and generic enough and hence cannot readily be applied for other projects. For each category of the intangible losses, including environmental impacts as well as socie-tal and health impacts, the difficulties encountered are analysed and the challenges for further research are discussed.

The current valuation methods related to environmental losses are often plagued by a limited consid-eration of the key factors. While indirect valuation methods are unable to sufficiently discern among the observed market factors, the contingent valuation methods (CVM) suffer from too many possibili-ties for subjective behaviour. The current valuation methods for societal and health impacts are pri-marily descriptive and a monetary valuation of possible adverse effects has proved to be questionable in ethical terms and seems to be hardly practicable in terms of Cost-Benefit-Analysis (CBA).

The appropriateness of further different methods to access the intangible losses is critically discussed, including Multi-Criteria-Analysis (MCA) and Life Quality Index (LQI). Overall, the results of this review and analysis are intended to contribute building a knowledge base for elaborating a consistent and transparent framework for the assessment and valuation of intangible losses in risk and vulnerabil-ity analysis.

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1.1 Motivations and objectives ...1

1.2 Methodology ...3

2. Environmental Impacts of Floods...3

2.1 Basic principles of environmental valuation ...4

2.1.1 Relevance of environmental valuation...4

2.1.2 Economic versus ecological sustainability...5

2.1.3 Environmental values ...6

2.1.4 Impacts and vulnerability to environmental values ...7

2.1.5 Summary and Implications ...10

2.2 Environmental valuation methods ...11

2.2.1 Indirect Methods...11

2.2.2 Direct Method: Contingent Valuation Method...14

2.2.3 Application of Benefit Transfer...19

2.2.4 Summary and Implications ...21

2.3 Limitations of economical valuation of the environment ...22

2.4 Implications for Flood Risk Analysis in regard to Environmental impacts ...24

3. Societal and health Impacts of Floods ...26

3.1 Health Impacts of Floods ...27

3.1.1 Physical health effects ...29

3.1.2 Mental health effects...33

3.1.3 Social impacts of Floods ...34

3.1.4 Societal impacts of Floods ...35

3.1.5 Summary and Implications ...37

3.2 Vulnerability and resilience to flooding ...38

3.2.1 Vulnerability influencing factors...40

3.2.2 Social flood vulnerability Index ...42

3.2.3 Summary and Implications ...43

3.3 Approach for valuation of risk and health effects of floods...44

3.3.1 Approaches to valuate risk and health effects of floods ...44

3.3.2 Summary and Implications ...51

3.4 Implications for Flood Risk Analysis in regard to Societal and Health Impacts...53

4. Decision-making Process ...54

4.1 Cost-Benefit Analysis...55

4.1.1 Methodology of Cost-Benefit Analysis ...56

4.1.2 Strength and Weaknesses of Cost-Benefit Analysis...63

4.1.3 Summary and Implications ...65

4.2 Multi-Criteria Analysis ...65

4.2.1 Methodology of Multi-Criteria Analysis ...66

4.2.3 Theoretical differences between MCA and BCA...73

4.2.4 Summary and Implications ...74

4.3 Life Quality Index ...75

4.3.1 Methodology of the Life Quality Index approach ...75

4.3.2 Strengths and Weaknesses of the Life Quality Index approach ...80

4.3.3 Summary and Implications ...81

4.4 Implications for Flood Risk Analysis in regard to the Decision-making Process ...81

5. Conclusions and Recommendations ...83

Tables

Table 1 Components of Total Economic Value (modified from Loker (1992) and

Meyerhoff (1999)) 6

Table 2 Coastal / estuarial functions and environmental impacts 9

Table 3 Application of Contingent Valuation Method 16

Table 4 Biases and criticism on the CVM 18

Table 5 Factors that affect the reliability and validity of the Benefit-Transfer 21

Table 6 Causes of floods (modified from Few et al. (2004), p. 7) 27

Table 7 Impacts of floods on human health 28

Table 8 Distribution of the causes of flood-related death (modified from Jonkman &

Kelman (2005), p. 84) 31

Table 9 Distribution of flood-related death according to age (modified from Jonkman &

Kelman (2005), p. 86) 31

Table 10 Distribution of flood-related death according to gender (modified from Jonkman

& Kelman (2005), p. 87) 31

Table 11 Flood fatalities according to timing of death (modified from Jonkman & Kelman

(2005), p. 88) 32

Table 12 Classification system for water- and excreta-related infections (modified from

Few et al. (2004), p. 29) 33

Table 13 Potential effects of disasters on families (modified from John Heinz III Center

(2002), p. 106) 35

Table 14 Indicators of the Social Flood Vulnerability Index 42

Table 15 Hypothetical example for the mathematical derivation of flood hazard rating

(modified from Penning-Rowsell et al. (2005a), p. 50) 48

Table 16 Hypothetical example for area vulnerability scores (modified from

Penning-Rowsell et al. (2005a), p. 51) 48

Table 17 Hypothetical example for the estimation of people at risk (modified from

Penning-Rowsell et al. (2005a), p. 51) 49

Table 18 Hypothetical example for the estimation of peoples’ vulnerability (modified

from Penning-Rowsell et al. (2005a), p. 52) 49

Table 19 Example for the estimation of injuries and death (modified from

Penning-Rowsell et al. (2005a), p. 53) 49

Table 20 Comparison of included factors and results in assessing loss of life from

flooding (own illustration) 52

Table 21 Relative costs of evaluation (modified from DEFRA (2001a), p. 17) 57

Table 22 Indicative standards of protection (exemplary) 63

Table 23 Advantages and limitations of Cost-Benefit analysis 64

Table 24 Illustrative example of Appraisal Summary Tables (modified from RPA (2004),

p. 23) 67

Table 25 Illustrative example of Summary Tables for main assessment (modified from

RPA (2004), p. 24) 68

Table 26 Advantages and disadvantages of scoring systems (own illustration) 69 Table 27 Illustrative example for a tabularly scoring of different options (modified from

RPA (2004), p. 42) 70

Table 28 Steps of eliciting weights (modified from RPA (2004), p. 62) 71 Table 29 Illustrative example for calculating the Cost-Benefit Ratio 72 Table 30 Requirements for Multi-criteria-analysis (modified from DTLR (Department for

Transport (2001)) 73

Table 31 Advantages and limitations of MCA 73

Table 32 Minimization of structural and safety investments by considering the Implied

Figures

Figure 1: Methodology and conceptual organisation structure of this study 2 Figure 2: Methodology and structure of Chapter 2 on ‘Environmental Impacts of Floods’ 3 Figure 3 Climate change and expected sea level rise after IPCC (2001), p. 74 8 Figure 4 Conceptual framework for coastal vulnerability assessment (modified from

Klein & Nicholls (1999), p. 185) 10

Figure 5 Travel cost Method, worked sample and demand curve for frequency of visits

(own illustration) 12

Figure 6 Change in property value with increasing environmental quality (modified from

Garrod & Willis (1999), p. 89) 13

Figure 7 Market Valuation Method of Physical Effects, worked sample (own illustration) 14 Figure 8 Overall Structure of a Contingent Valuation Method Study (own illustration) 16 Figure 9 Different Benefit Transfer approaches (modified from Muthke (2002), p. 50) 20 Figure 10 Time and discount rate influence on discount factor (modified from Hanley &

Spash (1993)) 24

Figure 11 Distribution of natural disasters and people affected by disasters (modified from

www.em-dat.net, Date: 11/11/2005) 26

Figure 12 Conceptual structure of Chapter 3‚ Societal and health impacts from floods’

(own illustration) 27

Figure 13 Distribution of reported deaths from natural disasters (modified from

www.em-dat.net) 29

Figure 14 Death as a result of Hazard and vulnerability factors (modified from Jonkman &

Kelman (2005), p. 79) 30

Figure 15 The vulnerability of households to flooding (Green (1995a), p. 10) 40 Figure 16 Social Flood Vulnerability Index-variables and results from a range of case

studies (Tapsell et al. (2002b), p. 1521) 43

Figure 17 Example for the application of Social Flood Vulnerability Index (own illustration) 43 Figure 18 Loss of life approach Brown & Graham (1988b) (own illustration) 45

Figure 19 Loss of life approach by Waarts (own illustration) 46

Figure 20 General approach to estimate flood risks to people (modified from

Penning-Rowsell et al. (2005a), p. 58) 47

Figure 21 Intangible damages versus Annual Probability (DEFRA (2004b), p. 7) 50 Figure 22 Conceptual Structure of Chapter 4, the ‘Decision-making Process’ 55 Figure 23 Methodology of Cost-Benefit Analysis (modified from DEFRA (2001a), p. 9) 56 Figure 24 Illustrative example of Geo-Information-System (modified from Meyer (2005),

p. 178) 59

Figure 25 Determination of average benefits (modified from DEFRA (2001a), p. 34) 59 Figure 26 Comparison of options with different expenditure profiles (modified from

DEFRA (2001a), p. 58) 62

1.

Introduction

1.1 Motivations

and

objectives

The consequences of global warming, such as the increasing frequency of disastrous storms and the rise in sea level due to thermal expansion of the oceans and the melting ice deposits, are causing more and more serious long-term effects on human habitat, and are thereby denigrating the quality of life of affected populations. Nevertheless, despite the threat that flooding and hurricanes pose, especially to coastal and estuarial settlements, the number of people residing here continually rises – encouraged by improved flood alleviation schemes and precautions1_.

Because natural resources form the general basis for the earth’s population, people rely on manipulat-ing the environment and on utilizmanipulat-ing its resources safely in order to assure their survival and quality of life. Hence, we must not ask ‘whether’ to use scarce natural resources, but rather ‘how’ to use them, see Hansjürgens (2002), p. 2. With that, one comes to the concept of sustainable development. In this sense, according to the economic and welfare oriented efficiency criteria, a balance between economic objectives and ecological concerns must be struck. A sustainable holistic procedure that incorporates environmental, resource-oriented, and socio-economic criteria within the decision-making process is indispensable. In the neo-classic perception, a missing valuation of environmental services would re-sult in insufficient or completely missing integration of these assets within public rational decision-making processes, which are themselves based on a consideration of the estimated costs and benefits of an investment.

Analyses for the estimation of the expected risk of flooding in coastal- and estuarial areas are carried out based on a detailed investigation of two risk-components: i) the probability of failure of the protec-tion facilities and ii) the total damage potential. Whereas the former is primarily an engineering issue, the estimation of the potential damage represents a more interdisciplinary challenge. Hence, the pur-pose of the present report is to provide a critical analysis of the current knowledge on the quantitative estimation of potential socio-economic, environmental, and further intangible impacts from flooding in coastal and estuarial areas. The full range of available concepts and methods will be reviewed and their particular strengths and weaknesses discussed. The main focus will lie in the identification and illustration of already existing approaches that could allow for a holistic and consistent consideration of the actual scope of intangible impacts from disastrous events, which would make possible the in-corporation of socio-economic and environmental changes into rational decision-making instruments and processes. The key characteristic of a holistic approach is that it allows for the consideration of a wide bandwidth of crucial factors and event characteristics in the decision-making process. Moreover, valuation- and decision-making instruments for public investments must strive for a maximum effi-ciency and sustainability in the application and allocation of scarce resources and public funds, be-cause these, in the end, are carried out in the public’s interest. Hence, when impacts to environmental assets are expected, obligations in regard to the intergenerational contract must be considered, because these assets are of long-term importance for quality of life. This is particularly the case when irre-versible measures are under consideration.

5) Conclusions and Recommendations 1) Introduction

2) Environmental Impacts of Floods

3) Societal and Health Impacts of Floods

4) Decision-making Process Im pl ic at io ns f or F lo od R isk A na ly si s

• Physical and Mental Health Effects from Flooding • Societal and Social Effects from Flooding

• Approaches for valuation of hazardous effects of Floods • Motivations and Objectives

• Methodology

• Basic Principles of Environmental Valuation • Indirect and Direct Valuation Methods

• Limits of economic Valuation of the environment

• Reason for Choice

• Approaches to support the Decision-making Process

Evaluation Methodology of Intangible Losses Induced by

Coastal and Estuarial Floods

Figure 1: Methodology and conceptual organisation structure of this study

! Chapter 3 lists a multitude of observed physical-, mental-, health and societal impacts, and illustrates and discusses the main aspects of the individual’s and community’s vulner-ability and resilience in coping with disastrous events. The chapter further describes ap-proaches that undertake quantitative calculation of possible casualties from flooding with respect to different local, societal, and flood-specific characteristics. Finally, it discusses results from a monetary valuation study of an increasing security standard against flood-ing.

! Chapter 4 illustrates various approaches for optimization of the decision-making

proc-ess. These are investigated in light of economic, ecological, and participative criteria.

In-cluded are Cost-Benefit Analysis and Multi-Criteria Analysis, as well as a decision-making process that is based on the idea of Life-Quality Index.

1.2 Methodology

The present study is based upon a comprehensive examination of the current knowledge and upon technical discussions. The cited literature includes published as well as unpublished sources. Further-more, current data and visual aids were derived from dependable websites, which are clearly indicated in the consecutive text by the URL2 _{and the date of inquiry.}

The conceptual structure of the assessment of the intangible loss potential presented here breaks down into three main parts: i) Environmental impacts and their assessment; ii) Societal and health impacts and their assessment; and iii) Approaches supporting the decision-making process for more ecological and socio-economic sustainability and responsibility. The methodology of this study is illustrated in Figure 1.

2.

Environmental Impacts of Floods

This chapter provides an overview of current literature and results of scientific research on the quanti-fication and valuation of the environmental impacts of coastal and estuarial floods. For the purpose of fostering ecological and economic sustainability within policy and public decision-making, environ-mental valuation appears as a fundaenviron-mental condition both for assuring human survival and for coun-teracting irreversible environmental changes. In this context, the continual conflict between the eco-nomic and the ecological models of assessing environmental services is brought to light. Further, the vulnerability and resilience of coastal and estuarial zones to flooding is examined from the environ-mental impact perspective. The main direct and indirect techniques for environenviron-mental assessment are illustrated. These are: 1) Travel-Cost-Method; 2) Hedonic-Price-Method; 3) Market Valuation of Physical Effects; and 4) the Contingent Valuation Method (Figure 2). Additionally, the application of Benefit Transfer as a method for adjusted data transfer for economical valuation of environmental ser-vices and benefits is discussed.

Environmental Impacts of Floods

Travel-Cost-Method (TCM) Hedonic-Price-Method (HPM) Market Valuation of Physical Effects (MVPE) Contingent Valuation Method (CVM) Basic Principles of Environmental Valuation

Possible strengths and weaknesses of methods for valuing public appreciation of varying environ-mental endowments for the purpose of achieving more sustainability in policy and public decision-making first examined. Based on the results of this examination, possible fields of application of vari-ous methods for valuing certain categories of losses are discussed, the advisability of their use is as-sessed, and necessary issues for further research are given.

2.1

Basic principles of environmental valuation

2.1.1 Relevance of environmental valuation

It is widely recognised that natural resources build the general basis for any human existence and economy. Especially when one considers population growth, it becomes clear that people will rely on manipulating the environment and its resources in order to assure their survival and quality of life. The question within a social welfare economy is not whether we are allowed to adjust the world as we found it; rather, the question is how to handle scarce resources and human needs for a well-balanced satisfaction of both, see Hansjürgens (2002). A common economy is described as a ‘[…] social or-ganisation whereby resources are converted to intermediate products, capital stock and final consump-tion’, see Green (2003b). This reflects the inextricable dependency between natural resources, dur-ables, technology, and consumption.

Quantification and monetarization of environmental services and benefits is a basic requirement for sustainability and for economic efficiency of public investment and policy making. Unpriced assets and missing markets on environmental goods often lead to mismanagement of money and of scarce natural resources. Due to the missing and imperfect markets for environmental goods, the precondition for this value-based approach can only be an anthropocentric comprehension of nature. Most econo-mists view the environment we currently utilise as a physical capital asset that has to be delivered un-impaired to future generations (OECD (2000)). Accordingly, the value of the environment arises from the benefits current and future generations can derive.

However, when analysing the efficiency and cost-benefit ratio of environmental impacts, conservation of natural assets is always associated with two different types of costs:

! the avoidance-costs of precautions and

! the expected damage-costs of the environmental impact.

In the case of the former, the desired quantification and monetarization of a precaution can be based on the amount of necessary production factors and their related market prices. In the latter case, the quantification of the expected damage follows from the causal relationships among emission, immis-sion, climate, human activity, flora, and fauna, in which case monetarization can not be undertaken easily based on existing prices due to missing markets for environmental goods, see Cansier (1996). Considering that excepted environmental damage constitutes a loss of any number of environmental benefits of which current and future generations, in the worst case, could no longer take advantage, an optimal allocation of scarce public, monetary and environmental resources requires a more integrated, realistic, and efficient approach. Therefore, a method for quantifying and monetarizing both avoid-ance- and expected-damage costs ought to provide objectivity and comparability between different solutions for the decision making process, see OECD (2000) and Cansier (1996).

Cansier (1996) and Messner (2000), recapitulating the necessity and relevance of environmental valuation (EV), cite the following advantages:

! EV provides objectiveness and comparability of avoidance costs and expected damage costs in various scenarios for policy-making concerning the environmental endowment ! EV provides better public transparency for the decision-making process

! EV counteracts any overemphasis on one of the two cost-categories ! EV makes different types of losses comparable in monetary terms

! EV enables statements about societal welfare, because the benefit of environmental poli-cies can be measured

! Moreover, updating and adapting policy to environmental changes and various conditions will be greatly facilitated

2.1.2 Economic versus ecological sustainability

In the valuation of environmental services, there are two antipodal positions. On the one hand, we have the economic neo-classical benefit- and welfare-oriented perception of environmental valuation. On the other hand, we have an ecological approach that strongly defends sustainability and respects essential environmental assets and natural resources absolutely. The former allows substitution be-tween natural resources and human made capital to maintain the total capital stock in economic sus-tainability, whereas the latter prefers a strict complementary approach to ecological sussus-tainability, see Bartmann & Busch (1998):

• Economic sustainability: No decrease in the total capital stock, which is made up of: • human capital

• reproducible physical capital • natural resources

• non-renewable resources

• Ecological sustainability: Maintenance of the services and quality of natural resources be-sides human made capital

The neo-classical approach to environmental arbitration is oriented purely toward an economic welfare that consists of individuals with predefined, ordered utility functions. In this view, any change of envi-ronmental quality ought to be measured according to individual preferences. Along with all other pri-vate or public goods, environmental quality makes a further contribution to the individual’s utility functions, which are consolidated into the total welfare of the economy. Accordingly, based on the neo-classical view of substitution between capital and resources, which seeks to maintain the total capital stock, any environmental policy issues can be easily settled based on the change of aggregated public supply- and demand-curves expressing the expected impacts of various solutions. In short, en-vironmental problems are reduced to the correct compilation of costs and benefits. Despite everything, environmental benefits are not automatically tied to human use. Our awareness of the pure existence of certain environmental services can already ascribe to them an inherent individual value, see Weimann (1997).

According to this neo-classical, anthropocentric point of view, initiatives to avoid environmental dam-ages will only be taken if an additional public benefit is assured - that is, if the marginal utility exceeds the estimated avoidance costs, thereby enhancing the total economy welfare. This constitutes the main contrast between this approach and the ecological approach, in which environmental goods are im-measurable because of their essential function within the ecosystem. Even though ecologists decline any monetary valuation of environmental assets, environmental protection, supported by an advanta-geously conservative neo-classical cost-benefit analysis, must not be antithetical to the ecological

per-2.1.3 Environmental values

The ‘Total Economy Value’ (TEV) presents a foundational concept of economical valuation of envi-ronmental assets. In this approach, the economical assessment of various envienvi-ronmental configurations consists of multiple components, called ‘Use- and Nonuse-Values”, see Eq. (1). In most of the valua-tion methods (Chapter 2.2), the assessment of use-values is based on direct questioning or indirect data derived from groups of persons on the basis of their consumer behaviour. However, according to the TEV, ‘[…] this is not necessarily the complete set of people who value assets, as those who do not visit the site may still value the site’s existence’, see Loker (1992), p. 97. For many people, the pure existence and retention of protected natural areas or has an inherent value, even in the absence of a direct benefit from visiting the site (Nonuse value). Hence, the total environmental value is comprised by the appreciation of both visitors and non-visitors to a site, along with their individual preferences and attitudes. The composite of the Total Economy Value can be specified as follows (Table 1):

TEV Use Value Nonuse Value= + (1)

Table 1 Components of Total Economic Value (modified from Loker (1992) and Meyerhoff

(1999))

Total Economic Value

Use Values Nonuse Value

Direct Use Value Indirect Use Value Option Use Value Bequest Values Existence Values

• Recreation • Food • Health • Forestry • Landscape • Storm, Flood protection • Impact on cli-mate change • Conservation of water resources (natural re-sources) • Future utilisation • Conserved habi-tat • Biodiversity • Natural assets retained for fu-ture generations • Irreversible changes • Objects of intrin-sic value (uniqueness of certain natural as-sets)

• Endangered spe-cies

Possible Methods of Valuation (Chapter 2.2)

• Travel-Cost-Method (TCM) • Hedonic-Price-Method (HPM) • Contingent-Valuation Me-thod (CVM) • Avoidance-Cost-Method (ACM) • Reproduction-Costs-Method (RCM) • Contingent- Valuation-Method (CVM) • Contingent- Valuation-Method (CVM) • Contingent- Valuation-Method (CVM)

Direct Use Value

‘Direct’ or ‘primary use-values’ include all outputs resulting from direct consumption and application of resources. Selective logging or fishing, for example, is reasonable in order to maintain natural land-scapes, endangered species, or scarce resources. Furthermore, individual benefits from consumption and experience of environmental services are added. Recreational activities such as walking in the for-est or on the beach contribute just as well as healthy food, clean air or hygienic water to this category of benefit, see Bateman et al. (2002) and OECD (2000).

Indirect Use Value

The second component of Use Values is represented primarily by indirect environmental function. Natural meadows next to inland rivers, for example, are highly useful for absorbing, decelerating, and

coping with exceptional inland floods. Moreover, wetlands provide useful and necessary recreation sites for both humans and wildlife, see Meyerhoff (1999) and OECD (2000).

Option Use Value

The Option Value contains the notion of a potential use of certain resources, even if it is not conceiv-able at present just when the proposed consumption will occur. The Option Value is to assure the fu-ture availability of a resource and can be seen as a kind of insurance premium. Hence, this value can be defined as the ‘[…] value of holding open the opportunity to make use of a good at some future point in time, although the individual makes no current use of that good’, see Green (2003b), p. 72.. Obviously, this value is not represented in conventional economic markets, and thus it can only be es-timated by direct questioning, as contained in the Contingent Valuation Method (Chapter 2.2.2), see Bateman et al. (2002).

Existence Value and Bequest Values

So far, the components of the TEV mentioned above all focus on expected demand for certain re-sources and the benefits of their consumption. The Existence Value, taken separately, represents the value of the ‘[…] pure pleasure in something’s existence’ (OECD (2000), p. 26) and is therefore also known as Passive Value. According to this definition, something’s existence alone is not sufficient for its valuation. At least the awareness and appreciation of that environmental asset in the minds of indi-viduals has to be assured. Bequest Values, as Nonuse values, represent the individual’s desire to main-tain resources in order to ensure their transmission for potential use by future generations, see Loker (1992) and OECD (2000).

Hence, depending on the individual’s assessment of an expected environmental change, the aggregate appreciation of possibly affected Nonuse Values can be enormous in reference to the total amount of the TEV. Due to the immense difficulties involved in quantitative and qualitative estimation of these values, many economists regard the informational value and credibility of contingent valuation meth-ods for the existence- and bequest-values with scepticism, see Meyerhoff (1999).

In conclusion, one can say that the more imprecise and ineligible for evaluation by conventional eco-nomic markets the affected resources and benefits are, the less accessible they are to both qualitative and quantitative assessment, and therefore for consideration within the TEV, and finally within poli-cies and decision-making processes (Table 1).

2.1.4 Impacts and vulnerability to environmental values

The total amount of damage expected due to serious floods or other extreme natural events depends on the vulnerability of the affected socio-economic and ecological systems and on the severity of the im-pact. Accordingly, vulnerability as a function of physical and human characteristics has predominantly been investigated from within the socio-economic system (Section 3), in consideration of resources and coping strategies which can be mobilised to address societal and health impacts (Penning-Rowsell & Fordham (1994), Green & Ketteridge (1994)). Accordingly, following Klein & Nicholls (1999),

nerability also depends on the interaction of physical and geological processes, see John Heinz III Center (2000) and Klein & Nicholls (1999).

where: A1B → + 3,0° in 2100 A1T → +2,6° in 2100 A1FI → +4,5° in 2100 A2 → + 3,8° in 2100 B1 → +2,1° in 2100 B2 → +2,8° in 2100

Figure 3 Climate change and expected sea level rise after IPCC (2001), p. 74

In Figure 3 A1B and A1T scenarios describe a future world of very rapid economic and global popula-tion growth, associated with more and newer efficient technologies. The A2 scenario includes a very heterogeneous world with regional oriented economic growth and technological change. B1 describes, as mentioned for scenario A1, a world with a fast population growth, but it assumes a rapid change in economic structures towards a service and information economy instead of a rapid development of more efficient technologies. The B2 scenario estimates sea level rise on the basis of an increase in temperature of 2.8° in 2100 and presumes social and environmental sustainability due to the emphasis of local solutions and a population growth at a rate lower than A2.

Especially in times of expanding industrial areas and modified modern societal perspectives, coastal areas that are valuable and essential within the ecosystem also become ‘[…] locations for many of the nation’s largest concentrations of people and development. Extensive […] shoreline business and commerce, residential development, and recreational development and activity have dramatically, and, in some cases, irreversibly, changed the coastal environment’, see John Heinz III Center (2000), p. 121. Hence, fragmentation due to the natural and the man-made environment in coastal and estuarial zones has increased these regions’ vulnerability and lowered their resilience. Some of the main func-tions of natural coastal areas and estuaries, as well as the threats posed to them by deleterious proc-esses, are specified in Table 2.

Table 2 Coastal / estuarial functions and environmental impacts

Coastal and estuarial natural functions according to impacts

• Coastal barrier islands • Natural dune systems with deep root mats are effective to resist erosion

• Coastal wetlands and forests decrease the impact of high winds • Coastal wetlands and floodplains diminish the impact of

storm-induced flood waters

• Coastal bays • Storm-introduced sediments are important for ecological and coastal stability

Source: John Heinz III Center (2000); Correia et al. (1996)

Deleterious impacts to and vulnerability of coastal / estuarial regions

• Sea-level rise, storm and

floods •

Due to their location, coastal and estuarial zones are highly en-dangered by strong winds or high-level floods. Moreover, de-struction of flora and fauna, damage to food chains and rare en-dangered species, as well as to natural recreational resources and areas, are inevitable. Sediment erosion and damage to archaeo-logical and historical resources are likely.

• Coastal development • Buildings, roads and other hard structures reduce coastal flood-plain capacity, as does the clearing of forests or taking of sand from natural dunes or wetlands.

• Fragmentation due to

coastal development •

Human development and interaction with the coastal environ-ment mostly derogates the natural ability to handle and moderate the impacts of storms or floods.

• Inexpertly placed human-made constructions can exacerbate the ability of migrating and rebuilding of natural resources in the af-termath of an impact. Furthermore, natural habitat for flora and fauna is restricted (Biodiversity).

Source: Gautmann & Van der Hoek (2003); John Heinz III Center (2000); DEFRA (2001b); Schweppe-Kraft (1998)

However, since 1990, several guidelines and methodologies for estimating coastal vulnerability have been developed e.g. (for further guidelines see Klein & Nicholls (1999), p. 1):

! CZMS (1992): A common methodology for assessing vulnerability to sea level rise ! Carter et al. (1994): Technical guidelines for assessing climate change impacts

! Feenstra et al. (1998): Handbook of Methods for climate change impact assessment and adaptation strategies

! A clearly laid-out framework is also given in Messner & Meyer (2005)

vulner-Susceptibility Resilience / _Resistance Planned Adaptation Autonomous Adaptation Natural Vulnerability Impact

Potential prevent or copeAbility to

Residual Impacts Socioeconomic Vulnerability Accelerated Sea-Level Rise Natural System Socioeconomic System Other Climate and Nonclimate Stresses S difi d f Kl i l (1999)

Figure 4 Conceptual framework for coastal vulnerability assessment (modified from Klein & Nicholls (1999), p. 185)

As illustrated in Figure 4, there are various factors and indicators affecting the vulnerability of coastal areas and estuaries:

First, the natural system’s susceptibility to and capacity to cope with the impact of eventualities like sea-level rise ought to be analyzed. The former describes the likelihood of a region being impacted, whereas the latter expresses the resilience (ability and speed of reconstitution) and resistance (ability to stave off the impact throughout the perturbation) of the system in question, respectively. While sus-ceptibility is relatively independent of human influence, a system’s ability to cope with a disruption is more strongly related to human-planned adaptation strategies for enhancing both the resilience and the resistance of a system.

According to the natural system (Figure 4), socioeconomic vulnerability is defined by the likelihood of an impact and society’s capability to prevent (resilience and resistance) the perturbation. Nevertheless, after Klein & Nicholls (1999), p. 185, the natural- and the socioeconomic systems have to be viewed ‘[…] as developing in a co-evolutionary way’, instead of as two separate dynamics.

2.1.5 Summary and Implications

As illustrated in Chapter 2.1, an anthropocentric comprehension of natural resources and services is indispensable for sustainability in and for the maintenance of human existence and economic satisfac-tion. Nature’s value arises from the benefits that current and future generations can derive. In this sense, objectivity in policy and public decision-making requires an integrated, realistic and efficient approach that incorporates a qualitative and quantitative assessment, both of the environmental im-pacts as a consequence of decisions toward better economic conditions, and of the expected avoidance costs. According to this neo-classical perception, environmental changes will only be tolerated if an additional public benefit is assured. Further, Chapter 2.1.3 outlined that the more inaccessible the ef-fected natural resources are for evaluation by conventional economic markets, the more difficult their consideration will be within the Total Economy Value, and finally within policy and public decision-making.

Vulnerability and resilience of environmental assets were described as a function both of physical-natural characteristics, such as the expected sea-level rise or an increasing occurrence of severe floods and storms, and of direct human activity such as environmental impacts and derogations from settle-ments and expanding industrial activities in sensitive coastal and estuarial areas. Various indicators and factors can severely impact coastal areas and estuaries, and several guidelines for estimating ex-pected environmental damages have already been developed (Chapter 2.1.4).

For a better understanding of the interaction of climate changes, human activities, and physical charac-teristics of coastal and estuarial areas, further scientific research is necessary. Effective flood plain management is indispensable. Moreover, environmental and economic sustainability depends increas-ingly on a more efficient policy that controls and limits the growth of vulnerable settlements in haz-ardous areas, and that focuses additionally on diminishing burdens that severely derogate the world we live in, such as by regulating the annual output of CO2 by law. Furthermore, the public’s

understand-ing of adverse short- and long-term environmental impacts must increase, and a world-wide responsi-bility to avoid irrecoverable environmental derogation has to be strengthened, independently of whether the people are directly affected by environmental changes or not.

2.2 Environmental valuation methods

For purposes of assessing environmental policy arrangements for comprehensive decision-making, the incurred loss or derived benefit is, in general, not directly observable or predictable compared to the estimated avoidance costs (see Chapter 2.1.1). However, when different alternatives are compared, both costs and benefits ought to be measured by the same unit in order to generate objectivity and pub-lic transparency. As far as private preferences and markets for consumer goods are concerned, envi-ronmental quality in the neo-classical conception of economic welfare is expressed in monetary terms that correspond to supply- and demand-curves. Because of the fact of missing markets, natural per-formances must be valuated by searching out the public ‘willingness-to-pay’ for maintaining a certain environmental endowment. Analogous to scarcity in common consumer markets, the worse nature’s quality is rated, the higher the public’s empathy and contribution ought to be. Nevertheless, public ap-preciation, generated in aggregated individual preferences, is affected by several factors such as re-gional circumstances, different income levels, and by financial, intellectual, and other individual atti-tudes and preferences. Accordingly, it is almost impossible to acquire a universally valid assessment of environmental assets and services, see Cansier (1996); Garrod & Willis (1999); and Green (2003b). However, common approaches to valuation of public benefits are all based on a determination of envi-ronmental demand-curves. The differences are found in the approach to accounting, which may em-ploy direct or indirect methods (Figure 2).

2.2.1 Indirect Methods

Indirect methods aim to estimate benefits of non-market environmental goods by inferring and con-verting the observed willingness to pay from related prices in public markets. If changes in public

be-ity can be inferred from the cost incurred travelling to that natural area. Furthermore, entry fees and expenses for necessary equipment are considered. These consumption expenditures in complementary or substitute market goods are then decisive in the assessment of environmental benefits, see Polomé et al. (2001). If the estimated cost of visiting a site in nature is zero monetary units, that public utility is almost worthless. After Garrod & Willis (1999) and OECD (2000) this is also the case if getting to that recreation site is so disproportionately expensive that no one could afford it.

For purposes of the TEV (Chapter 2.1.3), the TCM cannot be used for evaluating non-user values. However, these are inherently valuable based on the pure fact of their existence and their contribution to the total environmental endowment. In fact, the demand for recreation sites like national parks, for-ests, and wetlands, as well as for fishing, hunting or boating areas, can be estimated. The TCM is widely used for estimation of the value of particular sites or homogeneous groups of sites, see Hanley & Spash (1993); and OECD (2000).

However, the travel costs themselves simply describe the minimum individual willingness to pay to reach and enjoy a certain natural area. To assess the total public benefit of an environmental asset, it is assumed that visitors from different zones will react in the same way to changes in the assumed travel costs. According to this, the example in Figure 5 illustrates the different travel costs with regard to five zones, where zone A describes the farthest and zone E the closest distance to a specific recreation site. Hence, if a visitor’s travel costs from zone E were the same as his costs from zone B, he would attend the site five times instead of twenty, although he lives nearer to that particular site (Hanley & Spash (1993); Garrod & Willis (1999)). On that basis, curve A-E in Figure 5 illustrates the expenses arising for each zone. Due to the aggregation of this individual’s marginal willingness to pay (equivalent to consumers’ surplus) expressed by the area under this curve, an estimation of the public gross benefit from that natural area (350 units) can be calculated. By subtracting the total travel costs (200 units) from the gross benefit, the net benefit of that site is expressed as 150 units. According to the TCM ap-proach, the gross or net benefit, respectively, demonstrates the public’s appreciation for, and therefore the economic value of, a particular environmental asset.

Fehler! Keine gültige Verknüpfung.

Figure 5 Travel cost Method, worked sample and demand curve for frequency of visits (own

illus-tration)

Nevertheless, this approach is plagued by some basic weaknesses: it first assumes that all individuals from one zone act the same way. Certainly, they all incur the same travel costs to reach that natural area, but different factors such as income, gender, or their preferences or ability to access alternative recreational sites will all result in different demand curves for one and the same environmental good. This diversity and interdependency of individual attributes is left unconsidered under the TCM ap-proach. Furthermore, problems in distinguishing between holiday-makers and local residents are left unconsidered, as is the monetary value of journey-time, which could alternatively be used for gainful work. In the case of round trips, further problems arise in estimating incurred travel costs. Conse-quently, the valuation of an isolated, particular site is hardly ascertainable, see Garrod & Willis (1999) and Schönbäck et al. (1999).

Hedonic-Price-Method

The Hedonic-Price-Method (HPM) relies on an attempt to subdivide and ascertain various attributes having to do with the willingness to pay for housing with respect to local amenities like environmental quality, noise intensity, the structural characteristics of an accommodation, or aspects of the locality and its public socio-economic environment. Each of these attributes has a proportionate impact on purchase- and lease-prices for property. Hence, the goal of the HPM is to ‘[…] measure the value of small changes in attribute levels […]’ (Garrod & Willis (1999), p. 88) to constitute their particular contribution to the varying public willingness to pay to live in different environmental areas. For reli-able informational value, the properties ought to be comparreli-able and equipped with roughly the same

structural characteristics. According to the HPM, objects differ only with respect to a particular envi-ronmental attribute. It is assumed that, ceteris paribus, any impact on property value is based on a change in willingness to pay, which in turn depends on certain natural qualities Cansier (1996), Polomé et al. (2001); Schönbäck et al. (1999))

The example in Figure 6 illustrates the influence of a falling pollution level on the public willingness to pay a further marginal rent for accommodations under an improving environment endowment, whereas the marginal rent decreases progressively per stepwise upgrade (a). For example, if 100 peo-ple are willing to pay an implicit rent of 4 monetary units to achieve better living conditions under a decreasing pollution level from 40 to 30, four-hundred monetary units (b) can be assigned to this envi-ronmental improvement. The total willingness to pay, which expresses the public appreciation of the aspired environmental improvement, can be estimated by aggregating the specific contributions that result from each step of the pollution alleviation (700 units).

Implicit Marginal

38 Grade Level Rent Implicit Rent 5.6

30 O 40 0 0 100 4 20 I 30 4 4 90 2 10 II 20 6 2 120 1 III 10 7 1 60 Number of people Marginal Implicit Rent Willingness to pay (1) (2) =(1)*(2) 100 4 400 90 2 180 120 1 120 ∑ 700 I -> II II -> III Number of people Pollution Improvement O -> I 0 1 2 3 4 5 6 7 8 9 10 10 15 20 25 30 35 40 Pollution level Im plic ite R en t II O I III 0 2 4 6 8 10 10 15 20 25 30 35 40 Pollution level M ar gina l I m plic it R ate O I II III a) b)

Figure 6 Change in property value with increasing environmental quality (modified from Garrod &

Willis (1999), p. 89)

The main weakness of this approach lies in the difficulty of arriving at an exact breakdown of all rele-vant factors influencing the willingness to pay for a better environmental endowment, not to mention the complex differentiations within the various environmental impacts.

! Calculating the consequences of soil erosion and acid rain on crop yield (e.g. growth, stunting and blemishing)

! Calculating the effects of climate change to forestry (e.g. afforestation)

! Comparing different land uses (e.g. an original natural habitat changes into farmland or leisure park)

Step 1. Step 2. Step 3.

Estimation of the Physical Consequences of an envi-ronmental Change

Estimating the Reduction of

economic outputs due to the environmental Change

Estimating the Market Value of the economic Losses resulting from the environmental Change

Example:

Increasing occurence of acid deposition leads to a wors-ening of water-quality

The worsening of

water-quality in a fishing lake re-duces the output of the fish-ery: e.g. 100kg/month

The Market Value of the reduced output of the fish-ery is equivalent to 500monetary units/month

The monetary value of the expected environmental change can be estimated as 500 monetary units per month. Hence, the total monetary value of the expected environmental change is expressed by the aggre-gated changes in the affected economic outputs.

Figure 7 Market Valuation Method of Physical Effects, worked sample (own illustration)

2.2.2 Direct Method: Contingent Valuation Method

While indirect methods depend on relations and fluctuations in private consumer markets, direct methods are based on interviewing consumers about their preferences and their willingness to pay (or their willingness to accept compensation, in case they are affected by environmental changes). The most appropriate and common approach for this direct data ascertainment and the only approach that can be used in order to estimate non-use values is described in the Contingent Valuation Method (CVM). In the following, (a) the main conceptual basics and fields of application of CVM studies, (b) the overall structure, (c) biases and criticism and finally (d) the reactions to the criticism of the CVM methodology are described:

Basics and Fields of Application of CVM

Environmental valuation and monetarization is necessary in particular with respect to the eventual in-volvement of scarce natural resources in an economic-based decision-making process. If the affected goods are private goods, the integration of these assets within a cost-benefit-analysis (Section 4) in the decision-making process is simple because of the goods’ known prices in public markets. More diffi-cult, however, is the consideration of public goods such as the amenity value of a certain landscape or natural area, for which, apparently, no supply- and demand-curve can be obtained. (Green & Ket-teridge (1994); Meyerhoff (1999))

Hence, the most crucial distinction between public and private markets is founded on rivalry. Within private markets, individual consumers are rivals. If, for example, a given unit of a certain food is con-sumed by one person, then it cannot be concon-sumed by another person. On the other hand, the amenity of a walk in the woodlands can provide benefits for many people simultaneously. Hence, where con-sumption is concerned, there is no rivalry for this public good. Certainly, when a great number of peo-ple seek recreation at the same site at the same time, the quality of each individual’s experience there declines. But even this disagreeableness can be accounted for by considering the individual valuation of an increasing quantity of woodlands. This distinction should be used primarily to classify the means

of valuating different goods, rather than keeping them separated. (Bateman & Willis (1999); Green & Ketteridge (1994))

However, most environmental goods and changes are not related to goods and services that have mar-ket prices. Nonetheless, environmental valuation and monetarization is increasingly indispensable to public policy and decision-making processes, as discussed above. An alternative approach must be adopted in order to estimate the public appreciation and willingness to pay for a given environmental endowment. In contrast to indirect valuation methods, the CVM creates a hypothetical and artificial market, ‘[…] on which the individuals can express their monetary valuation of a change in the avail-ability of a good’ (Green & Ketteridge (1994), p. 35). Furthermore, the assumptions of neoclassical economics underlie these considerations.

The main field of application for CVM is to ascertain those preferences that can not be directly ob-served and assessed and that have no direct impact on market outputs, such as the individuals’ appre-ciation for a specific environment or environmental change,. Hence, a representative population ought to be questioned in order to achieve objectivity within the environmental valuation for public decision-making.

Table 3 below provides further information in regard to possible fields of application for CVM studies and alternative survey methods:

Table 3 Application of Contingent Valuation Method

Types and sectors where CVM is appropriate

Environmental valuation of:

• air and water quality

• recreation (fishing, parks, wildlife)

• risks to life and health (Chapter 4) • water, sanitation and sewerage

• option- and existence values of biodiversity (Chapter 2.1.3)

(Source: Green & Ketteridge (1994); Hanley & Spash (1993); Merrett (2002); Van der Veen et al. (1996))

Different ways the survey can be done

• Telephone interview • Offers the advantages of cheapness and time-saving

• Allows a possibility of ensuring a representative sample through random dialling methods

• Respondents’ unwillingness to spend very long on the phone might be adverse

• Mail interview • Cheap survey which avoids inconsistencies on the part of the interviewer

• Depends on good postal services and an accordingly higher level of education due to the lack of input on the part of the inter-viewer

• Only people interested in the topic of the survey will reply • The order in which questions are read and answered cannot be

controlled

• Personal interview • Best results can be achieved by personal interviews if the inter-viewers are well-trained and capable

(Source: OECD (2000); Green & Ketteridge (1994))

Overall Structure of a CVM Study

In general, a CVM exercise is subdivided into three main parts (Figure 8) as described below (Green & Ketteridge (1994); Hanley & Spash (1993); Meyerhoff (1999); OECD (2000)), although some ap-plications of CVM are based on a six-staged approach (Hanley & Spash (1993)).

Step 1. Step 2. Step 3.

Design of a hypothetical market for specific services (e.g., environmental or rec-reational services)

Elicitation of the

respon-dent's willingness to pay for a purposed environmental change

Testing and analysing the validity and reliability of the Contingent Valuation Study

Figure 8 Overall Structure of a Contingent Valuation Method Study (own illustration)

The first step consists of designing a hypothetical market for the environmental service in question and conveying to the respondents how this service and public enjoyment are related. The goal is to create

artificial circumstances that reflect as closely as possible the real market treatments for that particular good. As such, comprehensive and accurate information about the proposed change in both quality and quantity of the affected environmental good has to be mediated to the respondents. Moreover, the ‘bid vehicle’ must be mentioned, that is, whether as the measure shall be funded through property taxes, income taxes, trust fund payments, or entry fees. In addition, the applied questionnaire should be pre-tested in a focus-group, and the results should be incorporated into the official design (Hanley & Spash (1993).

The second step consists of eliciting the respondents’ willingness to pay (WTP) for the purposed envi-ronmental changes in order to estimate a demand curve for the particular good in question. Where en-vironmental improvements are concerned, the questionnaire should aim to elicit the WTP, whereas adverse environmental effects should be valued according to people’s willingness to accept compensa-tion (WTA). Accordingly, the design of the program of quescompensa-tioning depends on the property rights affecting that good. In the absence of current legal entitlement to a good, the correct approach is WTP. By contrast, if ‘[…] the consumer has a legal entitlement to it and is being asked to give up that enti-tlement […]’ (Carson (2000), p. 1413), the appropriate approach is to elicit the respondent’s WTA. For market goods, the difference between WTP and WTA is theoretically negligible. But the more the difference between WTP and WTA in non-market goods increases, the more obviously does substitut-ability in available market goods arise.

Third, subsidiary questions about a respondent’s social, economic and demographic background are asked. Based on this additional information, the validity and reliability of the CVM is analysed. At the very least, the WTP result should reflect ‘[…] the behaviour of the individual if s/he had to make a choice on a well-functioning market for this good’ (Green & Ketteridge (1994), p. 37).

The reliability of CVM as a consistent measure is reflected by evidence of uniformity after repeated measurements. This can be checked in a small group of the affected respondents at a later date. The validity, therefore, describes the degree of correctness, that is, whether the CVM evaluation represents the true value of the environmental change or not in comparison to results from other valuation meth-ods (for more detailed information see Green & Ketteridge (1994) and Meyerhoff (1999)).

Biases and criticism on the CVM

The application of Contingent Valuation Methods carries with it a wide range of possible biases that ought to be considered. Biases may be founded, for example, in the use of hypothetical situations and markets that aim to provide the necessary circumstances for the valuation of specific assets and bene-fits as realistically as possible. Hypothetical situations can never reflect the actual severity of a deci-sion with all its real-word contingencies. Hence, for assessing individual preferences, there is too little incentive.

Table 4 Biases and criticism on the CVM

Criticism on the CVM

• Hypothetical bias _{• Hypothetical markets can not reflect real trade-offs between goods,} in this case more environmental quality for less of something else. • In conclusion, the occurrence of hypothetical biases depends on how

realistic respondents estimate the authenticity of the hypothetical market and questioning.

• Strategic bias • A common problem in economical assessment is the ‘free rider’ be-haviour. Individuals do not show their real preferences but, rather, prefer statements representing selfishness. Accordingly, individuals value a given reduction in entitlements disproportionately to an equivalent increase in the entitlement.

• This main problem in the CVM can be diminished by focussed ques-tioning and provision of particular information. If, for example, a good will no longer be provided due to decreased public apprecia-tion, or if all costs would be shouldered by the general public, strate-gic biases are preassigned

• Payment vehicle bias • A basic component in hypothetical markets is the bid vehicle, whose suitability should be checked out in pre-tests to avoid protest-answers if the vehicle choice is not accepted by the respondents.

• Embedding-effect • The embedding-effect results from the difficulties in separating the environmental good in question from others. Hence, the order of valuation of single goods is crucial for the level of an individual’s WTP*, WTA**, respectively. According to ‘moral satisfaction’ the former environmental benefits are overpriced in relation to the fol-lowing assets in question.

• No response-bias • Especially in mail-based questionings, a low return can lead to a less representative sample. On the one hand, this can be explained by in-dividual aversion due to a particular intention, which can lead to an underestimation of the good in question. On the other hand, an over-estimation can result when only those individuals with a higher level of education and income respond, which may overvalue the average WTP or WTA

(*) WTP = Willingness to Pay; (**) WTA = Willingness to accept compensation

(Source: Bräuer & Suhr (2005); Green & Ketteridge (1994); Hanley & Spash (1993); Loker (1992); OECD (2000); Van der Veen et al. (1996))

Table 4 gave an overview of possible biases and criticism involved in the application of CVM. Hypo-thetical circumstances, strategic behaviour such as the ‘free rider behaviour,’ or difficulties in separat-ing the environmental good in question from others, can all decisively distort the validity and reliabil-ity of CVM-results. Further problems deal with the ‘breakdown of who pays.’ In this sense, the pub-lic’s interest in an expected environmental change will be even higher, the more directly the persons questioned are affected by the change, for example. This is the most profound difficulty found in ap-plying the CVM.

When one considers the assessment of a specific environmental good or quality affected by public pol-icy, consistent appreciation of and responsibility for environmental concerns across a nation’s popula-tion is indispensable for an objective and traceable decision-making. Hence, because most exceeding environmental changes and impacts are linked to a certain place, for example, much media attention is necessary to arouse nationwide interest, such that emotional consternation or moral courage within those parts of the population that are evidently not effected by a potential environmental change be-comes relevant.

Reactions to criticism of the CVM

In the past, criticism of the CVM as listed in Table 5 has brought about a highly charged debate as to whether the contingent value approach can provide significant economic measures of the individual WTP for environmental resources. The effort to appraise and critique the validity of CVM, especially concerning non-use measurements, was carried out by a National Oceanic and Atmospheric Admini-stration (NOAA) Panel. NOAA reported ‘[…] that the repudiation of the CV method is partly a conse-quence of improperly performed research.’ (Green & Ketteridge (1994), p. 44). A set of guidelines concerning the construction, administration, and analysis for CVM surveys was thereupon provided. The NOAA Panel argues that, under general conditions, the more closely the guidelines are followed, the more CVM would generate useful information, and ‘[…] the more reliable the result will be’ (Arrow et al. (1993),p. 43).

Given below are the Headlines of the four-stage general methodical claims according to the NOAA Panel (Arrow et al. (1993), p. 42-43):

I. Respondents must be carefully informed about the particular environmental damage to be valued, and about the full extent of available substitutes and undamaged alternatives.

II. In willingness to pay scenarios, the payment vehicle must be presented fully and clearly, with the relevant emphasis on budget constraint.

III. The payment scenario should be convincingly described, preferably in a referendum context, be-cause most respondents will have had experience with referendum ballots with less than perfect background information.

IV. Where choices in formulating the CV instrument can be made, we urge they lean in the conserva-tive direction, as a partial or total offset to the likely tendency to exaggerate willingness to pay.

Nevertheless, this approach is in turn also subject to multifaceted criticism. The Environmental Protec-tion Agency (EPA), for example, objects to the relatively high costs of the Guidelines’ detailed and comprehensive proceeding. This might ultimately deter people from using CVM. Hence, when the CVM is appropriately applied in economical valuation, especially for non-use environmental services and goods, this can result in non-observance and non-integration of this important category within pol-icy and public decision-making. Moreover, it is questionable whether these guidelines really do guar-antee more validity and reliability within CVM. The EPA also worries about possible stagnancy in

efforts of Constanza, which uses BT to extrapolate the value of the world’s ecosystem (Constanza et al. (1998)).

The BT approach is divisible into several methodically different approaches. The better the value and quality of the available information, the more feasible and valid the process of benefit transfer will be (Figure 9): Qu al it y Available information Direct BT Adjusted BT

Benefit Function Transfer

Meta Benefit Function Transfer

Transfer of demand-curve and additional application of statistical analysis

Transfer of demand-curve

Direct Transfer of Values from the pilot-site to the study-pilot-site

Direct Transfer of Values from the pilot-site to the study-pilot-site with compensation factors

Source: modified from Muthke (2002)

Figure 9 Different Benefit Transfer approaches (modified from Muthke (2002), p. 50)

Direct Benefit Transfer

Within the direct BT, environmental values from the pilot-site are directly transferred to the study-site without being adjusted for inconsistencies due to temporal and spatial differences. That is, this ap-proach assumes identical socio-economic and ecological attributes for both sites, as well as identical changes in environmental quality and services. This is quite unlikely in fact. (Muthke (2002); Thiele & Wronka (2001)

Adjusted Benefit Transfer

In consideration of the conceptual weaknesses of Direct BT, the Adjusted BT incorporates factors compensating for spatial, temporal, or income-related differences. Especially for comparisons between developing and industrial countries, ecological matching coefficients are included (Muthke (2002)).

Benefit Function Transfer and Meta Benefit Function Transfer

An advanced approach can be found in the Benefit Function Transfer, in which the demand-curve for environmental goods is transferred to the study-site instead of their values themselves. Hence, individ-ual characteristics from the study-site can be incorporated realistically, that is, with demographical and population-related factors included. Meta Benefit Function Transfer is a variant of Benefit Function Transfer, but it is based additionally on statistical analysis of similar valuation studies (Muthke (2002); Rosenberger & Loomis (2000)).

Below is an overview of factors that affect the reliability and validity of BT (Table 5). Disparities in the individual’s appreciation of specific benefits and assets and the insufficient amount of reliable data and methods in regard to assessing scarce resources can together be seen as the most profound diffi-culties within the application of BT.

Table 5 Factors that affect the reliability and validity of the Benefit-Transfer

Potential Limitations and Biases of Benefit Transfer

• The quality of existing data. This garbage-in, garbage-out factor has the biggest impact on the quality of the total process

• An insufficient amount of data for certain resources, like recreation activities, restricts the avail-ability of comparative data, as does missing and inadequate documentation of data collected in completed studies

• The application of different statistical- and research methods results in distortion between the study-site and the policy-site.

• Some benefits, notably recreational values, are measured in unique natural areas, which may not be sufficiently similar to the study-site.

• Limitations and deviations due to temporariness or stability of data over time. Differences be-tween the study-year and the policy-year must be temporally transferred, with price indices com-pensating for the change in value across the time slot.

• Limitations and deviations due to the spatial discrepancy between the study- and the policy-site. The relevant price level between two countries must be balanced according to extensive and ap-propriate exchange rates.

→ International online Databases for application of Benefit Transfer are provided by e.g.,

• EVRI http://www.evri.ca/

• Coastal & Ocean economics http://marineeconomics.noaa.gov/bibsbt/welcome.html

(Source: Garrod & Willis (1999); Muthke (2002); Pattanayak et al. (2002); Rosenberger & Loomis (2000)(

2.2.4 Summary and Implications

Because of the profound difficulties in assessing natural performances and benefits that missing mar-ket prices for environmental goods create, varying methods have been developed to support and im-prove comprehensive decision-making between different environmental policy arrangements.