Nonuse Values in Benefit Cost Analysis

Abstract

Benefit-cost analysis (BCA) is a pragmatic realization of the theory of welfare economics. Much of the research associated with BCA has sought to expand the types of benefits that can be measured in dollar terms. With this research there has been a progressive movement of goods and services from the set without measures (usually designated as intangibles in BCA terminology) to the set with. For example, the recreational services provided by projects associated with dams for hydroelectric power or flood control were regarded as intangible until the development of the travel cost model for estimating the demand for outdoor recreation sites.' One of the current frontiers in BCA research is associated with modeling and measuring nonuse benefits. In contrast to the past efforts with intangibles, research on this topic has remained controversial with few direct effects on the practice of applied welfare economics. There are two principal reasons for this outcome. First, there has not been an accepted set of definitions for nonuse benefits. And, second, applied studies with empirical estimates of nonuse benefits have, until recently, been non-existent. Clearly, these problems are related. A consistent set of definitions is a necessary prerequisite for empirical implementation. I will argue that consistent definitions for nonuse benefits have been elusive because the conceptual frameworks used in the literature to describe its primary components--option value and existence values-are not mutually consistent. In the process of demonstrating this result, I will describe the elements of a consistent framework for treating both use and nonuse benefits and apply it in explaining some of the problems with the available empirical estimates of nonuse benefits.