Option Value: Empirical Evidence From a Case Study of Recreation and Water Quality: Comment

Abstract

In a recent article in this Journal, Greenley, Walsh, and Young [1981] (hereinafter GWY) report the results of a contingent valuation study of water quality in the South Platte River Basin, Colorado. On the basis of interviews with 202 residents of Denver and Fort Collins, Colorado, GWY derived separate point estimates for recreation, option, bequest, and existence water quality values for the entire river basin. Based on willingness to pay an additional sales tax, the sum of these four values yields total annual benefits of $61 million [1981, p. 670]. However, when an alternative payment vehicle is used-an increase in the monthly watersewer fee-the total annual benefits are only $19 million [1981, p. 6701. Their study is among the first attempt to provide separate estimates of option and existence benefits earlier theorized to exist by Weisbrod [1964] and Krutilla [1967]. We believe that they have failed, not to establish that those benefits exist, but to measure them correctly. In what follows, we briefly outline why we doubt the values reported by GWY are what they believe them to be. Owing to strict space limitations, we can only outline our criticisms here: a more rigorous and detailed presentation may be found in Mitchell and Carson [1983]. First, GWY treat their values for recreation willingness to pay (WTP) and option WTP as if they were independent and additively separable. There are two problems with this treatment. 1. A careful reading of the questionnaire used in their study [1982] shows the wording of their recreation value and option value questions conveys elements of both values in each question, and therefore the questions are not separable. For example, they explicitly informed the respondents about the possibility of an alternative use of the water resource (extraction of minerals) before asking the recreation value questions, thus raising the possibility of a deterioration of the natural amenity, one condition