Millions of Americans head outdoors in the summer, whether for a day at a nearby lake or a monthlong road trip. For environmental economists like me, decisions by vacationers and outdoor recreators offer clues to a challenging puzzle: estimating what environmental resources are worth.
In 1981 President Ronald Reagan issued an executive order that required federal agencies to weigh the costs and benefits of proposed major new regulations, and in most cases to adopt them only if the benefits to society outweighed the costs. Reagan’s order was intended to promote environmental improvements without overburdening economic growth.
Cost-benefit analysis has been so successful as a tool for policy analysis that every administration since Reagan has endorsed using it. However, it requires measuring benefits that are not “priced” in typical markets. Fortunately, putting a price on non-market environmental outcomes, such as safer drinking water and fewer deaths from exposure to dirty air, has proved to be possible, and highly valuable. These estimates help to make the case for actions such as cleaning up beaches and protecting scenic areas as parks.
According to a preliminary estimate from the Bureau of Economic Analysis, outdoor recreation adds $373 billion to the economy each year. That’s 2 percent of our annual gross domestic product — more than agriculture, mining or utilities, and approaching the economic contribution of national defense.
Most policymakers and local communities measure the economic value of outdoor recreation through estimates like this, which calculate how much money it adds to local economies through direct expenditures. For example, vacationers rent hotel rooms, and their spending pays employee salaries and funds local investments through hotel taxes. Visitors to national parks pay entrance fees for park upkeep, and augment local economies.
But recreation decisions also reveal the value that people place on the environment itself. Outdoor destinations provide services, such as opportunities to swim or hike in unspoiled settings. If high levels of harmful bacteria close a beach, I may drive a longer distance to a beach with clean water. By quantifying such increases in time and out-of-pocket expenditures, economists can measure people’s willingness to pay for changes in environmental quality.
In one recent study, I worked with other researchers to estimate increased travel and time expenditures that people incurred to avoid trash and debris on 31 Southern California beaches. No one wants to go to a beach littered with hypodermic needles, plastic bottles, and discarded fishing nets. But cleaning up debris is expensive, and it is hard for communities to recover the costs, particularly for public beaches. Understanding the value of cleaner beaches can help build support for funding trash collection.
To measure the amount of debris, we hired workers to walk the beaches tallying quantities of trash. Then we surveyed Southern California residents about how often and where they went to the beach. Finally, we modeled the relationship between where they chose to go to the beach, how much they spent to get there, and the cleanliness of the beach.
We found that visitors to these beaches would be willing to incur $12.91 in additional costs per trip if each of the beaches had 25 percent less debris. This translated into a total willingness to pay $29.5 million for action to reduce marine debris by 25 percent on these beaches.
Trash on beaches is mainly an aesthetic nuisance, but some resource problems are more severe. For example, warm weather often triggers harmful algal blooms in Lake Erie’s western basin. These outbreaks contain freshwater toxins that are dangerous to humans and animals. They can trigger beach closures, and sometimes even drinking water bans.
Using similar techniques to the California study, I worked with another group of economists to estimate the economic value of reducing outbreaks of harmful algal blooms in Lake Erie.
Our results showed that reducing these outbreaks through a 40 percent reduction in phosphorus runoff to the Lake Erie Basin would save swimmers, boaters, and fishermen $800,000 to $970,000 per year by reducing the need for them to travel extra distance to avoid algal blooms.
People can choose different destinations to avoid dirty beaches or algae outbreaks. But in the case of large-scale environmental disasters, such as the BP Deepwater Horizon oil spill in the Gulf of Mexico in 2010, vacationers are more likely to cancel their trips altogether.
In a study using survey data on canceled vacation trips to Northwest Florida in the year following the BP oil spill, I worked with other economists to estimate the decrease in economic value to Northwest Florida coastal towns. We found that the spill caused a 9 percent drop in trips to Northwest Florida beaches, causing total economic losses of $252 million to $332 million across the Florida panhandle. Those losses represent decisions to spend vacation time and money in places where there was less risk of encountering polluted beaches.
The Gulf Coast stretches from western Florida to Texas, so this sum is probably just a small fraction of economic harm.
Contrary to some environmentalists’ fears, putting a price on natural resources has encouraged decision-makers to recognize that natural capital is finite. Before, it was easy to assume that they were free to exploit. Now economic valuation research can help decision makers answer questions such as how much damage the BP spill did to natural resources, and whether the benefits of the EPA’s Acid Rain Program exceeded the costs. Assigning dollar values to natural resources makes it possible to use the power of markets to design policies and regulations that benefit all.
Timothy Haab is a professor at The Ohio State University. This article is adapted from The Conversation.