A Guide to Economic Valuation and Impact Analysis

ISBN 0-916287-52-1 Copyright © 2002 by the Florida Sea Grant College Program. This publica- tion was supported by the National Sea Grant College Program of the United States Department of Commerce’s National Oceanic and Atmospheric Admin- istration under NOAA Grant #NA16RG-2195. The views expressed herein do not necessarily reﬂect the views of any of these organizations. SGR 124 FLORIDA COASTAL ENVIRONMENTAL RESOURCES AGUIDE TO ECONOMIC VALUATION AND IMPACT ANALYSIS Edited by David Letson and J. Walter Milon CONTENTS AUTHORS AND AFFILIATIONS v PREFACE vii ECONOMIC VALUATION AND ANALYSIS CHAPTER 1 Economic Value and Environmental Quality: Florida’s Coastal Resources David Letson 1 CHAPTER 2 Principles of Economic Valuation David Letson 7 CHAPTER 3 Methods of Economic Analysis David Letson 15 CHAPTER 4 Valuing Market and Non-Market Goods and Services David Letson 25 CASE STUDIES OF COASTAL RESOURCE VALUATION CHAPTER 5 The Economic Value of Saltwater Marsh to Florida’s Commercial Fisheries Frederick W. Bell 41 CHAPTER 6 Damage Assessment of the Tampa Bay Oil Spill: Travel Cost Method Frederick W. Bell 53 CHAPTER 7 Everglades Restoration Planning: Multiattribute Utility Analysis J. Walter Milon and Alan Hodges 63 CHAPTER 8 Natural Resource Valuation of the Indian River Lagoon J. Walter Milon 77 iii CASE STUDIES OF ECONOMIC IMPACT ANALYSIS CHAPTER 9 Economic Impact of Tourist and Resident Uses of Coastal Resources in the Florida Keys: Survey Methods and Impact Assessment Methodology Vernon R. (Bob) Leeworthy 89 CHAPTER 10 Dairy Rule and Buyout Program in the Lake Okeechobee Watershed: Economic Impact of Non-Point Source Pollution Controls Grace Johns 101 CHAPTER 11 The Everglades Forever Act in the Everglades Agricultural Area: Economic Impacts of Non-Point Source Pollution Controls Grace Johns 117 CHAPTER 12 Economic Importance of the San Carlos Island Shrimp Processing Industry to the Lee County Economy Chuck Adams, David Mulkey and Alan Hodges 131 CHAPTER 13 Bioeconomic Models and the Florida Spiny Lobster Trap Certificate Program Sherry L. Larkin, J. Walter Milon and Nelson Ehrhardt 145 CHAPTER 14 Restricting Groundwater Withdrawals to Protect Water Resources: Economic Impact Assessment Grace Johns and Lisa A. McDonald 157 CHAPTER 15 Economic Impact of the Florida Net Ban in Monroe County Manoj Shivlani, David Letson and Christian Read Sawczyn 171 APPENDICES: ECONOMIC VALUATION METHODOLOGIES CHAPTER 16 Florida Natural Resource Use Value Digest Frederick W. Bell 181 CHAPTER 17 Annotated Bibliography: Florida Environmental Resource Valuation Case Studies Vernon R. (Bob) Leeworthy, Frederick W. Bell and Grace Johns 195 iv AUTHORS AND AFFILIATIONS Chuck Adams David Letson Food and Resource Economics Department RSMAS/Marine Affairs University of Florida University of Miami 1193 McCartyHall 4600 Rickenbacker Causeway P.O. Box 112040 Miami, FL 33149-1098 Gainesville, FL 32611-0240 Lisa A. McDonald Frederick W. Bell Hazen and Sawyer PC Department of Economics 4000 Hollywood Boulevard Florida State University Seventh Floor, North Tower 245 Bellamy Building Hollywood, FL 33021 Tallahassee, FL 32306-2180 J. Walter Milon Nelson Ehrhardt Department of Economics RSMAS/Marine Biology and Fisheries College of Business Administration University of Miami University of Central Florida 4600 Rickenbacker Causeway P.O. Box 161400 Miami, FL 33149-1098 Orlando, FL 32816-1400 Alan Hodges David Mulkey Food and Resource Economics Department Food and Resource Economics Department University of Florida University of Florida P.O. Box 112040 P.O. Box 112040 Gainesville, FL 32611-0240 Gainesville, FL 32611-0240 Grace Johns Christian Read Sawczyn Hazen and Sawyer PC School of Law 4000 Hollywood Boulevard University of Florida Seventh Floor, North Tower Gainesville, FL 32611-0240 Hollywood, FL 33021 current address: Sherry L. Larkin 9100 East Florida Avenue Food and Resource Economics Department Apt. 10-305 University of Florida Denver, CO 80231 P.O. Box 112040 Gainesville, FL 32611-0240 Manoj Shivlani RSMAS/Marine Biology and Fisheries Vernon R. (Bob) Leeworthy University of Miami NOAA/NOS 4600 Rickenbacker Causeway Building SSMC4, Room 9115 Miami, FL 33149-1098 1305 East-West Highway Silver Spring, MD 20910-3281 v PREFACE he genesis of Florida Coastal Environmental Resources: A Guide to Economic Valuation and Impact TAnalysis was a workshop sponsored by the National Oceanic and Atmospheric Administration in 1991. The workshop brought together state and local coastal and marine planners and representa- tives from non-governmental organizations and industry who were concerned with identifying, pri- oritizing, and incorporating social science research into NOAA’s coastal ocean science research program. A major theme was the importance of environmental economics in coastal and marine management and the need for professionals in this community to better understand basic concepts such as trade-offs, willingness-to-pay, cost-benefit analysis, and environmental valuation. Coastal and marine planners and managers at all levels reported being asked to respond to new demands that could explicitly account for the economic dimensions of their management decisions. At the Federal level, a series of Executive Orders and Guidelines now call for strict economic analysis of proposed Federal regulations and projects, especially those that impact water and related land resources. Of particular imporance to NOAA and other Federal and state natural resource trustees is the application of economic analysis for determining monetary restitution that responsible parties would have to pay for damages caused by oil spills and other releases of toxic materials. Related legislative and regulatory requirements are being put in place at state and local levels. Consequently, economic impacts — benefits and costs — are now at the center of many policy, management, and legislative debates, locally, regionally and nationally. Based on more detailed discussions with the coastal management community, and in view of advances by economists in applying environmental economics to practical management problems, we concluded that balanced presentations of the pros and cons on the uses of economics in coastal decision-making was a key to improving coastal management. Consequently, we presented a series of workshops around the country on the role of economics in coastal and marine decision making. Feedback clearly demonstrated that these concepts and methods were important; the next step was to present them in the context of the day-to-day decisions that are being made at the local level. With support from NOAA Line Offices and the National Sea Grant College Program, we devel- oped regional projects that were intended to demonstrate the application of environmental economics; these projects used real data and focused on actual issues that are being addressed along the nation’s coasts. Florida Coastal Environmental Resources is one of the regional activities we undertook. We hope it proves useful in improving the way in which Florida manages its coastal environmental resources. Douglas Lipton Associate Professor of Agricultural and Natural Resource Economics University of Maryland Rodney Weiher Chief Economist National Oceanic and Atmospheric Administration vii ECONOMIC VALUATION AND ANALYSIS CHAPTER 1 ECONOMIC VALUE AND ENVIRONMENTAL QUALITY: FLORIDA’S COASTAL RESOURCES David Letson lorida’s coastal resources serve many diverse interests. While its beaches, fisheries, Fbarrier islands, wetlands and navigable waters have immense economic values, these same resources have important ecological and cultural values as well. Florida’s 8,400 miles of tidal shoreline, the longest in the continental United States, is an attrac- tion for more than 16 million residents and 80 million visitors each year (Trend Magazines, Inc. 2002). Florida’s coast supports both the state’s economy and its quality of life. Like coastal areas nationwide, population growth, land development and expansion of businesses and industry have led to competing uses of the same natural resources, uses that have influenced aquatic ecosystems. In the past, Florida’s coasts seemed vast enough that they could be used without concern for the future; we have known for some time now that such is not the case. The questions facing all of us — policy makers, resource managers, business and industry leaders, and citizens — are many. How can we best accommodate competing uses of the same resources? How can we balance economic growth with restoration and sustainability of coastal ecosystems? These are among the challenging issues we must deal with now and in the coming years. FLORIDA’S COASTAL ECONOMY The magnitude of Florida’s market economy in coastal communities was summa- rized in a 1996 special report, which documented economic values associated with construction, commercial fishing, beach tourism, navigation and recreation. Construction in coastal counties plays a significant role in the state economy: in 1993, 87,717 building permits, 76 percent of all those issued in the state, had a net worth of $11.35 billion. Beach-related tourism, in 1996, was estimated at $15 billion to the state economy. While the value of commercial fish harvests was considerably lower, estimated at $202 million, fishing was noted as having great economic and cultural significance for local communities (State of the Coast Report 1996). The shipping industry has the single greatest impact on the state economy of any other industry. The state is immensely

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