An Analytical Basis for Valuing Potential and Realized Groundwater Protection Benefits in the State of Wyoming

Contents of this publication have been reviewed only for editorial and grammatical correctness, not for technical accuracy. presented herein resulted from objective research sponsored by the Wyoming Water Research Center, however views presented reflect neither a consensus of opinion nor the views and policies of the Water Research Center or the University of Wyoming. interpretations of this document are the sole responsibility of the author(s). 2 Groundwater is a valuable, renewable natural resource that, if contaminated by economic activities, may be rendered a nonrenewable, unusable, and mobile public hazard. Overall, 6 5 percent of Wyoming's population depends to some positive degree upon groundwater for its domestic water supply. This study surveys and synthesizes the existing literature about the economic value of groundwater contamination episodes, giving particular attention to extant knowledge about behavioral responses to parameter perturbations. Literature omissions are identified and an alternative ex ante valuation framework that incorporates risk attitudes, self-protection opportunities, and the use of market insurance to shift income to undesirable states is developed and its properties are derived. Finally, an empirical means to implement this framework by means of contingent valuation and hedonic property pricing methods is out 1 ined. Modern consumer economies create risks; they also reduce them. Other third parties often involuntarily bear the costs of these risks because of the nonexclusivity (inability to protect an asset) or commons problem and because commercial and industrial interests have neither a great incentive nor disin-centive to account for environmental impacts in their decisions. Institutional designs for allocating the environment must often, therefore be created that substitute for simple private property forms. These designs will typically be developed in the legislative and the judicial arenas. Economic analysis helps the contestants in these political arenas to estimate the economic consequences to them of a given design or policy measure. Assessments of the economic consequences of environmental change try to estimate those differences in wealth equivalents that will leave welfare 3 intact, given a change or the prospect of a change. A complete assessment of economic consequences requires three kinds of information: (1) the differential changes that pollution or its control causes in production and consumption opportunities; (2) the responses of input and output prices to these changes; and (3) the input, output, and consumption changes that affected individuals make to minimize losses or maximize gains from prospective or realized changes in production and consumption opportunities and in the …