Untying a Lancastrian Bundle: Ecosystem Valuation in Wetland Mitigation

A utility-theoretic model indicates that mitigation prices for wetland ecosystems depend on preferences and technical knowledge. Empirical analysis found gaps in respondents’ knowledge about such ecosystems. Valuing wetland types requires dealing with respondents’ possible misinformation, by developing tools for informing respondents or by combining service-based valuations with valid technical data. JEL Code: 290, 260 AAEA Subject code: 9 Contact: John P. Hoehn, Department of Agricultural Economics, Michigan State University, East Lansing, MI 48864; Ph: 517-353-6735; Fx: 517-432-1800; E-mail: [email protected] Copyright 2001 by John P. Hoehn, Michael D. Kaplowitz, and Frank Lupi May 11, 2001 2001 AAEA-CAES Annual Meeting August 5-8, 2001 Chicago, IL 2 Untying a Lancastrian Bundle: Ecosystem Valuation in Wetland Mitigation John P. Hoehn, Frank Lupi, Michael D. Kaplowitz Wetlands ecosystems are valued for a range of ecological services. These services are protected by national, state, and local regulation. The primary federal wetland protection statute is Section 404 of the Clean Water Act (33 U.S.C. §1344). Under this statute, the U.S. Army Corps of Engineers, in conjunction with the U.S. Environmental Protection Agency (EPA), administers a review and permitting process for the “discharge of fill material” in “waters of the United States.” Since 1989, the guiding principle of federal wetland policy is the “no net loss” of wetlands criterion (Gaddie and Regens 2000). To implement this principle, the wetland permit process encourages potential dischargers to minimize and avoid wetland impacts wherever possible. Where wetlands are impaired or destroyed, wetland mitigation is required. Mitigation refers to actions taken to recreate, restore, or protect wetlands of an equivalent type and function to those being impaired or destroyed (Denison and Schmid 1997). Since wetlands vary by type, ecological functions, and the services they yield to humans, the means for judging the equivalency of destroyed and mitigated wetlands is both problematic and central to successful implementation of the “no net loss” policy (National Research Council (U.S.). Committee on Characterization of Wetlands. 1995; Mitsch and Gosselink 1993). Substantial effort has been made to define and measure wetland equivalencies using engineering principles and biophysical characteristics (Bartoldus 1999). However, the economic equivalency of wetland services has received less attention. Absent an understanding of the economic tradeoffs, wetland mitigation may leave economically important services unprotected and under provided. In this paper, we report initial research results regarding the development and application of a framework for measuring the relative economic values of wetland ecosystems. We begin by reviewing the ecological characteristics of wetland ecosystems and past efforts to value wetlands. We then derive a model that leads to three approaches to estimating wetland ecosystem values in stated choice experiments. The