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When deciding whether it is useful to invest resources in a public good, one must compare costs and returns. If the returns outweigh the costs and risks, then we would be better off by allocating resources to the investment. What if such public or private good already exists, such as a part of nature, and we ask ourselves: Is the value of maintenance greater than the cost of upkeep? Or can we do better by developing it into something else?

Think of the Grand Canyon, a US national park that had close to 4.6 million visitors in 2013 [1]. Consider the economic benefits of those visitors and the price of preserving the park in its natural state. What if, instead, we could develop the Grand Canyon to build malls and casinos? Would it bring in more revenue? Many would argue, with reason, that given the uniqueness of the national park, the Grand Canyon in its natural state is a more valuable resource than in any other form.

Value is usually gauged by market prices. Given that the Grand Canyon is not a market good with a price tag, what is its value? Economists have long thought about ways to elicit the value of non-market goods, paving the way for the field of environmental valuation [2] . Many valuation methods have been used to produce estimates of existence and use value of natural habitats. These estimates often provide robust lower bound measures of worth that are high enough to justify the existence, maintenance or development of new parks, beaches, forests, etc. Economists have found that value can be determined by the prices people are willing to pay to visit a place, or how much they would pay to preserve it (even if they do not intend to visit) and by taking into account how changes in environmental quality affect wildlife, human health and worker productivity [3].

So, what do economists say about the value of the Salton Sea?

In 2007, two economics professors from the University of California, Riverside, Kenneth Baerenklau and Kurt Schwabe, delivered preliminary estimates of the non-use benefits of the Salton Sea [4]. The non-use value amounted to about $1-$5 billion per year. The study took into consideration dozens of peer-reviewed articles that produced the value of similar habitat preservation, most notably Mono Lake and the San Joaquin Valley. The results reported are only for non-use benefits, meaning that with inclusion of health and subsequent worker productivity benefits (from avoiding exposed lake bed dust) and use values, such as fishing, camping, etc., we could obtain even higher returns for saving the Sea. Additionally, updating the results to reflect changes in the environment and the economy since 2007 should increase the Sea’s value estimate.

We often hear media and policy makers complain about the cost of saving the Sea, but they do not usually take into account the non-use benefits of $1-5 billion/year. Additionally, as mentioned in previous posts, the Pacific Institute estimated that the cost of the preferred restoration plan would be around $10 billion, as opposed to the cost of inaction, around $29 billion in the best scenario [5]. The cost of action vs. that of inaction alone already tilts the balance in favor of saving the Sea. But if we factor in the lower bound of the non-use value estimates, $1 billion/year, at the most it will only take about ten years for that $10 billion investment to pay dividends.

It is commonly said that we do not know what we have until we lose it. Given the unique values of the Salton Sea region, we cannot just sit by and wait until total loss awakens us to the abrupt realization of its value.

Written by Gustavo Mellior

[1] How Many Visitor Come to See the Grand Canyon? Retrieved from http://grandcanyon.com/news/how-many-visitors-to-grand-canyon/

[2] Champ et al., A Primer on Market Valuation, 2003, Springer

[3] Freeman et al., The Measurement of Environmental and Resource Values: Theory and Methods, 3rd edition, 2014, RFF

[4] K2 Economics, 2007. “A Preliminary Investigation of the Potential Non-Market Benefits Provided by the Salton Sea.” Report to the Salton Sea Authority. Prepared by K. Schwabe and K. Baerenklau

[5] Hazard’s Toll, Pacific Institute, 2014