North Dakota Ag Connection - Spotlight on Economics: Environmental Service Without Paying for It

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Spotlight on Economics: Environmental Service Without Paying for It
By: Robert Hearne, NDSU Agribusiness and Applied Econ - 01/18/2018

I teach a course in Natural Resource Economics each year at NDSU.

This course highlights the differences between market goods and nonmarket environmental goods and services. We fully expect markets to allocate market goods such as Coca Cola efficiently. But other goods, such as parks, roads and a clean environment, are not allocated well by markets.

These public goods are characterized by the difficulty of excluding beneficiaries and by the simultaneous consumption by many people. These public goods generally are supported by the public sector, and their allocation is part of public policy decisions. Public policy decisions about nonmarket environmental goods and services require analyses, and public policy analysis is part of my classroom instruction.

Nature-based recreation, such as hunting, fishing, boating, biking and camping, often utilizes public resources, such as public space, waters, and publicly supported fish and game management programs. Management decisions often imply trade-offs between revenue-generating activities and nonrevenue-generating nature-based recreation.

What is important when we assess these trade-offs is that we understand that individuals receive benefits from nature-based recreation without paying for them. These benefits should be accounted for when we assess public-policy decisions concerning public lands and environmental programs.

In our earliest principles of economics classes, we introduce the concept of consumer surplus. Consumer surplus is the difference between an individual's willingness to pay and the price that actually is paid. This represents the benefit that comes to a consumer in a transaction.

For example, if someone truly desires a cup of coffee and is willing to pay $7 for a cup, and only pays $4.50 for the cup, the resulting benefit of the purchase to the consumer is $2.50.

To assist in the analysis of public policy questions involving recreational resources, environmental economists have used travel costs and responses to hypothetical survey questions to estimate the demand for outdoor recreation. The consumer surplus for one person enjoying a day of recreation has been estimated in hundreds of studies.

Results of a recent Forest Service analysis of these studies has shown the average consumer surplus for one person-day of outdoor recreation in the U.S. to be $99 for biking, $73 for fishing, $77 for hunting and $78 for hiking. This is substantial enjoyment and demonstrates the value of maintaining public spaces, public parks, public waters and public programs to maintain environmental quality.

Hunters, fishers, campers, bikers and hikers do spend money on their recreation. They pay for equipment, licenses and travel. Sometimes they pay entrance fees for parks and recreation sites.

These financial costs do not represent the value of their recreation, but only the lower bound of their value. These financial expenditures support businesses and employment. Thus, these expenditures create influential stakeholders to support recreational activities.

Certainly, our northern Great Plains sportsmen and women realize the enjoyment that they receive from outdoor activities often is due to the environmental quality of the region. They intrinsically understand the consumer surplus they enjoy from these activities.

Understanding these values and ensuring that they are incorporated into our public policy discourse on water, land, wildlife, fisheries and ecosystem management is important.

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