Brattle Group Consultants Publish Article on Accuracy of Benefits Transfer for Environmental Valuation

Brattle Principal Mark Berkman, former Associate Gina Waterfield, and former Consultant Martha Rogers have authored an article, “The Accuracy of Benefits Transfer for Environmental Valuation” for the recent issue of the American Bar Association’s Trends.

The authors point out that many environmental regulatory and legal proceedings rely heavily on monetizing natural resource and recreational impacts. In the regulatory realm, the United States Environmental Protection Agency (EPA) is required to assess all social benefits and costs for any regulatory changes that would impact the U.S. economy by$100 million or more. In the legal realm, natural resource damages (NRD), such as those resulting from oil spills and other contamination, also require monetization. Economists have developed several methods to estimate social costs and damages including travel cost models, hedonic pricing models, and contingent valuation.

These methods, however, are expensive to implement and require time consuming statistical analysis. Secondary methods have been developed to avoid these implementation costs, including a method referred to as the benefits transfer approach. This approach relies on borrowing a value, say for a lost fishing day from one study at one site and applying it to another similarly situated site. This approach has become widely used, applied in almost 50% of oil spill cases over the past 30 years. The application of benefits transfer in these cases frequently use one of the most straightforward applications of the method, namely a simple average of estimates across comparable studies, that lags behind the more technical benefits transfer approaches now common in the academic literature.

The authors posit that despite the average value benefits transfer approach’s widespread use, it remains a second best approach. They analyze how well it performs using statistical analysis and demonstrate that its viability depends heavily on how similar the selected sites are. The authors provide evidence of the importance of care and judgement in the implementation of benefits transfer in order to improve viability.