Role of knowledge in assessing nonuse values for natural resource damages

Abstract

Measuring nonuse values is one of the most controversial topics facing environmental economists today. One important issue that has received little attention is determining who has economic standing with respect to nonuse losses from natural resource injuries. In this paper, a conceptual model for determining compensable nonuse losses is developed that is consistent with the Kaldor-Hicks principle of potential Pareto improvement, and then that model is applied to the results of a telephone survey on industrial water pollution in the lower Passaic River in northern New Jersey. One proposition from this model indicates that only people who have knowledge of the injured resource (i.e., 10 to 44 percent of respondents) can incur a compensable nonuse loss. A second proposition from the model indicates that demand for information about an injury to a familiar resource is a necessary condition for compensable nonuse losses. It was found that 81 percent of the respondents who were familiar with the lower Passaic River were likely to read, listen to, or watch a news story about the river. However, far fewer respondents familiar with the lower Passaic River were willing to engage in more active, and costly, information-acquisition activities (such as conducting research at the library and attending public meetings). Finally, the model suggests that geographic proximity to nondescript resources may affect nonuse values, information costs, or both, helping define the potentially affected population. The empirical results for the lower Passaic River support this third proposition. The overall conclusion is that only a small fraction of the population in New Jersey and New York might reasonably experience a nonuse loss as a result of industrial water pollution in the lower Passaic River.