INTRODUCTION

This chapter addresses two questions of importance to coastal zone planners and policymakers: what is the economic value of the coastal zone? and, what is the relationship between spending on coastal zone management activities and the economic value of the coastal zone? The first of these questions is addressed in Section A that follows, and the second, in Section B.

A. THE ECONOMIC VALUE OF THE COASTAL ZONE

Proponents of coastal zone protection legislation typically claim that special action is needed to preserve the "value" of the coastal zone. Yet, only a few researchers have attempted to quantify that "value." That quantification is necessary to establish a baseline for further benefit-cost analysis of coastal protection activities.

This section provides a methodology for estimating the economic value of the coastal zone. That methodology is used to construct estimates of "GNP-originating" in the coastal zone, in aggregate, and as a percent of individual coastal states' and national Gross National Product (GNP). The results are quite dramatic: in 1985, GNP-originating in the coastal zone totalled approximately $1.5 trillion, or some 31 percent of U.S. GNP. These figures are sensitive to the way the coastal zone and coastal value are defined.

The section is divided into four subsections. Section A-1 presents the definitions of “coastal zone" and "coastal value." Section A-2 reviews some of the earlier work on the topic. Section A-3 explains how the methodology used for this report differs from those earlier studies and presents estimates for 2 years (1978 and 1985), for 30 states and three territories. Finally, Section A-4 contains a summary and implications for policy.

A-1 The Coastal Zone and Coastal Zone Value

A-1.1 The Coastal Zone

The coastal zone is defined as the 413 counties in 30 states and five territories that are either adjacent to or within 50 miles of the oceans, bays or Great Lakes, or lie within an estuarine region. This designation of coastal zone counties is strictly objective, based on the coastal/ estuarine proximity criterion and an examination of detailed maps. All but 24 of the coastal zone counties are also within the coastal zone, as defined by the Office of Ocean and Coastal Resource Management (OCRM). All but 10 of the coastal counties are within the coastal zones defined by their respective states. Appendix Table Al contains a complete list of the counties that have been designated.

An entire county was included in the coastal zone if it is adjacent to an ocean, bay, or Great Lake. Those parts of non-adjacent counties that lie within a 50 mile radius of the coast were also included in the coastal zone. In addition, all parts of the five U.S. territories (American Samoa, Guam, Northern Mariana Islands, Puerto Rico, and the Virgin Islands) were included.

A-1..2 Coastal Zone Value

The value of the economic activity and natural resources found along the 95,000 miles in the U.S. bordering the Atlantic and Pacific oceans, estuaries, the Gulf of Mexico and the Great Lakes, has two components: the current market value of all goods and services that are produced directly and indirectly from coastal resources and coast-related activities (which is equivalent to the gross national product-originating in the coastal zone, or "coastal GNP" for short), and, the intangible value of recreation and other activities and resources that people enjoy, but for which they do not

pay directly (termed "nonmarket" values). Sections A-2 and A-3 discuss these more fully.

A-2 Literature

Economists have attempted to measure both the market and nonmarket value of coastal resources and coast-related activity. A representative sample of that literature is reviewed here, with a discussion of its limitations.

A-2.1 Measuring the Market Value of the Coast

The earliest studies of coastal value, in the 1960s and early 1970s, added up the market value of the goods and services produced by coast-related industries. Gosselink, Odum and Pope (1974) claimed that those studies understated the true value of the coastal environment. Those authors proceeded, instead, to convert the "total embodied energy of the environment" including solar energy and human-made fuel based systems, to dollar equivalents. Using that approach, they estimated unaltered wetlands to be worth $82,000 per acre. Shabman and Batie (1978), among others, criticized Gosselink, Odum and Pope's technique because [it] "failed to recognize the nature of the process by which economic values are determined and made an illegitimate marriage of the principles of systems ecology and economic theory." If the Gosselink, Odum and Pope estimate was correct, total coastal wetland value would have been approximately $715 billion in 1974.2 Total coastal value would have been even higher.

Other published studies from the 1970s (for example, Urban Land Institute (1976) and U.S. Department of Commerce (1974)) continued to base "value" on the jobs and payroll created in industries that require proximity to the coast. Those "coast-dependent” industries included commercial and sport fisheries, coastal recreation and tourism, mineral extraction, and ports.

Even this limited definition generates large coastal values. For example, fishing contributed more than $30 billion to the U.S. economy in 1987, and recreation and tourism added more than $8 billion to the economy.3 In addition, more than 12 percent of U.S. oil production, and 25 percent of natural gas production, took place in coastal counties in 1987, accounting for at least $20 billion more in value.4

More recent studies, by Pontecorvo (1988) and Pontecorvo, et al. (1980), expand the definition of "coast-dependent," and consequently provide higher estimates of coastal value. Those studies focus on the entire "ocean sector" rather than on selected industries. Pontecorvo's "ocean sector product" equals

the value added by those establishments within 66 GPO [Gross Product Originating] sectors...that either utilize an ocean resource in the production process or exist because the demand for the establishments' final output is due to some attribute of the ocean sector. (Pontecorvo, 1988, p. 9) His estimate of “ocean sector originating" for 1987 was $109 billion, or 2.6 percent of GNP.

A-2.2 Measuring the Non-Market Value of the Coast

Economic analyses, like those summarized above, use the price paid for a product, or the sum of input prices, as measures of its value. Unfortunately, not all economic resources or commodities carry a market-determined price. Consider, for example, the preservation of endangered species and scenic beauty. The importance, or worth of these goods cannot be denied. Yet, one cannot ascertain easily the value of these goods in dollar terms. But those values are needed in order to decide whether giving up some amount of clean water (for example) for some quantity of a marketed good is beneficial or wasteful. Much of economics, therefore, concerns the

development and use of methods to determine the value placed on nonmarketed commodities by the consuming public.

Economists, including those studying the coastal zone, have identified five basic techniques to determine the value of nonmarketed commodities: 1) travel cost methods, 2) alternative source costs methods, 3) consumer and producer surplus methods, 4) survey or contingent value methods, and 5) hedonic price methods.6

Travel cost methods have been used to value coastal resources such as beaches and fishing and hunting grounds. The central assumption is that the value a marginal individual places on these opportunities can be approximated by the costs he incurs to travel to that location-specific activity. Raphael and Jaworski (1979) use this approach, for example, to estimate the value of fish, wildlife and recreation in Michigan's coastal wetlands to be $489.69 per acre, or $51.8 million.

Alternative source cost methods could be used to value wetlands' contribution to flood control and pollution abatement. That value is approximated by the cost of reducing flood danger or pollution by the least expensive alternative technology. For example, if a particular wetland area serves to reduce the probability of a flood in a given place by 10 percent, and the alternative way to achieve that outcome is to build a $10 million levee, the value of the wetlands is assumed to be $10 million (see Shabman and Batie, 1982).

Consumer surplus methods equate value with the welfare enjoyed by the buyer due to his ability to obtain the good (or coastal amenity) for a price less than he would have been willing to pay. Similarly, producer surplus methods equate value with the welfare to sellers from receiving more in payment for a good or resource than he would have been willing to accept.

Both Lynne, Conroy and Prochaska (1981) and Freeman (1988) use these approaches to place value on wetlands. Lynne, Conroy and Prochaska relate crab yield in salt-marshes to fishermen's effort and biological variables such as biomass, biotic potential, and acreage. The authors recognize explicitly that the important policy variable is the value of the last (marginal) acre of marshlands in use. If the additional value produced by that acre of wetlands is less than it would be in some other use, then economic efficiency requires that the acre be given over to that alternative use; if it is not, then the acre should remain as wetlands. The authors find that the value of the marginal acre of wetlands, in terms of blue crab production in Florida, is about $3.00. Note the dramatic difference between this and the $82,000 per acre estimate by Gosselink, Odum and Pope (1974).7

The paper by Freeman points out the importance of the assumptions in performing analyses like that of Lynne, Conroy and Prochaska. His specific concern is the organization of the market for the resource being valued. For example, the usual assumption that markets are perfectly competitive is made implicitly by Lynne, Conroy and Prochaska. Perfect competition means the price one pays for the use of the last unit of input is equal to the value of the additional output produced using that input. But for a resource such as wetlands, or fishing beds, such an assumption is often not valid. Coastal wetlands are a “common property resource," meaning that no individual economic actor owns the right of exclusive use. In such a case, the resource is used more than if it were exchanged in the marketplace. Freeman's point is that the presence of this common property resource problem in conjunction with the assumption to the contrary, perfect competition, leads to incorrect valuation of the nontraded commodity. If, however, regulations exist which (one assumes) lead to the efficient use of the nonmarketed resource, then the valuation is done correctly.

Freeman also shows that the value of additional wetlands may rise or fall as the quantity of wetlands is reduced, depending on the responsiveness of the demand for the final good to changes in price. Consequently, the value of additional wetlands depends upon the value people place on the additional goods produced on the wetlands. If people place very low value on the additional crabs caught as a result of increasing wetlands, then the value of increasing wetlands is low. If, on the other hand, people place a very high value on the extra shellfish then the value of increased wetlands is high.

The contingent valuation method is a survey-based approach to valuation. Individuals are asked to state their willingness-to-pay for some amenity. Lindsey and Tupper (1989), Silberman and Klock (1988), and Bell and Leeworthy (1986) have used this method to ascertain beach-goers' willingness-to-pay for the "beach experience," to use the beach for a day, and, to have the beach restored to some uneroded or unlittered condition, respectively. The different values the authors obtain come, in part, from the different wording in their questions.

The study by Lindsey and Tupper is the least sophisticated of the three in that it simply uses respondents' answers to their questions to compare mean willingness-to-pay for a variety of subgroups of the sample. For example, they compare the average willingness-to-pay at different beaches, the average willingness-to-pay of local residents to that of visitors, and the willingnessto-pay of property owners to nonproperty owners. Lindsey and Tupper found the mean willingness-to-pay for the beach experience to be $47. Both Bell and Leeworthy, and Silberman and Klock, use the respondents' answers to estimate a willingness-to-pay function. Silberman and Klock alone take account of potential biases in the contingent valuation method. Nonetheless, both studies find mean willingness-to-pay in the same range, $1-$5, or less than one-tenth the Lindsey and Tupper estimate.8

The final method discussed here is the hedonic price technique. Essentially, the method assumes that the total price one pays for real property and improvements depends upon the characteristics of the property and of the surrounding area. The price is assumed to vary with changes in the characteristics of the property, and one can determine the value of a unit of some characteristic by observing the prices paid for two properties whose only difference is the amount of some attribute. For example, two houses identical except for the number of bedrooms will sell for different prices. The difference in the prices is the value of the additional bedroom(s).

Elizabeth Wilman (1981) used the hedonic method to estimate the recreational value of beaches. She hypothesized that the rent paid for a summer cottage and the number and duration of rentals by an individual will depend on the distance to, and the quality of, nearby beaches. Data limitations forced Wilman to characterize each cottage by its number of rooms, the existence of a telephone, distance to the nearest beach, distance to the nearest urban area, and whether or not debris was found on the beach. All of Wilman's explanatory variables except distance to an urban area were significantly different from zero with the correct sign. That is, greater distance to the beach and presence of trash on the beach imply a lower rental price for the cottage, whereas more rooms and the presence of a telephone result in a higher price for the cottage.

Anderson and Edwards (1986) performed an hedonic price analysis that related the value of a house and its lot to characteristics of the house, such as square footage, number of bathrooms, and age, the size of the lot, and the following coastal zone characteristics: distance to a salt pond or the ocean, frontage on a salt pond or ocean, the presence of a view of the pond or ocean from the property. Each of these characteristics were significantly different from zero with the correct sign in the regressions, indicating that proximity to, and a view of, the ocean or pond add value to the property. The regression results suggest that a foot of water frontage was valued between $11 and $102, and that a view of the water ranged in value from $4275 to $20,000. The broad range of values for a foot of frontage or of a view is a result of cross-relationships. So, a property with

more bathrooms and a larger lot than its neighbor, for example, will also be associated with a higher value for a foot of waterfront or a view of the ocean.

Two further examples of the hedonic technique are by Brown and Pollakowski (1977) and Terich and Gabriel (1987). Brown and Pollakowski estimate the value of 1) proximity to a body of water, and 2) the size of the setback from the water, for residences around three lakes within the Seattle city limits. Terich and Gabriel estimate the effect of coastal erosion on the value of nearby property, in Washington state. Despite considerable differences in technical detail, both find that greater distance from the water reduced the value of property. Brown and Pollakowski also find that the greater the setback, the higher the value of property.9

A-2.3 Summary of the Literature

Economists have measured coastal value in different ways: by focusing on market and nonmarket values, and by estimating the importance of the coast for the nation as a whole and for specific places and types of activities or coastal resources.

The studies that have been reviewed provide different estimates for the economic value of the coast, or its components. These are reviewed in Table A-1.