Dam Removal: Economic Perspectives

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Dam Removal Economic Perspectives

• Mark Smith
• Economics Business Department
• Colorado College

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The Fundamental Economic Question

• Are the economic benefits of removing the dam
  greater than the economic costs?

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Benefits of dam removal

• Benefits
• Restoration of ecosystem function.
• Native species (possibly endangered)
• Game fish (possibly native)
• Riparian habitat (vegetation, sediment resources)
• Recreation Aesthetic Values
• Removal of dam hazard catastrophic failure,
  recreation.

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Costs of dam removal

• Engineering Costs of dam removal itself.
• Loss of dam function for
• Water supply
• Hydropower
• Flood control
• Recreation (lake downstream)
• Riparian property values?
• Dam as tourist site?

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Problems with measuring economic benefits and
costs

• Both market non-market benefits and costs
• Benefits and costs distributed over time choice
  of discount rate
• Public goods character of some benefits and
  costs.
• Externalities
• Scope of analysis

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Market Non-Market Benefits Costs

• Market Benefits irrigation and M I uses of
  water, hydropower, recreational expenditures,
  commercial fishing, etc.
• Non-Market Benefits Ecosystem values, aesthetic
  values, recreation, cultural values, flood
  control, etc.

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Public Goods

• If the good is produced for one person, it is
  necessary to produce it for everyone.
• Non-rival and Non-excludable

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Externalities or Spillover Effects

• A positive or negative effect of one firm or
  individuals actions on other firms or
  individuals who are not parties in those actions.

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Scope

• What perspective are we taking when we count up
  the cost and benefits
• Local? State? Regional? National? Global?

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Measuring the economic value of non-market goods
the Total Value Concept

• Active Use
• Use value
• Market
• Non-market
• Option Value (future use)

• Passive Use
• Existence value
• Bequest Value

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Estimating Non-Market Values

• Revealed Preference Approaches
• Travel Cost
• Hedonic Pricing
• Stated Preference Approaches
• Contingent Valuation Method (CVM)

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Revealed Preference Approaches

• Pro Observed behavioral and actual dollar
  expenditures.
• Con Applications limited to situations where
  actions are observed and measured.

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Stated Preference Approaches(The Contingent
Valuation Method)

• Pro Can be used to estimate active or passive
  use only means of estimating passive use.
• Con Reliability of values are results derived
  from CVM studies meaningful?

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Removing/Modifying the Price-Stubb Dam the
Economic Questions

• What is the construction cost of the proposed
  alternatives?
• What is the loss of river regulation benefit?
• What is the value of recreational benefits?
• What is the value of restoring this reach of the
  Colorado River?

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Removing Glen Canyon Dam The Economic Questions

• What is the total cost of dam removal or bypass
  including remediation of Glen Canyon?
• What are the losses associated with water
  storage, hydropower and river regulation?
• What is the economic value of a restored Glen
  Canyon?
• What are the downstream benefits associated with
  dam removal?
• When will these benefits occur?

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Sources of Conflict Between Engineers and
Economists

• Financial Analysis vs. Economic Analysis
  economists should be accountants
• Hard cost numbers from engineering studies and
  revenue projects versus soft estimates of
  non-market values
• Appreciation of behavioral responses in policy
  design.
• Regulating quantities vs. creating incentives.

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Sources of Conflict Between Economists and
Ecologists

• Monetarization of natural systems
• Economic value vs. intrinsic values
• Part vs. whole marginal analysis versus
  interconnectedness of ecosystems

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The Salmon vs. The Lamprey Eel
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Economics is about Happiness!
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The End.

• Thank you!