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Integrating watershed hydrology and economics to establish a local market for water quality improvement: A field experiment
Citation:
Uchida, E., S. Swallow, A. Gold, J. Opaluch, A. Kafle, N. Merrill, C. Michaud, AND C. Gill. Integrating watershed hydrology and economics to establish a local market for water quality improvement: A field experiment. ECOLOGICAL ECONOMICS. Elsevier Science Ltd, New York, NY, 146:17-25, (2018).
Impact/Purpose:
Auctions are being increasingly recognized as an effective way to quantify the value of ecosystem services. We present a field experiment that integrates an economic auction for water quality consisting of both livestock farmers, the supply side, and the general public, the demand side. The experiment provides a proof-of-concept design for the practical implementation of a local market for water quality improvements. Resource managers could benefit from the information gleaned from the auction in terms of the cost as well as the monetary value of ecosystem services. This is in addition to the auctions representing a possible new source of revenue
Description:
Innovative market mechanisms are being increasingly recognized as effective decision-making institutions to incorporate the value of ecosystem services into the economy. We present a field experiment that integrates an economic auction and a biophysical water flux model to develop a local market process consisting of both the supply and demand sides. On the supply side, we operate an auction with small-scale livestock owners who bid for contracts to implement site specific manure management practices that reduce phosphorus loadings to a major reservoir. On the demand side, we implement a real money, multi-unit public good auction for these contracts with residents who potentially benefit from reduced water quality risks. The experiments allow us to construct supply and demand curves to find an equilibrium price for water quality improvement. The field experiments provide a proof-of-concept for practical implementation of a local market for environmental improvements, even for the challenging context of nonpoint pollution.
