The Demonstration and Capture of the Value of an Ecosystem Service: A Quasi-Experimental Hedonic Property Analysis

Hyun No Kim, Peter Boxall and Wiktor Adamowicz

American Journal of Agricultural Economics, 2016, vol. 98, issue 3, 819-837

Abstract: Water management can generate valuable ecosystem services but can be costly to implement. We examine this issue using irrigation water storage infrastructure which has the potential to provide desirable services to residential properties affected by the condition of the storage structure. We examine a particular prairie setting where concerns regarding fluctuations in water levels of an irrigation storage lake led to an agreement between the irrigation agency and the owners of properties around the lake to stabilize water levels. Using quasi-experimental hedonic property approaches with two different control groups we estimate the subsequent impact of this agreement on shoreline property values using a time series of sales data. The methods utilized in this article represent an effective approach to produce plausible estimates of some of the economic values captured by the infrastructure generating ecosystem services. We find that property values increased as a result of the agreement and that the additional property tax revenues arising from these values can be used to some extent to offset the annual service fees paid to the irrigation agency to provide the stabilized lake levels. This article illustrates the potential for irrigation infrastructure management to provide increases in ecosystem service values beyond irrigation, and also that these values can be captured to pay for the costs of providing these increased values.

Date: 2016
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