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What are the benefits of the Water Framework Directive? Lessons learned for policy design from preference revelation

Anni Huhtala and Janne Artell

No 66, Working Papers from VATT Institute for Economic Research

Abstract: The Water Framework Directive (WFD) seeks to achieve good ecological status of surface waters across the European Union by 2027. The WFD guidelines explicitly recognize the economics of water management by providing exceptions to water areas with disproportionately high restoration costs. This calls indirectly for estimations of benefits lost due to non-attainment. We employ a hedonic property pricing approach on waterfront recreational properties to estimate the welfare impacts of attaining the good ecological status described by the WFD. The empirical challenge is that the quality measure proposed by the WFD specifically denotes ecological quality, whereas economically measurable water quality values are heavily dependent on recreation impacts. Intuitively, the choice of water quality measure should have an effect on estimating the value of water quality. Our data provide a unique chance to compare three alternative indicators of water quality: 1) a usability-based index, 2) subjectively reported measure and 3) the ecological status determined by the WFD. We find that an improvement in water quality is associated with a statistically significant, non-linear change in recreational property values. We show how the ecological status compares with the other two indicators, and discuss the justifiability of using revealed preference methods when the valued good is defined purely on the basis of ecological criteria.

Keywords: hedonic price method, water quality, environmental amenities, valuation, waterfront properties, Environment, Ympäristö, Labor market and policies promoting economic growth, Työmarkkinat ja kasvua tukeva politiikka, Q260 - Recreational Aspects of Natural Resources, Q510 - Valuation of Environmental Effects (Recreational Effects; Health Effects; Contingent Valuation), Q530 - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling, (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-agr
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Journal Article: What Are the Benefits of the Water Framework Directive? Lessons Learned for Policy Design from Preference Revelation (2017) Downloads
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