April 25, 2005

EPA's Proposed Willingness to Pay Survey: Phase III Cooling Water Intake Structures

  • Susan Dudley

    Director, George Washington University Regulatory Studies Center
Key materials
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Highlights:

The Regulation

  • EPA has filed an information collection request with the Office of Management and Budget (OMB) under the Paperwork Reduction Act to conduct focus groups to facilitate a willingness to pay (WTP) survey to evaluate the non-use benefits of its proposed Phase III regulation of cooling water intake structures.
  • EPA simultaneously placed a response to the Mercatus comment (filed with EPA on January 31, 2005) in its docket on March 24, 2005. This April 2005 comment briefly replies to EPA's response.

Our Findings

  • The EPA response to the January 2005 Mercatus comment fails to justify that the proposed focus group and subsequent willingness to pay survey are necessary for the proper performance of the functions of the Agency. Non-use values are not unique to environmental resources, yet other federal agencies are able to conduct benefit-cost analysis without resorting to surveys to justify regulatory proposals.
  • EPA has not justified why, if non-use values are important, it should focus only on non-use values associated with reducing harm to forage fish, while excluding the non-use values the rule would diminish, such as those associated with a healthy manufacturing sector, low cost manufactured goods, and job opportunities for U.S. workers. For EPA to use the technique only when it favors regulation, and to exclude the technique when it argues against regulation, is more than just arbitrary. It is deliberate and unsupportable bias.
  • EPA rejects experimental economics approaches to measuring non-use values because it has concluded that only survey methods are acceptable. EPA should be more open-minded and resist rejecting alternative approaches because they were "not-invented-here."
  • An important advantage of experiment economics is the imposition of constraints and tradeoffs. The main difference between the experimental approach and EPA's survey approach is that the former uses real monetary values, whereas EPA's approach uses imaginary money. The predictable result is that EPA gets imaginary results.

Recommendations

  • EPA has not demonstrated that it is in society's interests to pursue government policies that would divert society's scarce resources to address hypothetical non-use values associated with the fish in question. However, if it is able to justify including measures of non-use values, they should not be based on subjective, stated preferences surveys.
  • To ensure the quality, utility, and clarity of the information to be collected, as required by the Paperwork Reduction Act, EPA should investigate revealed-preference approaches to estimating these values. Experimental economics offers an alternative method for revealing individuals' true willingness to pay for "non-use" items.