How much is the experience of hooking a fish worth? The Michigan Department of Natural Resources has filed suit against a 1.8 million kW hydropower plant. The department claims that the facility has substantially harmed Lake Michigan's recreational fishing resources, and is using a powerful economic model to help assess the damages.
Great Lakes recreational fisheries have staged a remarkable comeback from the devastation in the 1940s and 1950s caused by lamprey and the cumulative effects of long-term overfishing. By 1980, Great Lakes recreational fisheries were estimated to support from 27 to 55 million days of fishing per year, creating an annual net value to anglers of approximately $0.7 to 1.4 billion. In addition, the expenditures of tourists who engaged in recreational fishing were estimated to increase economic activity by $2.3 to 4.3 billion in communities throughout the Great Lakes states and provinces.
However, Great Lakes fisheries continue to face a wide range of environmental threats, including fish kills and toxic contamination by power plants. To fill in gaps in the regulatory authority to mitigate these injuries, environmental managers and activists in the Great Lakes region and elsewhere are beginning to seek compensation from the parties responsible for harm.
In the past, the use of liability actions to protect natural resources has been limited because property rights to the resources have not been well established. Increasingly, however, both common law and statutory principles are being asserted to define public trustees for natural resources and to establish the trustees' rights to bring legal actions for mitigation and compensation for damages to the resources. But the use of liability principles to seek compensation for harm raises the thorny problem of assessing the value of that harm to natural resources.
In an important liability case, the Michigan Department of Natural Re-sources (DNR) is suing for damages the utilities that own the Ludington Pumped-Storage plant located on Lake Michigan. The largest hydropower facility of its kind in the country, the plant is responsible for the largest continuous fish kill in Michigan waters. In the Ludington case, the State of Michigan is pioneering the use of economic principles to measure damages, rather than relying on the ad-hoc valuation methods frequently employed. At the heart of the assessment is a model of demand for recreational fishing opportunities throughout Michigan, which provides the basis for estimating the damages to recreational anglers as a result of fish kills from hydropower operations at Ludington.
In 1980, an estimated 1.1 to 3.2% of the Lake Michigan bio-mass of alewives was killed by the Ludington plant.
When harm affects the functioning of existing markets, such as commercial fisheries, useful measures of damage can readily be derived from market price clues—for example, how much a pound of trout costs in the supermarket. However, Michigan allocates its Lake Michigan fisheries primarily to recreational uses. Placing a value on recreational fishing experiences is difficult, because the value is derived from the full outdoor experience, not just the opportunity to supply the dinner table without a trip to the fish market. We have no market price clues about consumers' willingness to pay for the experience of fishing for pleasure. Therefore, when the quality of the experience is reduced by the operation of a hydropower plant, it is difficult to assess the value of the harm caused.
Losses at Ludington
Designed to serve the peak-load requirements of Michigan electric consumers, the Ludington Pumped-Storage Plant pumps water from Lake Michigan to a storage reservoir during low-demand periods and releases it back to the lake through six power-generating turbines during peak-demand hours. Millions of fish are killed every year as they are pumped in with the water and released through the pump turbines. Death occurs as a result of pressure changes, direct contact with the pump-turbine blades, and associated stress.
The largest loss occurs in the trout and salmon recreational fisheries. Due to the mobility of salmon and (to a lesser extent) trout throughout the lake, the losses at Ludington affect population levels throughout Lake Michigan waters. Because of the large losses to the recreational fishery, the state has chosen to support development of the demand model as a means of providing an economically sound basis for the damage claims in its suit. In addition to the losses to the recreational fishery, two small commercial whitefish fisheries and one small commercial bloater chub fishery are affected, as are lake sturgeon, which are listed as "threatened" under the Michigan Threatened and Endangered Species Act. Three categories of fish relevant to the success of the recreational fishery are killed: forage fish (primarily alewives, which serve as food for trout and salmon), adult game fish, and juvenile game fish.
Table 1. Categories of Damages from Fish Kills
In 1980 alone, an estimated 1.1 to 3.2 percent of the Lake Michigan biomass of alewives was killed by the Ludington plant. Forage fish are considered the limiting factor in the fishery and cannot be replaced cost-effectively. Consequently, the substantial kills of forage fish reduce considerably the population of trout and salmon that can be supported in the lake, and the state must reduce its stocking of juvenile game fish (and thereby its stocking costs) commensurately. The kills of an estimated 47,000 adult trout and salmon also cannot be replaced by increased stocking, because they have consumed "their share" of the limited forage. As the state cannot compensate for the loss of forage fish or adult game fish by stocking additional fish, their loss reduces the quality of fishing opportunities available to anglers.
On the other hand, the state can compensate for the loss of 500,000 juvenile game fish (which have not consumed their share of forage) by proportionately increasing its stocking of those fish and thereby increasing its stocking costs. In calculating the change in stocking costs due to the operation of the Ludington plant, the two effects are accounted for: an increase in stocking to compensate for the kills of juveniles, and a decrease in stocking because the forage-fish kills reduce the quantity of game fish that can be supported in the lake.
Valuation of damages
Economists confront a serious challenge in placing a dollar value on changes in the quality of environmental resources, such as the harm caused by the Ludington hydropower plant. Economists estimate the value of changes in well-being due to environmental harm by measuring the minimum amount citizens are willing to accept in compensation for the lower quality of the resources, net of any change in costs to maintain the resources. The major focus generally has been on use values—for example, measuring the losses in consumers' value and in producers' lost economic rents from recreational or commercial fishing.
In addition, economists are recognizing that some individuals place a value on the existence of natural resources, independent of use. Measurement of lost non-use value due to fish kills, which increase the possibility of species extinction, is particularly important where the species are relatively rare. Because most of the species killed by the Ludington plant are numerous in Lake Michigan, non-use losses are probably moderate. Additional information, judged too expensive to collect by survey given the relatively small values involved, would be required to measure lost non-use value. For lack of a direct measure, replacement costs can be used as a proxy for the lost non-use value.
The demand model assesses anglers' willingness to travel further in order to fish at a higher-quality site.
Both use and non-use values are incorporated in the damage assessment for the Ludington plant case, though the focus is on use-values in the commercial and recreational fisheries (see table I). Because there are national markets for commercially harvested whitefish and bloater chub, the total market supply is not noticeably affected by the power-plant kills and there has been no associated price increase. Consequently, consumers appear to have incurred no related losses. However, because use of these fisheries is limited to the one or two enterprises licensed to operate in each of the areas, it is not surprising that the commercial operations produce economic rents, estimated at 15 to 25 percent of the landed value of the fish. The lost economic rents are incorporated in the damage accounting.
The greater injury, however, is experienced by trout and salmon recreational anglers. Not only do they confront lower-quality fishing opportunities in Lake Michigan as a result of the power-plant fish kills, but those opportunities are more costly for the state to maintain.
Applying the demand model
The model of demand for recreational fishing is being employed to estimate how much recreational anglers value different quality attributes in the Great Lakes trout, salmon, and other fisheries. To estimate demand without market prices, the model relies upon Harold Hotelling's insight of forty years ago that the travel costs incurred by an individual to travel to a site function like a price for the site visit.
The demand model employs a discrete-choice version of the travel-cost method to determine each angler's choice of one (discrete) fishing site for Great Lakes trout and salmon angling from among all feasible sites in Michigan. In essence, the procedure assesses anglers' willingness to travel further (and thereby to incur greater travel costs) in order to fish at a higher-quality site. Site-quality attributes include the expected number of fish caught per hour for individual trout and salmon species, the availability of harbor slips or parking spaces, and the extent of fish contamination by toxic substances. From the estimates of anglers' tradeoffs between quality attributes and travel costs, an angler's maximum willingness to pay for improved quality or minimum willingness to accept compensation for reduced quality at fishing sites can be calculated.
The discrete-choice version of the travel-cost method represents a substantial improvement over past travel-cost techniques focusing on single-site analysis. The discrete-choice technique allows the analyst to value changes in the quality at sites, which is essential for the proposed legal and policy applications. The advantage accrues from being able to evaluate the desirability of substitute sites relative to the site chosen by an individual. For example, when one fishery is damaged, participation may decline substantially. However, if unaffected substitute sites (or species) are readily available, the loss may be relatively small. On the other hand, injuries at sites of rare quality and accessibility may impose substantial losses on recreational anglers.
In the Ludington case, after the demand model was used to estimate anglers' tradeoffs between quality and travel costs, fisheries biologists created a policy scenario characterizing what the catch rates in Lake Michigan trout and salmon fisheries and in anadromous fish runs would be if it were not for the operation of the Ludington plant. On the basis of the estimated relationships in the model, it is possible to predict how site choices would change if the environmental improvements characterized in the scenario were to occur. The associated losses in recreational angler value from operation of the power plant can then be calculated.
Other model applications
The demand model can serve as an important tool in a variety of other possible legal actions to reduce environmental threats to fisheries and other natural resources. For example, the model can be used to capture damages when power plants change the quantity of water resources suitable for certain species.
The demand model can also be used to estimate damages from toxic contamination. Restoration of a contaminated site could improve fishing quality in at least four ways that can be incorporated in the model: increasing the number of sites that can support stocking of fish; changing the relative composition of fish supported toward the higher-value game fish and thereby increasing catch rates of game fish; reducing the toxicity of the fish catch; and improving the aesthetic quality of recreational experiences.
Under the Comprehensive Environmental Response, Compensation, and Liability Act (known as "Superfund"), suits can be brought to recover the natural resource damages that remain after cleanup of Superfund sites (as well as the pre-cleanup damages). Though the majority of Superfund litigation to date has focused on the costs of site remediation, the natural resource damage cases may become as frequent and costly as the remediation cases. Because the regulations governing the natural resource damage suits mandate the use of economic methodologies, instead of ad-hoc methods such as fish-value schedules, under Superfund the recreational fishing demand model may be an essential element for successful legal suits regarding fishery damages.
In conclusion, it is important to note that the methodology described here for valuing recreational fishing is applicable to all classes of recreation. Where the necessary data are available, the model can also be used to value harm to hunting, boating, swimming, or other forms of recreation.
The recreational fishing model described in this article was developed by Carol Adaire Jones, Gilbert F. White Fellow at RFF in 1988-89, in collaboration with Douglas B. Jester of the Michigan Department of Natural Resources and Theodore Graham-Tomasi of the University of Minnesota, with support from the Michigan DNR and from RFF. On leave from the University of Michigan, Jones is developing new applications for the model while at RFF as a visiting scholar during 1989-90.
A version of this article appeared in print in the October 1989 issue of Resources magazine.
