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Worth of Watersheds: A Producer Surplus Approach for Valuing Drought Mitigation in Eastern Indonesia

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  • Pattanayak, Subhrendu K.
  • Kramer, Randall A.

Abstract

This study combines hydrological modeling with applied micro-econometric techniques to value a complex ecosystem service: drought mitigation provided by tropical forested watersheds to agrarian communities. Spatial variation in current baseflow allows estimation of drought mitigation values as the marginal profit accruing to agricultural households. The paper shows that this uncommon focus on producer (not consumer) surplus measures is appropriate for valuation as long as markets for commodities related to the environmental services are complete. For the typical household, the estimated marginal profit is positive, validating the central hypothesis that baseflow makes positive contributions to agricultural profits. There is some evidence, however, that increased watershed protection will increase profits through greater baseflow only in watersheds with a unique mix of physio-graphic and climatic features. The paper evaluates and provides some support for the hypothesis, put forward by hydrological science and the Indonesian Government, that protected watersheds can supply latent and unrecognized ecosystem services to local people.

Suggested Citation

  • Pattanayak, Subhrendu K. & Kramer, Randall A., 1999. "Worth of Watersheds: A Producer Surplus Approach for Valuing Drought Mitigation in Eastern Indonesia," Working Papers 99-10, Duke University, Department of Economics.
  • Handle: RePEc:duk:dukeec:99-10
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    Cited by:

    1. Balana, Bedru Babulo & Muys, Bart & Haregeweyn, Nigussie & Descheemaeker, Katrien & Deckers, Jozef & Poesen, Jean & Nyssen, Jan & Mathijs, Erik, 2012. "Cost-benefit analysis of soil and water conservation measure: The case of exclosures in northern Ethiopia," Forest Policy and Economics, Elsevier, vol. 15(C), pages 27-36.
    2. Lele, Sharachchandra & Srinivasan, Veena, 2013. "Disaggregated economic impact analysis incorporating ecological and social trade-offs and techno-institutional context: A case from the Western Ghats of India," Ecological Economics, Elsevier, vol. 91(C), pages 98-112.
    3. Vincent, Jeffrey R., 2012. "Ecosystem services and green growth," Policy Research Working Paper Series 6233, The World Bank.
    4. Phoebe Koundouri, "undated". "Design and Implementation of an Integrated Water Management Approach," DEOS Working Papers 0501, Athens University of Economics and Business.
    5. Klemick, Heather, 2008. "Do Liquidity Constraints Help Preserve Tropical Forests? Evidence from the Eastern Amazon," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6473, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    6. Sheila M. Olmstead, 2010. "The Economics of Managing Scarce Water Resources," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 4(2), pages 179-198, Summer.
    7. Dasgupta, Partha, 2010. "The Place of Nature in Economic Development," Handbook of Development Economics, Elsevier.
    8. Freire-González, Jaume & Decker, Christopher & Hall, Jim W., 2017. "The Economic Impacts of Droughts: A Framework for Analysis," Ecological Economics, Elsevier, vol. 132(C), pages 196-204.
    9. Subhrendu K. Pattanayak & David T. Butry, 2005. "Spatial Complementarity of Forests and Farms: Accounting for Ecosystem Services," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(4), pages 995-1008.
    10. Perrings, Charles, 2014. "Environment and development economics 20 years on," Environment and Development Economics, Cambridge University Press, vol. 19(03), pages 333-366, June.
    11. Jeffrey R. Vincent, 2016. "Impact Evaluation of Forest Conservation Programs: Benefit-Cost Analysis, Without the Economics," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 63(2), pages 395-408, February.
    12. Vicente Ruiz, 2016. "Groundwater Overdraft, Electricity, and Wrong Incentives: Evidence from Mexico," Working Papers 2016.05, FAERE - French Association of Environmental and Resource Economists.
    13. Heather Klemick, 2008. "Forest Fallow Ecosystem Services: Evidence from the Eastern Amazon," NCEE Working Paper Series 200805, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised May 2008.
    14. Klemick, Heather, 2011. "Constraints or Cooperation? Determinants of Secondary Forest Cover Under Shifting Cultivation," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 40(3), December.
    15. Patricia Silva & Stefano Pagiola, 2005. "A Review of the Valuation of Environmental Costs and Benefits in World Bank Projects," Others 0502007, EconWPA.

    More about this item

    JEL classification:

    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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