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What Are the Benefits of the Water Framework Directive? Lessons Learned for Policy Design from Preference Revelation

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  • Janne Artell

    (Natural Resources Institute Finland (Luke))

  • Anni Huhtala

    (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.

Suggested Citation

  • Janne Artell & Anni Huhtala, 2017. "What Are the Benefits of the Water Framework Directive? Lessons Learned for Policy Design from Preference Revelation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 68(4), pages 847-873, December.
    • Handle: RePEc:kap:enreec:v:68:y:2017:i:4:d:10.1007_s10640-016-0049-8
    DOI: 10.1007/s10640-016-0049-8
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    Cited by:

    1. Liu, Hongxing & Gopalakrishnan, Sathya & Browning, Drew & Sivandran, Gajan, 2019. "Valuing water quality change using a coupled economic-hydrological model," Ecological Economics, Elsevier, vol. 161(C), pages 32-40.
    2. Heather Klemick & Charles Griffiths & Dennis Guignet & Patrick Walsh, 2018. "Improving Water Quality in an Iconic Estuary: An Internal Meta-analysis of Property Value Impacts Around the Chesapeake Bay," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 69(2), pages 265-292, February.
    3. Jean-Philippe Terreaux & Mabel Tidball, 2020. "Can Nonlinear Water Pricing Help to Mitigate Drought Effects in Temperate Countries?," Post-Print halshs-02283100, HAL.

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    More about this item

    Keywords

    Hedonic price method; Water quality; Environmental amenities; Valuation; Waterfront properties;
    All these keywords.

    JEL classification:

    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q26 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Recreational Aspects of Natural Resources

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