Getting off the ladder: Disentangling water quality indices to enhance the valuation of divergent ecosystem services*

Many water quality valuation studies and Federal cost-benefit analyses build from pioneering work using a water quality ladder or a single water quality index (WQI) to characterize both current conditions and effects of policies. When policies lead to contrasting changes in valued ecosystem services like recreational fishing and swimming, analyses using a single ladder or index might obscure important underlying service trade-offs. We test for this effect using alternative approaches that separate water quality indices and value changes in distinct ecosystem services stemming from policies with small to moderate changes in water quality. The indices we test relate to nutrient loadings in Michigan's rivers, lakes, and Great Lakes. Our split-sample experiment compares economic values for treatments with two versus three quality metrics. The key distinction is that the two-index survey, like many existing studies, aggregates subindices for water contact (for swimming and boating) and fish biomass scores (for fishing) into a single WQI, whereas the three-index survey separately utilizes both. We find that changes in our index reflecting changes in fecal bacteria and water clarity are valued differently from changes in our recreational fishing index. Aggregating changes in these two distinct recreational services using a single WQI yields consistently lower benefit estimates across a range of underlying changes in our experiment. In valuation scenarios with small changes in overall water quality, the WQI-based benefit estimates can differ substantially from benefits measured by decomposing the index and valuing the disparate subindices, differences which might change balance of benefits and costs in regulatory evaluations.

Automated summary

Many studies and analyses on water quality valuation and cost-benefit use a single water quality index, but this approach might hide important trade-offs between different ecosystem services. In our study, we test this effect by using alternative approaches that separate water quality indices and value changes in distinct ecosystem services stemming from policies with small to moderate changes in water quality.