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“Minnesotans are fortunate to live in a land rich in water resources. Clean water is part of our sense of place and cultural identity. Abundant water underpins our agriculture, manufacturing, and tourism industries. In theory, clean water should be incredibly valuable—water is essential to our lives and livelihoods. In practice, clean water is cheap. Our water bills are a minor household expense and the public can access the majority of our lakes and rivers for free. If clean water is so valuable, then why is it cheap?

It turns out that understanding the true value of water is not an easy task. We don’t purchase units of clear lakes or safe swimming beaches at the store. Even when consumers have to pay for water, scarcity does not always drive up prices. Some of the cheapest water rates in the U.S. are in drought-stricken California. Instead, economists in search of the true value of clean water need to look beyond markets for clues about how people respond to changes in water quality and what we might be willing to pay to protect it.

Value Does Not Equal Price

Value is just a representation of how much people are willing to trade to get a little bit more of something else. We express our values in everyday decisions about how to spend our money and time. For example, I might pay $3 for a latte or spend 20 minutes in my car to drive my son to soccer practice. These actions signal the value I place on these goods and activities. However, the prices we pay are not a perfect representation of our true values. I actually value my son’s participation in soccer so much that I would willingly spend 60 minutes in the car to get him to practice, even though I only have to “pay” for 20 minutes. This discrepancy between price and value is one reason why what we are billed by our water utility or the fees we pay to access parks or beaches aren’t accurate representations of the true value of clean water. So how else can we figure out what clean water is really worth?…”

Read on at: Open Rivers