MEASURING ECONOMIC LOSSES FROM GROUND WATER CONTAMINATION: AN INVESTIGATION OF HOUSEHOLD AVOIDANCE COSTS

ABSTRACT: Economic losses from ground water contamination were estimated in a central Pennsylvania community. The averting expenditures method was applied via a mail survey of households in which water contained the unregulated volatile organic chemical, perchloroethylene (PCE). Expenditures were estimated at $148,900 (1987 dollars) over the six‐month contamination period or approximately $252 per household annually. These costs underestimate the lower bound measure of welfare losses to households from ground water contamination. An upper bound measure of welfare losses was estimated at $383 per household annually. These estimates do not represent the full economic losses resulting from ground water contamination since the study did not address municipal‐level and business avoidance costs and losses from actual health effects, increased fear and anxiety, ecological damages, and nonuser ground water benefits. The results expand the existing empirical base of information about municipal‐level responses and economic losses from ground water contamination to include household‐level impacts. The findings indicate that households undertake substantial averting actions in response to ground water contamination and that such actions can have significant economic consequences. The extent and magnitude of avoidance costs documented suggests that policy‐makers should give greater attention to this category of economic losses.