Valuing water purification services of forests: a production function approach using panel data from China's Sichuan province

• Published in: Environment and development economics Vol. 27; no. 6; pp. 491 - 510
• Main Authors: Liu, Zhaoyang, Huang, Heqing
• Format: Journal Article
• Language: English
• Published: Cambridge, UK Cambridge University Press 01.12.2022
• Subjects: Confounding (Statistics); Cost control; Cost reduction; Costs; Drinking water; Ecosystem services; Ecosystems; Forest conservation; Forest management; Forestry; Forests; Longitudinal studies; Panel data; Pollinators; Pollutants; Recreation; Services; Statistical analysis; Timber; Water intake; Water intakes; Water purification; Water shortages; Water supply; Water treatment; China; forest; Q24; Q57; spatial piecewise approach; Q25; water purification; fixed effects panel data model; Q51; valuation of ecosystem services; production function
• ISSN: 1355-770X; 1469-4395
• DOI: 10.1017/S1355770X21000425

The water purification functions of forests represent one of the most frequently invoked examples of nonmarket ecosystem services that are economically valuable. This study quantifies the monetary value of forests' water purification services in the form of the ensuing cost savings of municipal drinking water treatment, using a rich panel dataset from China's Sichuan province. Moreover, this study has undertaken a novel spatial piecewise approach to investigate the spatial patterns of such cost savings delivered by forests at different distances from the water intake point. The estimation results find that forests within a 2 km radius upstream from the water intake point have the most sizeable and statistically significant cost saving effect. For forests within a 3 km radius, this effect becomes somewhat smaller but remains statistically significant. Beyond a 4 km radius, this effect becomes notably smaller and statistically equal to zero. Our analysis facilitates the optimal spatial targeting of forest conservation.