What’s a valley worth?

Many years ago, around the time William Mulholland proposed to “stop the waste” by damming Yosemite Valley into a reservoir, the city fathers of San Francisco did exactly that with the Hetch Hetchy Valley, which was a comparably beautiful place. It’s now proposed to demolish the dam and “reclaim” the valley, and to do so while preserving a water supply for the Bay Area would cost between three and ten thousand million dollars.

Is this a good idea? It’s hard to think about numbers so large, or unique natural treasures, especially as this is not a question of preserving a going-concern ecology but doing an experiment; no-one really knows what will come back when it’s been under water for seven decades.

If it’s a California resource, we’re talking about spending at least $1000 per person. What would we get for it? Obviously, people would go and visit. Currently Yosemite next door gets more than 3 million visits a year; perhaps as many would also go to Hetch Hetchy, perhaps they would just divide and half go to each. Choosing a price in the middle of the guesstimate range, say seven thousand million, the annual cost would be about $350 million (at 5%); that would be $100 per visit if it matches Yosemite, possibly twice as much if there’s no additional tourism. $100 is the price of two medium seats at the opera or a nice dinner out; it’s neither a ridiculous number that makes the proposal look silly, nor a ridiculous number so low that it’s a gimme. Reducing the $100 per visit are all the benefits people get from just knowing such a wonderful place exists, or reading about it and seeing pictures, benefits no less real because they are received by people who don’t experience it directly.

While I still lived in Boston, Tip O’Neill had the nice idea to give his congressional district, and those around it, a nice retirement present, namely a thousand million federal dollars to bury one of the most ill-conceived, badly designed, blighting, and ugly fruits of the urban freeway era. At the time, a lot of people I knew thought that was a really silly way to spend that much money in Boston. Now that the Big Dig is complete, it’s totally obvious to me, without a doubt, that it would be hard to find a way to improve the quality of life for Bostonians more for a one-time expense of five hundred bucks (the urban area has about two million people in it), even if it were local money. It’s completely transformed a whole swath of the downtown, never mind the millions adjoining landowners have made. Would Paris pay this kind of money for the Champs Elysées? I’m sure, and properly so.

However, the project cost fourteen thousand million and the meter is still running. $7000 per person once; not such an obvious good deal, especially considering that lots of those two million don’t get downtown to enjoy it very often. It’s another awkward number that doesn’t settle the issue either way. $350 per year forever…a dollar a day? Somehow it seems to make more sense that way.

In 1903, a bunch of civic leaders in New York had the insane idea to build a railway under the streets of Manhattan, threaded among existing sewer pipes and building foundations, four tracks wide to allow express service, and extend it way out into the farms of the Bronx three tracks wide (though elevated rather than underground out in the boondocks). It’s hard to justify heavy rail transit investments by the tools of benefit-cost analysis, but it’s obvious to me that this (and the parallel and intersecting lines that followed it) would be a bargain for the city even if it had to buy them again for zillions. Something like this, a serious and comprehensive investment in urban transportation rather than a tentative dabble such as LA is fooling with, changes the whole quality of life of a region. New Yorkers can go where they want, not have to park when they get there, come home at any hour of the night, and do so from childhood (my parents never had to chauffeur me to anything). When they’re not in the train or bus, they’re on their feet encountering their neighbors, not sealed in tin boxes on a freeway. What’s that worth in money? What analysis would be persuasive either way?

Author: Michael O'Hare

Professor of Public Policy at the Goldman School of Public Policy, University of California, Berkeley, Michael O'Hare was raised in New York City and trained at Harvard as an architect and structural engineer. Diverted from an honest career designing buildings by the offer of a job in which he could think about anything he wanted to and spend his time with very smart and curious young people, he fell among economists and such like, and continues to benefit from their generosity with on-the-job social science training. He has followed the process and principles of design into "nonphysical environments" such as production processes in organizations, regulation, and information management and published a variety of research in environmental policy, government policy towards the arts, and management, with special interests in energy, facility siting, information and perceptions in public choice and work environments, and policy design. His current research is focused on transportation biofuels and their effects on global land use, food security, and international trade; regulatory policy in the face of scientific uncertainty; and, after a three-decade hiatus, on NIMBY conflicts afflicting high speed rail right-of-way and nuclear waste disposal sites. He is also a regular writer on pedagogy, especially teaching in professional education, and co-edited the "Curriculum and Case Notes" section of the Journal of Policy Analysis and Management. Between faculty appointments at the MIT Department of Urban Studies and Planning and the John F. Kennedy School of Government at Harvard, he was director of policy analysis at the Massachusetts Executive Office of Environmental Affairs. He has had visiting appointments at Università Bocconi in Milan and the National University of Singapore and teaches regularly in the Goldman School's executive (mid-career) programs. At GSPP, O'Hare has taught a studio course in Program and Policy Design, Arts and Cultural Policy, Public Management, the pedagogy course for graduate student instructors, Quantitative Methods, Environmental Policy, and the introduction to public policy for its undergraduate minor, which he supervises. Generally, he considers himself the school's resident expert in any subject in which there is no such thing as real expertise (a recent project concerned the governance and design of California county fairs), but is secure in the distinction of being the only faculty member with a metal lathe in his basement and a 4×5 Ebony view camera. At the moment, he would rather be making something with his hands than writing this blurb.

27 thoughts on “What’s a valley worth?”

  1. Not a good time to be talking about how wonderful the Big Dig is. Despite all, though, I think in 25 years it will be seen as a huge asset for the city, if it hasn't flooded or collapsed.

  2. yosemite is one of the jewels of the National park system, not state park system. With 3 million visitors to Yosemite and a state population of about 38 million, it's pretty easy to figure out that either close to 10% of all Californians visit Yosemite every year (unlikely) or that Yosemite draws visitors from around the country and, indeed, the world (which is, of course, the case).
    It also would not take much work to discover that the Park Service for years has been worried about portions of Yosemite being overtaxed and the Service would desperately like to reduce traffic impacts.
    also, billion is perfectly acceptable american word. why the awkward "thousand million" formulation?
    there is a real mishmash here of economic / environmental / social costs and benefits that really should be teased out a little better.
    the destruction of the dam is the easiest part.
    what price San Francisco's water security? what alternatives are available and what would those cost? how would that fit in within California's larger water crisis?
    what scientific benefits would accrue from the experiment? what natural habitat benefits would accrue? what economic benefits from the massive increase in tourism? what lifestyle costs would accrue to the local community from the traffic increase?

  3. The problem with billion is that it means a million million outside the US and this blog has a fair number of non-US readers, so I've decided to follow the Economist on this.
    Your list of issues is a good one; BC analysis of something like this is quite daunting. I hope the decision isn't made on sentiment.
    Be careful to distinguish visits from visitors. Lots of people go to (for example) Yosemite more than once a year, some once in a lifetime. The info NPS has is visits, definitely representing many fewer people.

  4. As I understand it, the cost estimate assumes that the price of water will remain the same, so that usage will continue to grow at current rates. The federal subsidization of water is one of the most important causes of environmental degredation, and it's also a prime reason that the Midwest has emptied out as people have moved to the Southwest. If people in LA had to pay the real cost of their water and electricity, Detroit would be a much more lively city today. So, as a regional loyalist, whenever I hear someone saying that California needs another $10 billion for a water project, I say, pay for it your damn selves.

  5. NYC's subway wasn't built by the city, but by a private investor group headed by August Belmont (of Belmont Park fame). He operated it at a profit until the city intruded itself into those operations and destroyed its profitability.
    The city took it over in 1940 and it's needed taxpayer subsidies ever since.

  6. Don't know the entire history of the New York PT system, but they may have been afraid that it would be bought and shut down by the car companies. They did this to most of the small-city PT across the country.

  7. Well, I do know the history of the NYC subway. They could have had one in the 1870s, but for the corruption of Boss Tweed and his Tammany cronies.
    Alfred Beach–the founder of Scientific American–built a short subway in two months IN SECRET under what is now City Hall Station. The lobby had all kinds of opulent appointments including a grand piano and chandeliers. When he opened it thousands of people paid to ride it for the amusement value.
    He then proposed to the state legislature, and both houses passed the bill, that he build a real subway for transportation all the way to Central Park, for $5 million all of which he would raise himself.
    The governor, a Tweed crony, vetoed the bill and substituted a Tammany one for $80 million to build an El system. It wasn't until 30 years later that NYC's political structure was such that it was possible to built a subway. Which, again, took a private investor group headed by August Belmont to accomplish.
    Also, the idea that 'the car companies' bought up and shut down public transport in America is a total myth. Before you waste any time trying to challenge me, I warn you I've written extensively on The Great Conspiracy to Destroy the Streetcars,. Which is archived and only a cut and paste away, for me.

  8. While you extol the virtues of the NYC subway system, plenty of people are thrilled to drive their cars to work and to where they want to go. They don't have to deal with walking from where they live to a subway stop and then from a subway stop to their office, they don't have to rub shoulders with people they'd just as soon avoid, they like having driving cars with trunks so they can carry more than what fits in two hands (going shopping in NY with a baby carriage… not fun). And I wouldn't let my kids ride the subway alone these days and think the parents who do are rationalizing away the dangers in order to avoid having to think they're exposing their kids to unnecessary dangers.
    Had those present-day billions not been spent on the NY subway, then Manhattan and the surrounding areas wouldn't be as densely populated and as crowded as they are. People would be able to walk the streets of Manhattan without getting jostled six times per block walked. There'd be room to walk with an umbrella on the sidewalk without worrying about either hurting someone with yours or being hurt by someone else's umbrella. Sure, they'd be sprawl, but, aside from those who like living crammed in on top of one another and having to wait six deep for a bagel in the morning, people tend to like having space to live…

  9. Steve,
    As someone who has lived in cities both with and without good public transportation let me say you're living in a fantasy world. That said, nothing compares to the Moscow Metro- the most heavily ridden in the world, with very frequent trains, clean cars, often beautiful stations, large service, and cheap prices (even considering that it's doubled in the last 5 or six years.)

  10. given the degree of involvement of both the state and federal governments in California's water projects since the early 20th century, it is essentially impossible to calculate the "real" cost of water in California.
    and don't just blame California; the Army Corps and the Bureau of Reclamation have built tens of thousands of projects across the whole country that have completely reshaped how we live. (and there's no particular reason to stop at water. we, as federal taxpayers, have subsidized air traffic, rail traffic and ground traffic in ways that have distorted the "real" price of doing things.)

  11. I'm in the midst of planning a trip to Yosemite, and just learned a few hours ago that Hetch Hetchy used to be a twin of the Yosemite Valley and was flooded.
    Also, why can't I format my posts with html tags?

  12. Patrick R. Sullivan,
    Could you post a URL to your debunking of the myth of "The Great Conspiracy to Destroy Street Cars?"
    It's a topic I know very little about but it sounds quite interesting.

  13. The CALVIN group at UC Davis did a very nice analysis of the water supply/security implications of hetch hetchy removal and found that replacing the water would be quite doable. They are pretty much the only people who have an integrated understanding of the hydrology, engineering, and economics of the state water system.
    The proper measure of the potential recreational benefits is 1) consumer surplus from projected beenfits +2) option value of people who might visit +3) existence value for people who won't visit but will still value the creation of another major national park.
    California doesn't have an overall water supply problem. Ag uses the great majority of water and does it at a far lower marginal cost than urban rates. A small switch of water from Ag to cites through better water markets could supply all urban needs and at a lower cost than present. This aplies to the bay area as much as Los Angeles. Urban water scarcity in Cal is a problem of institutions, not physical supply.

  14. NOT ONE BLOODY MENTION OF TRADE UNIONS meretricious political role in whole bid dig dissertation. renders entire discussion not credible.
    Old-Mayor- Daley- Chicago-unionist-Mike

  15. Steve Sturm
    Yes Manhattan might be less dense, but that means greater NYC would be *bigger*. And it is sprawl that creates traffic congestion, not density. Dense urban masses encourage non car journeys.
    Car journeys take up so much road space that even in a city where over half the surface area is devoted to roads and parking facilities (Washington, DC) there is congestion.
    As to danger on the subway, the NYC Metro is massively less dangerous than it was 20, even 10 years ago. Most of the central core is pretty safe, most of the time. Your chances of getting raped or murdered or even mugged are not high, relative to the number of passenger journeys.
    Now if your kids drive, or you drive them, you expose them to a completely different set of risks.
    First there is the risk of death or serious injury in a car accident.
    Then there is the risk of death by car accident to *other* children, eg those walking or bicycling.
    Then there is the lost life expectancy because your children don't *walk* or exercise.
    Then there is the loss of life expectancy because of air pollution and other environmental consequences. World asthma death rates are soaring, we don't know why exactly but auto particulates and ozone are highly implicated. Beyond that there is global warming.
    We know a lot about this in the UK. 90% of UK kids no longer walk or cycle to school– the majority are driven in cars by their parents. The result is implicated in the explosion of obesity amongst children in the UK. We have a relatively low death rate in road accidents, but a high one of children killed on the road.
    So whilst sprawl is inevitable, it doesn't make public transport a bad idea, particularly where the geography suits density.
    Los Angeles is probably probing the limits of the passenger car as the sole means of transport. The traffic is bad, everywhere, all the time. Los Angelenos are either going to have to give up some of their vaunted mobility, or find other ways of getting around.
    For the older North Eastern cities of North America, the transport infrastructure laid down in the last century makes the problem less chronic. Chronic, but not as bad.

  16. Interestingly, there's an analogous though smaller scale story going on in my state of North Carolina, which might be titled, "What's a rock worth?" The "rock" is Chimney Rock Park in the Blue Ridge Mountains, privately owned, and now on the block for an asking price of $55 million. The state is looking into its acquisition. Everyone I talk to is skeptical about it.

  17. I haven't studied this but it is typical for the reservoir of a dam to fill with silt, which must be removed or, eventually, there is no place for water.
    Also, it seems a little unlikely that a dam built so long ago is still 'state of the art'.
    All in all, I'm guessing it's time to re-do the project, and an appropriate time to re-think the project before re-doing it.
    Incidentally, the fastest subway line in NY was built by the people under the leadership of Fiorello LaGuardia.

  18. caldem: the people at Met (Metropolitan Water District of Southern California — the 800-lb gorilla of the state's water system) aren't too shabby either.
    Ag to urban transfers will inevitably be part of quenching the thirst of cities. but that's not the crisis i was talking about.
    The Bay-Delta system is close to collapse. The Colorado River is still over-allocated. And global climate change may have far more rapid impacts on the annual accumulation of snow pack than earlier anticipated. (witness the rapid deglaciation in Europe.)

  19. I just got back from Hetch Hetchy yesterday. It is a beautiful valley, but I doubt it would ever be the true twin of the Yosemite Valley. From the vantage of the resivoir level trail, there are wonders galore. But nothing at the same level as the sheer drop off of El Capitan.
    My suspiscion is that it would never get above 50% of the visits count of it's sister.
    As a restoration for it's own sake, I worry that a habitat restoration of that scale has never been done by humans. Nature did it after the last ice age, but that is a different timescale than we are willing to wait for. Lets try it out on a smaller scale first, please?
    And for the monetary side, could that same cash be used on other habitat preservation more effectivly? There are already many Sierra national parks. Would it make more sense to save more ocean areas, old growth forests, Everglades, etc. Or even making sure that existing habitats stay viable.
    That, and I like my San Fransisco water quality, selfishly.

  20. MobiusKlein
    Excellent analysis!
    1. opportunity cost of doing something else more valuable, like protecting Redwood forests.
    The true cost of any economic activity is what you might have done with the money.
    2. Benefits of mega projects are normally overstated. An alternative to massive water projects is that people and companies learn to use water more efficiently.
    The best investments tend to be in human capital (just giving each poor family with children another $1k a year is likely to have huge benefits, long run, because $1k to a single mother who works at WalMart is a lot of money and the lower stress will feed through to her kids) and long range Research and Development (particle physics, bioscience etc.)– both the internet and the current genetics revolution were created by such long range programmes.
    Another very profitable area of investment is pollution and human impact abatement. Rather than have new water projects, buy out some farmers. Because ecosystems recover slowly (and in the case of the likes of deforestation, never), you are offsetting long term damages.

  21. When you are talking American dollars, a "thousand million" is called a "billion". British number usage with American dollars is a strange choice. Otherwise, very interesting article.

  22. Twill00
    I think most literate British people now know how to translate numbers from American to British!
    So in an American context saying 'a billion' ie I unconsciously translate it back. Similarly when I say 'a billion' I mean 'a thousand million'.
    Call it the curse of The Economist ;-).

  23. JR, if Los Angeles was paying the true cost of water, Detroit would still be a vast, empty slum. But Portland would look more like Seattle, and Seattle more like San Francisco.

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