The optimal allocation of watershed conservation funding : a case study of the John Day River Basin, Oregon

Abstract

This study determines the optimal allocation of watershed conservation funds in the John Day River Basin, Oregon. Fund managers can use a variety of targeting schemes to allocate their limited resources. Depending on which targeting criteria is used, they may or may not be achieving the maximum environmental benefits per dollar expended, a policy goal that is increasingly being adopted for conservation programs. Previous studies have provided the theory behind this optimal allocation of funds, but none, to the researcher's knowledge, have attempted a case study to illustrate the optimal allocation of funds as well as the misallocations that could result. Watershed conservation policies are very important, especially here in the Pacific Northwest where salmonid populations are endangered. As stream temperatures are lowered, salmonid recruitment increases. Improvements in riparian vegetation provide stream shade and bank stability. Shade decreases stream temperatures by preventing solar radiation from reaching the stream, while bank stability allows streams to become narrower and deeper, with more vegetative overhang. Narrower streams have less surface area to come in contact with solar radiation and vegetative overhang provides additional shade. A simultaneous equation system was used to estimate stream temperature and fish recruitment models for the thirteen streams studied, classified into three environmental attribute clusters. Fish recruitment models were developed for rainbow trout, Chinook salmon and speckled dace. Marginal values for rainbow trout and Chinook salmon from previous studies were used to calculate the total marginal benefits to society from increasing cold-water salmonid species. The analytical models were the basis for determining the optimal fund allocation, after considering the cumulative, indirect and correlated benefits derived from improving riparian vegetation conditions. Policy managers and previous studies have failed to consider these additional environmental benefits, particularly jointly produced benefits. Two scenarios were determined for the optimal fund allocation, based on the riparian conditions of the surveyed stream reaches. The riparian conditions are reported using a vegetative use index from one (the worst conditions) to four (the best conditions). Under the first scenario, which assumes a full range of riparian conditions, Granite Creek should receive funding priority with $51,756 in marginal social benefits received from improving the streamside vegetative use rating from one to four, for one mile of stream. Deerdorff Creek and Reynolds Creek would be the next two streams to receive funding, respectively, both for a vegetative use improvement from one to two. The second scenario assumes that only vegetative conditions in the surveyed segments exist in the stream. Under these circumstances, only six of the thirteen streams would even be considered for funding, with Granite Creek again receiving priority. Improving the vegetative use rating in Granite Creek from three to four, for one stream mile, will produce $9355 in marginal social benefits. Murderer's Creek and Camp Creek would be the next streams to receive funding for a vegetative use improvement from three to four and one to two, respectively. In addition to determining the optimal fund allocation, discussion is included about the policy implications that would result from ignoring the cumulative, indirect and correlated benefits. For the fund misallocation discussion Granite Creek was assumed to be the stream that should be given funding priority for an improvement from three to four only, with Murderer's Creek and Camp Creek receiving funds second and third, respectively. If an on-site, physical criterion is used as the targeting criteria, such as stream temperatures or the riparian vegetation conditions, then the cumulative benefits will be ignored. Two possible misallocations could result when the cumulative effects are ignored. First, streams with very high temperatures may receive funding, even if improvements in the vegetative use index will not lower temperatures enough so that salmonids can survive. Second, streams that have temperatures below the optimal range for salmonids, but have poor riparian vegetation may be funded. Improving streamside vegetation in those streams would be a misallocation of funds. Targeting based on the highest stream temperature criteria would only consider the direct benefits received from improving streamside vegetation. Under a temperature- based targeting criteria, Alder Creek would be the first stream funded with Mountain and Murderer's Creek following. If we assume only two streams could be funded, then there will be a loss of almost all marginal benefits per stream mile. If the change in the stream temperatures is used as the targeting criteria, and indirect benefits are ignored, then Camp Creek would receive funding priority, with Mountain Creek, Granite Creek and Murderer's Creek following. If it is again assumed that only two streams could be funded, this targeting scheme would result in an approximate loss to society of up to 87 percent in marginal benefits, per stream mile Additionally, all of the indirect benefits need to be taken into consideration in order to optimally allocate funds. If Chinook salmon are ignored, and rainbow trout are the only cold-water species taken into account, then society will forgo around 50 percent of marginal social benefits, per stream mile. This is if we assume two streams are funded, and the South Fork is the second stream to receive funds, rather than Murderer's Creek. Granite Creek would still receive funding priority. Finally, correlated benefits, or warm-water species, need to be considered. In this study ignoring the warm-water species would not effect fund allocation, as a marginal social value for speckled dace was not found. Even if we assume the speckled dace is a proxy for warm-water sport fish, such as bass, and the correlated benefits are taken into consideration, funding priority would still be given to Granite Creek. However, under the same assumptions, if the correlated benefits are ignored in Camp Creek, then society will misallocate funds and lose a small portion of marginal social benefits per stream mile. This study points towards small, high elevation streams being given funding priority. Granite Creek should be the first stream to receive funds in the John Day River basin, when funds are optimally allocated. However, if not all of the environmental benefits are taken into consideration, different streams may be targeted. When a temperature-based targeting scheme is used, Alder Creek would be given funding priority, even though no marginal social benefits would be derived. If the change in stream temperatures is used, Camp Creek will receive funds, with a large loss to society in marginal benefits. If not all of the indirect benefits are considered, the South Fork will be funded over Murderer's Creek, and only half of the possible marginal benefits will be received. Finally, when correlated benefits were ignored, the fund allocation in this study was not affected. However, fund managers still have to consider the tradeoffs involved between warm and cold-water adapted fish species. This is especially true if warm-water sport fish or endangered species are the jointly produced benefits. Failing to include all of the environmental benefits that are produced when conservation programs are initiated will lead policy managers to target the wrong streams or basins, and misallocate funds. In addition, using the wrong criteria to prioritize watersheds will also lead managers to misallocate funds. Funds should be allocated so that the total value of environmental benefits is maximized, and not the total amount of resources saved.