Opportunity Costs of Residential Best Management Practices for Stormwater Runoff Control

Abstract

Excess stormwater runoff is a serious problem in a large number of urban areas, causing flooding, water pollution, groundwater recharge deficits, and ecological damage to urban streams. Solutions currently proposed to deal with this problem often involve large centralized infrastructure and high expense. Phase II of the Environmental Protection Agency’s stormwater regulation is now requiring smaller communities nationwide to make important decisions about the potentially expensive management of excess stormwater runoff. This paper builds on research investigating the use of economic incentives to promote dispersed placement of smaller-scale best management practices (BMPs) for water detention to control excess runoff. We estimate a hedonic price function for houses in the area of a pilot project, and include the estimated part worth of yard area as our lower bound for opportunity cost in the cost function of the residential BMPs. We then show the effects of the inclusion of opportunity cost on two potentially useful incentive-based policy instruments available to communities.