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Creating Underwater Value: The Economic Value of Artificial Reefs For

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 Creating Underwater Value:
The Economic Value of Artificial
Reefs For Recreational Diving

by

Linwood H. Pendletona

December 12, 2004

aAssociate Professor
Program in Environmental Science and Engineering
Department of Environmental Health Sciences
University of California, Los Angeles
[email protected]

Prepared for:
The San Diego Oceans Foundation
P.O. Box 90672
San Diego, CA 92169-2672
http://www.sdoceans.org

Sponsor:
California Artificial Reef Enhancement Program
1008 Tenth Street, Suite 298
Sacramento, CA 95814
http://www.calreefs.org
 Creating Underwater Value: The Economic Value of Artificial Reefs for Recreational Diving

Executive Summary market benefits produced by artificial reefs,

including increased local expenditures and tax
Ships, planes and other large structures are revenues, often are hard to identify.
finding their way to the bottom of the sea along
coasts in North America, Europe, Australia, and Scuba diving at artificial reefs generates market
elsewhere. More and more, coastal impacts (Table 1) that help to sustain local
communities are turning to these structures as a economies and provide new tax revenues,
means of protecting shoreline, creating habitat especially in areas where scuba diving tourism
for fish and sea life, and providing new draws out-of-town visitors. Much of the literature
destinations for recreational fishing and scuba on artificial reef uses focuses on the
diving tourists (Baine 2001). In Florida, over expenditures of recreational diving and fishing to
380 existing vessels have been sunk to create oilrigs. In these studies, the economic
artificial reefs. To date, over 700 ships serve as expenditures (per person-day) by recreational
artificial reefs in the waters off the continental divers range from $64 in Southern California to
U.S. coastline. The majority of these ships are $119 for rigs in the Gulf of Mexico. Only one
found off the coast of Florida (380), New Jersey study, by Hess et al. (2001) has attempted to
(129), South Carolina (100), and New York (65). estimate the expenditures by recreational divers
Other states lag far behind in the creation of diving exclusively on ship-based artificial reefs in
artificial reef structures. For instance, while the United States. While Hess et al. (2001) do
steps have been made to increase the use of not provide per person expenditures, the authors
artificial reefs in California, the state has only ten do find that artificial reef sites based on sunken
ships currently in place as artificial reefs ships generate an average of $3.4 million in
intended for recreational diving. gross revenues annually. The expenditures of
divers visiting a variety of artificial reefs were as
Creating an artificial reef can be costly. The cost high as $193 for non-residents visiting artificial
to prepare a ship for reefing can range from reefs in Texas and $223 per person-day for
$46,000 to $2 million, depending on the size of visitors to reefs in Florida.
the vessel (Hess et al. 2001). While estimating
the costs of preparing and sinking a vessel for
placement as an artificial reef is a
straightforward task, predicting the benefits from
these reefs is more difficult. The beneficiaries of
artificial reefs are many; artificial reef users
include divers, anglers, and even homeowners
that enjoy shoreline protection from artificial
reefs. The benefits these users derive may not
be apparent in the market and include the value
of additional recreational opportunities and
Scuba diving at artificial reefs can
improved quality of these experiences (these are help enhance local economies!
often called non-market benefits). Further, the

2
 Creating Underwater Value: The Economic Value of Artificial Reefs for Recreational Diving

Table 1: Market Value (Expenditure) Estimates for Diving at Artificial Reefs

MARKET VALUE
AUTHOR LOCATION HABITAT TYPE Per Person-Day
($2004)
Hiett & Milon (2002) Gulf of Mexico Oil and Gas Structures $119

McGinnis et al. (2001) So. California Platform Grace (Oil Rig) $64

Ditton and Baker (1999) Texas Various types of artificial $184.68 for residents
Ditton et al. (2001) reefs $193.80 for non-residents
Bell et al. (1998) North West Flor- Ships, reef balls, and other $120.07
ida private and public artificial
reefs
Johns et al. (2003) South East Flor- Ships, reef balls, and other $223.26
ida private and public artificial
reefs
Wilhelmsson et al. (1998) Eliat, Israel Navy Ship $28

Brock (1994) Waikiki Surplus yard oiler $26-$60

Table 2: Non-Market Value Estimates for Diving at Artificial Reefs

NON-MARKET VALUE
AUTHOR METHOD LOCATION HABITAT TYPE Mean Per Person-Day ($2004)

STUDIES OF DIVING ON ARTIFICIAL REEFS

Ditton and Contingent Valuation: Texas Various types of 1. $74.93
Baker (1999) 1.dichotomous choice artificial reefs
Ditton et al. 2. open-ended 2. $44.46
(2001)

Bell et al. Travel Cost N. West Ships, reef balls, and $10.71
(1998) Florida other structures

Roberts et al. Contingent Valuation Gulf of Petroleum ($339.04 annually

(1985) Mexico Structures per diver)

STUDIES OF DIVING AND FISHING ON ARTIFICIAL REEFS

Johns, et al. Contingent Valuation S. East Ships, reef balls, and $5.45 (new artificial reefs)
(2003) Florida other private and pub- $15.73 (to maintain existing
lic artificial reefs artificial reefs)

Milon (1988) Contingent Valuation Florida Network of 7 different $29.04 to $42.77 per year
reefs from various
materials

Milon (1989) Contingent Valuation Florida Ships and steel $4.48 to 127.56 per year
debris

3
 Creating Underwater Value: The Economic Value of Artificial Reefs for Recreational Diving

Artificial reefs also represent a potentially large I. Introduction:

economic resource, even in areas where most Ships, planes and other large structures are
users are likely to live nearby. Local users, finding their way to the bottom of the sea along
especially local divers, benefit from the coasts in North America, Europe, Australia and
recreational opportunities provided by artificial elsewhere. While many purists see the scuttling
reefs. Even though recreational users don’t of ships and planes in coastal waters as
generate expenditures at the level of out-of-town something akin to dumping, more and more
visitors and tourists, the value they place upon coastal communities are turning to these
these resources is real. The studies surveyed structures as a means of protecting shoreline,
here estimate the per-person day non-market creating habitat for fish and sea life, and
value of recreational diving at artificial reefs providing new destinations for recreational
(Table 2). The units of reef value vary from study fishing and scuba diving tourists (Baine 2001).
to study and cannot always be made
comparable. Estimates include an estimate of
$5 per person-day for reef diving in Florida to an
estimate of $339 annually per diver for diving at
oilrigs in the Gulf of Mexico.

The potential economic value of a ship-based

artificial reef depends both on the value of a reef Concrete rubble is often used to
to the individual diver (which is a function of make artificial reefs. This pile was
diver interest, the quality of the artificial reef, placed by the San Diego Oceans
Foundation off the coast of
and substitute dive sites) and the number of Mission Beach in 1998.
divers that are expected to use an artificial reef.
Individual value, individual expenditures, and the
The scale and pace of sinking ships to create
numbers of visitors will vary by region. In
artificial reefs, especially reefs designed for
Southern California, for instance, the San Diego
recreational diving, is increasing rapidly. In
Oceans Foundation estimates that 10,000
Florida, over 380 existing vessels have been
divers made 26,000 visits to the Yukon artificial
sunk to create artificial reefs. In 2004 the U.S.S.
reef site between August 2002 and August
Spiegel, a 510-foot naval vessel, was sunk in the
2003. How do the values from the above
Florida Keys National Marine Sanctuary. To
studies transfer to the experience of the Yukon
date, over 700 ships serve as artificial reefs in
or other new and proposed ship-based artificial
the waters off the continental U.S. coastline.
reefs? Based on the studies surveyed here, we
The majority of these ships are found off the
could expect the Yukon to generate anywhere
coast of Florida (380), New Jersey (129), South
from $600,000 to over $2 million in local
Carolina (100), and New York (65) . Other states
expenditures annually. The non-market value of lag far behind in the creation of artificial reef
the Yukon could cover a similar range of values.
structures. For instance, while steps have been
made to increase the use of artificial reefs in
California, the state has only ten ships currently
4
 Creating Underwater Value: The Economic Value of Artificial Reefs for Recreational Diving

in place as artificial reefs intended for include divers, anglers, and even homeowners
recreational diving. that enjoy shoreline protection from artificial
reefs. The benefits these users derive may not
While the attention paid to artificial reef be apparent in the market and include the value
development has increased dramatically in the of additional recreational opportunities and
past decade, artificial reefs are not a modern improved quality of these experiences (these are
development. Two thousand years ago, the often called non-market benefits). Further, the
Greek geographer Strabo recorded that the market benefits produced by artificial reefs,
Persian Kingdoms built reefs across the Tigris including increased local expenditures and tax
River (Hess et al. 2001). In the US, artificial revenues, often are hard to identify.
reefs have been around for over 150 years; as
long ago as 1830 log huts were sunk off the To better understand the potential economic
coast of South Carolina to improve fishing (Hess benefits of artificial reefs, a number of studies
et al. 2001). What differentiates modern have been undertaken to estimate both the
artificial reefs from past reef making is the scale market and non-market values of artificial reefs.
and cost of artificial reefs and the potential In the late 1970s, studies began to quantify the
economic benefits that could be produced by the economic benefit of recreational fishing and
strategic placement and marketing of artificial diving on artificial reefs (Daniel 1976). Over
reefs. time, the accuracy and comprehensiveness of
these studies have grown to provide a more
complete picture of the potential economic
benefit of artificial reefs.

In the paper that follows, I review the literature

and assess the state of the art in the
quantification of the recreational values of
artificial reefs, especially the use of artificial
Creating an artificial reef can be a reefs by recreational divers. Recreational diving
costly endeavor ,however the
investment can be returned within is a rapidly growing industry and increasingly
just a few years. artificial reefs are being prepared, sunk, and
maintained for the express use of recreational
Creating an artificial reef can be costly. The cost diving.
to prepare a ship for reefing can range from
$46,000 to $2 million, depending on the size of II. Economic Values
the vessel (Hess et al. 2001). While estimating
the costs of preparing and sinking a vessel for
Artificial reefs offer economic benefits through
placement as an artificial reef is a
the enhancement of shoreline protection, fishery
straightforward task, predicting the benefits from
resources, and recreational fishing and diving
these reefs is more difficult. The beneficiaries of
opportunities. The values of these benefits are
artificial reefs are many; artificial reef users
difficult to quantify because they involve both

5
 Creating Underwater Value: The Economic Value of Artificial Reefs for Recreational Diving

market and non-market values. The market Travel cost methods use real diver behavior to
impact of a reef resource usually is assessed by estimate the consumer surplus of recreational
examining how much money artificial reef users diving, but the method can only estimate the
contribute to the local economy by spending value of current uses by non-resident divers.
money to participate in activities on the reef When travel cost methods are inappropriate,
(such as recreational fishing and diving). authors have used contingent methods to place
Commonly, the focus of market-based studies is values on artificial reef maintenance or
on gross expenditures with fewer studies abundance. Specifically, several authors use
focusing on profits or taxes. While gross contingent valuation methods to ask divers to
expenditures do not represent total benefits to place a value on their current recreational use of
the economy, gross expenditures do capture the a) existing artificial reefs and/or b) proposed
magnitude of importance that artificial reefs may new artificial reefs. Contingent valuation
have in the overall local economy. Further, gross methods can be applied to both resident and
expenditures represent the base upon which tax non-resident divers.
revenues can be generated.
Below I summarize studies that provide
The non-market value of reef use is more estimates of both market values (expenditure)
difficult to determine than market values. Non- and non-market values associated with
market values represent the value reef users recreational uses of artificial reefs. Most of the
place on a reef, beyond what they have to pay to studies focus on sunken ships or oilrigs. It is
use the reef. Non-market values are often important for the reader to note that the
associated with outdoor recreational resources, methods for finding these market and non-
especially those resources that local users can market values often differ between studies. In
enjoy with relatively little out of pocket expenses. the following I provide these estimates (all
Beaches, parks, and even natural dive sites have converted to US$ in 2004) with brief
been shown to generate substantial economic explanations of the basic methods. Further,
value to local communities beyond the when possible, I break down the value estimates
expenditures generated by these resources (see based on the value per visitor per day. By doing
Cesar 2000 and Pendleton 1995). The National so, I hope the reader will be able to better
Ocean Economics Project understand how these values may compare to
(www.oceaneconomics.org) now lists over one the values generated by artificial reefs beyond
hundred forty studies that provide estimates for those in the studies.
the non-market value of ocean and coastal
resources in the United States. In the literature, THE ECONOMIC VALUE OF RECREATIONAL DIVING AT
two primary methods are used to estimate the ARTIFICIAL REEFS
non-market value of artificial reefs. Travel cost
methods are used to estimate a demand curve
While much of the literature focuses on the
for recreational diving to artificial reefs by
economic value of recreational angling and
modeling the influence of travel cost and travel
diving combined, many of these studies also
time on the frequency of visitation by divers.

6
 Creating Underwater Value: The Economic Value of Artificial Reefs for Recreational Diving

provide data on the independent value of spend more than $14 million in Northwest
artificial reefs for recreational diving. Two Florida. Johns et al. find even higher levels of
studies estimate the expenditures associated expenditures by scuba divers and snorkelers
with recreational scuba diving at oilrigs. Hiett & visiting artificial reefs in South East Florida. On
Milon (2002) surveyed divers visiting offshore oil average across the four southern counties in
and gas structures in the Gulf of Mexico; the Florida, the authors estimate the per person-day
authors calculate that the average per person- expenditures at $223.26 for a total of $118
day expenditures at artificial reefs in Alabama, million.
Mississippi, and Louisiana was $119, and total
annual value for the three states combined was Artificial reefs also generate substantial non-
over $7.4 million. Following a similar approach market values (Table 2). Roberts et al. (1985)
in California, McGinnis et al. (2001) calculate use contingent valuation methods to estimate
the average per person-day expenditures of the mean annual per diver non-market value of
divers visiting oil rigs to be $64, with a total oilrig diving in the Gulf of Mexico to be $339,
annual value of $10,700. with a total annual value ranging from $905,216
to $1,264,640. Other studies provide estimates
Expenditures by divers visiting artificial reefs are of per person-day non-market values. Bell et al.
similar to divers visiting oilrigs (see Table 1). (1998) use both travel cost and contingent
Hess et al. (2001) provide gross revenue valuation methods (specifically Turnbull and
estimates for a variety of artificial reef sites Dichotomous Choice analyses) to estimate a per
made from sunken ships. The authors find that person-day non-market value of $10.07. Ditton
these reef sites, located around the world, and Baker (1999) estimate the non-market
generate an average of $3.4 million annually. value of diving in Texas waters, for divers that
Ditton et al. (2001) and Ditton and Baker (1999) visited at least one artificial reef in the past year,
find that non-resident divers who visited an to be between $44.46 and $74.93 per person-
artificial reef on at least one dive trip each year day for non-residents. The values estimated by
spent just over $193 per person-day on their Ditton and Baker, however, are not exclusively
last trip to a dive site in coastal Texas waters; for artificial reef divers.
residents spent over $184 per person-day.
Brock (1994) surveyed a dive-tour operator in Non-Market Values: Mean Annual Per Diver Value
Hawaii who conducted trips exclusively on a
$ 2 million
surplus yard oiler and calculated the total gross
$600,000 to $2 ,000,000

$ 1.5 million
annual income generated by these trips to be $ 1 million
$905,216 to $1,264,640

$ 800,000
$494,840. Bell et al. (1998) also provide a $ 500,000
break down of expenditures per person-day for
divers visiting artificial reefs in Northwest
Florida. The authors find that divers spend
$120.07 per person-day, a value that lies within
the range of the other studies; together, resident
and non-resident divers visiting artificial reefs Gulf of Mexico Oil Rigs Yukon in CA

7
 Creating Underwater Value: The Economic Value of Artificial Reefs for Recreational Diving

In many cases, recreational divers also are the use value for natural reefs was $18.58
recreational anglers or spearfishers; so it is compared to the value for artificial reefs that
difficult to apportion the value of a reef visit to was $15.73. In addition to the higher
either use. Three studies, focusing on two willingness to pay for natural reefs, the Johns
major regions in Florida, provide estimates for et al. study also shows that in most counties in
the non-market values for recreational fishing Florida, the percent of dives conducted on
and diving at artificial reefs; all studies focus natural reefs was much higher than that of
primarily on artificial reefs generally, including dives conducted on artificial reefs. In an
reefs created by sinking ships, reef balls, and unpublished manuscript (personal
other types of non-native structures. Table 2 communication), Ditton also finds that artificial
includes non-market value estimates for the reefs are not as highly valued as natural reefs;
major studies that estimate economic values Ditton estimates the per trip value for artificial
for combined recreational angling and diving reefs is $76 lower than that of natural reefs
uses at artificial reefs. ($114 and $190 respectively). It should be
noted the studies by Johns et al. and Ditton
Johns et al. (2003), and Milon (1988 and were conducted in the waters off the coast of
1989) estimate values for recreational diving Florida where divers may chose from both
and fishing in Florida ranging from $5.45 to natural and artificial reefs. In these cases, reef
$46.76 per person-day. The Johns et al. study diving opportunities are not as scarce as in
estimates the value of maintaining artificial other locations (e.g. Southern California or the
reefs and creating new artificial reefs; the Mid-Atlantic United States). Where reef diving
authors conclude that the non-market use opportunities are scarce, it is likely that the
value per-person day for maintaining artificial non-market value of artificial reefs will be
reefs was $15.73, while the expected use relatively higher. To date, however, there are
value for creating new artificial reefs was only few studies that examine the non-market value
$5.45; the finding suggests that there are for artificial reefs in areas where natural reefs
declining marginal returns to increasing the are limited or completely absent.
supply of reefs in an area in which both natural
and artificial reefs already were abundant. III. CONCLUSION
Milon (1989) also estimates the economic
value of new artificial reefs, what the author The economic value of recreational diving at
calls “option” values.” Milon finds that artificial reefs is substantial. Scuba diving at
estimates for the option value of new artificial artificial reefs generates market impacts that
reefs range from $4.48 to $127.56 per visitor help to sustain local economies and provide
per year, depending on the method used. new tax revenues, especially in areas where
scuba diving tourism draws out-of-town visitors.
At least two studies find that artificial reefs are Much of the literature on artificial reef uses
not perfect recreational substitutes for natural focuses on the expenditures of recreational
reefs. Johns found a preference among diving and fishing to oilrigs. In these studies,
boaters, fishers, and divers for natural reefs; the economic expenditures (per person-day) by
8
 Creating Underwater Value: The Economic Value of Artificial Reefs for Recreational Diving

recreational divers range from $64 in Southern on ship-based artificial reefs in coastal Florida.
California to $119 for rigs in the Gulf of Mexico. Clearly there is a need to know more about the
Only one study, by Hess et al. (2001) has economic impacts of the more than 300 ship-
attempted to estimate the expenditures by based artificial reefs in place around North
recreational divers diving exclusively on ship- America, but outside of Florida. The potential
based artificial reefs in the United States. economic value of a ship-based artificial reef
While Hess et al. (2001) do not provide per depends both on the value of a reef to the
person expenditures, the authors do find that individual diver (which is a function of diver
artificial reef sites based on sunken ships interest, the quality of the artificial reef, and
generate an average of $3.4 million in gross substitute dive sites) and the total number of
revenues annually. The expenditures of divers divers that are expected to use an artificial reef
visiting a variety of artificial reefs were as high site. Individual value, individual expenditures,
has $223 per person-day for visitors to reefs in and the total numbers of visitors will vary from
Florida. region to region. In Southern California, for
instance, the San Diego Oceans Foundation
Artificial reefs also represent a potentially large estimates that 10,000 divers made 26,000
economic resource, even in areas where most visits to the Yukon artificial reef site between
users are likely to live nearby. Local users, August 2002 and August 2003. The Yukon cost
especially local divers, benefit from the more than $400,000 to acquire, prepare and
recreational opportunities provided by artificial sink and costs more than $1,000 annually for
reefs. Even though recreational users don’t basic maintenance. Was it worth it? How do the
generate expenditures at the level of out-of- values from the above studies transfer to the
town visitors and tourists, the value they place experience of the Yukon or other new and
upon these resources is real. The studies proposed ship-based artificial reefs? Based on
surveyed here estimate the per-person day the studies surveyed here, we could expect the
non-market value of recreational diving at Yukon to generate anywhere from $600,000 to
artificial reefs ranges from $5 per person-day over $2 million in local expenditures annually.
in Florida to $339 annually per diver for diving The non-market value of the Yukon could cover
at oilrigs in the Gulf of Mexico. The non-market a similar range of values.
value of artificial reefs to local divers may
explain the increasing role of diver-based “not The findings of Johns et al. suggest that while
for profit” organizations in the creation of new the value of existing artificial reefs is large, the
artificial reefs. value of additional artificial reefs will decline as
artificial reefs become more common.
Admittedly, our base of knowledge regarding Conversely, the value of new reefs in areas
the economic value of dive recreation at ship- where natural reefs are scarce could be
based artificial reefs is still immature. In the substantially higher than the values estimated
published literature, only a handful of studies for reefs in Florida and Texas. In the short-
examine the economic impacts of ship-based term, new artificial reefs will yield the highest
artificial reefs and most of those studies focus values in places where scuba diving tourism is

9
 Creating Underwater Value: The Economic Value of Artificial Reefs for Recreational Diving

References

Baine, M. 2001. Artificial reefs: a review of their design, application, management and performance.
Ocean & Coastal Management 44: 241-259.

Bell, F., Bonn, M., and Leeworthy, V. 1998. Economic Impact and Importance of Artificial Reefs in
Northwest Florida. NOAA Paper Contract Number MR235.

Brock, R. 1994. Beyond Fisheries Enhancement: Artificial Reefs and Ecotourism. Bulletin of Marine
Sciences 55(2-3): 1181-1188

Cesar, H. S.J. 2000. Collected Essays on the Economics of Coral Reefs, pp. 250, CORDIO, Kalmar
University, Kalmar, Sweden.

Daniel, D.L., 1976. Empirical and theoretical Observations on the Potential Economic Benefits and
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Ditton, R.B. and T.L. Baker. 1999. Demographics, Attitudes, Management Preferences, and
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Ditton, R. B., Thailing, C.E. Riechers, R. and H. Osburn. 2001. The Economic impacts of sport divers
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Ditton, R. personal communication. Valuing Recreational SCUBA Diving Use of Natural and Artificial
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Johns, G., Leeworthy, V., Bell, F., and M. Bonn. 2003. Socioeconomic Study of Reefs in Southeast
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McGinnis, M. Fernandez, L. and C. Pomeroy. 2001. The Politics, Economics, and Ecology of
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Milon, J.W. 1988. The Economic Benefits of Artificial Reefs: An Analysis of the Dade County, Florida
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Florida Sea Grant College; no. 90

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 Creating Underwater Value: The Economic Value of Artificial Reefs for Recreational Diving

References cont.

Milon, J.W. 1989. Contingent valuation experiments for strategic behavior. Journal of Environmental
Economics and Management. 17: 293-308.

Pendleton, L. 1995. "Valuing Coral Reef Protection." Ocean and Coastal Management. 26: 119-131

Roberts, K. Thompson, M., and Pawlyk, P. Contingent Valuation of Recreational Diving at Petroleum
Rigs, Gulf of Mexico. Transactions of the American Fisheries Society 114: 214-219.

Wilhelmsson, D., Ohman, MC, Stahl H, Shlesinger Y 1988. Artificial Reefs and Dive Tourism in Eilat,
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