Ecological Economic Modeling of Coral Reefs:
Evaluating Tourist Overuse at Hanauma Bay and
Algae Blooms at the Kihei Coast, Hawai'i
1
Pieter J. H. van Beukering
2
and Herman S. J. Cesar
2
,3
Abstract: In this paper we present the first ecological economic model of coral
reefs in Hawai'i. This model contains the main elements required to assess the
full picture of coral reef management and thereby enables scientists and man 
agers to evaluate ecological and economic impacts effectively. The model is ap 
plied to two case studies, tourist overuse in Hanauma Bay, O'ahu, and algae
blooms along the Kihei coast, Maui. The Hanauma study showed that visitors
are willing to pay much more for their experience (around $10) than they are
currently doing and that the net benefits ofthe education program (around $100
million) greatly exceed the cost of the program (around $23 million) over time.
The Kihei coast study concluded that the algae problem causes large losses of
real estate value and hotel business and that mitigation could result in benefits of
$30 million over time. This would justify major investments in lowering nutri 
ent discharges in the coastal zone.
ALL OVER THE world, anthropogenic distur 
bances have been linked to the vast majority
of decreases in coral cover (Birkeland 1995).
In Hawai'i, one of the largest threats to coral
reefs is human expansion and economic de 
velopment (Clark and Gulko 1999, Gulko et
al. 2001). Whether it is direct sedimentation
onto the reef, or an increase in the turbidity
of the water due to eutrophication, or in 
creases in the amounts of nutrients that en-
1 This publication is a result ofresearch funded by the
National Oceanic and Atmospheric Administration
(NOAA), Coastal Ocean Program, under awards
NA870A0381, NA960P0187, NA060A0388, and
NA160AI449 to the University of Hawai'i for the
Hawai'i Coral Reef Initiative Research Program. This
paper is a summary of components of Cesar et al. (2002).
Manuscript accepted 27 May 2003.
2 Institute for Environmental Studies, Vrije Univer 
siteit, Boelelaan 1087, 1081 HV, Amsterdam, The Neth 
erlands (phone: +31-20-4449555; fax: +31-20-4449553;
E-mail: beukering@ivrn.vu.nl).
3 Cesar Environmental Economics Consulting, Kas 
tanjelaan 9, 6828 GH, Arnhem, The Netherlands
(phone: ++31-26-4452175; fax: ++31-26-7502451;
E-mail: herman.cesar@ivrn.vu.nl).
Pacific Science (2004), vol. 58, no. 2:243-260
? 2004 by University of Hawai'i Press
hance the growth of other reef organisms, all
these impact on coral health.
The interaction between ecological and
economic processes is complex. Yet, it is
often this interaction between the two di 
mensions that is crucial to our understanding
of why coral reefs are degrading and how
such degradation can be prevented. There 
fore, there is an urgent need for a more
systematic approach to the integration of
ecological and economic processes.
To effectively evaluate the complex in 
terface between reef-related ecological and
economic processes, simulation modeling can
playa useful role. Modeling techniques allow
for systematically structuring the multifaceted
web of ecological and economic relationships
while providing quantification of the exam 
ined scenarios. The objective of the study is
threefold: (1) to develop an ecological eco 
nomic model of the coral reefs of Hawai'i;
(2) to apply the model to specific selected
case study areas; and (3) to determine the
economic costs of reef degradation and to
compare costs and benefits of various man 
agement options that aim to reverse the
trends in these case study areas.
To demonstrate the developed model, two
case studies were selected within the region of
the main Hawaiian Islands (Figure 1): Ha-
243
244
o
NI"h.~
Lan??~
MOIOklnl"
KahO'olawec::::.1
.....------.....,
Kihei Coast,
Maui
FIGURE 1. The main Hawaiian Islands and the selected case studies.
PACIFIC SCIENCE? April 2004
Hanauma Bay,
Oahu
nauma Bay (O'ahu), addressing tourist over 
use, and Kihei (Maui), addressing excessive
nutrients and algae blooms.
MATERIALS AND METHODS
The Model
A simplified dynamic simulation model has
been developed to deal with the environ 
mental and economic complexities that sur 
round coral reefs in Hawai'i. This integrated
model, referred to as SCREEM (Simple
Coral Reef Ecological Economic Model),
links ecology and economy in a dynamic
manner. SCREEM incorporates the relevant
ecological economic relations by following
pathways linking the type of coral reef eco 
system and its uses and location with the
physical goods and services provided by this
reef type and the economic value of these
values. The model was developed with the
software package VENSIM (2000). A con 
ceptual version of an ecological economic
model for coral reef decision making was
presented by Gustavson et al. (2000).
Ecological Economic Modeling of Coral Reefs . van Beukering and Cesar 245
Step 1.
Ecological
description
Ecosystem
Module (year 1)
State of the reef
(year 1)
Ecosystem
Module (year >1)
Economic benefits
of reef (year 1)
Financial costs of
intervention (year>1 )
Economic benefits
of reef (year >1)
~
Economic
effects
Step 4.
Threats
~
Economic
description
Step 3.
Economic
valuation
Step 5.
Ecological
effects
~
vtanagement
intervention
StepB.
Evaluation
Benefit-cost ratio
of management
interventions
FIGURE 2. General framework of the dynamic simulation model.
Figure 2 highlights the key features of this
model and the interactions between different
ecological and economic components. It also
shows the threats and their impact on eco 
logical factors, as well as the necessary inter 
ventions required to mitigate these threats.
Finally, the associated costs and benefits of
the interventions are displayed. The model
uses a 50-yr period (2000-2050); this allows
enough time for the main ecological out 
comes to come into effect while being short
enough to allow for predictions about future
developments. For a general discussion on
time horizons in environmental economics,
see Pearce and Turner (1990).
Step 1 combines the five main ecological
indicators (coral cover, coral biodiversity, fish
stock, fish biodiversity, and macroalgae cover)
into one composite "state of the reef" in 
dicator. Step 2 of the model describes the
various reef ecosystem functions, which are
translated into reef-associated goods and ser-
246
vices to Hawai'i society. The goods and ser 
vices here are fisheries, tourism, amenities,
and biodiversity, although the model can be
adjusted easily to incorporate additional func 
tions and goods and services (Moberg and
Folke 1999).
Each of these goods and services has as 
sociated economic benefits. The value of the
sum of compatible uses of these goods and
services forms the total economic value of
coral reef ecosystems (e.g., Spurgeon 1992,
Barton 1994, Costanza et al. 1997). The pro 
cedure of calculating the total economic value
of different coral reefs in Hawai'i is explained
in detail in Cesar and Van Beukering (2004,
this volume). In this article we limit ourselves
to explaining the main features of SCREEM
and to presenting the case study results. In
the following, the model is presented in sep 
arate modules that are interrelated. These
modules include ecology, tourism, amenities,
and biodiversity. Because the two case studies
lack substantial benefits and dynamics of
fisheries, the fishery module is not specifically
addressed in this article (see Friedlander and
Parrish [1998] and the literature quoted
there).
ECOLOGICAL MODULE. The complexity of
the ecology of coral reefs makes it difficult to
model these processes in a realistic manner.
To simulate the numerous interdependencies
and the multiple threats to coral reefs re 
quires a huge modeling effort with enormous
data needs. Even then, it leaves us with large
scientific uncertainties. On the other hand,
ignoring the ecological processes in the anal 
ysis is also undesirable. Therefore, we have
developed an ecological module in SCREEM
on the basis of existing knowledge and litera 
ture. The basic structure of this model is
shown in Figure 3.
SCREEM is designed to simulate various
different types of threats to the Hawaiian
coral reefs. In the two case studies described
here we particularly focus on two threats
(Grigg and Dollar 1990). In the Hanauma
Bay case study, we look specifically at the
threat of tourism overuse. (Uncontrolled
tourist development can lead to physical de 
struction of coral through trampling, contact
with divers, and anchor damage.) The case
PACIFIC SCIENCE? Apri12004
study in KIhei focuses on the combination of
excess nutrients, runoff, and coastal harden 
ing, thought to be some of the main causes of
the algae blooms in North KIhei. (Insufficient
sewage treatment can lead to excess nutrients
that stimulate algae growth, which can over 
grow the corals. This problem is particularly
acute close to estuaries of rivers and urban
centers [Rogers 1990].) To understand the
impact of the individual threats a literature
review was conducted (see Cesar et al. [2002]
for more details). From this review relation 
ships were estimated between the threats and
the different ecological indicators of the coral
reef.
SCREEM addresses five ecological indi 
cators that represent the most important en 
vironmental characteristics of a coral reef.
These are coral cover, coral biodiversity, fish
stock, fish biodiversity, and macroalgae cover.
These variables are exogenously determined
for the first year of the analysis and develop
endogenously over time. To present these
ecological indicators in a workable manner,
and to connect them to the economic mod 
ules, a composite indicator is constructed:
"the state of the reef" indicator.
The following sequential stages take place
in the ecological module. First, the individual
ecological indicator scores are normalized
into a score between 0 and 1. For example, in
a site where the maximum coral cover is 60%
and the minimum is 0%, these levels are de 
fined as 1 and 0, respectively. A coral cover of
30% is then interpolated linearly with a score
of 0.5. The relationship between the normal 
ized score and the indicator is called the value
function. Although this function can have
different shapes, in our model this function is
assumed to be linear. Second, the normalized
individual scores are aggregated by attaching
weights to the indicators that represent the
relative ecological importance of the indica 
tor as compared with the other indicators. In
Hawai'i the following weights have been ap 
plied: coral cover (30%), coral biodiversity
(20%), fish stock (20%), fish biodiversity
(15%), and macroalgae cover (15%). These
weights are based on expert judgments. Fi 
nally, the behavior over time of the "state
of the reef" indicator, which by definition
Ecological Economic Modeling of Coral Reefs . van Beukering and Cesar 247
Ecological i
threats I
//------..................
I Reproductive '
" Capadty /1
........... _/
------
._ .._.. _.. _.. _.. _.. _._ .. _.. _.._.. _."
Ecological
valuation
Ecological 1
indicators i
1
I
i
1
1
i
i
!
i
1
i
i
i
=.=---...,.,..,... _=:".::-:'._ .? _ .. _ ?? _ .. _ .. _ .. _ .. _ .. _.,
/"-------..........
I Resilience '
" Coral /
.......... _/
------
Algae
cover
L .. _ .._. _ .. _ .. _ .. _ .. _ .. _ ..=_'"".. _=-. --.".=
1'-"-'-"-"- ._.. _ .. _ .. _ .. - .. - .. - .. -
Ecological
valuation
r"-"-"-"-"-'-"-"-"-"-'-"-"-"-"-"-"-"-'.-.. -._.. _.. _.. _.. _._.. - .. _.. _.. _.. _.
Ecological
threats
r"-"-'-"-
I Ecological
: indicators
I
1
1
1
1
1
1
I
I
1
i
I
Value functions
FIGURE 3. Ecological module.
moves between a score of 0 and 1, is deter 
mined. The three stages fall within the eco 
logical module. The modules discussed next
address processes that fall within the bound 
aries of the economy.
TOURISM MODULE. Some 200,000 divers
and more than 3 million snorkelers enjoy the
Hawaiian reefs every year. They pay a sub 
stantial amount in direct and indirect ex 
penditure to admire the unique marine life.
Thereby they support a large aquatic tourist
industry. In 2002, more than 100 dive and
snorkeling operators were registered in Ha 
wai'i, earning between $50 and 60 million per
annum. But the recreational expenditures re 
lated to coral reefs extend much further than
direct dive- and snorkel-related revenues. Bus
and taxi drivers bring tourists to popular des 
tinations such as Hanauma Bay, and hotels
lodge these same tourists and restaurants feed
them after a long day in the water. Therefore,
calculating the recreational benefits involves
much more than simply adding up the value
added of the dive and snorkel industry. In
fact, it involves calculating producer surplus
for both direct and indirect expenditure
as well as consumer surplus. This is de 
scribed in detail in this issue in Cesar and Van
Beukering (2004).
To determine the dynamics of the recre 
ational benefits, prices and quantities for 2001
were fed into the model. Figure 4 shows the
overall structure of the tourism module. An
important assumption in the model is the re-
248
FIGURE 4. Tourism module.
lationship between the growth rate and the
"state of the reef." Both the dive industry
survey and the diver and snorkel survey indi 
cated the dependency of marine activities on
the quality of coral reef ecosystems. If the
quality of the reef worsens further over time,
fewer tourists will decide to go snorkeling or
diving. In fact, the growth rate may even be 
come negative at a certain given quality level
ofthe coral reefs. The last step in the tourism
module is the summation of the consumer
and producer surplus for both the diving and
snorkeling activities into the total recreational
value.
PACIFIC SCIENCE? April 2004
AMENITY MODULE. Houses, hotels, and
condominiums in the vicinity of a healthy
marine system are generally more valuable
than comparable properties elsewhere. This
surplus value of houses and hotel rooms in
the vicinity of healthy marine systems has
been measured through a survey that we car 
ried out. Combining this with the number of
the residential houses, condominiums, and
hotel rooms leads to a positive amenity value
attributable to a healthy coral reef. On the
basis of the expert judgment of real estate
agents we assumed that 1.5% of the sale price
of the properties is attributable to the coral
reefs. This is shown by the outer part of Fig 
ure 5.
In the case of a negatively impacted coral
reef ecosystem, such as seen at North Kihei
in Maui, this positive value will be much
lower. The macroalgae problem on the Kihei
coast is believed to cause a negative impact on
property values of the affected condominiums
as well as the rental prices and vacancy rates
in transient accommodations. Therefore, in
addition to the positive value attributed to the
beneficial aspects of a coral reef, negative im 
pacts are occurring as a result of the coral 
linked algae problem. This additional nega 
tive impact on the amenity value is indicated
in Figure 5 by the shaded segment.
State of the reef
.-------- Macro-algae problems ----
FIGURE 5. Amenity module.
Ecological Economic Modeling of Coral Reefs . van Beukering and Cesar
State of the reef
249
Number
of residents
and tourists
WTP
of residents
and tourists
Probability
of discovery
Potential
value of
discovery
FIGURE 6. Biodiversity module.
BIODIVERSITY MODULE. The existence of
a great number of endemic species makes
the Hawaiian coral reefs a unique natural
resource. This reef biodiversity aspect gen 
erates economic benefits. Figure 6 shows the
main components of the so-called biodiver 
sity module. These include the scientific or
research value, the nonuse value, and the
bioprospecting value.
The bioprospecting value refers to the
revenues pharmaceutical companies may be
able to retrieve from the diverse genetic pool
contained by the Hawaiian coral reef. Be 
cause no company is currently active in this
field, we do not consider this value for the
Hawaiian context.
The research value is determined in a
rather straightforward manner. All research
budgets that are assigned to coral reef eco 
systems in Hawai'i are included in this value
category. To this end, a brief survey was per 
formed in Hawai'i to determine the annual
budget for reef-related research in 2001.
Nonuse values are based on the fact that
people are willing to pay some amount of
money for a good or service they currently do
not use or consume directly. In the case ofthe
Hawaiian coral reefs they are currently not
visitors, yet they derive some benefit from the
knowledge that the reef exists in a certain
state and are willing to pay a certain amount
of money to ensure that actions are taken to
keep the reef in that state. The nonuse data
applied here are discussed in this issue by
Cesar and Van Beukering (2004).
Case Studies
Two case studies were selected within the
region of the main Hawaiian Islands. Crite 
ria that were used for the selection are both
practical and more economic. Practical crite 
ria include the location (i.e., even distribution
among the Islands), the reef type (i.e., varia 
tion of ecosystems), type of threats (i.e., vari 
ation of threats addressed [see individual case
250
studies]), data availability (i.e., how to access
the data), and representativeness (i.e., can
the case studies be used for extrapolation
Hawai'i-wide). Economic criteria refer to
whether the case studies address a range of
benefits such as snorkeling, diving, fisheries,
coastal protection, and biodiversity. The se 
lected case studies were at Hanauma Bay
(O'ahu), addressing tourist overuse, and the
KIhei coast (Maui), addressing excessive nu 
trients and algae blooms.
TOURIST OVERUSE AT HANAUMA BAY,
O'AHU. Hanauma Bay is the remnant of the
inside of a large volcano, whose crater partly
collapsed into the sea. The bay is located
southeast of Waikiki on O'ahu and is one of
the most heavily used marine reserves in the
world. The Hanauma Bay Marine Life Con 
servation District (MLCD), established in
1976, was the first MLCD in Hawai'i. Reef
monitoring showed an average coral cover
of 25.8% at 3-m depth and 27.0% at lO-m
depth. Macroalgae coverage was very low, at
around 2%, and percentages of crustose cor 
alline algae and turf algae were high. Fishes
were abundant, with densities of 417 fishes
per 125 m
2
at 3 m and 630 fishes per 125 m
2
at 10 m.
In the late 1980s, Hanauma Bay was being
almost "visited to death," with 13,000 visitors
a day at peak times. These crowds stirred up
sediment, disturbed and trampled the coral
and algae, dropped trash, fed the fishes, and
left a slick of suntan lotion on the bay's sur 
face. To decrease these impacts, the number
of visitors was reduced by limiting the entry
of cars to the parking lot. Also, a Hanauma
Bay Educational Program (HBEP) was set up
to improve the marine awareness of visitors.
A $3 admission fee is charged to non-Hawai'i
residents over the age of 13, as well as a $1
parking charge per car. These fees, together
with shop concessions, give Hanauma Bay a
solid financial base.
ALGAE BLOOMS ON THE KIHEI COAST,
MAUL Algae blooms have been a recurring
problem on reef flats off the southern and
western coasts of Maui for many years. This
has caused substantial, but localized, distur 
bance to the beach front, in terms of both its
unattractive appearance and unpleasant odor.
PACIFIC SCIENCE? April 2004
Potential contributing factors include waste 
water discharge, leaching of injection wells,
storm water and agricultural runoff, and golf
course runoff. This leads to nutrient enrich 
ment of the shallow reef area, which can
cause phytoplankton blooms. These blooms
limit the amount of sunlight reaching stony
corals, thereby affecting their health. The
major algal blooms occur in the North KIhei
area, which has an algae cover of over 50%.
Algae cover in South KIhei, which has not
had such problems, is estimated at around
5%. The North KIhei algae problem is both a
costly nuisance and a direct biological threat
to local coral resources.
RESULTS
The results of the two case studies have
two dimensions. On the one hand, the case
studies involved elaborated field surveys
aimed at revealing a particular economic as 
pect (i.e., tourist value, amenity value) of the
coral reef at that site. This survey generated a
snapshot of a particular value at a particular
time (see Field Survey under each case study).
Next, the possible changes of these values
over time were simulated with the SCREEM
model. The results of this exercise are pre 
sented in Scenario Analysis under each case
study.
Hanuama Bay
FIELD SURVEY. Little is known about the
behavior and perception of divers and snor 
kelers in Hawai'i. Tabata and Reynolds
(1995) reported on the diving industry in
1990 from a macro perspective. The profile
of divers and snorkelers in Hawai'i has never
been systematically studied. To fill this gap, a
survey was conducted in late 2001 and early
2002. Cesar et al. (2002) provided a full over 
view of the survey. The main purpose of the
survey was to determine the average profile
of each user group in terms of actual expen 
diture directly attributable to the diving or
snorkeling trip, the consumer surplus for this
experience, and the willingness to pay for a
healthier marine environment.
Ecological Economic Modeling of Coral Reefs . van Beukering and Cesar 251
70.00
60.00
50.00
'2
0
~
~
40.00
~
en
2-
30.00
(I)
::l
iii
>
20.00
10.00
Resident - snor1<ellers & Visitors- Snorkellers
divers
II Real expenditure ? Normal consumer surplus
Visitors - Divers
o Environmental surplus
FIGURE 7. Allocation of real expenditures, consumer surplus for the same experience, and the surplus payment for a
better marine environment.
The sample population was the active user
group of coral reefs in Hawai'i. In total 50
divers and 260 snorkelers were interviewed.
In addition, 150 nonusers were surveyed us 
ing a short version of the interview to inves 
tigate differences in perception between users
and nonusers. At Hanauma Bay 152 inter 
views were conducted. Of these, 97 surveys
were self-administered (i.e., respondents were
handed surveys that they filled out and re 
turned to the interviewer). Further details on
the content of the survey are provided in this
issue by Cesar and van Beukering (2004).
The results of this evaluation are shown in
Figure 7. The real expenditures provide a
predictable pattern. Residents generally spend
much less on their dive or snorkel because
they often have their own gear and also have
less transportation costs to access the site.
The consumer surplus for the same experi 
ence, without any environmental changes, is
also largely as expected. Figure 7 shows that
these are proportional to the real expendi 
tures of the different user groups.
To determine the environmental compo 
nent of the willingness to pay question, the
consumer surplus was subtracted from the
willingness to pay value obtained for a health 
ier marine environment. The surprising re 
sult is that the environmental component is
much larger for the snorkeler ($2.69 per
snorkeling trip) than for the diver ($0.44 per
dive). One would expect the more advanced
diver to have a higher willingness to pay to
protect the marine environment than the
snorkeler. An explanation for this surprising
result is that divers already have high costs
and may therefore be less willing to increase
their expenditures solely for the sake of ma 
rine conservation. Another explanation is that
divers, who are generally more acquainted
with marine protection than snorkelers, are
more skeptical about the effectiveness of ma 
rine conservation programs. Residents have a
252
relatively high willingness to pay for marine
conservation ($2.86), most likely because they
feel more affiliated with their own reefs than
the visitors do.
Next, the interviewer asked the respon 
dents whether it is reasonable to insist that
scuba divers and snorkelers pay a fee for ma 
rine preservation. Only 22% of the respon 
dents felt that it was not the responsibility of
the users of the coral reef to keep it in proper
shape. They felt it was a responsibility of the
state to do this. The majority of the respon 
dents, however, felt that divers and snorkelers
should also, in one way or another, be held
responsible for the costs of marine conser 
vation, thereby supporting the polluter pays
principle. Typically, from the response of the
subgroups, divers are more reluctant to take
responsibility than snorkelers. One of the
reasons for this reluctance is that they per 
haps feel that their contribution to the overall
problem of reef degradation is limited.
In summary, the survey shows that the
users ofcorals reefs in Hawai'i, and Hanauma
Bay in particular, are willing to pay much
more for their diving or snorkeling expe 
rience than they are currently doing. The
argument that implementing a user fee or in 
creasing a user fee by a limited amount (e.g.,
$1 or $2 per experience) would discourage
the user from pursuing their activities there 
fore seems unjustified. In fact, many users feel
that it is reasonable to ask for a contribution
from the users because they are also partly
responsible for the damage done to the reef.
The admission fee to Hanauma Bay could
therefore be even as high as $10 without
having a notable impact on visitor numbers.
However, from the viewpoint of equity such a
high entry fee may be less desirable.
SCENARIO ANALYSIS. The main goal of
the Hanauma Bay case study was to deter 
mine the value of the reef at Hanauma Bay
and to evaluate the effectiveness of the in 
vestment in the education center there in
terms of costs and benefits. To answer these
questions, the SCREEM model was applied.
When determining the value of coral reefs
at Hanauma Bay, the main question is what
future conditions to take into account. The
economic value with a specific intervention,
PACIFIC SCIENCE? April 2004
such as the implementation of a compulsory
education program, is most likely to be very
different than the value without an interven 
tion. Therefore we analyzed two distinct sce 
narIOS:
(1) With education: The visitors to Ha 
nauma Bay pay their entry fee, pass the edu 
cation stands, and watch a compulsory short
film that describes the coral reefs in Hawai'i
and explains how visitors can help to mini 
mize their impacts on the reefs. It is antici 
pated that physical damage and fish feeding
will be considerably less in this scenario.
(2) Without education: The visitors to
Hanauma Bay pay their entry fee but bypass
the education stands and are not exposed to
the film about coral reefs. Physical damage
to the reef caused by standing on the reef and
fish feeding will continue to occur.
The main economic effects in the Ha 
nauma Bay case study are (1) an increase in
satisfaction ofvisitors to the bay, (2) the posi 
tive fishery spillover effect, (3) an increase in
biodiversity value derived from a healthier
coral reef, and (4) the so-called education
spillover effect. This education spillover effect
refers to the fact that the snorkelers and
divers of Hanauma Bay go snorkeling on
average at two or three other locations in
Hawai'i and therefore also behave better in
those other reef areas. Education thus not
only benefits Hanauma Bay itself but also
prevents physical damage to other reefs. The
education therefore can be considered a long 
lasting investment in environmental aware 
ness and tourist behavior. Most critics of the
education center generally ignore this effect
and tend to look only at the effects that edu 
cation has in Hanauma Bay itself.
In calculating the educational spillover ef 
fect, a distinction is made between residents
and visitors. As far as visitors are concerned,
active visitors snorkel on average 3.8 times
during their stay in Hawai'i, of which one
snorkel trip will be in Hanauma Bay. The
education spillover effect for active visitors is
therefore assumed to materialize in approxi 
mately two snorkeling trips outside Hanauma
Bay. Accounting for this spillover effect we
adopted the calculations reported in Cesar et
al. (2002) on threats to the reefs of a damage
Ecological Economic Modeling of Coral Reefs . van Beukering and Cesal' 253
TABLE 1
Recreational Benefits of the Different Users of Hanauma Bay (in $)
Direct Indirect
Aggregate Expenditure Expenditure Total
Type of Consumer Attributed to Attributed to Multiplier Recreational
Visitors Surplus Hanauma Visit Hanauma Visit Effect Value
Residents 1,097,550 708,750 177,188 1,983,488
U.S. West 1,542,952 1,891,360 3,263,496 1,288,714 7,986,521
U.S. East 1,322,652 1,621,315 3,565,484 1,296,700 7,806,151
Japan 1,202,725 1,474,309 2,459,600 983,477 6,120,111
Canada 236,093 289,404 707,163 249,142 1,481,802
Europe 225,881 276,886 582,582 214,867 1,300,217
Other 764,030 936,553 1,926,471 715,756 4,342,810
Total 6,391,883 7,198,577 12,504,796 4,925,843 31,021,099
rate of 2 cm
2
per trip. In the case of residents,
it should be realized that active residents, who
indicated snorkeling on average 10 times a
year, will continue doing so for many future
years. In other words, the accumulative effect
of their education is much larger than for
visitors. Calculations show that improved be 
havior of snorkelers results in less reef change
(4 ha) than would otherwise take place. For
divers, a damage reduction of approximately
0.2 ha is estimated.
Besides "educational spillovers" other
forms of positive leakage may occur from
Hanauma Bay. Some experts consider the bay
as a "sacrificial site" within the overall system
of Marine Protected Areas in Hawai'i. They
believe that the degradation is acknowledged
as being beyond the "optimal level" on a sin 
gle site basis but that the resultant revenues
are then adequate to fund the entire island's
park system and provide protection in pris 
tine areas where such protection might not
otherwise be possible. This sort of "system"
approach is becoming more common in net 
work planning of Marine Protected Areas
(see Morris 2002). We have ignored such
spillover effects outside Hanauma Bay.
The findings of the survey were used in
the analysis to calculate the recreational ben 
efits of Hanauma Bay. The first step in this
procedure was to identify the true user group
of the coral reef of Hanauma Bay. After all,
not all visitors actually go snorkeling or div 
ing and are therefore not necessarily bene-
fiting from the reef as such. The survey
revealed that the most active users were Eu 
ropeans, of whom 95% went snorkeling or
diving. The least-active user groups were the
Japanese, of whom only 60% actually put
their head under water. The total.number of
users is estimated to be over 800,000 people.
Next, calculations were made of how much
value can be attributed to this marine activity.
We took into account four categories. First,
we measured the welfare gain of the visitors
by determining the consumer surplus. Sec 
ond, we included the actual expenditure
directly related to a snorkeling or diving ex 
perience. Third, we considered a share of the
expenditure indirectly related to the marine
experience, such as hotel costs and travel
costs. Fourth, we adopted the multiplier effect
developed by the Department of Business,
Economic Development, and Tourism (2002)
of 1.25 for the overall economy. These dif 
ferent categories are reported in Table 1.
Figure 8 shows the aggregated benefits
consisting of the recreational values, the
education spillover effects, the biodiversity
values, and the fisheries spillover effect. Due
to the further degradation of Hanauma Bay,
if no proper education program is established,
the value of Hanauma Bay will decrease
slightly to $35 million in 2050. This decline is
caused mainly by the reduction of the con 
sumer satisfaction of the visitors. In the "with
education" scenario, the value of Hanauma
Bay can increase substantially, mainly due to
254
60
'2
55
~
'e
50
~
C/)
;:)
c
:;:..
45
2
li=
C1l
C
C1l
.0
40
(ij
::J
C
C
III
35
30
PACIFIC SCIENCE? April 2004
~
, ,
, , ,
I I I I
,.,. I I I I
-~:
4
r;'::
I I I I
I I I I I
~.11. I II
, "
, "
, "
, "
l l'
~Without education -0-With education
FIGURE 8. Annual benefits "with" and "without" education at Hanauma Bay.
its educational role for general coral reef use
in Hawai'i. The area between the "with edu 
cation" and "without education" scenarios
represents the cost of inaction. At a discount
rate of 4% this area representing the net
benefits of education is valued at $100 mil 
lion. The composition of this amount is de 
termined by the increased satisfaction of
visitors to the bay (33 %), an increased bio 
diversity value derived from a healthier coral
reef (4%), and the education spillover effect
(63%).
The additional costs of the education pro 
gram aggregate over time to $29 million at a
discount rate of 4%. This is far less than the
$100 million net benefits just mentioned
generated by the education program. In other
words, because the benefit cost ratio at a 4%
discount rate of 3.5 greatly exceeds 1, the in 
vestment in the education program can be
considered economically feasible. Only at a
discount rate of more than 12% does the
benefit cost ratio become less than 1. Under
those conditions, the project is no longer
economically feasible. It should be realized,
however, that besides economic motives there
may exist other reasons, such as purely eco 
logical or social ones, to pursue the education
program.
The composition of the net benefits is as
follows (Figure 9): value of increased satis 
faction of visitors to the bay (33 %), an in 
creased biodiversity value derived from a
healthier coral reef (4%), and the so-called
"education spillover effect" (63%). The latter
comes from reduced coral trampling else 
where by residents and tourists after watching
the obligatory Hanauma video.
Kihei Coast
FIELD SURVEY. The KIhei coast survey
addressed two issues. First, an assessment was
made of the damage costs for various stake-
Ecological Economic Modeling of Coral Reefs van Beukering and Cesar 255
FIGURE 9. Allocation ofbenefits of an education program
at Hanauma Bay.
holders related to the algae problem. Second,
the potential remediation costs of the algae
problem were examined.
The macroalgae problem on the KIhei
coast has a negative impact on property values
of the affected condominiums as well as the
rental prices and vacancy rates in transient
accommodations. To study this impact a sur 
vey was conducted in early 2002 that com 
pared economic parameters of the ocean 
front condominiums in North KIhei that are
affected by chronic algae problems with the
experience of comparable, but unaffected,
condominium complexes in South KIhei.
This comparison is difficult for several rea 
sons. First, although the North KIhei algae
impact area is readily identified, not all con 
dominium complexes within that area are
affected equally throughout the year. More 
over, fluctuations per year are higher than
those assumed in the model. In short, we
measured the relatively long-term economic
effects of the algae problem in North KIhei.
In particular, we concentrated on the dif 
ference in room rates, occupancy rates, and
property values.
Room rates: As part of the survey, data
were collected on daily (transient) room rates
at 15 relatively large condominium properties
that contained 745 units. Tax information
was obtained only from ocean-front con 
dominiums because these properties are most
likely to be affected by the algae problem.
Although data were collected on a variety of
edu::ation
spillover value
51%
recreational value
47%
:::..-__biodil.ersilyvalue
2%
accommodations (e.g., studio, one bedroom,
two bedroom, three bedroom, etc.), not all
properties offered all options. To simplify the
analysis, a one-bedroom unit was used as the
basis for comparison. The room rate used was
the lowest published ("rack") rate in effect on
1 May 2002.
The room rate comparison clearly suggests
a substantial difference in the room rates of
condominiums in the "algae zone" of North
KIhei from similar-sized condominiums in
the southern "nonalgae" zone. This differen 
tial is most evident in the comparison of two
nearly identical "sister" properties: the Me 
nehune Shores and the Royal Mauian. These
complexes are architecturally identical, and
units in each project have the same floor
space and layout. The one-bedroom units in
the algae-zone Menehune Shores rent for
slightly less that two-thirds the rates com 
manded by identical units in the Royal
Mauian.
Occupancy rate: It is difficult to develop
quantitative data on the occupancy rates of
condominiums because condominium owners
(or their guests) are constantly taking up or
leaving residence in their own units. Thus,
the rental pool is constantly changing. Fur 
thermore, unlike hotels, the marketing of
condominium rentals relies less on organized
advertising or sales networks and more on
word of mouth and return business or infor 
mation channels such as guidebooks or inter 
net sites. The situation is further complicated,
because unit owners in a given complex may
elect to self-rent their apartments as an alter 
native to having their units managed by a
local rental management company. For ex 
ample, one of the largest condominium com 
plexes in the algae zone is the Maui Sunset.
The property has over 216 units and rental
marketing is handled by six agencies. In ad 
dition, numerous units are directly rented by
owners.
Rental agents and owners who were inter 
viewed from the "algae zone" properties were
unanimous in the belief that they suffered
lower occupancy rates due to the algae nui 
sance. It is interesting that there seemed to be
a common belief that vacancy rates were
between 5 and 10% lower in the algae area
256
TABLE 2
PACIFIC SCIENCE? Apri12004
Comparison of Sale Prices of One-Bedroom Units in the Menehune Shores and the Royal Mauian Condominium
Complexes for 1998-2000
Menehune Shores Royal Mauian
Year
1998
1999
2000
Average 1998-2000
No. of Sales
6
21
12
194
Average Price
156
194
222
190
No. of Sales
3
3
8
Average Price
440
382
495
439
% Difference
in Sales Price
182
97
123
131
Source: Hawai'i state tax records.
than in similar properties in South KIhei.
Although such estimates are subjective and
anecdotal, they do reflect the professional
opinion of rental agents who manage units
both inside and outside the algae problem
area.
Private property values: The market value
of a real estate unit comprises many tangible
and intangible factors related both to the
condition of the unit and to its location. The
algae problem is a real factor in the price
of condominium units in the North KIhei
area. Everyone seems to accept that the algae
problem makes North KIhei condominiums
less attractive and less valuable. There are two
interrelated aspects to this property value
impact. First, the algae nuisance makes units
less attractive as residences. Second, the algae
nuisance lowers property values by reducing
the income-producing capacity of the units as
rentals (i.e., lower rental rates + lower occu 
pancy).
Due to resource constraints, estimates in
this survey were based on a simplified statis 
tical analysis only and not on the hedonic
pricing method. To develop an estimate of
the impact of algae on property prices, tax
records for 771 units in North and South
KIhei were analyzed for the period 1998 
2000.
This comparison clearly shows a substan 
tial difference. Though we were not able to
prove this statistically, it is assumed that this
can be attributed at least partly to North
KIhei's algae problem. However, there are
so many variables potentially affecting prop-
erty values that the estimates probably need
some refinement. To eliminate differences in
property values that might be associated with
basic design, as well as apartment and com 
plex amenities, we compared sales prices for
the sister properties Menehune Shores and
Royal Mauian. These properties are, in terms
of architecture, design, and amenities, largely
identical. The details of this comparison are
presented in Table 2.
From this comparison of nearly identical
properties, it is clear that one-bedroom units
in the algae zone (e.g., the Menehune Shores)
were, over the 3-yr study period, only about
43% as valuable as one-bedroom units at the
Royal Mauian. Clearly, the location of the
two complexes had a very substantial influ 
ence on the value of the units. If we assume
that the average price difference seen in the
Royal Mauian-Menehune Shores compari 
son is representative of property differentials
between the algae and nonalgae areas, then
condominium owners in the algae area are
experiencing a substantial depreciation of the
value of their properties. Though we were
not able to prove this statistically due to data
constraints, interviews with condominium
owners and managers clearly indicated that
the algae problem was the single most im 
portant determinant of the price differential.
The major condominium properties in
the algae zone have undertaken a privately
funded beach cleanup program for a number
of years. This program involves periodic
(daily during peak seasons) collection of algae
using traditional construction equipment.
Ecological Economic Modeling of Coral Reefs . van Beukering and Cesar 257
FIGURE 10. Allocation of main benefits if nutrient re 
ductions are achieved.
offshore (29%). The maJonty of the eco 
nomic benefits of the coral reefs consist of
amenity benefits derived from the differences
in property values of houses, hotels, and con 
dominiums at healthy and unhealthy coral
reefs (65%).
Figure 11 depicts development of the an 
nual benefits derived from the coral reefs for
the scenarios with and without nutrient re 
duction. It is not surprising that the annual
benefits will further decline from $25 million
to $9 million in a situation where the coral
reefs will gradually disappear and where algae
blooms will continue to occur. In a situa 
tion where nutrients are successfully reduced,
however, the annual benefits will eventually
increase by almost $30 million. The majority
of this increase is attributed to the growth in
property values. In other words, if appropri 
ate measures are taken, it will take approxi 
mately 50 yr before the damage caused so far
by the algae blooms on the KIhei coast is
completely eliminated. Due to the delay be 
tween the time of the interventions (e.g.,
sewage upgrade, fertilizer improvement) and
the actual reduction of the nutrient levels in
KIhei waters, the annual benefits will inevita 
bly decline for another 10 to 15 yr before the
reef will recover and the ecological effect will
have materialized in economic benefits.
To get an idea of how the benefits of
"action" (e.g., the shaded area between the
two curves in Figure 11) compare with the
cost of the required intervention, the cost of
upgrading the sewage plant at KIhei from
secondary to tertiary treatment has been esti-
The collected algae is either bulldozed into
shore berms along the beachfront or stacked
into piles in front of the Maui Sunset com 
plex. The stacked algae is collected by Maui
County trucks as the need arises and hauled
to local composting sites for recycling. The
algae cleanup and removal operation is mildly
controversial because the removal of beach
sand is an inevitable part of the current pro 
cess. The Maui County Public Works De 
partment is in the process of buying a beach
cleanup machine that will minimize sand re 
moval and algae handling. The beach cleanup
operation is undertaken by a private contrac 
tor at an annual cost to the condominiums of
$55,000.
SCENARIO ANALYSIS. As mentioned, the
main goals of the KIhei coast case study were
to determine the value of the reef on the
KIhei coast, and to evaluate the effectiveness
of interventions that aim to reduce the nu 
trient outflow in the KIhei coastal waters in
terms of net benefits. For this purpose the
SCREEM model was applied. We analyzed
economic values in this assessment under two
distinct scenarios:
(1) With nutrient reduction: Several mea 
sures will be taken that are aimed to reduce
the nutrient outflow into KIhei waters. These
include the upgrading of the KIhei sewage
plant from secondary to tertiary treatment,
and improved fertilizing practices in both the
agricultural sector and the golf courses. Be 
cause current knowledge in this field is still
insufficient we need to make a number of as 
sumptions with regard to the effectiveness of
these measures. This is explained later in this
section.
(2) Without nutrient reduction: No nu 
trient reducing measures will be taken. This
implies that the current trends of algae
blooms will continue to occur, leading to
further coral reef destruction and continued
algae nuisance at KIhei beaches.
The coral reefs at KIhei serve various pur 
poses. Figure 10 shows the composition of
the main benefits. The most important eco 
nomic benefits of the coral reefs on the KIhei
coast are the recreational and amenity values.
The recreational benefits consist mainly of
snorkelers that independently visit the reefs
real estate
value
65%
recreational
value
29%
biodiversity
"'- value
6%
258 PACIFIC SCIENCE? April 2004
45
-
c:
:~
40
E
35
~
en
:::> 30
c:
-=-
25
(/)
-
1+=
Q)
20
c:
Q)
.0
15
"0
Q)
-
?l
10
0)
~
0)
5
0)
?l
O-h-....,....,....,.....,........-r.....-r..,.....,..."T""T'""T""T'".,.....-r.,.........,........"I'""T'"..................T"""T"",........,........,......,....,....,.....,....,.....,......,....,....,.....,....,.....,......,....,....,.....r-1
~c:>~~COr-."fl, "C:O~~~~fl,~c:o~c:>_~~
~~~~~~~~~~~~-~
~Without nutrient reduction -0-With nutrient reduction
FIGURE 11. Development of benefits from the coral reefs with and without the reduction of nutrient levels on the
KIhei coast.
mated. We do not claim that this would in 
clude all the costs required to solve the algae
problem at Kihei, but it gives us at least some
rough idea of the comparison between bene 
fits and costs.
Beginning in 1995, Maui County started a
long-term upgrading program for its sewage 
treatment plants at Lahaina and Kihei. The
plan was designed to upgrade treatment from
secondary to tertiary levels and explicitly rec 
ognized the nutrient and algae problem. As
part of this plan the county commissioned the
Brown and Caldwell consulting company to
study rate and fee alternatives for reclaimed
water service. The study examined the costs
of upgrading sewage efHuents to levels that
would be suitable for selling reclaimed water
to a number of identified users. The study
estimated the annual costs of the upgrading
scheme to be slightly over $2.3 million per
year.
A sensitivity analysis was conducted for the
relationship between the total economic value
and the discount rate. For all discount rates
tested, the benefit cost ratio exceeds 1, im 
plying the cost-effectiveness of the inter 
vention. Two remarks are made concerning
this conclusion. First, as mentioned, sewage
treatment upgrading is only part of the prob 
lem and may therefore not be sufficient to
solve the algae problem. The costs will there 
fore most likely be higher than assumed in
this analysis. Second, the benefits taken into
account are only those that relate directly to
coral reefs. In reality, a number of site bene 
fits will be achieved, such as health effects and
water savings, that have not been taken into
account in this study and that are often the
sole reason to upgrade sewage systems. The
benefits considered are therefore an underes 
timation of the real societal benefits that will
occur.
Ecological Economic Modeling of Coral Reefs van Beukering and Cesar 259
DISCUSSION
The mutual relationship between ecological
and economic processes of coral reef ecosys 
tems is strong. Therefore, a multidisciplinary
approach is essential in tackling the multiple
threats that currently face the fragile coral
reefs of Hawai'i. SCREEM is a first attempt
to provide a platform for marine biologists
and environmental economists to exchange
knowledge on the degradation and manage 
ment of the coral reefs of Hawai'i. Some
would like to see more complex interrela 
tionships in the model. Indeed, we acknowl 
edge that the model is rather straightforward.
Yet it provides a representation of the cur 
rent state of the scientific knowledge avail 
able in the literature, even though the model
simulations are far from accurate and some 
times lack the desired level ofcomprehension.
Moreover, unlike most monodisciplinary
studies, SCREEM contains the main elements
required to oversee the full picture of coral
reef management and thereby enables scien 
tists and managers to evaluate ecological and
economic impacts effectively.
Several conclusions can be drawn from the
study at Hanauma Bay: (1) visitors to Ha 
nauma Bay are willing to pay much more for
their experience ($10) than they are currently
doing. This consumer surplus is even larger
if they know this payment is used for conser 
vation ($12.50); (2) divers are less willing to
contribute to conservation than snorkelers,
(perhaps) because of their high expenditures
or their skepticism about its effectiveness; (3)
the education spillover effect dominates the
economic value of the bay; and (4) the net
benefits of the education program ($100 mil 
lion) over time greatly exceed the cost of the
program ($23 million) over time.
The KIhei coast study is incapable of re 
vealing the full picture of the associated costs
and benefits of the algae problem. To address
these issues appropriately, more geological,
hydrological, ecological, and economic in 
formation is required. This can only be
achieved with the help of a multidisciplinary
team and with more research funds. Despite
these handicaps, an attempt was made to
come up with a rough estimate of the eco-
nomic values related to the coral reefs and the
algae problems and to compare these with an
estimate of the costs of upgrading the sew 
age plant in KIhei. Several conclusions have
been drawn: the losses ofreal estate value and
hotel business are the main effects of the
algae problem at KIhei; and it seems that the
costs of reducing nutrient concentrations are
smaller than the loss of benefits in the algae
problem.
The two case studies show the costs and
benefits of coral reef management. Express 
ing the various elements in economic terms
can help policy makers to better understand
the trade-offs involved in coral reef manage 
ment and the costs associated with a policy of
"inaction," thereby providing arguments for
the State of Hawai'i to reconsider its ex 
tremely low budget allocation for coastal zone
management compared with other states.
ACKNOWLEDGMENTS
We thank Mike Hamnett, Kristine Davidson,
and Risa Minato of the Hawai'i Coral Reef
Initiative Research Program for their support.
Funding from NOAA's Coastal Ocean Pro 
gram for the study and from the Institute for
Environmental Studies at the Vrije Univer 
siteit in Amsterdam for the write-up of the
paper is gratefully acknowledged. We also
thank John Dixon for helping to set up the
study and Sam Pintz for his KIhei work.
Constructive comments by Jack Ruitenbeek
and Alan White have improved the paper
considerably. The usual caveats apply.
Literature Cited
Barton, D. N. 1994. Economic factors and
valuation of tropical coastal resources.
Senter for Milij0-og Ressursstudier Report
14/94, Bergen, Norway.
Birkeland, c., ed. 1995. Life and death of
coral reefs. Chapman-Hall Science, New
York.
Cesar, H. S. ]., and P. J. H. van Beukering.
2004. Economic valuation of the coral
reefs of Hawai'i. Pac. Sci. 58:231-242.
Cesar, H. S. ]., P. J. H. van Beukering, W.
Pintz, and J. Dierking. 2002. Economic
260
valuation of the coral reefs of Hawai'i.
Hawai'i Coral Reef Initiative, University
of Hawai'i, Honolulu.
Clark, A. M., and D. A. Gulko. 1999.
Hawai'i's state of the reefs report, 1998.
State of Hawai'i, Department of Land and
Natural Resources, Honolulu.
Costanza, R., R. d'Arge, R. de Groot, S.
Farber, M. Grasso, B. Hannon, K Lim 
burg, S. Naeem, R. V. O'Neill, J. Pamelo,
R. G. Raskin, and P. Sutton. 1997. The
value of the world's ecosystem services and
natural capital. Nature (Lond.) 387:253 
260.
Department of Business, Economic Develop 
ment, and Tourism. 2002. The Hawai'i
input-output study, 1997-Benchmark re 
port. State of Hawai'i Research and Eco 
nomic Analysis Division, Honolulu.
Friedlander, A. M., and J. D. Parrish. 1998.
Habitat characteristics affecting fish assem 
blages on a Hawaiian coral reef. J. Exp.
Mar. BioI. Ecol. 224:1-30.
Grigg, R. W., and S. J. Dollar. 1990. Natural
and anthropogenic disturbance on coral
reefs. Pages 439-452 in Z. Dubinsky, ed.
Ecosystems of the world 25. Coral reefs.
Elsevier, Amsterdam, The Netherlands.
Gulko, D. A., J. E. Maragos, A. M. Fried 
lander, C. L. Hunter, and R. E. Brainard.
2001. The status of coral reefs in the Ha 
waiian Archipelago. State of Hawai'i, De 
partment of Land and Natural Resources,
Honolulu.
PACIFIC SCIENCE? April 2004
Gustavson, K, R. Huber, and R. Ruitenbeek,
eds. 2000. Integrated coastal zone man 
agement of coral reefs: Decision support
modeling. The World Bank, Washington,
D.C.
Moberg, F., and C. Folke. 1999. Ecological
goods and services of coral reef ecosys 
tems. Ecol. Econ. 29:215-233.
Morris, B. 2002. Transforming coral reef
conservation in the 21st century: Achiev 
ing financially sustainable networks of
Marine Protected Areas. Conservation
International/The Nature Conservancy,
Washington, D.C.lHonolulu.
Pearce, D. W., and K R. Turner. 1990.
Economics of natural resources and the
environment. Harvester Wheatsheaf, Lon 
don.
Rogers, C. S. 1990. Responses of coral reefs
and reef organisms to sedimentation. Mar.
Ecol. Prog. Ser. 62:185-202.
Spurgeon, J. P. G. 1992. The economic valu 
ation of coral reefs. Mar. Pollut. Bull. 24
(11): 529-536.
Tabata, R. S., and E. Reynolds. 1995.
Hawai'i's recreational dive industry: Re 
sults and recommendations ofa 1990 study
in Hawai'i. Department of Business, Eco 
nomic Development, and Tourism, State
~of Hawai'i, Honolulu.
VENSIM. 2000. The Ventana simulation
environment. Vensim Professional 16, ver 
sion 4.2a. Ventana Systems, Harvard Uni 
versity, Cambridge, Massachusetts.