Coastal Services Center

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A Primer on Beach Nourishment Externalities

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Introduction

Federal and state shore protection program appropriations have increased significantly over the past 50 years. Between 1950 and 1994, a total of 132 shore protection projects were authorized by congress (Robinson, 2001). Between 1950 and 1993, the U.S. Army Corps of Engineers spent an average of $20.5 million per year in 1993 dollars, or approximately $25 million per year in 2001 dollars on beach nourishment (Heinz, 2000). By the late 1990s, average annual expenditures for federal shore protection increased to an average of approximately $100 billion. Total shore protection appropriations approved by Congress for FY 2002 in the 2002 Water Resources Appropriations Bill increased to $134.7 million. The growth in expenditures on shore protection is in response to increasing pressures for federal subsidies from residents and business owners living along the coast. Their argument is that shore protection benefits are distributed much more widely than just to the residents and business owners living in coastal areas (Marlow, 2000). They further contend that it would be unfair to stop federal funding because the municipalities and property owners made investments with the expectation of continuing federal support. Proponents also point out that in some cases, federal projects intended to keep coastal inlets open contribute to beach erosion (Lollar, 2002) so the federal government should bear part of the cost of beach replenishment in those cases. For these reasons, they argue, the costs should be shared between the local and non local beneficiaries. Opponents of federal spending for beach replenishment argue that its benefits accrue largely to the localities in which the projects occur (Rinehart, 1997). Therefore, they reason, state and local governments should bear the projects' entire cost, not the federal government. A second argument sometimes made against any funding of shore protection projects is that beach erosion is a relentless natural process, and projects only temporarily delay the inevitable natural shifting of beaches. Opponents contend that a better strategy would be to accept that beaches will naturally shift over time and retreat from shorelines that are receding (Bowden, 2002).

The strategic retreat approach is one strategy for managing beach erosion. It allows the beach to naturally migrate inland (i.e. erode) while nothing is done to stabilize the beach. As the shoreline retreats, buildings and infrastructure are relocated or demolished when necessary. Owners of coastal property and businesses generally do not support any strategy with "retreat" in its name. Owners of beachfront property and businesses that depend on beaches and related beach activities demand rehabilitation/ stabilization strategies such as beach armoring and nourishment.

Beach armoring is the construction of protective hard structures such as bulkheads, jetties and seawalls to prevent erosion. These structures can be constructed on one property at a time and generally offer storm protection benefits to the immediate property. However, protective structures may produce unintended negative effects. They divert the wave energy from the protected properties, but tend to shift it to adjacent beaches that are not armored. Additionally, many protective structures interrupt the natural sand flow in coastal currents, robbing downdrift beaches of vital sand replacement. These structures may also reduce the natural beach's value for recreation. It is for these reasons that most public projects avoid beach armoring. (Skidaway, 1985). In fact, some states, such as South Carolina, North Carolina, Maine, Rhode Island, and Texas, forbid armoring.

Beach nourishment replaces lost beach sand with sand from another location in order to extend the beach seaward. Beach nourishment increases beach width, which in turn improves beach quality and provides storm protection. The advantages of nourishment over armoring are that nourishment provides an improved beach for aesthetic and recreational purposes and it does not hinder sand migration along the beach. Although the costs of beach nourishment are relatively high and serious environmental issues must be resolved, there has been a clear shift from shoreline armoring to beach nourishment for most oceanfront shorelines (Bookman, 1999). Barring some unforeseen development, it is likely that beach nourishment will be the primary method of satisfying the demand for shore protection for years to come.

Opponents of Federal funding of beach stabilization argue that the benefits are local and the investment is temporary. Proponents of federal funding argue that much of the benefits are regional or national. This paper will focus on the first argument: are the benefits of beach stabilization mainly local or do the benefits extend beyond the locality with the beach nourishment project? The second argument will not be discussed except to note that beach nourishment is a capital improvement. Like any capital improvement, beach stabilization has an expected life span and expected benefits over that life span. A cost benefit analysis should be able to determine whether the "temporary" project is worth the investment. To determine the circumstances under which the benefits to beach nourishment do or do not extend beyond the locality with the nourished beach, we first look at the benefits received from nourishment.

Beach Nourishment Benefits

The benefits from beach nourishment are typically divided into storm protection benefits, recreation enhancement benefits, and other benefits. Storm protection benefits accrue to local property owners. Recreation benefits accrue to beach users who visit the beach to enjoy beach activity. However, there may be additional benefits. Option benefits are a form of insurance; they accrue to potential future beach visitors. That is, although the individual does not use the beach now, he or she may choose to use the beach in the future and therefore derives a benefit from the existence of the beach. In addition, some analysts talk of existence value which is a measure of non use benefit for a resource for some 'moral', altruistic or other reason unrelated to use or option value (Pearce, 1994).

Figure 1. Beach Visit Demand.

Demand theory is the foundation used to measure annual economic benefits. The law of diminishing marginal utility states that as more of a good or service is consumed per period of time the marginal value of the good to the consumer decreases. If the value of the marginal (or last unit) decreases, then consumers are willing to pay less for it then they were willing to pay for previous units. This concept gives rise to the demand curve - the relationship between the quantities demanded per time period and the prices associated with those quantities, holding constant other relevant factors that can affect demand. The law of eventually diminishing marginal utility means that price and quantity demanded are negatively related. Figure 1 applies this concept to a hypothetical demand curve labeled “Beach Visit Demand”. In many examples, demand curves are simplified by representing them as a straight line similar to the "curve" in Figure 1. In this example at a price of $9, the buyer purchases one beach day per season. At $8 per beach visit, the buyer buys would visit the beach two days per season and spend a total of $16 on beach visits. If the price is lowered to $7 per beach visit, the buyer purchases or visits the beach three times per season. If the beach is provided at a zero price, the consumer would visit the beach ten times per season but total expenditure is zero. At a zero price the consumer would think of a beach visit as a "free" good and would "purchase" 10 units.

In a market place transaction, individuals choose the amount to purchase by comparing their marginal benefit with the price of the product. The money value of the marginal benefit is called the marginal willingness to pay (MWTP). The MWTP is the individual's evaluation of the dollar value marginal unit that the good is to them. It can be thought of as what the consumer thinks the marginal unit is worth. Consumers purchase additional units of a good when their MWTP is greater or equal to the price, and forego additional purchases otherwise. In theory, the consumer is able to adjust the quantity purchased to equate MWTP to market price. For example, if a beach had an admission charge the consumer will visit the beach 3 times per year at an admission price of $7.00. If the admission price is lowered to $6.00, the consumer will adjust the number of beach visits to four visits per year. Having visited he beach four times, the next visit is worth less to him. So that additional visits lower the MWTP. The consumer will adjust quantity to equate MWTP and P, but will not continue to visit the beach if MWTP is less than the P. So if the market price is $6.00, the fifth visit will not be made as it is only worth $5.00 to the consumer.

This interpretation of the demand curve, that the price at any quantity represents the buyer's MWTP, means the price of a good at equilibrium in the market represents the dollar amount the buyer will pay for the last unit or marginal unit. This is shown in Figure 2 where the admission price is first set at $7. At this price the consumer can visit the beach as many times as desired. The consumer chooses three visits. If the admission price is lowered so the consumer can visit the beach as many times as desired at an admission price of $6, then the consumer adjusts the number of visits to four visits per year. Thus, the observed market price represents the value of the MWTP, for the quantity purchased.

Each beach visitor has his/her own personal demand curve. So it would seem that each would have a different MWTP. However, this is not the case. The market demand curve is the sum of all of the consumer demand curves. Figure 1 represents the market demand curve for beach visitation for a beach community that only has two individuals in it. The first individual's demand curve is shown as D1 and the second individual's demand curve is shown as D2. The market demand curve is the sum of the quantity that each individual will purchase at every price and is shown as DT. At price P, the 12 unit market quantity demanded is the sum of consumer 1’s quantity demanded of 5 units and consumer 2’s quantity demanded of 7 units. But the price is the same for each of the consumers. Although each consumer has his/her own demand curve, the MWTP for each consumer is identical and equal to the market price. So the market price is the dollar measure of the worth of the marginal beach visit. The total MWPR in the market is the market price multiplied by the quantity sold at that price.

Efficiency and Externalities

Economists have a technical definition for efficiency that basically means using scarce resources in their most highly valued uses. The idea is that if a buyer's MWTP for an additional good is $6.00 and it cost $6.00 or less to produce the good, the good should be produced. One implication of efficiency is that if there are 1,000 people, each with a $6.00 MWTP, and each extra 1,000 visits cost $6,000 in beach nourishment or less to produce, then the beach should be nourished to provide for the extra thousand visits. In other words, the market demand, which is the sum of all the individual quantity demands, should be satisfied as long as consumers are willing to pay the cost of production. If this is not so, if less is produced, the economy is not efficient because consumers would prefer to purchase additional beach visits over their next best consumption opportunity. If more is produced, the economy is not efficient because consumers are not willing to give up purchasing power to buy the extra production. Essentially, consumers would rather the economy produced something else they would rather given the market price. In the competitive market place it is expected that the market price will equal the extra or marginal cost of production. Therefore, in a competitive market the consumer's MWTP equals the marginal cost of production. This is a characteristic of economic efficiency. But not all markets are efficient. Some markets fail the efficiency test that price equals marginal cost. Market failures include monopoly industries, public goods, and externalities. Proponents of beach nourishment seeking government subsidies make the argument that the market fails to produce the efficient outcome because of externalities.

In a purely private transaction, the purchasers receive all the benefits from their purchase and all of the costs of the transaction are reflected in the cost of production. Buyers adjust their consumption so the MWTP equals the market price. This is efficient because the marginal benefits of the additional unit equal the marginal cost of producing the marginal unit. But for some goods, there are additional benefits or costs that accrue to households who do not purchase the good. These extra benefits or costs are called externalities because they are external to the market transaction where buyers and sellers agree to trade. Externalities can be positive or negative. Mosquito control is an example of a positive externality. If I control mosquitoes on my property, there will be fewer mosquitoes to annoy my neighbors. The benefit my neighbors get from my mosquito control efforts is a positive externality. They get to enjoy a benefit, but they were not part of the market decision to produce the benefit. Examples of negative externalities abound in environmental studies. Driving an automobile creates pollution. Pollution is a negative externality. The driver of the automobile, as well as the rest of the population, suffers from pollution. If there are 1,000 drivers, they each create pollution and they each create an externality. I drive and pollute and you suffer; you drive and pollute and I suffer. But in general if I pollute and you pollute the effects do not cancel out. We just end up with more pollution.

Figure 2. Market Demand.

The 'market failure' resulting from an externality may have important consequences for the allocation of resources within an economy. Failure to internalize for these external benefits or external costs may cause a misallocation of resources in the economy. This is because the marginal social benefit does not equal the marginal social cost at the quantity produced in the market. In the case of mosquito control, I do not take into account benefits my neighbors receive from my actions and therefore may not provide the efficient amount of mosquito control. This is represented in Figure 2. The total or social marginal benefit curve (SMB) is the sum of my MWTP and my neighbors' marginal external benefits (MEB). Not accounting for this external benefit, I only provide Q1 of mosquito control rather than the optimal Q1* amount. Q1 is less than the efficient amount. In what we might think of as the "worst case" of provision, if the marginal cost of mosquito provision is as high as MC2, I will not provide any mosquito control even though the optimal amount is Q2*.This is because even at low amounts of mosquito control the marginal costs are greater than my benefits alone, but not greater than the sum of my and my neighbor’s benefits.

So where are the externalities in beach nourishment?
Beach nourishment is not demanded for its own sake. The demand for beach nourishment is derived from the storm damage reduction (SDR) and recreation enhancement benefits that the nourishment provides. These project benefits are not uniformly distributed across the population. SDR benefits are limited geographically. Recreation enhancement benefits may be widely distributed from a geographic perspective. Projects may also create other benefits such as option benefits and environmental benefits that may be widely dispersed. Externalities are created when these benefits accrue to people who do not pay for them. People who benefit from these externalities without paying are called free riders.

Storm protection benefits include hurricane and storm damage reduction benefits and land loss prevention benefits. Project benefits associated with storm damage reduction and erosion loses are generated for properties that front the ocean. The property owner considers the rate of erosion, the property's distance to the water line at high tide, the other protection options available and computes a MWTP for SDR. For very minor erosion of the beach over time, the property owner may conclude that the MWTP is low. For serious erosion, property owners will want to protect their property. But the externality of nourishing beach properties one at a time may be quite large. If there is one or very few property owners, beach nourishment may be accomplished privately. A few property owners may be able to reach agreements among themselves to nourish the beach. However, if there are many property owners, some property owners may try to be free riders. That is, they will not nourish their portion of the beach and depend on sand from the adjacent beach to nourish their portion of the beach. This spreading of sand "downdrift" is a positive externality to adjunct property for which participating property owners pay for but do not benefit from. At best, too little beach nourishment will be provided. At worst, like the mosquito example, if there are too many free riders, no nourishment will be provided. Local government gets involved with beach nourishment provision because without its involvement too little beach nourishment will be provided. It is this local SDR externality that local government provision of beach nourishment internalizes.

The distribution of SDR and land loss prevention benefits are local in that benefits are generally confined to the geographic area of the beach nourishment project. It is the local property owners who benefit. Which of the beneficiaries are external to the local government's decision? Consider that property may be privately owned or publicly owned and that the property owner may be local or non local. Clearly, all locally owned public “at risk” property such as roads, parks, etc. are internal. SDR for local residents' property is also internal for two reasons. First the benefits are local and second the local property owners are paying local taxes. Therefore there are no free riders. To the extent, the state and federal government are local property owners, there is an externality. When a beach nourishment project protects state and federal property and infrastructure, benefits are state and nationwide. This external benefit will vary widely by beach. In addition, there may be some external benefits in emergency cost reduction such as the administrative cost of disaster relief, or the increased cost of police and military patrol. Since federal and state governments do not pay taxes to the local entity, they are free riders and they may cause a relevant externality.

While federal and state ownership of local property protected by the nourishment projects leads to a relevant externality, the same is not true for non resident owners. Non resident owners of beach front property clearly benefit from SDR. But there may not be a misallocation of resources just because the owners reside outside the local jurisdiction. These owners may not be free riders, depending on how the project is financed. Suppose that the intention is to fund the beach nourishment project by special taxes on property owners that the local government sets equal to property owners' MWTP. In this case, the tax "captures" the marginal SDR benefit and internalizes the benefits of these owners even though they live elsewhere. The absentee owners’ MWTP gets added in with the resident owners’ MWTP. Of course, the local government cannot perfectly calculate the absentee owners’ MWTP, but the problems it faces are the same as the ones it faces in calculating resident owners’ MWTP. So to the extent the local government can find the MWTP for resident owners, it can do so for non resident owners and internalize the property owners benefits.

Where there are SDR externalities, most of the benefits appear to be local. This is why opponents to federal funding for beach nourishment benefits believe that benefits accrue to wealthy beachfront property owners; and accordingly that the beachfront property owners should pay the costs for these projects. To the opponents of funding, the subsidization of wealthy beachfront property owners from general tax revenues, such as federal funds, violates both the benefits principle and the ability to pay principle.

Recreation Benefits
Visitors to the beach do not demand beach nourishment. Dredges and machinery are not what they want to see on their beach outing. Instead they are demanding the recreation benefits that accrue to beach users who visit wide sandy beaches to enjoy beach activity. The additional economic value of beach nourishment reflects individuals' MWTP for beach use. For a given beach, recreational value is measured as the sum of all of the users' willingness to pay and additional benefit by their MWTP. In practice, additional recreational value is difficult to calculate for three reasons. First, the beach is provided to users free of an admission charge; thus, there is no market test or valuation of the recreational willingness to pay. Second, usually there are no counts of beach users since beach user counts are a by-product of entrance fees. That is if a fee is involved there must also be a count of the number of visitors who paid the fee. Third, from the point of view of beach nourishment, we do not want to measure recreational value, we want to measure the change in recreational value for a change in the condition of the beach. But this is unknown. For example, in the case of an eroding beach the actual behavioral reaction of beach users to a receding beach is not known. All of these issues must be addressed in estimating changes in market willingness to pay as a result of a nourishment project.

Ideally, the MWTP would be derived from observable market prices. However, beach use is typically distributed at a zero admission price. This makes the beach a non-market good, the general term for goods not sold in a market. For non-market goods, data do not exist to use standard statistical demand estimation procedures. Since there are no observable prices directly linked to usage, an alternate estimating procedure is required. The most frequently cited alternate methods are the travel cost method and the contingent valuation method.

The travel cost method was developed in the 1950's and uses travel costs to construct a demand curve. The basic premise of the travel cost method is that the costs incurred by consumers in traveling to the beach can be used as surrogate prices. These surrogate prices can be used to infer the demand for recreation use where travel cost is a proxy for admission price. The consumer MWTP is estimated from the resulting demand curve.

The Contingent Valuation Method tries to measure exactly what is wanted-- how much is a beach visit worth? The information is obtained by surveys of beach visitors, and potential beach visitors. The survey asks the beach visitors to place a value or a willingness to pay amount on a "beach day". Visitors to the beach also are asked a series of questions regarding why and how often they visit. Other data, such as expenditure pattern, number in their party, and the activities used on the beach also may be collected.

Criticisms of the travel cost and contingent valuation methods center on whether the conditions necessary to make travel costs a good proxy for prices are satisfied focus and on whether people give accurate responses to hypothetical questions regarding the value of the beach. For example, a problem with the contingent valuation approach is whether the intentions people indicate will accurately describe their behavior. This is known as strategic bias and depends on the respondent's perceived payment obligation and his/her expectation about beach improvement. If the respondent expects to actually have to pay his/her reported willingness to pay values, then there is the temptation to understate the true value. If the price to be charged is not expected to be related to the response, but improvement to the beach is expected to be related to the response, then willingness to pay may be overstated.

The market MWTP depends in part on the demand curve. As the beach erodes, an assumption must be made as to how beach users will react to narrower beaches. It is possible that they will ignore the beach loss, not change their behavior and continue to visit the same beach. In this case there will be no decrease in demand. However, the assumption is not tenable; as the beach gets narrower and narrower and eventually disappears, beach visitors will have to find alternatives. The behavioral assumption determines how rapidly the visitations decline and how fast recreational benefit is reduced as the beach erodes. One assumption is that as the beach gets narrower each individual's benefit remains constant, but fewer people visit because the carrying capacity of the beach is reduced. It is the reduction in the number of people that causes the reduction in recreational benefits. It may be that beach visitors abandon the beach at the same rate that it erodes, thus keeping pre and post erosion beach use densities the same (Faucett, 1998). There are other possibilities, for example the same number of users visits the beach, but each user finds the value of a beach day is reduced as the beach becomes more congested.

So where is the recreation externality? To some extent it depends upon property rights to the beach. If the locality has the right and the ability to charge an admission price, it can charge admission to internalize the externality. If the admission charge represents the marginal cost of maintaining the beach, then there is no recreational externality. Beach users make the decision to go to the beach or not to go to the beach on the basis of the extra utility they gain (MTWP) compared to the admission price. But an admission or user charge will only work where the cost of charging admission is relatively low, perhaps a state park. In many places, the cost of constructing fences, admission booths, paying worker exceeds the price that might be charged. When this is the case, it makes sense to provide the beach at a zero price and finance beach maintenance from taxes. We expect that beach users will visit the beach until their MWTP equals zero. Local residents register their choices regarding financing the nourishment project through the political process. If the tax share of nourishment is too high, local residents will vote against the project. In this case, the external benefit of the tourists is not registered and there may be a relevant externality. This may cause the amount of beach nourishment to be less than optimal.

Internalizing the Externalities
The SDR benefits are primarily local. They are primarily measured as the difference in expected losses in property values due to storm damage with and without the beach nourishment project. Highly developed beaches have relatively large SDR benefits because the amount of capital at risk is relatively large. Within the project there are potential externalities as individual property owners do not consider the benefit on their neighbor's property and as some owners try to be free riders. These are local externalities. It is conceivable that if bargaining costs are relatively low, local property owners may be able to internalize the externality without local government help. However, on beaches where the benefit is both SDR and recreational and there are many property owners, it may not be possible to provide beach nourishment without government involvement. Local government internalizes these externalities by carrying out the project as a public project. The primary SDR externalities that reach beyond the project are created by "out of project bounds" sand deposition and non local publicly owned property.

The recreation enhancement benefits accrue to all beach goers. Government can internalize the recreation externality one of several ways. The recreational benefits can be internalized by charging a user admission fee. However, this may be easier said than done for two reasons. User charges may not be economically practical or may not be legal. Also, there is a large fixed cost component to beach nourishment. Once that fixed cost is paid, the marginal cost of additional visitation may be relatively small implying a low user charge. That user charge may not be high enough to cover the fixed cost of beach nourishment. In these cases beach nourishment and maintenance will be financed by taxes. Restricting the financing to local taxes creates the externality.

Figure 3. Mosquito Control Market.

In cases where bargaining and admission prices cannot internalize the externality, a corrective tax or subsidy is designed to internalize the externality. In the case of a positive externality, the subsidy can be made to either the buyers or the sellers so as to reduce the price paid by the consumers. In keeping with the current practice where state and federal government governments pay or subsidize a portion of the cost of the project, the analysis adds the payment to the demand for beach nourishment. This has the effect of increasing the demand as shown in Figure 3. That is, without the subsidy the demand for beach nourishment is limited to the local demand, D. A properly designed subsidy will increase demand by the marginal external benefits (MEB). After the subsidy, the net price of nourishment declines for the locals, inducing them to purchase the efficient amount of nourishment. The total subsidy is the tan area and the total local payment is the blue area. Doing this internalizes the positive externality as the marginal social benefit curve now reflects the fill marginal social benefits of the project. The result is an increase in the amount of beach nourishment and a split between the local and non local share of the project costs. If possible the subsidy should be equal to the MEB.

Beach subsidy programs
Beach nourishment projects are federally, state, locally, or privately funded and often are funded by a combination of sources. Congress has authorized Federal cost participation; The U.S. Army Corps of Engineers (USACE) policies that determine federal cost sharing are detailed in the USACE’s Engineering Regulation (ER) 1105-2-100. USACE policy requires public ownership and use of the beach. In addition, only storm damage reduction benefits and recreation enhancement benefits are considered, and those are only considered within the beach nourishment area. Federal policy also precludes federal funding in projects that are not principally justified by hurricane and storm damage reduction benefits. The Federal government's cost share is 65 percent for initial project construction and 50 percent for subsequent beach maintenance (i.e., renourishment).

To qualify for federal funds, a nourishment project must show that the project benefits are greater than the project costs. Benefit-cost analysis compares all relevant beach nourishment project benefits to all relevant beach nourishment project costs. Benefits include the estimated storm damage reduction and recreation benefits. Costs include the expected costs of construction, the present value of the periodic maintenance, and any external costs such as environmental costs. If the net present value (NPV), which measures the difference between the project benefits and the project costs are negative the project is discarded. A positive NPV implies that the project should be undertaken. The project with the highest NPV is the best use of scarce resources and should be undertaken.

Summary

Shore protection is becoming a bigger business. Proponents argue that the benefits of shore protection are widely distributed and therefore the projects should receive federal funding. Opponents argue that the benefits are primarily local and no federal funding should be available for the projects. Government financing, federal or otherwise raises a variety of economic issues. The central theme of these issues can be stated as, is the governmentally funded project worth it? In the private market consumer spending answers this question. It is worth producing something if consumers are willing to spend enough money on it to provide producers with total revenue that is greater than or equal to their cost of production. Government, however, has the power to impose taxes on its citizens to finance public projects. There is no market test for a public project. Therefore, in the public sector economic benefit is measured by performing a benefit-cost analysis.

A central principle in welfare economics it that the economy should produce additional goods and services as long as consumers are willing to pay the cost of the extra production. If beach nourishment were "sold" in an ordinary market, market demand and supply would determine the market price and the quantity sold. But beach nourishment is not "sold" this way. Beach nourishment is generally a governmentally provided good. The justification of the government providing beach nourishment rests on a market failure due to externalities.

For convenience these externalities are divided into those produced by SDR and those produced by recreational enhancement. SDR externalities are mainly local. Beach nourishment works best over an extended area. If there is one property owner, or only a few property owners on a beach, they may be able to reach an agreement among themselves to nourish. If there are many property owners, then bargaining costs may prevent an agreement from being reached even if the value of nourishing the beach exceeds the costs of doing so. For this reason, on beaches with many property owners, local government involvement may be the only effective means of eliminating the externality. Recreation enhancement externalities exist on beaches where no admission is charged as non local users are free riders in the nourishment process. This externality can be internalized by non local government subsidizing beach nourishment. The subsidy may be necessary because, although the political process is specific to each community, the major local public issues in considering beach nourishment are generally cost and equity. Local taxpayers may find the cost of nourishment to be greater than the benefits derived. Since benefits to non local stakeholders are not considered by the local taxpayer, a beach that provides social benefits to the local taxpayer and the non local stakeholder in excess of the cost of nourishment may not be nourished causing a misallocation of resources.

Beach front property owners, beach users, and local sponsors may have never heard of a positive externality; however they understand its implications. If they can convince the federal government that beach nourishment creates positive externalities, the federal government will pay 65 percent of the cost of the project. Whether the beach nourishment project generates those externalities depends upon its characteristics. A tourist beach, particularity one that attracts foreign tourist such as Miami Beach is much more likely to generate those externalities than a private residential beach.