Estimating the Benefits of Agri-environmental Policy: Econometric Issues in Open-ended Contingent Valuation Studies

This paper reports on an open-ended Contingent Valuation Method study of the conservation benefits of Environmentally Sensitive Areas (ESAs) in Scotland. The ESA scheme is a central component of agri-environmental policy in the UK, and an interesting policy question concerns the extent of non-market benefits generated by such ESAs. The econometric issues we raise in this paper revolve around bid curves. Bid curves are estimated in open-ended Contingent Valuation Method (CVM) studies for three reasons. These are: (1) as a test of theoretical validity; (2) as a test of discriminant validity; and (3) as a means of benefits transfer. Within the first and last of these aims, the partial relationship between willingness to pay (WTP) and independent variables such as income is of interest. There are several econometric issues involved in estimating such relationships, First, the selection process implicit in obtaining positive WTP bids should be explicitly modelled. Second, many CVM surveys suffer from item non-response with respect to 'sensitive' questions such as the respondent's income; these non-responses may be non-random in nature. Finally, it is possible to dis-aggregate the effect of marginal changes in, say, income on WTP into two elements, namely: an effect on the probability that the individual will be willing to pay something; and secondly, an effect on how much they are willing to pay.     

Contingent Valuation and Real Economic Commitments: Evidence from Electric Utility Green Pricing Programmes

This paper presents the findings of two 'green pricing' studies conducted to evaluate public support of utilities' investments in renewable energy technologies. These studies compared hypothetical WTP statements with actual payment commitments. The results of these studies indicate that the CVM can be an accurate indicator of an individual's WTP, but that it is an unreliable predictor of which individuals will actually pay. This has important implications for aggregating mean WTP estimates of the value of environmental benefits. It also suggests that market simulations can be useful for predicting programme participation rates when voluntary donations are used as a payment vehicle.     

Integrating nature-based tourism and forestry in private lands under heterogeneous visitor preferences for forest attributes

Developing nature-based tourism in private lands calls for new mechanisms to consolidate the interests of the tourism industry, visitors, and landowners. This choice experiment study elaborates on the heterogeneity of visitors’ preferences and willingness to pay (WTP) for enhanced forest amenities and ecosystem services. The survey, targeting domestic and foreign tourists visiting the Ruka-Kuusamo area in Finland, considered four attributes: landscape quality, outdoor routes, forest biodiversity, and carbon sequestration. For observed heterogeneity, the visitors were grouped by their attitudes towards forest management. Unobserved heterogeneity in visitors’ choice behaviour and WTP was examined with the latent class model. While most visitors had environmentally friendly attitudes and were willing to pay, especially for enhanced landscape quality and biodiversity, considerable heterogeneity was revealed in terms of three segments with distinctive attitudes, choice behaviour and WTP. The variation in WTP has important implications for the design of a scheme of payments for environmental management.     

Hypothetical and Real Economic Commitments,and Social Status,in Valuing a Species Protection Programme

There has been a long-running debate on the reliability and validity of the contingent valuation method, connected with the hypotheticality of the situation when respondents are asked to state their willingness to pay (WTP) for species protection (the so-called 'hypothetical bias'). Additionally, a number of recent arguments regarding donations to good causes and the benefits of achieving social status have questioned the motives of respondents who have stated their WTP. An experiment at the University of Klagenfurt tested for hypothetical bias by asking participants to state their hypothetical and real WTP for a species protection programme in the Hohe Tauern national park. Hypothetical and real WTP differed significantly. Additionally, it emerged that the pure ecological motive for stating a WTP might be concealed by arguments about donating in order to achieve social status and contributing to a good cause.     

Economic Value of Instream Flow for Non-Commercial Whitewater Boating Using Recreation Demand and Contingent Valuation Methods

Whitewater river kayaking and river rafting require adequate instream flows that are often adversely affected by upstream water diversions. However, there are very few studies in the USA of the economic value of instream flow to inform environmental managers. This study estimates the economic value of instream flow to non-commercial kayakers derived using a Travel Cost Method recreation demand model and Contingent Valuation Method (CVM), a type of Contingent Behavior Method (CBM). Data were obtained from a visitor survey administered along the Poudre River in Colorado. In the dichotomous choice CVM willingness to pay (WTP) question, visitors were asked if they would still visit the river if the cost of their trip was $Y higher, and the level of $Y was varied across the sample. The CVM yielded an estimate of WTP that was sensitive to flows ranging from $55 per person per day at 300 Cubic Feet per Second (CFS) to a maximum $97 per person per day at flows of 1900 CFS. The recreation demand model estimated a boater’s number of trips per season. We found the number of trips taken was also sensitive to flow, ranging from as little as 1.63 trips at 300 CFS to a maximum number of 14 trips over the season at 1900 CFS. Thus, there is consistency between peak benefits per trip and number of trips, respectively. With an average of about 100 non-commercial boaters per day, the maximum marginal values per acre foot averages about $220. This value exceeds irrigation water values in this area of Colorado.     

Willingness to pay for safe drinking water: Evidence from Parral, Mexico

A referendum-format contingent valuation (CV) survey is used to elicit household willingness to pay responses for safe and reliable drinking water in Parral, Mexico. Households currently adopt a variety of averting and private investment choices (e.g., bottled water consumption, home-based water treatment, and installation of water storage facilities) to adapt to the existing water supply system. These revealed behaviors indicate the latent demand for safer and more reliable water services, which is corroborated by the CV survey evidence. Validity findings include significant scope sensitivity in WTP for water services. Further, results indicate that households are willing to pay from 1.8% to 7.55% of reported household income above their current water bill for safe and reliable drinking water services, depending upon the assumptions about response uncertainty.     

Household Willingness to Pay and Farmers' Willingness to Accept Compensation for Establishing a Recreational Woodland

The UK Forestry Commission's recently implemented Community Woodland scheme sets out to provide new recreational woodland facilities near to towns and cities where such resources are in short supply. This study examines household willingness to pay (WTP) for such a proposed woodland by means of the contingent valuation (CV) method. A stratified sample of 325 households in Wantage, Oxfordshire, was interviewed and asked to state both their annual and per-visit WTP. Analysis of a number of recognized potential biases suggested that the results obtained must be treated with caution although we argue that the CV provides a useful ballpark indication of preferences. A simultaneous CV survey of farmers' willingness to accept compensation for converting agricultural land into woodland proved to be far more robust, despite a small sample size. We conclude that farmers are more familiar with the concept of assessing potential compensation than are households with estimating hypothetical payments for increased provision of public goods.     

Impact of Socio-demographic Factors on Willingness to Pay for the Reduction of a Future Health Risk

Knowledge of socio-demographic factors affecting attitudes to and perception of risk is an important instrument in enhancing efficiencies of interventions. The authors evaluated whether socio-demographic variables affected attitudes to an environmental issue (securing future drinking water). An important aspect was the delay between time of environmental pollution and time of human exposure and thereby potential health risk. Gender, education, place of residence and age all influenced the extent to which individuals were willing to allocate present resources to alleviate a future problem. Specifically, people above the age of 50 appeared more reluctant to pay for an intervention against a future potential health threat. The authors found a significant correlation between attitude and willingness to pay (WTP). In the authors' scenarios, the WTP variable worked more as a dichotomous variable than as a continuous variable, stressing the importance and relevance of the WTP=0 answers.     

MEASURING THE VALUE OF POTABLE WATER IN PARTIALLY MONETIZED RURAL ECONOMIES1

ABSTRACT: A pilot study was conducted to test the potential of the Contingent Valuation Methodology (CVM) to reveal the value of non-market goods in a partially monetized subsistence economy. CVM was used to estimate the willingness to pay, in the form of labor, for potable drinking water in a rural river-based community located in the Esmeraldas state of northwest Ecuador. Surveys were administered by personal interviews with families living along the waterways of the Santiago river system who used river water for cooking, drinking, washing, and waste disposal. The mean willingness to pay represented over 23 percent of real income, or 1.4 days per week for a period of one year. Results of multiple regression analysis identified the history of water-related health problems and the number of working adults in a household as significant determinants of willingness to pay. Using a non-monetary, rather than a monetary measure of willingness to pay may provide a more accurate representation of value in a subsistence economy where the use of money is limited. The potential for CVM to measure the benefits of non-market goods in rural developing regions whose economies are only partially monetized is demonstrated.     

Tourist Support for Marine Protection in Nha Trang,Viet Nam

Environmental planners often propose tourism as a means of financing programmes to protect significant environmental areas. Surveys of tourists can provide useful information about the significance of environmental problems, trade-offs among policy objectives, willingness to pay (WTP) for protection programmes and preferences for different payment mechanisms. In Khanh Hoa Province, the provincial People's Committee, the Ministry of Fisheries and the World Conservation Union are working to implement Viet Nam's first marine protected area (MPA) in Nha Trang Bay. This paper reports the results of a survey of local and other Vietnamese and foreign tourists to islands that will be included in the MPA. The majority of respondents thought rubbish on the beaches, water pollution and vendors on beaches were problems and that the MPA was a good idea. Foreign tourists were significantly more likely to perceive environmental problems than were Vietnamese tourists, and persons who agreed there were environmental problems were significantly more likely to support the concept of an MPA, despite the potential for possible economic effects with distributive consequences. WTP for protection was modest and positively correlated with education and income. Although foreign tourists were on average willing to pay more, a larger proportion of Vietnamese tourists were willing to pay some amount to support the MPA. Analyses indicate that changes in income and education expected with economic development will increase both awareness of problems and WTP for protection. The results of this analysis are both encouraging and cautionary. The need for an MPA is clearly recognized by most tourists, and most tourists are willing to pay small fees to support the MPA. Given that education has significant impacts on both perceptions of problems and WTP, educational programmes may be an effective strategy for managing the competing objectives of protection and use.     

A comparison of alternative contingent valuation elicitation treatments for the evaluation of complex environmental policy

Attempts to evaluate the economic benefits associated with complex environmental policies, using the contingent valuation (CV) method, have been dogged by controversy. In particular, debate has centred on the influence of embedding and related effects on the validity of CV willingness-to-pay (WTP) estimates. This paper discusses these effects in the context of identifying the most appropriate WTP elicitation treatment to evaluate the willingness to pay for the various elements of a multi-dimensional environmental policy. The findings of an empirical experiment demonstrate that a top-down allocation treatment, which uses independent sub-samples for individual policy components, provides the most reliable treatment to value all aspects of a multi-dimensional policy, whilst also overcoming embedding bias problems.     

Lexicographic preference in biodiversity valuation: Tests of inconsistencies and willingness to pay

Previous contingent valuation (CV) studies on biodiversity have indicated that as much as one-quarter of the respondents show lexicographic preferences when facing biodiversity-money trade-offs. This behaviour is incompatible with welfare theory underlying CV, and thus questions the validity and reliability of the outcome of CV of changes in biodiversity. However, it is difficult from CV responses to distinguish between strict and modified lexicographic preferences, and those attaching a high value to biodiversity. This paper adds to the empirical evidence showing that what at first hand seems to represent strict lexicographic preferences is at most representing modified lexicographic preferences, and probably rather represent just high valuation of biodiversity. Data on both hypothetical and actual willingness to pay (WTP) from a CV study on biodiversity were used to perform tests of inconsistent attitudes to estimate the maximum share of non-compensatory preferences for biodiversity. The results show that there are very few respondents in the group that consistently state high preference for biodiversity preservation and show clear reluctance to trade-off biodiversity with other goods. However, this group also had higher WTP, both hypothetical and actual, than the reference group. This is consistent with exchange preferences and steep indifference curves. Thus, people with lexicographic preferences for biodiversity are probably less numerous than previously indicated.     

Does Fair Trade Compete with Carbon Footprint and Organic Attributes in the Eyes of Consumers? Results from a Pilot Study in Scotland,The Netherlands and France

Several studies on ethical and social food attributes have shown that consumers, especially in developed countries, are willing to pay a price premium for fair trade foods products. However, there is a scant literature on how consumers’ preferences and willingness to pay (WTP) for fair trade products are affected by the presence of other ethical food attributes. To fill this gap, a choice experiment was conducted in Scotland, the Netherlands and France to assess consumers’ preferences and WTP for ethical attributes, i.e., fairtrade, organic, and lower carbon footprint, of bananas and to find out whether this ethical food attributes are competing in real markets. The results showed that in the three countries consumers are willing to pay a price premium for the three ethical food attributes. The results showed that in the current market situation these ethical foods are not generally competing against each other. Nonetheless, they are likely to become competing for consumer’s money at least when: (1) the price of organic foods is decreased significantly, (2) the price for fairtrade food products is set higher than consumers’ WTP, and (3) bananas labeled as having lower carbon footprint are made available in retail stores and sold at a price lower than consumers’ WTP.     

Revealing Preferences for Reductions of Public Risks: An Application of the CV Approach

In this paper the contingent valuation method (CVM) is applied to public risk reduction. Theory suggests that the size of the stated willingness to pay (WTP) for risk reduction depends on private activities aimed at reducing the risk level for the individual. The empirical results suggest that considering private averting activities increases the explanatory power of the estimated WTP function significantly. Thus, WTP passes the scope test which proposes that larger reductions from a larger baseline risk should be valued higher than lower risk reductions from a lower baseline risk. Furthermore, we demonstrate that the follow-up response format induces anchoring effects.     

Exploring Values,Context and Perceptions in Contingent Valuation Studies: The CV Market Stall Technique and Willingness to Pay for Wildlife Conservation

Public preferences for conservation and environmental management may be identified in willingness to pay (WTP) studies. Normally part of a contingent valuation exercise, WTP studies elicit monetary estimates of non-market economic goods. This paper describes a new approach to WTP, the CV Market Stall, a technique that adds a discursive, qualitative dimension to contingent valuation. It is suggested that the CV Market Stall technique is a good method for exploring attitudes and responses to environmental project proposals. The flexible format, with an emphasis upon information provision, discussion and learning would also allow contingent valuation to be extended to much more complex and uncertain environmental issues.     

Assessing Public Preferences for Forest Biomass Based Energy in the Southern United States

This article investigated public preferences for forest biomass based liquid biofuels, particularly ethanol blends of 10% (E10) and 85% (E85). We conducted a choice experiment study in three southern states in the United States: Arkansas, Florida, and Virginia. Reducing atmospheric CO₂, decreasing risk of wildfires and pest outbreaks, and enhancing biodiversity were presented to respondents as attributes of using biofuels. Results indicated that individuals had a positive extra willingness to pay (WTP) for both ethanol blends. The extra WTP was greater for higher blends that offered larger environment benefits. The WTPs for E10 were $0.56 gallon^?1, $0.58 gallon^?1, and $0.48 gallon^?1, and for E85 they were $0.82 gallon^?1, $1.17 gallon^?1, and $1.06 gallon^?1 in Arkansas, Florida, and Virginia, respectively. Although differences in WTP for E10 were statistically insignificant among the three states, significant differences were found in the WTP for E85 between AR and FL and between AR and VA. Preferences for the environmental attributes appeared to be heterogeneous, as respondents’ were willing to pay a premium for E10 in all three states to facilitate the reduction of CO₂ and the improvement of biodiversity but were not willing to pay more for E85 in order to enhance biodiversity.     

An assessment of household willingness to pay for curbside recycling: a comparison of payment card and referendum approaches

Curbside recycling is a tool that communities use to reduce the need for landfill space. This study provides contingent valuation estimates of household willingness to pay (WTP) to continue a curbside recycling program in the face of budget cuts. Comparisons of two forms of the contingent valuation method (CVM) are provided: a single bounded referendum and a payment card. Neither approach emerges as unambiguously superior. Response rates were virtually identical. Both approaches show that support for curbside recycling is highly sensitive to price. Regression results from the payment card provided a more thorough identification of socio-demographic variables associated with WTP than the referendum, but the explanatory power of the two regressions did not differ significantly. The referendum estimates of mean WTP exceed those from the payment card, although the disparities are less than those typically reported in the CVM literature. Local policy makers cited the CVM results as influencing their decisions regarding funding options for the future of the program, and seemed to appreciate the fact that the two approaches provided a fairly narrow range of estimates of WTP. In an era when more of the burden of financing of environmental programs is being shifted to the local level, use of CVM to estimate the WTP of consumers for highly disaggregated goods and services designed to achieve environmental improvement will likely become more relevant to local decision makers who are interested in understanding their constituents' views.     

Stated willingness to pay as hypothetical behaviour: Can attitudes tell us more?

The fact that people only state a hypothetical willingness to pay (WTP) in contingent valuation surveys still causes much debate. Doubters are sceptical about the reliability and validity of contingent valuation estimates, that is, whether people will actually pay the amount stated in the survey. Parallel to this discussion, social psychologists have conducted a great deal of research on the determinants of actual behaviour, particularly attitudes. Therefore, the objective of this paper is to analyse the relationship between different kinds of attitudes and behaviour. Based on this analysis, a composite attitude-behaviour model is developed and estimated using data from a contingent valuation about the river Elbe in Germany. The results show that attitudes towards the behaviour are the immediate antecedent of the behavioural intention. Accordingly, it is suggested that these attitudes along with attitudes towards the good in question and general attitudes should be measured in order to increase predictive validity.     

ARE RURAL RESIDENTS WILLING TO PAY ENOUGH TO IMPROVE DRINKING WATER QUALITY?1

ABSTRACT: The concentrations of iron and sulfate in community water supplies are a concern for a number of areas in southwestern Minnesota. This study used the contingent valuation method to determine how much consumers would be willing to pay to improve their drinking water quality. On average, individuals were willing to pay US$5.25 per month (in 1995 U.S. dollars) to reduce the level of iron and US$4.33 per month to reduce the level of sulfate in their water to the USEPA's secondary standards for drinking water quality. Respondents with negative perceptions of their drinking water quality were willing to pay more to improve water quality. The aggregate annual willingness to pay (WTP) for all consumers in community water systems in southwestern Minnesota that were out of compliance with water quality standards were estimated to be US$2.4 million and US$2.0 million (in 1995 dollars) for reducing the levels of iron and sulfate, respectively. Yet the total WTP of consumers who use small community water systems may not be enough to pay the full cost of providing improved water in those systems. Economies of scale in water treatment and difficulties in financing improvements mean that technical innovation, government assistance, or institutional changes may be needed to improve water quality in these areas.