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GUIDELINES
FOR THE ECONOMIC EVALUATION
OF NATURAL ASSETS OF THE PROTECTED AREAS
Producer: Contractor: Meritum, d.o.o. Institute of the Republic of Slovenia for Nature Conservation Verovškova 60, Dunajska cesta 22 1000 Ljubljana 1000 Ljubljana
Director: Director: Mitja Ruzzier, PhD Darij Krajčič, PhD Assistant Professor
Ljubljana, March 2010
DELIVERABLE SUMMARY
PROJECT INFORMATION
Project acronym: NATREG
Project title: Managing Natural Assets and Protected Areas as Sustainable Regional Development Opportunities
Contract number:
Starting date: 17. 4. 2009
Ending date: 31. 7. 2011
Project WEB site address: www.natreg.eu
Lead partner organisation: Institute of the Republic of Slovenia for Nature Conservation
Project manager: Gregor Danev
E-mail: [email protected]
Telephone number: 00 386 1 23 09 532
DELIVERABLE INFORMATION
Title of the deliverable: Guidelines for economic evaluation of the natural assets on the PAs
WP/activity related to the deliverable:
WP 3 – Joint Strategy for Integrated Management, Act. 3.3 - Development of guidelines
Type (internal or restricted or public): Public
WP leader: Institute of the Republic of Slovenia for Nature Conservation
Activity leader: Institute of the Republic of Slovenia for Nature Conservation
Participating partner(s): Meritum d.o.o.
Contract number: 8-IX-507/12-O-09/GD
Editor(s)/Author(s): Mitja Ruzzier, PhD, Jasmina Žujo, Miha Marinšek, Samo Sosič
E-mail: [email protected]
Telephone number: 00 386 0590 80 999
DELIVERY DEADLINES
Contractual date of delivery to the JTS: 26.02.2010
Actual date of delivery to the JTS: 1. 6. 2010
DISCLAMER This document reflects the views only of the author, and the South East Europe Programme Managing Authority cannot be held responsible for any use, which may be made of the information contained therein.
ACRONYMS AND ABBREVIATIONS PAs Protected area(s) SEE South east region MA Millennium Ecosystem Assessment WTP Willingness to pay WTA Willingness to pay MPA Market price approach PFA Production function approach HPM Hedonic pricing method TCM Travel cost method ZTCM Zonal travel cost method ITCM Individual travel cost method RUM Random utility model DCA Damage cost avoided COI Cost of illness method LOA Loss of output approach CVM Contingent valuation method CMA Choice modeling approach BT Benefit transfer CBA Cost-Benefit Analysis
TABLE OF CONTENTS FOREWORD......................................................................................................................................................... 1
1. INTRODUCTION .................................................................................................................................. 2 1.1. EXECUTIVE SUMMARY ................................................................................................ 2 1.2. PURPOSE OF THE OUTPUT ............................................................................................ 2 1.3. OBJECTIVES................................................................................................................. 2 1.4. HOW TO USE THESE GUIDELINES.................................................................................. 2 1.5. DEFINITIONS OF PROTECTED AREAS ........................................................................... 3 1.6. ECOSYSTEM SERVICES................................................................................................. 4 1.7. PURPOSE OF ECONOMIC VALUATIONS OF THE ECOSYSTEM .......................................... 6 1.8. CARRYING OUT AN ECONOMIC ANALYSIS .................................................................... 7 1.9. MAIN ASPECTS OF VALUING ECOSYSTEM..................................................................... 8
1.9.1. Determining the value of the total flow of benefits from ecosystems ................. 8 1.9.2. Determining the net benefits of interventions that alter ecosystem conditions.. 9 1.9.3. Examining how the costs and benefits of ecosystems are distributed .............. 10 1.9.4. Identifying potential financing sources for conservation................................. 11
2. COMMONLY USED VALUATION METHODS ............................................................................. 12 2.1. REVEALED PREFERENCE METHODS........................................................................... 12
2.1.1. Market price approaches ................................................................................. 12 2.1.2. Production function approach ......................................................................... 15 2.1.3. Hedonic pricing method ................................................................................... 18 2.1.4. Travel cost models............................................................................................ 21 2.1.5. Damage Cost Avoided...................................................................................... 28 2.1.6. Cost of illness and Loss output approaches ..................................................... 30
2.2. STATED PREFERENCE APPROACHES TO ENVIRONMENTAL VALUATION....................... 32 2.2.1. Contingent valuation method ........................................................................... 32 2.2.2. Choice modelling approach ............................................................................. 37
2.3. BENEFIT TRANSFER ................................................................................................... 41 3. SUMMARY AND RECOMMENDATIONS...................................................................................... 44
4. CONCLUSION ..................................................................................................................................... 45
5. CASE STUDIES.................................................................................................................................... 46
6. FURTHER READING......................................................................................................................... 52
7. REFERENCES ..................................................................................................................................... 52
8. LINKS.................................................................................................................................................... 53
9. ANNEX.................................................................................................................................................. 54
FIGURES Figure 1: Typologies of ecosystem services: Total Economic Value ........................................ 7 Figure 2: Flow of benefits from an ecosystem........................................................................... 8 Figure 3: Change in ecosystem benefits resulting from a conservation project......................... 9 Figure 4: Cost-benefit analysis of a conservation project ........................................................ 10
TABLES Table 1: PA management chategories........................................................................................ 3 Table 2: Ecosystem services ...................................................................................................... 4 Table 3: World’s main ecosystem types and their services ....................................................... 4 Table 4: Criteria for MPA ........................................................................................................ 12 Table 5: Criterion for PFA ....................................................................................................... 15 Table 6: Criteria for HPM ........................................................................................................ 19 Table 7: Criteria for ZTCM...................................................................................................... 23 Table 8: Criteria for RUM........................................................................................................ 25 Table 9: Criteria for DCA ........................................................................................................ 27 Table 10: Criteria for COI........................................................................................................ 29 Table 11: Criteria for CVM...................................................................................................... 34 Table 12: Choice experiment for valuing Australian wetlands................................................ 35 Table 13: Criteria for CMA...................................................................................................... 38 Table 14: Criteria for BT.......................................................................................................... 41 Table 15: Criterion for the assessment of the method.............................................................. 42 Table 16: Commonly used valuation methods with diffrent benefit category......................... 43 Table 17: Total Economic Benefits Of Reforestation At The Proposed Sites (Us$)............... 46
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FOREWORD Natural ecosystems have been, and still often are shown as inferior areas or areas that do not contribute to the economic value of the local community, region or country. But the fact is that ecosystems or nature offer a wide range of services (provisioning services like the delivery of food, fresh water, wood and fiber, and medicine - and services that are less tangible and harder to measure but equally as critical, such as regulating, supporting, and cultural services), which are not something eternal, indestructible and unlimited. As population, income, and consumption levels increase, humans put more and more pressure on the natural environment. Human activities have led to elevated atmospheric concentration of carbon dioxide, and other greenhouse gases, acidification, bad air quality, biodiversity losses, climate change, chemicals, waste, water pollution … With economic evaluation of natural assets usability of each ecosystem can be quantified, so that general public and the government institutions can recognize the harmfulness of uncontrolled exploitation of natural assets and the usefulness of conservation activities. In the future the economic evaluation of ecosystems might either justify the current cost of projects of nature conservation and environmental protection (e.g. establishment of protected areas) or justify the planned changes in the area, which should lead to greater prosperity of the local population or the entire society. The benefits derived from conserving natural areas, especially biological diversity, are among the most difficult to define and quantify, but using a variety of methods for economic valuation of ecosystems that have been and are still developing, the total value of ecosystem can be measured. Valuation also helps to identify the beneficiaries of conservation and the magnitude of the benefits they receive, and thus help design mechanisms to capture some of these benefits and make them available for conservation. Such mechanisms are the base for selecting right financial resources for conserving the ecosystem. The methods presented in this document are, in general, very complicated. Some of the methods require extensive economic knowledge and experience, so it is highly recommended that the economic evaluations are carried out by an interdisciplinary team of experts in the field of biology, ecology, economics … The natural (protected) area managers and decision-maker should at least consult economic experts to help them with economic evaluation of the services which ecosystems provide.
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1. INTRODUCTION
1.1. Executive summary The first part of the document summarizes the most useful economic evaluation methods for Protected Areas (hereinafter referred to as PA). The second part of the document includes two summary tables. In the first all methods and criteria for the selection of the methods are collected and ranked, while in the second table, the possible benefit categories with examples of environmental services and commonly used valuation methods for particular benefit category are collected. In the present guidelines, much literature on the subject has been reviewed, but we included only the most relevant ones. 1.2. Purpose of the output The guidelines for economic evaluation of the PA natural assets are input to the Joint Strategy for Integrated Management of PA. They aim to inform managers of PAs about about economic valuation methods. 1.3. Objectives The project aim is to present the most commonly used methods for economic evaluation of the natural assets of PAs and rank them with a critical assessment of positive and negative characteristics, based on selected criteria. Such a classification based on the criteria is used to help managers to select appropriate methods for the economic evaluation of natural assets and to calculate the total economic value of particular PA or PAs. 1.4. How to use these guidelines When protected area is chosen, it is necessary to identify ecosystem services this ecosystem provides. The guidelines help users to select an appropriate method for the economic evaluation of each service with the help of the review tables in the third chapter “Summary and recommendations”. The methods are evaluated by selected criteria:
Data needs to carry out the economic evaluation, Cost of implementing the economic evaluation, Adequate knowledge to carry out an economic evaluation, Complexity of implementing the economic evaluation, Time needed for the implementation of an economic evaluation, Reliability of result or accuracy of the economic estimation, Transferability of outputs, Frequency of use of methods, Universality of use of methods.
A comparison of methods is based on descriptive assessments of criteria, and on the basis of this assessment rank is determined. We used ranks 1 to 5, where a rank 5 indicates the best rating by this criterion and a rank 1 the worst.
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The purpose of such review of the methods is to enable the users to get quick information on the characteristics of each method and the position of this characteristic compared with other methods. An individual should then choose, depending on his needs (e.g. object of the valuation, budget constraints, time, characteristics of the study and of the population affected and whose welfare is affected), the apropriate method. In general, these methods are very complicated, some require extensive economic knowledge and experience, so it is recommended that the economic evaluations are carried out by experts in the fields of biology, ecology, economics … The natural (protected) area managers and decision-makers should at least consult economic experts to help them with economic evalutation of the services, which ecosystems provide. 1.5. Definitions of Protected Areas There are many different terms used to describe PA, which is a result of absence of common standards or terminology during the twentieth century, when nations were setting up PAs in modern sense in their countries. Therefore, each nation developed its own approach with different descriptions and definitions. To make sense of and to describe the different approaches, a definition of PA and six categories was accepted by General Assembly of International Union for Conservation of Nature (IUCN) in Buenos Aires in 1994. By this definition, a PA is “an area of land and/or sea especially dedicated to the protection and maintenance of biological diversity, and of natural and associated cultural resources, and managed through legal or other effective means« [3; p.4]. Although all PA’s meet the general purposes contained in this definition, in practice the precise purposes for which PA’s are managed differ greatly. IUCN has therefore defined a series of six PA management categories, based on primary management objectives.
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Table 1: PA management categories DEFINITION
CATEGORY Ia: Strict Nature Reserve: PA managed mainly for science
Area of land and/or sea possessing some outstanding or representative ecosystems, geological or physiological features and/or species, available primarily for scientif ic research and/or environmental monitoring.
CATEGORY Ib Wilderness Area: PA managed mainly for w ilderness protection.
Large area of unmodif ied or slightly modif ied land, and/or sea, retaining its natural character and inf luence, w ithout permanent or signif icant habitation, w hich is protected and managed so as to preserve its natural condition.
CATEGORY II National Park: PA managed mainly for ecosystem protection and recreation
Natural area of land and/or sea, designated to (a) protect the ecological integrity of one or more ecosystems for present and future generations, (b) exclude exploitation or occupation inimical to the purposes of designation of the area and (c) provide a foundation for spiritual, scientif ic, educational, recreational and visitor opportunities, all of w hich must be environmentally and culturally compatible.
CATEGORY III Natural Monument: PA managed mainly for conservation of specif ic natural features
Area containing one, or more, specific natural or natural/cultural feature w hich is of outstanding or unique value because of its inherent rarity, representative or aesthetic qualities or cultural signif icance.
CATEGORY IV Habitat/Species Management Area: PA managed mainly for conservation through management intervention
Area of land and/or sea subject to active intervention for management purposes so as to ensure the maintenance of habitats and/or to meet the requirements of specif ic species.
CATEGORY V Protected Landscape/Seascape: PA managed mainly for landscape/seascape conservation and recreation
Area of land, w ith coast and sea as appropriate, w here the interaction of people and nature over time has produced an area of distinct character w ith signif icant aesthetic, ecological and/or cultural value, and often w ith high biological diversity. Safeguarding the integrity of this traditional interaction is vital to the protection, maintenance and evolution of such an area.
CATEGORY VI Managed Resource PA: PA managed mainly for the sustainable use of natural ecosystems
Area containing predominantly unmodif ied natural systems, managed to ensure long term protection and maintenance of biological diversity, w hile providing at the same time a sustainable f low of natural products and services to meet community needs.
CATEGORY
Source: Guidelines for Protected Area Management Categories; IUCN, 1994 (5)
The definition of PA’s was later revised and since 2007, when the first draft was presented in Almeria, Spain, it was successfully refined and revised by many people within IUCN-WCPA. The revised definitions delineate PA as a »clearly defined geographical space, recognised, dedicated and managed, through legal or other effective means, to achieve the long-term conservation of nature with associated ecosystem services and cultural values« [3; p.8].
1.6. Ecosystem services Millennium Ecosystem Assessment (hereinafter MA) defines ecosystem as “a dynamic complexes of plant, animal, and microorganism communities and the nonliving environment, interacting as functional units” of which humans are an integral part [1; p.3]. This also includes managed ecosystems such as agricultural landscapes, and even urban areas. Each ecosystem provides a wide variety of useful goods and services that enhance human well-being and without which we would be worse off in many ways. Ecosystem services, which for example include: the purification of air and water; regulation of rainwater run-off and drought; waste assimilation and detoxification; soil formation and maintenance; control of pests and disease; plant pollination; seed dispersal and nutrient cycling; maintaining biodiversity for agriculture, pharmaceutical research and development and other industrial processes; protection from harmful ultraviolet radiation; climate stabilization; and moderating extremes of temperature, wind, and waves,… are provided free-of-charge as a gift of nature and significantly contribute to the human well being [16; p.5].
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MA classifies the services that ecosystem can provide into provisioning services such as food and water; regulating services such as flood and disease control; cultural services such as spiritual, recreational, and cultural benefits; and supporting services, such as nutrient cycling, that maintain the conditions for life on Earth. These categories illustrate the diverse ways in which ecosystems contribute to human well-being. Table 2: Ecosystem services
Source: Ecosystems and Human Well-being, A Framework for assessment; Millennium Ecosystem Assessment, 2003, p.4 [1]
Table 3: World’s main ecosystem types and their services
Ecosystemservice Inland
WaterFreshw aterFoodTimber, fuel, and f iberNovel productsBiodiversity regulationNutrient cyclingAir quality and climateHuman healthDetoxif ication
Natural hazard regulationCultural and amenity
Coastal Marine Polar MountainForest Urban
Ecosystem
IslandCultivated Dryland
Source: How much is an ecosystem worth? Assessing the economic value of conservation, The World Bank, 2004, p.6 [16] Even though natural ecosystems provide the services, indispensable to human well being, they are under tremendous pressure. All over the world ecosystems are being altered – forest ecosystems are being converted to other uses; wetlands are being drained; coral reefs are being destroyed; freshwater resources are increasingly modified through impoundment, redirection, extraction, land use changes that affect recharge and flow rates, and pollution, agricultural soils and pasture lands are being degraded from over-use [16]. Some of these pressures are intentional effects of human activities, others are un-intended, but to fully comprehend the impact and consequences that these activities are causing a proper economic valuation of natural ecosystem and the services that they provide has to be implemented.
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1.7. Purpose of economic valuations of the ecosystem An economic analysis and valuation of services of a PA is useful to: a. Demonstrate and quantify the value of ecosystem services by PAs in terms of raw
materials, protection of natural and human systems, and maintenance of options for future economic production and growth, as well as the costs associated with the loss of these benefits through resource degradation;
b. Integrating business and economic concerns into conservation planning and practice; c. Identifying and developing potential financing mechanisms and economic incentives for
management; d. Obtaining funding from insurance companies for mitigation measures if resources are
damaged through an accident, such as an oil spill or ship wreck; e. Strengthening Environmental Impact Assessment (EIA) - procedure ensures that
environmental consequences of projects are identified and assessed before authorization is given;
f. Developing mechanisms to ensure that costs and benefits of a PA are more equally shared, e.g. income generating activities for local communities that have insufficiently benefited from the PA, disincentives for damaging activities through taxes or bonds, and funding from groups that benefit from a PA at little or no cost, such as user fees for tourists and visitors [8].
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1.8. Carrying out an economic analysis Most of economic analysis involves the following steps: 1. Identify ecosystem services that are specific to each PA; 2. Identify the total economic value (TEV) of the PA which is the sum of:
• Direct use values refer to ecosystem goods and services that are used directly by human beings (consumptive – food, oxygen, fuels and energy raw materials etc, and nonconsumptive uses – recreation, culture…);
• Indirect use values provide benefits outside the ecosystem itself e.g. natural water filtration, regulation of hydrological cycles, water reservoirs and re-collecting below ground level storage and recovery of food, biomass production, production of surface soil, and metabolism of waste, maintenance of biodiversity, etc.;
• Option values are derived from preserving the option to use in the future ecosystem goods and services that may not be used at present either by oneself (option value) or by others/heirs (bequest value);
• Non-use values refer to the enjoyment people may experience simply by knowing that a resource exists even if they never expect to use that resource directly themselves.
Figure 1: Typologies of ecosystem services: Total Economic Value
Source: Assessing the Economic Value of Ecosystem Conservation, IUCN, 2004, p.9 [10]
The benefits derived from conserving biological diversity are among the most difficult to define and quantify. The value of the area is expressed as the value of timber, crops, amount of water, buildings and building sites in the area, as some of the direct utility value. It is more difficult given the price of calmness, the aesthetic appearance of the landscape, preserving spiritual values and contribution to the health of individuals because of the possibility of recreation in a healthy environment, e.g. while it is relatively easy to identify the benefits obtained from individual components of biodiversity, such as the value of harvesting particular wild species, it is not so easy to describe the benefits of variability itself [10; p.10]. 3. Identify the total economic cost incurred in establishing and running the PA, which is the
sum of: • Management costs – direct expenditures on, for example, equipment, infrastructure,
human resources; • Opportunity costs - the value of the uses of the area that are foregone or precluded
because it has been protected; • Indirect costs – other indirect costs of actions, e.g. tourism related impacts,
4. Quantify the values and costs [10; p.27];
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5. Identify the distribution of benefits and costs between different stakeholder groups. This shows who gains or loses from a PA and thus what economic incentives or other benefit mechanisms are needed [10; p.29].
1.9. Main aspects of valuing ecosystem »Valuation studies have considerably increased our knowledge of the value of ecosystems. Their usefulness has often been undermined, however, by a failure to properly frame them so as to address the specific question of interest. Unfortunately, environmental advocates in the media, government, business, and civil society have often seized on impressive but sometimes unsound valuation results and used them indiscriminately, and often inappropriately » [Pagiola et al., 2004, p.V]. Therefore the seemingly simple question ‘how valuable is an ecosystem?’ can be interpreted in many different ways. The main aspects of valuing ecosystems can be summarized in the following questions: a) what is the value of the current flow of benefits provided by that ecosystem, or b) future flows of benefits, c) what is the value of conserving that ecosystem, d) rather than converting it to some other use. These interpretations of the question are often treated as being synonymous, but they are in fact very different questions, and the answer to one will not be correct as an answer to the other. Particularly, the proposed questions look at how valuation should be used to examine four distinct aspects of the value of ecosystems: 1.9.1. Determining the value of the total flow of benefits from ecosystems This question typically arises in a ‘national accounts’ context: How much are ecosystems contributing to economic activity? It is most often asked at the national level, but can also be asked at the global, regional, or local levels. The value of the various benefits that ecosystem provides could be estimated as shows the figure below [10; p.15]. Figure 2: Flow of benefits from an ecosystem
Source: Assessing the Economic Value of Ecosystem Conservation, IUCN, 2004, p.16 [10]
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1.9.2. Determining the net benefits of interventions that alter ecosystem conditions This question typically arises in a project or policy context: Would the benefits of a given conservation investment, regulation, or incentives justify its costs? It differs fundamentally from the previous question in that it asks about changes in flows of costs and benefits (net value), rather than the sum of total value of flows. To assess whether a specific conservation intervention is worth undertaking, we must know two things: What would happen if we did nothing? And what would happen if we did intervene in a specific way (see figure below)? As figure shows, conservation interventions are not necessarily fully effective. Some interventions may only succeed in slowing rather than halting degradation. The question is whether the TEV of the services provided by an ecosystem with conservation is more or less than the TEV generated by the ecosystem without conservation, after allowing for the cost of implementing the conservation measures. Figure 3: Change in ecosystem benefits resulting from a conservation project
Source: Assessing the Economic Value of Ecosystem Conservation, IUCN, 2004, p.24 [10] The value of conservation is not necessarily positive. There may be cases in which the value of the additional services obtained by converting an ecosystem to an alternative use exceeds the value of the services obtained under conservation. The change in value must then be compared to its cost in order to determine whether it is worth undertaking from an economic perspective [10; p.26]. Figure below illustrates the values of the various services that would be obtained with and without conservation and are compared directly.
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Figure 4: Cost-benefit analysis of a conservation project
Source: Assessing the Economic Value of Ecosystem Conservation, IUCN, 2004, p.25 [10] From the economic point of view, the cost of conservation can be divided into two parts: the direct costs of implementing the conservation measures themselves, and the opportunity cost of the foregone benefits from the services whose use is restricted. These two costs should then be compared to the gross increase in ecosystem benefits that would result from implementing the conservation measures. The key challenge is to identify the changes that would result from the proposed action e.g. how much more production would there be and how fast benefits would increase/decrease as a result of the proposed action (benefits obtained further in the future are less valuable) [10; p.26]. 1.9.3. Examining how the costs and benefits of ecosystems are distributed Different stakeholder groups often perceive very different costs and benefits from ecosystems. Understanding who gains and who loses from ecosystem conservation provides important insights into the incentives that different groups have to manage an ecosystem in a particular way. Comparison of the net benefits that groups receive from an ecosystem managed in one way (without conservation) to the net benefits they would receive if managed in another way (with conservation), may help to predict which groups are likely to support a change in management, and which groups are likely to oppose it [10; p.29]. Determining how the net benefits are distributed among different stakeholders is often more important than CBA.
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1.9.4. Identifying potential financing sources for conservation Knowing that ecosystem services are valuable is of little use if it does not lead to real investments in conserving the natural ecosystems that provide them. Valuation can help identify the beneficiaries of conservation and the magnitude of the benefits they receive, and thus help design mechanisms to capture some of these benefits and make them available for conservation [10; p.V]. Such mechanisms are the base for selecting right financial resources for conserving the ecosystem. This example could be potentially applied in correlation with Pohorje in Slovenia. Pohorje is located to the south of the Drava River between the towns of Dravograd, Maribor and Slovenske Konjice and covers 84,000 hectares. More than 70% of the site is covered with forests that give the area its characteristic appeal. This area has also an important value for its recreational use. The present economic development of the Pohorje is closely linked with forest exploitation, rural economy and tourism, so special attention should be given to the conflicts among different initiatives from spatial planning, regional development and nature conservation sectors.
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2. COMMONLY USED VALUATION METHODS Every method described below is in the last section evaluated by the following criteria:
Data needs to carry out the economic evaluation, Cost of implementing the economic evaluation, Adequate knowledge to carry out an economic evaluation, Complexity of implementing the economic evaluation, Time needed for the implementation of an economic evaluation, Reliability of result or accuracy of the economic estimation, Transferability of outputs, Frequency of use of methods, Universality of use of methods.
For each description of criteria, the rank is determined. We used ranks 1 to 5, where rank 5 indicates the best rating by this criterion, and rank 1 the worst.
2.1. Revealed Preference Methods This approach implies that the valuation of non-market impacts is based on the observation of the actual behaviour and, especially, on the purchases made in actual markets. Consequently, the focus is on real choices and implied Willingness to pay (hereinafter WTP). The strength of these approaches is that they are based on actual decisions made by individuals [9; p.224]. 2.1.1. Market price approaches THEORETICAL BASIS: Market price approach (hereinafter MPA) estimates economic values of environmental goods or services (direct or indirect use values) that are bought and sold in commercial markets. PROCESS OF IMPLEMENTATION: A procedure for implementing a MPA to value a specific environmental good or service: 1. Select appropriate ways of evaluation: Opportunity cost, e.g. creation of a new forest implies the loss of land; Cost of alternatives, e.g. wetlands which provide flood protection may be valued on the
basis of the cost of building man-made flood defences of equal effectiveness; Mitigation costs/avertive behaviour, e.g. the cost of water filtration may be used as a
proxy for the value of water pollution damages; Shadow project costs, e.g. the cost of providing an equal environmental good at an
alternative location; Subsidy cost, e.g. subsidies paid to the agricultural sector for environmentally sensitive
practices; 2. Identify the relevant good/market and collate data; 3. Adjust price data so that it is net of tax or subsidy to derive the proxy value; 4. Aggregate the proxy as appropriate (e.g. across affected population, etc.) [15; p.3].
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APPLICATON OF THE MPA:
Hypothetical Situation [6; section 1]: Water pollution has caused the closure of a commercial fishing area, and agency staff wants to evaluate the benefits of cleanup.
The standard method for measuring the use value of resources traded in the marketplace is the estimation of consumer surplus and producer surplus using market price and quantity data. The total net economic benefit, or economic surplus, is the sum of consumer surplus and producer surplus.
Step 1: Estimation of market demand function before closure: To simplify the example of a linear demand function. If the initial market price is 5€ per kg, and the maximum WTP is 10€ per kg. At 5€ per kg, consumers purchased 10,000kg of fish per year. Thus, consumers spent a total of 50,000€ on fish per year. However, some consumers were WTP more than 5.00€ per kg and thus received a net economic benefit from purchasing the fish. This is shown by the shaded area on the graph, the total consumer surplus and is calculated as (10€-5€)*10,000/2=25,000€.
Step 2: Estimation of market demand function after closure: After the closure, the market price of fish rose from 7€ per kg, and the total quantity demanded decreased to 6,000kg per year.
Thus, the economic benefit has decreased, as shown in the figure. The new consumer surplus is calculated as (10€-7€)*6,000/2 = 9,000€.
Step 3: Estimation of the loss in economic benefits to consumers: benefits before the closure 25,000€ minus benefits after the closure 9,000€. The loss in benefits to consumers is 16,000€.
Step 4: Estimation of producer surplus before closure: Producer surplus is measured by the difference between the total revenues earned from a good, and the total variable costs of producing it. Before the closure, 10,000kg of fish were caught per year. Fishermen were paid 1€ per kg, their total revenues were 10,000€ per year. The variable cost to harvest the fish was 0.5€ per kg, so total variable cost was 5,000€ per year. The producer surplus before the closure was 10,000€-5,000€=5,000€.
Step 5: Estimation of producer surplus after closure: After the closure, 6,000kg were harvested per year. If the wholesale price remained at 1€, the total revenues after the closure would be 6,000€ per
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year. If the variable cost increased to 0.6€, because boats had to travel farther to fish, the total variable cost after the closure was 3,600€. The producer surplus after the closure is 6,000€ - 3,600€ = 2,400€.
Step 6: Calculation of the loss in producer surplus: This is equal to 5,000€ - 2,400€ = 2,600€. Note that this example is based on assumptions that greatly simplify the analysis, for the sake of clarity. Certain factors might make the analysis more complicated e.g. some fishermen might switch to another fishery after the closure, and thus losses would be lower.
Step 7: Calculation of the total economic losses due to the closure: The sum of lost consumer surplus and lost producer surplus. The total loss is 16,000€ + 2,600€ = 18,600€. Thus, the benefits of cleaning up pollution in order to reopen the area are equal to 18,600€. DATA NEEDS: Market data may be collected from secondary sources, or by primary collation [15; p.3]. KEY USES: Decision-making context - Use of market values; Coverage of natural environment - Will be dependent on the extent to which markets relevant to the environmental good or service in question exist [15; p.3]. USE IN COMBINATION WITH OTHER METHODS Some aspects of MPA, such as mitigation costs, may actually serve as inputs into the PFA framework [14; p.20]. ADVANTAGES AND DISADVANTAGES: The main advantages are: • Can be useful in providing an indicative monetary assessment of the value of
environmental goods that might otherwise be regarded as ‘free’; Can likely be implemented in a relatively short-time frame [15; p.4]; • Price, quantity and cost data are relatively easy to obtain for established markets; • The method uses observed data of actual consumer preferences; • The method uses standard, accepted economic techniques [6]. The main disadvantage is: • Market data may only be available for a limited number of goods and services provided by
an ecological resource and may not reflect the value of all productive uses of a resource; • The true economic value of goods or services may not be fully reflected in market
transactions, due to market imperfections and/or policy failures; • Seasonal variations and other effects on price must be considered; • The method cannot be easily used to measure the value of larger scale changes that are
likely to affect the supply of or demand for a good or service; • Usually, the MPA does not deduct the market value of other resources used to bring
ecosystem products to market, and thus may overstate [6]. • Estimating a demand function and changes of the demand to changing ecosystem services
can be highly complicated, • Data requirements may be high, • Computational and econometric skills may be large.
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CRITERIA: Table 4: Criteria for MPA Criteria for MPA Descriptions RankData requirements Market data relatively easy to obtain, may need large data base 4Cost Relatively inexpensive 4Adequate know ledge Requires at least consultation w ith econometric expertise 4Complexity Relatively easy to implement 5
Timing Time is needed for collecting material (you need to take into account seasonal variations for the already existing data) - up to 3 months
4
Reliability of result Minimum value of environ. goods and services w ithout any excess of WTP over price paid; is not appropriate for large scale of changes
4
Transferability of outputs Depend on the extent of the market 4Frequency of use Most w idely used for use values 5Universality of use Direct and indirect use value 3 2.1.2. Production function approach THEORETICAL BASIS: Production function approach (hereinafter PFA) estimates the economic value of environmental products or services that contribute to the production of commercially marketed goods [6]. The PFA focuses on the (indirect) relationship that may exist between a particular non-market environmental good or service and the production of a marketed good [15; p.5]. Dose-response technique is an older method of valuation, which aims to establish a relationship between environmental impacts (the response) and physical environmental impacts such as pollution (the dose). The technique is used when the dose-response relationship between the cause of environmental damage, e.g. pollution, and the impacts, e.g. morbidity, due to pollution is well known. The technique takes natural science information on the physical effects of pollution and uses this in an economic model of evaluation. The economic evaluation will be performed by estimation, through a production or a utility function of the profit variations of firms or the revenue gains or losses of individuals. The major fields of application of the methodology are the evaluation of losses (in crops, for example) due to pollution, the pollution effects on ecosystems, vegetation and soil erosion, and the impacts of urban air pollution on health, materials and buildings [9; p.227]. This approach of evaluation is too simplified, ignores any possible modification in the economic behaviour of the individuals affected by the environmental change, so new technique was developed. Modern PFA assumes that an environmental good or service essentially serves as a factor input (land, labour and capital as well as environmental inputs) in the production of a marketed good that yields utility. Changes in the quality and quantity of the resource will result in changes in production costs, which in turn will affect the quantity and price of the final market good. The change may also affect the economic returns to other factor inputs, e.g. rent to land and capital, wages to labour. Ultimately, changes in market output and price and factor returns will result in changes in consumer and producer surpluses. The change in these surpluses gives an estimate of the value of the environmental good or service in its function as a factor input [15; p.5]. The same effect can be used with the cost function, which relates the cost of production of a given good to the cost of factor inputs.
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PROCESS OF IMPLEMENTATION: Estimating the value of environmental goods and service via the PFA requires a fair degree of analytical rigour, particularly in identifying and specifying the relationship between different factors in the production and/or cost functions: 1. Collate data - this includes market data on price, output and demand and data on factor
inputs and prices; 2. Derivation of production function and/or cost function - the relationship between the
environmental input and output of the final market good is estimated; 3. Estimate changes in consumer and producer surpluses - changes in production and costs
are analysed in relation to final market supply and demand in order to estimate changes in surplus [15; p.5].
Two steps of the method are:
The physical effect of an environmental change on an economic activity are determined – dose-response technique
The impact of this environmental change is valued in terms of the corresponding change in the marketed output of the relevant activity – modern PFA
These steps can be analyzed together if the physical impact on production due to the environment is treated as an `input` into the economic activity, and like any other input, its value can be equated with its impact on the productivity of any marketed output [4]. APPLICATON OF THE PFA: Hypothetical Situation [6; section 2]: A reservoir that provides water for a city’s drinking water system is being polluted by agricultural runoff. Agency staff wants to determine the economic benefits of measures to eliminate the runoff.
Step 1: Specification of the production function for purified drinking water. Specification of the functional relationship between the inputs (water of a particular quality from the reservoir, chemicals, and filtration), and the output (pure drinking water). Step 2: Estimating how the cost of purification changes the estimated production function is then used with the changes of reservoir water quality. The researcher would calculate the quantities of purification chemicals and filters needed for different levels of reservoir water quality, by plugging different levels of water quality into the production function. These quantities would then be multiplied by their costs. Step 3: Estimation of the economic benefits of protecting the reservoir from runoff, in terms of reduced purification costs. For example, if all runoff is eliminated, the reservoir water will need very little treatment and the purification costs for drinking water will be minimal. This can be compared to the cost of purifying water where runoff is not controlled. The difference in purification costs is an estimate of the benefits of eliminating runoff. Similarly, the benefits for different levels of runoff reduction can be estimated. This step requires information about the projected success of actions to reduce runoff, in terms of the decrease in runoff and the resulting changes in reservoir water quality. DATA NEEDS: A lot of data concerning the final goods market and factor inputs like change in service, impact on production, net value of produced goods. It is also necessary that the production function and market structure be specified [15; p.6].
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KEY USES: Decision-making – Used as demonstration tool of the importance of issues, inputs for cost-benefit analyses (hereinafter CBA) and also providing a basis for legal damage assessments; Coverage of natural environment - Environmental goods and services serve as inputs to a number of market products and empirical examples of the PFA are numerous [15; p.6]. USE IN COMBINATION WITH OTHER METHODS Mitigation costs/averting expenditures and avoided costs may be included within the production function framework, since these actions will alter production and cost functions. Market prices (and even WTP or WTA estimates for non-market changes) can be incorporated to estimate the economic value of the change, where production function is used to estimate the physical change [14; p.20]. ADVANTAGES AND DISADVANTAGES: The main advantage is: • In general, the methodology is straightforward; • Data requirements are limited, and the relevant data may be readily available, so the
method can be relatively inexpensive to apply [6; section 2]. The main disadvantages are: • Due to confidentiality reasons, data on cost structures and functions may be difficult to
obtain [15; p.7]; • If not all services will be related to the production of marketed goods, the inferred value of
that ecosystem may understate its true value to society; • Information is needed on the scientific relationships between actions to improve quality or
quantity of the resource and the actual outcomes of those actions. These relationships may not be well known or understood;
• If the changes in the natural resource affect the market price of the final good, or the prices of any other production inputs, the method becomes much more complicated and difficult to apply [6; section 2].
CASE STUDY: Values of Wetlands in the Peconic Estuary, Long Island - New York [6; section 2]
The study focused on valuing marginal changes in acres of wetlands, in terms of their contribution to the production of crabs, scallops, clams, birds, and waterfowl. It was assumed that wetlands provide both food chain and habitat support for these species. First, the productivity of different wetlands types in terms of food chain production was estimated and linked to production of the different species of fish. Second, the expected yields of fish and birds per acre of habitat were estimated. Finally, the quantities of expected fish and bird production were valued using commercial values for the fish, viewing values for birds, and hunting values for waterfowl. The study results estimated that an acre of eelgrass is worth $1065 per year, an acre of salt marsh is worth $338 per year, and an acre of intertidal mudflat is worth $68 per year, in terms of increased productivity of crabs, scallops, clams, birds, and waterfowl. Based on the results of this study, managers can calculate the economic value, for productivity services, of preserving or restoring wetlands in the Estuary. These values do not capture the full value of the wetlands, because they only address values in production of commercially and recreationally valuable species. Thus, they are an understatement of the TEV for the wetlands, which might include other services, such as erosion and storm protection or aesthetics.
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CRITERIA: Table 5: Criterion for PFA Criteria for PFA Descriptions RankData requirements Data on change in services and consequent impact on production often lacking 4Cost Can be relatively inexpensive to apply 4Adequate know ledge Requires econometric expertise 2
Complexity The method is easily applied in cases w here the resource in question is a perfect substitute for other inputs and in cases w here only producers (not consumer) of the f inal good benefit from changes in quantity or quality of the resource.
3
Timing 3-6 months 3
Reliability of resultEnables that the effect of a change in input to be expresed in terms of its impact on output or production costs; if all services w ill not be related to the production of marketed goods the value may be understated
4
Transferability of outputs Transferability of output is likely to be limited, w ith regard of the f inal good market and the underlying factor input relationships and specif ied production and cost functions
4
Frequency of use Rarely used 1Universality of use Direct and indirect use value - any impact that affect produced goods 3 2.1.3. Hedonic pricing method THEORETICAL BASIS: Hedonic pricing method (hereinafter HPM) estimates economic values for environmental services (non-market goods such as traffic noise, air pollution, water quality, proximity to landfill sites, etc.) that directly affect market prices of some other good. Most commonly applied to variations in housing prices that reflect the value of local environmental attributes [6; section 3]. The focus of this method is in the observation of behaviour in markets for goods related to the ones the analyst is evaluating. The starting point is the fact that the prices of many market goods are functions of a bundle of characteristics such as structure, location, environs, environmental characteristics, neighbourhood characteristics, etc. Through statistical techniques the method tries to isolate the implicit price of each of these characteristics. Hence, it may be expected that properties which feature higher levels of desirable environmental characteristics will command a higher market price than similar properties with lower levels of those same characteristics [9; p.225]. A house near the urban park Tivoli, for example, will be purchased at a higher price than a house located far from this location. The difference in values can be viewed as the value of proximity to the park. In non-market evaluation, the method uses two types of markets: Property market - the description of house in terms of the number of rooms, location,
structure, age, etc. Labour market - the observation of wage differentials between jobs with different
exposure to physical risk has been used in order to estimate the value of avoiding risk of death or injury [9; p.225].
PROCESS OF IMPLEMENTATION: HP employs multiple regression econometric techniques and requires two stages of analysis: 1. Estimation of the HP function - summarizes the relationship between a property’s market
price and its characteristics;
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2. Derivation of demand curves and underlying values - property prices are determined by the interaction of supply and demand in the property market, and hence do not reflect the excess of WTP over price paid, i.e. consumer surplus. The second stage of the HPM analysis therefore seeks to estimate the demand curve for the characteristic of interest so that full economic value may be inferred [15; p.8].
As with all econometric analyses, the implementation of HPM is dependent on the quality of data, the specification of an appropriate functional form for the HP function (e.g. linear, etc), the inclusion or omission of explanatory variables in the initial analysis, etc [15; p.8]. APPLICATON OF THE HPM: Hypothetical Situation [6; section 3]: Agency staff wants to measure the benefits of an open space preservation program in a region where open land is rapidly being developed.
Step 1: Collecting data on residential property sales in the region for a specific time period (usually one year). The required data include: • Selling prices and locations of residential properties, • Property, neighbourhood, accessibility and environmental characteristics that affect selling prices. In this case, the environmental characteristic of concern is the proximity to open space. The researcher might collect data on the amount and type of open space within a given radius of each property, and might also note whether a property is directly adjacent to open space.
Step 2: Statistical estimation of a function that relates property values to the property characteristics, including the distance to open space. The resulting function measures the portion of the property price that is attributable to each characteristic. Thus, the researcher can estimate the value of preserving open space by looking at how the value of the average home changes when the amount of open space nearby changes. DATA NEEDS: Require large amounts of data on determinants of house prices which may be difficult to measure and obtain. Data may be collected from: Primary sources - home owners can provide a direct link between socio-economic
characteristics and house prices; Secondary sources - the socio-economic characteristics of the neighborhoods are used as
these are assumed to be sufficiently similar to the individual buyers who live in or move into these neighbourhoods;
Geographical information systems (GIS) to measure and compile data [15; p.8-9]. KEY USES: Decision-making – Used as information on localized and site specific impacts, as inputs for CBA, as a basis for legal damage assessments and as the basis for a tax and legal damage assessment; Coverage of natural environment – Limited to environmental characteristics which are manifested near residential areas and are observable to buyers and are likely to have an impact over the period of occupancy [15; p.9]. USE IN COMBINATION WITH OTHER METHODS The HPM is principally a stand-alone method with relatively small scope for combination with other methods [14; p.21]. ADVANTAGES AND DISADVANTAGES: The main advantage is:
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• Use of actual market data [15; p.10]; • Property markets are relatively efficient in responding to information, so can be good
indications of value; • Property records are typically very reliable; • Data on property sales and characteristics are readily available through many sources, and
can be related to other secondary data sources to obtain descriptive variables for the analysis;
• The method can be adapted to consider several possible interactions between market goods and environmental quality [6; section 3].
The main disadvantages are: • Market characteristics tend to move in tandem, so it is often hard to ‘tease out’ the
independent effect of the single characteristic [9; p.225]; • Observed correlations between the environmental good and property price may be
spurious or due to interactions with factors, e.g. taxes, interest rates, etc., not included in the specified model;
• Not suited for application where environmental impacts are not observed in property purchasing decisions, or where environmental impacts are yet to occur [15; p.10];
• It can be difficult to assess market size in spatial terms; • Assumptions will never fully describe reality, e.g. buyers could be more poorly informed
about the characteristics of certain houses than sellers [4]; • The scope of environmental benefits that can be measured is limited to things that are
related to housing prices; • Implementation and interpretation is relatively complex, requiring a high degree of
statistical expertise; • The results depend heavily on model specification; • Large amounts of data must be gathered and manipulated; • The time and expense depends on the data availability and accessibility [6; section 3]. CASE STUDY: Values of Environmental Amenities in Southold, Long Island - New York [6; section 3]
The Situation: The town of Southold, Long Island, New York has coastlines on both the Peconic Bay and Long Island Sound. Compared to the rest of Long Island, it is a relatively rural area, with a large amount of farmland. However, population and housing density are rapidly increasing in the town, resulting in development pressures on farmland and other types of open space.
The Challenge: The Peconic Estuary Program is considering various management actions for the Estuary and surrounding land areas. In order to assess some of the values that may result from these management actions, a hedonic valuation study was conducted, using 1996 housing transactions.
The Analysis: The study found that the following variables that are relevant for local environmental management had significant effects on property values in Southold: • Open Space: Properties adjacent to open space had, on average, 12.8% higher per-acre value than
similar properties located elsewhere. • Farmland: Properties located adjacent to farmland had, on average, 13.3% lower per-acre value.
Property values increased very slightly with greater distance from farmland. • Major Roads: Properties located within 20 m of a major road had, on average, 16.2% lower per-
acre value. • Zoning: Properties located within an area with two- or three-acre zoning had, on average, 16.7%
higher per-acre value. • Wetlands: For every percentage point increase in the percent of a parcel classified as a wetland,
the average per-acre value increased by 0.3%.
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The Results: Based on the results of this study, managers could, for example, calculate the value of preserving a parcel of open space, by calculating the effects on property values adjacent to the parcel. For a hypothetical simple case, the value of preserving a 10 acre parcel of open space, surrounded by 15 “average” properties, was calculated as $410,907. CRITERIA: Table 6: Criteria for HPM Criteria for HPM Descriptions Rank
Data requirements Requires large amounts of data w hich may be diff icult to measure and obtain 3
Cost If the data is readily available it can be inexpensive to apply 4Adequate know ledge Employs multiple regression econometric tehchniques 2
Complexity Relatively complex to implement and interpret, requiring a high degree of statistical expertise
3
Timing 6-12 months 2
Reliability of resultWTP for environmental attributes is ref lected by the market (observed correlations betw een the environmental good and property price may be spurious or due to interactions w ith factors not included in the specified model).
4
Transferability of outputsResults cannot be transferred across markets w ithout taking into account demand and supply factors in those markets; the scope of environmental benefits that can be measured is limited to things that are related to housing prices.
3
Frequency of use Relatively rare use 2Universality of use Direct and indirect use value 3 2.1.4. Travel cost models 2.1.4.1. Traditional Travel cost method THEORETICAL BASIS: Travel cost method (hereinafter TCM) estimates economic use values associated with ecosystems or sites that are used for recreation. Assumes that the value of a site is reflected in how much people are WTP to travel to visit the site [6; section 4]. These consumption costs will include travel costs, entry fees, on-site expenditures, and the given working time. Because the method evaluates only the actual costs incurred by the direct application of environmental services, method cannot estimate non-use values [4]. TCM is focused on the `How many trips/visits`. The economic value of a site can also include individual socio-economic characteristics such as income, education and age level, and is dependent on the proximity of the place, type of visitor (pure, transit or meanderer visitor), travel cost specifications (marginal, total or perceived costs), costs of travel time, the presence of substitute sites and variation in quality and as well as variables giving information on the type of trip [15; p.11]. The TCM can be split into two distinct variants depending on the definition of the 'visits' variable in the trip-generating function: 1. Zonal TCM ( hereinafter ZTCM) - Divides the entire area from which visitors to a site
originate, into a number of visitor zones and defines the dependent variable as the visitor rate [15; p.11];
2. Individual TCM (hereinafter ITCM) - Uses survey data from individual visitors in the statistical analysis, rather than data from each zone. This method thus requires more data collection and slightly more complicated analysis, but will give more precise results [6; section 4].
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The key assumption is: as the travel costs increase, the number of visits falls [4]. PROCESS OF IMPLEMENTATION: The ITCM is a survey-based technique [15; p.11]: 1. Administration of a questionnaire to a sample of visitors to a site in order to ascertain
their place of residence, demographic and attitudinal information, frequency of visit to the site and other similar sites, and trip information (purpose, length, associated costs etc);
2. From the survey data, visit costs are calculated and related, with other relevant factors, to visit frequency so that a demand relationship may be established via econometric analysis;
3. The demand function is then used to estimate the recreation value of the whole site in terms of consumer surplus, which when considered in together with 'price' paid e.g. travel costs, yields a WTP estimate of a site’s recreational value.
The ZTCM is implemented as follows [15; p.12]: 1. Collect data via on-site surveys on the number of visits made by households in a period
and their origin; 2. The area encompassing all visitor options is sub-divided into zones of increasing travel
cost; 3. Zonal average cost of a visit is calculated with reference to the distance from the trip
origin to the site; 4. The demand curve is fitted relating the zonal average price of a trip (the travel cost) to the
zonal average number of visits per household; 5. Annual total consumer surplus for the site recreation experience of visiting the site is
estimated. APPLICATON OF THE ZTCM: Hypothetical Situation [6; section 4]: A site used mainly for recreational fishing is threatened by development in the surrounding area. Pollution and other impacts from this development could destroy the fish habitat at the site, resulting in a serious decline in, or total loss of, the site’s ability to provide recreational fishing services. Resource agency staff wants to determine the value of programs or actions to protect fish habitat at the site.
Step 1: Defining a set of zones surrounding the site. These may be defined by concentric circles around the site, or by geographic divisions that make sense.
Step 2: Collection of information on the number of visitors from each zone, and the number of visits made in the last year.
Step 3: Calculation of the visitation rates per 1000 population in each zone. This is simply the total visits per year from the zone, divided by the zone’s population in thousands. An example is shown in the table: Zone Total
Visits/YearZone Population
Visits/1000
0 400 1000 4001 400 2000 2002 400 4000 1003 400 8000 50Beyond 3 0Total Visits 1600
Step 4: Calculation of the average round-trip travel distance and travel time to the site for each zone. Assume that people in Zone 0 have zero travel distance and time. Each other zone will have an increasing travel time and distance. Next, using average cost per mile and per hour of travel time, the researcher can calculate the travel cost per trip. A standard cost per mile for operating an automobile
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is readily available from point A or other sources. Assume that this cost per mile is 0.3€. The cost of time is more complicated. The simplest approach is to use the average hourly wage. Assume that it is 0.15€/minute, for all zones, although in practice it is likely to differ by zone. The calculations are shown in the table:
Round Trip Round Trip Travel Distance Travel Time
0 0 0 0,00 0,00 0,001 20 30 6,00 4,50 10,502 40 60 12,00 9,00 21,003 80 120 24,00 18,00 42,00
Zone Distance timesCost/Mile (0.3€)
Travel Time timesCost/Minute (0.15€)
Total Travel Cost/Trip in EUR
Step 5: Estimation of the demand function for the average visitor by the equation that relates visits per capita to travel costs and other important variables (regression function). Also the demographic variables might be included, such as age, income, gender, and education levels, using the average values for each zone. The equation with only the travel cost and visits/1000 is as follows: Visits/1000 = 330 – 7.755*(Travel Cost).
Step 6: Construction of the demand function for visits to the site, using the results of the regression analysis. The first point on the demand curve is the total visitors to the site at current access costs (assuming there is no entry fee for the site), which in this example is 1600 visits per year. The other points are found by estimating the number of visitors with different hypothetical entrance fees (assuming that an entrance fee is viewed in the same way as travel costs). For the purposes of our example, start by assuming a 10€ entrance fee. Plugging this into the estimated regression equation, V = 330 – 7.755C, gives the following:
Zone Travel Costplus 10€
Visits/1000 Population Total Visits
0 10.00 252 1000 2521 20.50 171 2000 3422 31.00 90 4000 3603 52.00 0 8000 0
Total Visits
954
This gives the second point on the demand curve—954 visits at an entry fee of 10€. In the same way, the number of visits for increasing entry fees can be calculated, to get:
Entry Fee in EUR Total Visits20 40930 12940 2050 0
Step 7: Estimation of the total economic benefit of the site to visitors by calculating the consumer surplus, or the area under the demand curve. This results in a total estimate of economic benefits from recreational uses of the site of around 23,000€ per year, or around 14.38€ per visit (23,000€/1,600).
Results: If the actions cost less than 23,000€ per year, the cost will be less than the benefits provided by the site. If the costs are greater than this, the staff will have to decide whether other factors make them worthwhile. DATA NEEDS: The data on place of residence of visitors, demographic and attitudinal information, frequency of visit to the site and other similar sites and trip information (e.g. purposefulness, length, associated costs, etc.) is required. Data on explanatory variables, which are also likely to influence visit rates, e.g. income, preference and availability of alternative sites, are also important, as is the mode of travel (car, rail, etc) to the site.
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Use of geographical information systems (GIS), particularly in applications of the ZTCM, can help define travel costs zones to account for areas with similar travel costs, availability of substitute sites and socio-economic characteristics [15; p.12]. KEY USES: Decision-making - Used as estimation of the use value derived from well-defined recreational sites, or separable, well-perceived environmental or cultural attributes within such a site; Coverage of natural environment - Provide a broad coverage of natural environment, such as woodlands, forests, wetlands, rivers and lakes (e.g. angling), coastal areas and PA as a whole
[15; p.12]. USE IN COMBINATION WITH OTHER METHODS The survey aspect of the method implies that it can be combined with stated preference methods, where it is possible to elicit information on travel costs and values for a simulated market involving the environmental good of interest [14; p.22]. ADVANTAGES AND DISADVANTAGES: The main advantages are: • Evaluate the use value associated with well-defined recreation sites [15; p.15]; • Evaluate one utility function and separately another [4]; • Estimate economic values based on market prices; • Based on actual behaviour (what people actually do), rather than stated WTP—what
people say they would do in a hypothetical situation; • The results are relatively easy to interpret and explain [6; section 4]. The main disadvantages are: • Only reduced forms of the trip-generating function can be estimated (limited availability
of data); • Requires econometric expertise; • It is difficult to compare valuations derived by different TCM studies; • Is not suited for the consideration of the effects of the availability of substitute sites and
changes in quality levels of specific site characteristics; • Methodological concerns may disadvantage the use of TCM results; • Lack of theoretical guidance, concerning the appropriate functional form of the trip-
generating function; • Only estimates the direct (recreational) use value of a particular site; • Not able to account for environmental goods/bad that are imperceptible to short-term
visitors [15; p.15]; • Cannot easily be used to value a change in quality of recreation for a site [6; section 4]. CRITERIA:
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Table 7: Criteria for ZTCM Criteria for ZTCM Descriptions RankData requirements Limited availability of data 3Cost Least expensive method 5Adequate know ledge Requires econometric expertise 2Complexity Simpliest 5Timing With regards to seasonal variations: 6-18 months 1
Reliability of resultProvide an estimate of the consumer surplus or WTP associated w ith visits to recreational sites
4
Transferability of outputs It is dif f icult to compare valuations derived by dif ferent TCM studies 2Frequency of use Medium frequency of use 3Universality of use Direct and indirect use value - limited to recreational use 2 Note: We presented only ZTCM in the table above, because it is more often used 2.1.4.2. The Random utility model - RUM THEORETICAL BASIS: The Random utility model (hereinafter RUM) focuses on the decision made by individuals in relation to visiting recreation sites. Focuses on where to visit from among a group of options, or substitute sites. In particular the choice among available sites is dependent on the comparison of the characteristics of each site. The conceptual basis of the RUM is an individual’s indirect utility function, which relates factors such as income, socio-economic characteristics, travel costs and site quality characteristics to the utility (well-being or pleasure) derived from a recreation visit [15; p.15]. Example: If we are trying to model the non-market recreational value of forest as destinations for mountain bikers in Slovenia, first a sample for mountain bikers is put together, then they are asked how many mountain bike trips they took in the previous 12 months, to score each site in terms of the site attributes (e.g. how challenging is the routes, bike washes,…), how far from the site they live, how long it takes to travel to each site… [4]. When we have a larger number of observations, we can decompose utility into an observable, deterministic component, which we assume depend on site characteristics. Compensating surplus can be estimated using a program like STATA or LIMDEP which helps us in calculating welfare impact for changes in site quality and availability [4]. PROCESS OF IMPLEMENTATION: The RUM may be derived from a travel cost survey: 1. A questionnaire is administered to a sample of visitors at a selection of recreation sites,
demographic and attitudinal information, frequency of visit to the site and others, trip information. The survey will also collect data about the characteristics of each site;
2. Estimation of probability of visiting a given site on the basis of the costs of visiting the site and characteristics of the given and substitute sites;
3. The monetary value of changes in the quality of site characteristics may then be estimated by relating the relevant function coefficient to the coefficient of travel cost [15; p.16].
DATA NEEDS: Requires a travel cost survey to collect data [15; p.16]. KEY USES:
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Decision-making – Estimates of the use value associated with different characteristics associated with recreation sites; Coverage of natural environment - Estimating the value of non-market environmental goods and services associated with open-access recreation resources such as PA’s, woodland, forest, rivers, lakes, wetlands and coastal areas [15; p.16]. USE IN COMBINATION WITH OTHER METHODS The ability to explain choice among alternative sites comes at the expense of the ability to explain total demand for recreation. Hence the TCM and random utility model are complementary methods for estimating the value of environmental goods and service from travel cost surveys, and the decision as to apply which will depend on the required output. As with the TCM, the random utility model can also be used in conjunction with stated preference methods if a survey is used to collect the data [14; p.22]. ADVANTAGES AND DISADVANTAGES: The main advantage is: • Estimate economic values based on market prices; • Most appropriate approach for the consideration of the effects of the availability of
substitute sites and changes in quality levels of specific site characteristics; • Evaluate the use value associated with well-defined recreation sites [15; p.17]; • It is the best approach to use to estimate benefits for specific characteristics, or quality
changes, of sites, rather than for the site as a whole; • Based on actual behaviour (what people actually do), rather than stated WTP - what
people say they would do in a hypothetical situation [6; section 4]. The main disadvantages are: • The ability to collect sufficient data may be limited; • The most complicated and expensive of the travel cost approaches [6; section 4]; • Involves many assumptions; • Requires sophisticated statistics and econometrics. 2.1.4.3. Issues with both TCMs • Monetary value of leisure time or opportunity cost of travel time – you can use the wage
rate or the value of time for individuals (questionnaire); if you take also a commodity value into account, then the net cost of time is the difference between the commodity value and the scarcity value;
• How to combined both TCMs or how often to go with where to go – feedback loop is needed between how and when and both components should be estimated simultaneously;
• What is the choice set: researcher assumes that the researchers can accurately define the choice set that recreationalists face, but what to count as similar goods or assumes strong separability in the utility function;
• How to measure site characteristics – choice between two approaches: subjective (e.g. fisherman is interesting in river being clean) or scientific objective (e.g. species count);
• Preference heterogeneity – people may have considerably varying preferences for site attributes in terms of how much they like them; to avoid this problem you can divide people in samples;
• Crowding – crowding thus both determines and is determined by site choices [4];
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• Purpose of the trip - if a trip has more than one purpose, the value of the site may be overestimated;
• Value of time spent travelling - Defining and measuring the opportunity cost of time can be problematic. The person’s wage rate can be used, but if people enjoy the travel itself, then travel time becomes a benefit, not a cost, and the value of the site will be overestimated [6; section 4].
CASE STUDY: Improvements in Water Quality in the Chesapeake Bay (the largest estuary in the US) [6; section 4]
The Situation: The costs to farmers and taxpayers of implementing on-farm best management practices to reduce sediment and nutrient runoff to the Chesapeake Bay are well known. Controversies arose during the 1980’s, which continue today, over the benefits of resulting improvements in water quality.
The Challenge: Economists were asked to assess the economic benefits of water quality improvements to beach users in the Chesapeake Bay area. They needed to establish linkages between differences in water quality and differences in WTP for beach use. The hypothesis that to be tested was that average WTP, as reflected in the travel costs to visitors to particular beaches, was positively correlated with water quality. If the hypothesis was correct the empirical results would allow researchers to estimate the increase in WTP of improving water quality at all beaches.
The Analysis: Researchers selected the concentration of nitrogen and phosphorous in the water at the monitoring station nearest to the beach as an index of water quality at the beach. This was assumed to reflect the level of objectionable visual and other characteristics that affect the value of beach use. A cross-sectional analysis of travel cost data collected from 484 people at 11 public beaches was used to impute the aggregate WTP for a 20% increase in water quality, which was assumed to be associated with a 20% reduction in total nitrogen and phosphorus.
The Results: The average annual benefits to all Maryland beach users of the improvements in water quality were estimated at $35 million in 1984. These were thought to be conservative for several reasons, including: • The value of improvements in water quality was only shown to increase the value of current beach
use. However, improved water quality can also be expected to increase overall beach use. • Estimates ignore visitors from outside the Baltimore-Washington statistical metropolitan sampling
area. • The population and incomes in origin zones near the Chesapeake Bay beach areas are increasing,
which is likely to increase visitor-days and thus total WTP.
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CRITERIA: Table 8: Criteria for RUM Criteria for RUM Descriptions RankData requirements Requires a travel cost survey, suff icient data may be limited 2Cost Most expensive of travel cost methods 1Adequate know ledge Requires sophisticated statistics and econometric expertise 1Complexity Most complicated 1Timing 6-12 months 2
Reliability of resultEstimate of WTP for incremental changes in the quality of recreation site characteristics, w hich typically include environmental goods and services; most appropriate approach w hen there are many substitute sites
5
Transferability of outputs The estimates are based on the relative levels of dif ferent characteristics for each of the sites so transferability is likely to be limited
3
Frequency of use Rarely used 1Universality of use Direct and indirect use value 3 2.1.5. Damage Cost Avoided THEORETICAL BASIS: Damage cost avoided (hereinafter DCA) estimate economic values based on costs of avoided damages resulting from lost ecosystem services, costs of replacing ecosystem services, or costs of providing substitute services [6; section 5].
Examples: • Valuing improved water quality by measuring the cost of controlling effluent emissions. • Valuing erosion protection services of a forest or wetland by measuring the cost of removing
eroded sediment from downstream areas. APPLICATON OF THE DCA: Hypothetical Situation [6; section 5]: An agency is considering restoring some degraded wetlands in order to improve their ability to protect the surrounding area from flooding. The agency wants to value the benefits of improved flood protection.
Step 1: Ecological assessment of the flood protection services provided by the wetlands would determine the current level of flood protection and the expected level of protection if the wetlands are fully restored.
Step 2: This step depends on the specific method chosen. The DCA method might be applied using two different approaches. One approach is to use the information on flood protection obtained in the first step to estimate potential damages to property if floods were to occur. In this case, the researcher would estimate, in Euros, the probable damages to property if the wetlands are not restored. A second approach would be to determine whether nearby property owners have spent money to protect their property from the possibility of flood damage, for example by purchasing additional insurance or by reinforcing their basements. These avoidance expenditures would be summed over all affected properties to provide an estimate of the benefits from increased flood protection. However, one would not expect the two approaches to produce the same estimate. One might expect that, if avoidance costs are expected to be less than the possible damages, people would pay to avoid those damages. The replacement cost method is applied by estimating the costs of replacing the affected ecosystem services. In this case, flood protection services cannot be directly replaced, so this method would not be useful. The substitute cost method is applied by estimating the costs of providing a substitute for the affected services. For example, in this case a retaining wall or a levee might be built to protect nearby properties from flooding. The researcher would thus estimate the cost of building and maintaining such a wall or levee. The researcher must also determine whether people would be WTA the wall or levee in place of a restored wetland.
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Results: If flood protection benefits of restoring the wetlands are bigger then the restoration costs than we should restore the flood protection services of the wetlands. DATA NEEDS: Questions about, for example, their health status, purchase of durable goods that might mitigate indoor exposure to ground-level ozone, their outdoor behaviour in general and on bad air quality days in particular [12; p.100]. KEY USES: Decision-making – Economic estimates on different scenarios: avoiding damages, replacing ecosystem or provisioning substitute; Coverage of natural environment - Provide a broad coverage of natural environment, which is estimated with cost of avoiding damage, or replacing ecosystems or services. ADVANTAGES AND DISADVANTAGES: The main advantages are: • The methods may provide a rough indicator of economic value, subject to data constraints
and the degree of similarity or substitutability between related goods; • These approaches are less data - and resource-intensive; • Data or resource limitations may rule out valuation methods that estimate WTP; • Provide surrogate measures of value that are as consistent as possible with the economic
concept of use value, for services which may be difficult to value by other means [6; section 5].
The main disadvantages are: • Costs are usually not an accurate measure of benefits; • These methods do not consider social preferences for ecosystem services, or individuals’
behaviour in the absence of those services (they should be used as a last resort to value ecosystem services);
• The methods may be inconsistent because few environmental actions and regulations are based solely on benefit-cost comparisons, particularly at the national level. Therefore, the cost of a protective action may actually exceed the benefits to society;
• The replacement cost method requires information on the degree of substitution between the market good and the natural resource. Few environmental resources have such direct or indirect substitutes. Substitute goods are unlikely to provide the same types of benefits as the natural resource, e.g., stocked salmon may not be valued as highly by anglers as wild salmon;
• These approaches should be used only after a project has been implemented or if society has demonstrated their WTP for the project in some other way (e.g., approved spending for the project). Otherwise there is no indication that the value of the good or service provided by the ecological resource to the affected community is greater than the estimated cost of the project;
• Without evidence that the public would demand the alternative, this methodology is not an economically appropriate estimator of ecosystem service value [6; section 5].
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CRITERIA: Table 9: Criteria for DCA Criteria for DCA Descriptions RankData requirements Little amount of data is needed 5Cost Cost effective 5Adequate know ledge Expertise know ledge is not required 4Complexity Relatively easy to implement 4Timing Time effective: up to 1 month 5
Reliability of result Costs are usually not an accurate measure of benefits;social preferences for ecosystem services not considered
1
Transferability of outputs Related to specific conditions and population exposed 1Frequency of use Rarely used 1Universality of use Direct and indirect use value 3 2.1.6. Cost of illness and Loss output approaches THEORETICAL BASIS: Cost of illness method (hereinafter COI) estimates expenditures on medical services and products made in response to morbidity and other health effects of non-market impacts. The economic costs of an increase in morbidity due to increased pollution levels can be estimated using information on various costs associated with the increase: any loss of earnings resulting from illness; medical costs such as for doctors, hospital visits or stays, medication; and other related out-of pocket expenses [16; p.17]. Other costs are also the expenditures for prevention, detection, treatment, rehabilitation, research, training, and capital investment in medical facilities. Decision concerning health care expenditure is not made by individuals alone, but involves social administrators, politicians and taxpayers. This circumstance introduces a complex evaluation issue because the decisions of public administrators and politicians reflect not only the assessment of the negative impacts of the non-market good, but also other types of considerations (politics and ethics) [9; p.226]. Loss output approaches (hereinafter LOA) is related to the COI since it uses observed or estimated market prices as the measure of value e.g. agricultural prices for changes in agricultural yields, or wages rates for changes in labor supply. LOA does not require an actual transaction to take place whereby costs are incurred or expenditures made [12; p.100]. PROCESS OF IMPLEMENTATION: • Identification of costs (direct and indirect, direct non-health costs e.g. travel cost and
indirect non-health costs, e.g. productivity losses, duration of illness ) of illness included in analysis;
• Estimations of the cause of illnesses; • Adjustment for population growth; • Defining the specific outcomes for each illness; • Submission of data request for hospitalized cases and mortality [2]. DATA NEEDS: Require data concerning health expenditures and demographic characteristics of population. Also change in service; impact on health (dose-response function); cost of illness or value of life [10; p.11]. KEY USES:
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Estimates of the diseases burden and causes. ADVANTAGES AND DISADVANTAGES: The main advantages are: • Data on the cost of health and demographics are available; • Can likely be implemented in a relatively short-time frame. The main disadvantages are: • Changes in expenditure on treatments of health impacts are usually not easily directly
observed, due to the stochastic link between health and non-market goods (for example air pollution) and because air pollution tends to cause health impacts which can arise for a range of other reasons [9; p.226];
• The method disregards the affected individuals’ preference for health versus illness and restrictions on non-work activities;
• Assumes that individuals treat health as exogenous and does not recognize that individuals may undertake defensive actions (such as using special air or water filtration systems to reduce exposure to pollution) and incur costs to reduce health risks [16; p.17];
• Obtaining the detailed information necessary to comprehensively estimate WTP is complex and expensive.
CASE STUDY: It is usually very rarely used in conjunction with the PA’s, so we did not find any appropriate case. CRITERIA: Table 10: Criteria for COI Criteria for COI Descriptions RankData requirements Data on the cost of health and demographic statistics are available 4Cost Comprehensive estimation of WTP is expensive 3Adequate know ledge Comprehensive estimation of WTP is complex 3Complexity Relatively easy to implement, but it is often diff icult to relate these costs to diseases 3Timing Time effective: up to 1 month 5
Reliability of result Estimates of WTP/WTA for the provision of health; costs are usually not an accurate measure of benefits
1
Transferability of outputs The health impacts are specific to the conditions and population exposed 1Frequency of use Rarely used - mostly for medical reasons 1Universality of use Direct and indirect use value - any impact that affects health 2
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2.2. Stated preference approaches to environmental valuation Stated preference approaches to environmental valuation rely on the researcher directly asking people about their WTP or WTA compensation for changes in environmental quality. 2.2.1. Contingent valuation method THEORETICAL BASIS: Contingent valuation method (hereinafter CVM) estimates economic values for virtually any ecosystem or environmental service. The most widely used method for estimating non-use value [6; section 6]. The basis for economic valuation of a change in prices or the availability of a good is to enquire what is the most an individual is WTP for that change, if it is desirable or the minimum compensation they are WTA to forgo the change (see annex – the questionnaire) [4]. The CVM is based on the consumer demand theory, which explains the factors (tastes, attitudes, socio-economic characteristics, characteristics of the environmental good and service, the cost of (or avoiding) the environmental change and the price of other goods and services) determining demand for environmental goods and services. Therefore, before asking a WTP or WTA questions, a CVM questionnaire provides information, which describes the hypothetical market: • An introduction to the general decision-making context; • A detailed description of the good or service offered to the respondent; • The institutional setting in which the good or service will be provided; • The way in which the good or service will be paid for; and • Reminders about respondents’ budget constraint including other things they may wish to
purchase [15; p.18].
PROCESS OF IMPLEMENTATION: Most CVM exercises can be split into five stages: 1. Setting up the hypothetical market - The key element is a properly designed questionnaire
(see annex); 2. Obtaining bids – Different ways of carrying out research e.g. in person interviews (are
generally the most effective for complex questions, because it is often easier to explain the required background information to respondents in person, and people are more likely to complete a long survey when they are interviewed in person; in some cases, visual aids such as videos or colour photographs may be presented to help respondents understand the conditions of the scenario that they are being asked to value; these interviews are generally the most expensive type of survey), telephone surveys (less expensive, but it is often difficult to ask questions over the telephone, because of the amount of background information required), internet, mail (follow procedures that aim to obtain high response rates can also be quite expensive; mail and telephone surveys must be kept fairly short, or response rates are likely to drop dramatically). Kind of questions asked: A payment card (PC) – A range of values are presented on a card, Open-ended question (OE) – Individuals are asked for their maximum WTP - is used
only for environmental goods that respondents are familiar with, A single bounded dichotomous choice – A single payment is suggested to which
respondents either agree or disagree - it can be very sensitive to statistical assumptions about the functional form of WTP,
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Double-bounded dichotomous choice – Those respondents who say no to the first amount are then asked if they would pay less - fails to make the decision rule clear to respondents;
3. Estimating mean WTP and/or WTA - Arithmetic mean, median, modus limited and adjusted estimator, the standard deviation and dispersion of other dimensions – IER;
4. Aggregating the data – The mean bids are converted to a population total value figure; 5. Carrying out validity checks – How good are the CVM estimates which the analyst
produces? There are several validity checks: • Scope tests – whether WTP varies significantly with the quantity of q on offer e.g.
is WTP to protect all wetland in one region greater than WTP to protect a single wetland,
• Convergent validity – how WTP varies according to different methods used, • Calibration factors – are calculated by comparing a WTP value obtained from
CVM survey with a comparable real commitment, • Protest rates – defines the percentage of responses which are protest bids (try to
statistically explain why some individuals protest and others do not, • Construct validity – whether WTP varies in accordance with the theoretical
expectations e.g. will people with more experience of good pay more? It is also hard to decide what the relationship with WTP should be [4].
APPLICATON OF THE CVM: Hypothetical Scenario [6; section 6]: A remote site on public land provides important habitat for several species of wildlife. The management agency in charge of the area must decide whether to issue a lease for mining at the site. Thus, they must weigh the value of the mining lease against the wildlife habitat benefits that may be lost if the site is developed. Because the area is remote, few people actually visit it, or view the animals that rely on it for habitat. Therefore, non-use values are the largest component of the value for preserving the site.
Step 1: Define the valuation problem - Determine exactly what services are being valued, e.g. a specific site and the services it provides – primarily wildlife habitat, and who the relevant population is in our case is federally owned public land, the relevant population would be all citizens of the U.S.
Step 2: Preliminary decisions about the survey itself is to be made, including whether it will be conducted by mail, phone or in person, how large the sample size will be, who will be surveyed, and other related questions. The answers will depend, among other things, on the importance of the valuation issue, the complexity of the question being asked, and the size of the budget.
In this hypothetical case, the researchers have decided to conduct a mail survey, because they want to survey a large sample, over a large geographical area, and are asking questions about a specific site and its benefits, which should be relatively easy to describe in writing in a relatively short survey.
Step 3: The actual survey design - The most important and difficult part of the process which may take six months or more to complete. It is accomplished in several steps: - Initial interviews with the types of people who will be receiving the final survey, - General questions in the initial focus group, including questions about peoples’ understanding of the issues related to the site, whether they are familiar with the site and its wildlife, whether and how they value this site and the habitat services it provides, - In later focus groups, the questions would get more detailed and specific, to help develop specific questions for the survey, as well as decide what kind of background information is needed and how to present it, e.g. information on the location and characteristics of the site, the uniqueness of species that have important habitat there, and whether there are any substitute sites that provide similar habitat. The researchers would also want to learn about peoples’ knowledge of mining and its impacts, and
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whether mining is a controversial use of the site. If people are opposed to mining, they may answer the valuation questions with this in mind, rather than expressing their value for the services of the site. - Different approaches to the valuation question and different payment mechanisms would be tested. Questions that can identify any “protest” bids or other answers that do not reveal peoples’ values for the services of interest would also be developed and tested at this stage. - Start of survey pre-testing. People would be asked to assume that they’ve received the survey in the mail and to fill it out. Then the researchers would ask respondents about how they filled it out, and let them ask questions about anything they found confusing. Eventually, a mail pretest might be conducted. The researchers continue this process until they’ve developed a survey that people seem to understand and answer in a way that makes sense and reveals their values for the services of the site.
Step 4: Actual survey implementation. Usually a random sample of the relevant population is selected, using standard statistical sampling methods. In the case of a mail survey, the researchers must obtain a mailing list of randomly sampled U.S. citizens. They would then use a standard repeat-mailing and reminder method, in order to get the greatest possible response rate for the survey. Telephone surveys are carried out in a similar way, with a certain number of calls to try to reach the selected respondents. In-person surveys may be conducted with random samples of respondents, or may use “convenience” samples – asking people in public places to fill out the survey.
Step 5: Compiling, analyzing and reporting the results. The data must be entered and analyzed using statistical techniques appropriate for the type of question. In the data analysis, the researchers also attempt to identify any responses that may not express the respondent’s value for the services of the site. In addition, they can deal with possible non-response bias in a number of ways. The most conservative way is to assume that those who did not respond have zero value.
Results: The average value for an individual or household in the sample can be estimated, and this extrapolated to the relevant population in order to calculate the total benefits from the site, e.g. if they find that the mean WTP is 0.10€ per capita, the total benefits to all citizens would be 26million €. DATA NEEDS: CVM survey design is ensuring that the survey sample is representative of the population of interest and will collate all data required for estimating WTP/WTA values and functions for determining the main influences on respondents’ WTP [15; p.19]. KEY USES: Decision-making – Inputting to CBA of projects, programs and policies; demonstration of the importance of an issue; priority setting within a sector; determining marginal damages as the basis for an environmental tax or charge; and legal damage assessment (liability); Coverage of natural environment - Facilitates the valuation of a wide range of environmental goods and services [15; p.19]. The main advantages of the method are: • CVM approach can estimate TEV associated with environmental goods and services; • Method is very flexible; • Enables a great deal of information to be collated and analyzed from the target population
concerning their attitudes towards, use and experience of environmental goods and service in addition to eliciting WTP/WTA amounts and WTP functions concerning the determinants of WTP [15; p.21];
• Though the technique requires competent survey analysts to achieve defensible estimates, the nature and the results of CVM studies are not difficult to analyze and describe [6; section 6].
The main disadvantages are: • The WTP measure of value is constrained by income and wealth [15; p.21];
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• Method is generally a complicated, lengthy, and expensive process [6; section 6]; • Most people are unfamiliar with placing monetary values on environmental goods and
services, so they may not have an adequate basis for stating their true value; • The respondents rather than expressing value for the good, might actually be expressing
their feelings about the scenario or the valuation exercise itself; • Respondents may make associations among environmental goods that the researcher had
not intended; • Monetary value of environmental goods varies if WTA or WTP questions are asked.
WTA very significantly exceeds WTP, what explains of what individuals would like to have happen rather than true valuations;
• WTP for one part of an environmental asset is very similar to value the whole asset - “embedding effect”;
• In some cases, people’s expressed WTP for something has been found to depend on where it is placed on a list of things being valued. -"ordering problem";
• Respondents may give different WTP amounts, depending on the specific payment vehicle chosen;
• Suggested a starting bid affects respondents’ final WTP response; • Strategic bias arises when the respondent provides a biased answer in order to influence a
particular outcome; • Information bias may arise whenever respondents are forced to value attributes with
which they have little or no experience; • Non-response bias is a concern when sampling respondents, since individuals who do not
respond are likely to have, on average, different values than individuals who do respond; • Estimates of nonuse values are difficult to validate externally; • On a hypothetical question you get only a hypothetical answer, which is usually
overestimated e.g. would people really pay what they say they would pay; • WTP estimates vary according to the amount and nature of information provided to
respondents; • Voluntary payments encourage free-riding which means that the stated WTP is lover than
their true value [12; p.111]. USE IN COMBINATION WITH OTHER METHODS The method can be combined with interviews where focus groups and workshops are used to investigate methodological issues such as consumer versus citizen preferences. CVM may also be carried out in conjunction with TCM or DCA since data necessary for all these studies could be collected through a single questionnaire [14; p.23]. CASE STUDY The spatial impact of targeted development of the Landscape Development and PA of Volčji Potok (Slovenia) - Monograph [18]
Characteristics: The protected area of Volčji Potok is located near Slovenian’s capital Ljubljana. It is known for its unspoiled nature, wetlands, rare plant and animal species.
Evaluation method: CVM with WTP analysis as the main tool. The classical CV was combined with the discrete choice CV, offering a high level of flexibility.
Purpose: To evaluate the WTP of inhabitants and also the visitors for conservation of the PA. Therefore, two separate surveys were conducted to establish possible differences in the viewpoints and responses of the two groups. The outcome of the WTP analysis gives ground for the economical value of the PA.
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WTP analysis: The analysis was conducted with the help of inhabitants and visitors of the PA, in the form of personal interviews. The sample included 250 inhabitants and 250 visitors; all adults and preferably household heads. Actions: First, a test-survey was conducted, enabling the preparation of the final questionnaire (questionnaire and drawings of two scenarios-with or without conservation are included in the annex). Importance of the test-survey was to detect all possible biases and to adapt the questions in accordance to them. Four sets of questions were formed: • 1st set - to establish rapport with the respondents and to determine their social, economic and
demographic characteristics • 2nd set - served to identify the respondents’ attitude to categories of economic development on the
one hand and conservation of environmental goods, primarily the natural and cultural heritage, on the other.
• 3rd set - to identify the respondents' knowledge of the studied area and to find out their perceptions of the objectively identified problems that affect the area.
• 4th set - led to the contingent valuation itself (visual presentation and description of the targeted development scenario; an explanation that the implementation would be taken on by an existing trustworthy local institution).
Scenarios: The questionnaire presented two scenarios of possible development, financed from WTP sources. First scenario was based on maximal support of private initiative, while the second one based on protecting the traditional landscape. The scenarios were presented to the respondents in pictures, to help them decide on the money they are willing to give for the actualization of the chosen scenario of development (Scenarios drawings included in the annex).
Data based analysis: Based on the received data, four analyses of the WTP were conducted in order to give an actual situation of the potential income source: Statistical Analysis of the questionnaire results, Analysis of the Stated WTP, Analysis of the True WTP, Aggregate WTP. The analyses are based on different specifics of the participants, presenting various information regarding the subjects’ annual income, household status, age, employment status, etc.
Results: Based on all the facts, the analyses results and further response from the participants, 1.75€ per capita is the final amount, with which further analysis will operate. Based on the sum of 19,332 land tax payers, the value of the PA can be estimated to roughly 34 thousand € per month (408 thousand € per year).With annual discount rate of 3% present value of the area reaches 396 thousand € for the first year and 1.89 thousand € for the period from 2006 to 2010. CRITERIA: Table 11: Criteria for CVM Criteria for CVM Descriptions RankData requirements Well-prepared questionnaire on peoples WTP/WTA 4Cost Studies are not inexpensive to implement 3Adequate know ledge Requires econometric expertise 2Complexity Complicated 2Timing Requires time to develop the survey instrument - 6-12 months 2
Reliability of resultEstimates of WTP/WTA for changes in the provision of non-market goods and services; estimates are consistant w ith measures of w elfare economics - basis for CBA
4
Transferability of outputsTransferability of WTP/WTA values depends on the degree to w hich the contingent market constructed for the original study corresponds to perceived market at the policy site - see BT
3
Frequency of use Most w idely used for non-use values 5Universality of use Use and non-use value 5
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2.2.2. Choice modelling approach THEORETICAL BASIS: Choice modeling approach (hereinafter CMA) estimates economic values for virtually any ecosystem or environmental service. Based on asking people make tradeoffs among sets of ecosystem or environmental services or characteristics. Does not directly ask for WTP - this is inferred from tradeoffs that include cost as an attribute [6; section 7]. CMA asks respondents to state a preference between various alternative descriptions of a good, differentiated by their attributes (characteristics) and levels, and are requested to rank the alternatives, then to rate them or to choose their preferred option. By including price/cost as one of the attributes of the good, WTP can be directly recovered from people’s rankings, ratings or choices [9; p.227]. Example Table 12: Choice experiment for valuing Australian wetlands
Management option A
Management option B
Management option C (status quo)
Wetland area conserved 1000 ha 800 ha 700 haBird species conserved (number) 40 30 25Farm jobs protected 15 16 20Cost to households in terms of increase in local taxes over next 5 years 30€/hsld 150€/hsld 0€/hsld Source: Hanley N. (2009). Pricing nature: 62, USA, Edward Elgar PROCESS OF IMPLEMENTATION: 1. Development of survey instrument (i.e. the questionnaire) – The relevant attributes of the non-market environmental good or service in question are identified then a number of alternative scenarios is presented to respondents; 2. Implementation of the survey – The survey instrument is administered (in-person, telephone or mail surveys, or web-based surveys) to a sample of the population of interest; 3. Analysis of the survey responses – Econometric methods focus on the probability that a respondent will choose a particular option. With choice experiment data, estimates of WTP are derived from the parameter estimates of the CM. Analysis of CM data also entails validity testing, particularly through the estimation of WTP functions; 4. Aggregation of results – Aggregation of WTP estimation for the specified change in the provision of the non-market good of interest over the relevant population [15; p.23]. There is a variety of formats for applying contingent choice methods, including [6; section 7]: • Contingent Ranking - Contingent ranking surveys ask individuals to compare and rank
alternate program outcomes with various characteristics, including costs e.g. people might be asked to compare and rank several mutually exclusive environmental improvement programs under consideration for a watershed, each of which has different outcomes and different costs. Respondents are asked to rank the alternatives in order of preference;
• Discrete Choice - In the discrete choice approach, respondents are simultaneously shown two or more different alternatives and their characteristics, and asked to identify the most preferred alternative in the choice;
• Paired Rating - This is a variation on the discrete choice format, where respondents are asked to compare two alternate situations and rate them in terms of strength of preference e.g. people might be asked to compare two environmental improvement programs and their outcomes, and state which is preferred, and whether it is strongly, moderately, or slightly preferred to the other program.
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APPLICATON OF THE CMA: Hypothetical Scenario [6; section 7]: In the contingent valuation section, we used the case of a remote site on public land that provides important habitat for several species of wildlife. The management agency in charge of the area must decide whether to issue a lease for mining at the site. Suppose that there are several possible options for preserving and/or using the site. These include allowing no mining and preserving the site as a wilderness habitat area, and various levels and locations for the mining operation, each of which would have different impacts on the site. Thus, several options must be weighed in terms of costs and benefits to the public. Because the area is remote, few people actually visit it, or view the animals that rely on it for habitat.
Because both CMA and CVA are hypothetical survey-based methods, their application is very similar, so the first four steps are the same (look at CVA section). The main differences are in the design of the valuation question(s), and the data analysis.
Step 5: Compiling, analyzing and reporting the results. The statistical analysis for CMA is often more complicated than that for CVA, requiring the use of discrete choice analysis methods to infer WTP from the tradeoffs made by respondents.
From the analysis, the researchers can estimate the average value for each of the services of the site, for an individual or household in our sample. This can be extrapolated to the relevant population in order to calculate the total benefits from the site under different policy scenarios. The average value for a specific action and its outcomes can also be estimated, or the different policy options can simply be ranked in terms of peoples’ preferences.
Results: The results of the survey might show that the economic benefits of preserving the site by not allowing mining are greater than the benefits received from allowing mining. If this were the case, the mining lease might not be issued, unless other factors override these results. Alternatively, the results might indicate that some mining scenarios are acceptable, in terms of economic costs and benefits. The results could then be used to rank different options, and to help select the most preferred option. DATA NEEDS: Aside from data on respondent WTP and information from debriefing questions, the dataset will also include information on respondent socio-economic and demographic characteristics and on respondent attitude and their prior experience towards the environmental good or service [6; section 7]. KEY USES: Decision-making – inputting to CBA of projects, programs and policies; demonstration of the importance of an issue; and priority setting within a sector; Coverage of natural environment - Is particularly flexible and facilitates the valuation of a wide range of environmental goods and services, including those not currently provided [6; section 7]. USE IN COMBINATION WITH OTHER METHODS The potential for combination is similar to that of CVM [14; p.24]. ADVANTAGES AND DISADVANTAGES: The main advantages of the method are: • The method can be used to value the outcomes of an action as a whole, as well as the
various attributes or effects of the action [6; section 7]; • The possibility for respondents to use multiple choices, to express their preference for a
valued good over a range of payment amounts [9; p.227]; • By relying on ratings, rankings and choices and deriving indirectly the WTP of
respondents, the method overcomes some problems associated with the CVM;
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• CM is particularly flexible; • The method allows respondents to think in terms of tradeoffs, which may be easier than
directly expressing monetary values; • Survey methods may be better at estimating relative values than absolute values; • The method reduces problems such as expressions of symbolic values, protest bids, and
some of the other sources of potential bias associated with CVM [6; section 7]; • Options can be visualized and implemented as a web-based survey. The main disadvantages are: • The difficulties respondents experience in dealing with multiple complex choices or
rankings; • The inefficiency in deriving values for a sequence of elements implemented by a policy or
project; • The WTP estimate is sensitive to study design [9; p.227]; • Possibility that responses in a hypothetical market setting will tell us little about how
respondents would behave in a real market [4]; • Are not simple to implement and take time to develop; • The intensity of preference of poorer income groups may not be adequately expressed in
the valuation process; • Complex CMA may lead to an increased degree of random error in responses; • Respondents may find some tradeoffs difficult to evaluate; • Respondents may resort to simplified decision rules if the choices are too complicated; • Method may extract preferences in the form of attitudes instead of behaviour intentions; • By only providing a limited number of options, it may force respondents to make choices
that they would not voluntarily make; • Contingent ranking requires more sophisticated statistical techniques to estimate WTP; • Translating the answers into monetary values may lead to uncertainty in the actual value; • Reliability for valuing non-market commodities is largely untested [6; section 7]; • Can be very costly. CASE STUDY: A Spanish soil erosion study [4]
CMA was used to estimate the benefits of reducing soil erosion in Andalusia, Spain. The study considers the reduction of the off-site impacts of soil erosion in two watersheds, the Genil and the Guadajoz. Due to soil and climatic conditions and the nature of current farming practices, soil erosion levels in these catchments are well in excess of national average levels, and are known to result in widespread environmental problems. Among the most important of these are increased desertification, the siltation of water bodies, and reductions in biodiversity. To reduce these impacts it is necessary to provide subsidies to farmers to encourage them to adopt soil conservation measures in their land management. These measures include sowing a grass cover in olive orchards and reforesting degraded hill and mountain slopes. The choice experiment used the following attributes: • Desertification in semi-arid areas • Quality of surface and groundwater • Effects on flora and fauna • Agricultural jobs safeguarded • Area of countryside covered by the measures • Cost to households in the area of the policy
Attribute levels were defined in a number of ways e.g. for desertification, respondents were told what the current situation was, then it was explained that policy change this to a small improvement or a
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moderate improvement. In both cases, respondents received an explanation of what this would actually mean `on the ground`, using worlds that respondents had a positive WTP for improvements in all of the policy attributes. Implicit prices were calculated and gave the following results: • For a change in desertification from counting degradation (the status quo) to a `small
improvement`: 17.78 (95% confidence interval: 12.02-25.21). • For a change in desertification from counting degradation (the status quo) to a `moderate
improvement`: 26.51 (95% confidence interval: 20.05-35.76) • For a change in water quality from `low` to `medium` quality: 18.39 (95% confidence interval
12.67-25.96) • For a change in water quality from `low` to `high` quality: 26.27 (95% confidence interval 20.10-
34.67) Finally, the Compensating Surplus for a number of policy scenarios was measured, using the formulae given in this chapter. For instance, for a policy which produced a big improvement in desertification, high levels of water quality, good (versus declining) species numbers, 150 farm jobs and which covered 500 hectares, the mean WTP was €40.98, with a 95 per cent confidence interval from €34 to €47 per household per year. CRITERIA: Table 13: Criteria for CMA Criteria for CMA Descriptions RankData requirements Well-prepared questionnaire on peoples WTP/WTA 4Cost Studies are not inexpensive to implement 2Adequate know ledge Requires econometric expertise 1Complexity Complicated 1Timing Requires time to develop the survey instrument - 6-12 months 2
Reliability of resultProvide information on w hich attributes are signif icant determinants of the values individuals hold for non-market goods and their ranking amongst the relevant population
5
Transferability of outputs Choice experiments may be generalisable and therefore more appropriate from a BT point of view
5
Frequency of use Medium frequency of use 3Universality of use Use and non-use value 5
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2.3. Benefit transfer THEORETICAL BASIS: Benefit transfer (hereinafter BT) estimates economic values by transferring the existing benefit estimates from studies already completed for another location or issue [6]. Adjustments are made for differences between the environmental characteristics of the site to which values are to be transferred, known as `policy site` and those of the site at which the original data was collected, known as `study site` [4]. The aim of BT techniques is to provide decision makers with a monetary valuation of environmental goods and services in a cost-effective and timely manner, since original valuation studies are both expensive and time consuming [4]. PROCESS OF IMPLEMENTATION: BT is usually performed in four steps: 1. The compilation of the existing literature on the subject under investigation; 2. The assessment of the selected studies for their comparability (similarity of the
environmental services valued, difference in revenue, education, age and other socio-economic characteristics which can affect the evaluation) [9; p.228-230];
3. Adjustment of values [6; section 8]; 4. Aggregation – Once WTP amounts have been transferred to the policy site, the final stage
is the aggregation of WTP over the appropriate population for the policy good context [6; section 8].
The analyst may choose from three main types of adjustment of increasing sophistication [8]: • Unadjusted WTP Transfer => This procedure implies a simple ‘borrowing’ of the
estimates made in the study site; • WTP Transfer with Adjustment => It could be useful to modify the values from the study
site data to reflect the difference in a particular variable that characterizes the sites WTP; • Function Transfer => Transfer the benefit or value function from the study site to the
policy site, e.g. if it is known that WTP for a good at the study site is a function of a range of physical features on the site, of its use and of a set of socio-economic characteristics of the population at the site, then this information itself can be used as part of the transfer process.
APPLICATON OF THE BT: Hypothetical Situation [6; section 8]: A park is being upgraded to provide additional recreational opportunities. One proposal is to add a swimming beach to the lake. Agency staff wants to know the benefits of the new beach, but do not want to spend a great deal of money on a valuation study.
Step 1: Identify existing studies or values that can be used for the transfer. In this case, the researcher would look for studies that value beach use, specifically for lake beaches if possible. For the purposes of this example, assume that the researcher has found two travel cost studies that estimated values for swimming at lake beaches.
Step 2: Deciding whether the existing values are transferable. The existing values or studies would be evaluated based on several criteria, including: 1. Is the service being valued comparable to the service valued in the existing studies? Some factors
that determine comparability are similar types of sites (e.g. lake beaches in a park), similar quality of sites (e.g. water quality and facilities), and similar availability of substitutes (e.g. the number of other lake beaches nearby).
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2. Are characteristics of the relevant population comparable? For example, are demographics similar between the area where the existing study was conducted and the area being valued? If not, are data available to make adjustments?
In the example, the first study is for a similar lake beach. The beach is also in a park, has comparable water quality and facilities, and a similar number of substitute sites in the area. However, it is located in an urban area, while the beach being valued is in a rural area. Thus, the characteristics of visitors can be expected to be different for the two sites. The second study is in a rural area with similar types of visitors, but the lake has many more available substitutes.
Step 3: Evaluation of the quality of studies to be transferred. The better the quality of the initial study, the more accurate and useful the transferred value will be. This requires the professional judgment of the researcher. In this example, the researcher has decided that both studies are acceptable in terms of quality.
Step 4: Adjustment of the existing values to better reflect the values for the site under consideration, using whatever information is available and relevant. The researcher may need to collect some supplemental data in order to do this well. For example, in this case, the sites valued in each of the existing studies differ from the site of interest. The researcher might adjust the values from the first study by applying demographic data to adjust for the differences in users. If the second study has a benefit function that includes the number of substitute sites, the function could be adjusted to reflect the different number of substitutes available at the site of interest. In addition, because the beach will be new, the researcher will need to estimate how many people will use the beach. This might be accomplished by a survey of park visitors, asking whether they would use a beach on the lake, and how many times they would use it. The researcher would then multiply these visitation estimates by the value per day for beach use (adjusted for differences in population and site characteristics), to get an estimate of the economic benefits for the new beach. DATA NEEDS: BT exercises require a substantial amount of data concerning the policy site [6; section 8]. KEY USES: Decision-making – Inputting to CBA of projects, programs and policies; demonstration of the importance of an issue; and priority setting within a sector; Coverage of natural environment - BT offers the potential to value a wide range of environmental goods and services so long as they have been subject to an original valuation study. Use of BT is facilitated by access to databases of economic valuation studies which allow suitable study goods to be identified and provide information relevant to the transfer of WTP information. Currently, the most comprehensive database is the Environmental Valuation Reference Inventory (EVRI, see www.evri.ca) [6; section 8]. ADVANTAGES AND DISADVANTAGES: The main advantages of the method are: • Is expedient, cost and timely effective; • The method can be used as a screening technique to determine if a more detailed, original
valuation study should be conducted [6; section 8]. The main disadvantages are [6; section 8]: • Question of accuracy; • Good studies for the policy or issue in question may not be available; • It may be difficult to track down appropriate studies, since many are not published; • Reporting of the existing studies may be inadequate to make the needed adjustments; • Adequacy of the existing studies may be difficult to assess; • Extrapolation beyond the range of characteristics of the initial study is not recommended;
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• Can only be as accurate as the initial value estimate; • Unit value estimates can quickly become dated. CASE STUDY: The Situation [6; section 8]: The State of Michigan is considering plans to protect and restore coastal wetlands along the southern shore of Saginaw Bay.
The Challenge The State must estimate the potential benefits from protecting and restoring the wetlands. A survey asked people about their support for restoring the wetlands, but did not include a valuation question. Therefore, the researchers used BT methods to estimate the value of protecting and restoring the wetlands around the Bay.
The Application A valuation study for the proposed wetlands protection and restoration of Ohio’s Lake Erie coastal wetlands was used for the BT. Researchers assumed that the values estimated for Ohio were similar enough to be transferable to Michigan. The study valued similar programs and quantities of wetlands to those proposed in Michigan. However, coastal residents were not surveyed. Thus, the transfer of values from the Ohio study to coastal residents in Michigan requires the assumption that coastal residents have values similar to those of residents of other areas in the drainage basin.
Results Estimates of wetland values for Michigan, based on the Ohio study, ranged from $500 per acre to $9,000 per acre for residents of the drainage basin, and from $7,200 per acre to $61,000 per acre for residents of the State of Michigan. These values can be used to evaluate decisions concerning purchase and restoration of wetlands around the Saginaw Bay. CRITERIA: Table 14: Criteria for BT Criteria for BT Descriptions RankData requirements Require a substantial amount of data concerning the `policy site` 2Cost Relatively cost efective 4Adequate know ledge Adequacy of existing studies may be diff icult to assess 3Complexity Relatively easy to implement 4Timing Time effective: up to 3 months 4Reliability of result Question of accuracy 1Transferability of outputs Depend on the suitability of the `policy site` 3Frequency of use Used to determine if more detailed original study is necessary 3Universality of use Use and non-use value 5
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3. SUMMARY AND RECOMMENDATIONS The table below shows all methods and their evaluation. The penultimate line shows the total score for each method. Greater number of points means a better result. BT is not compared with other methods, as estimates of the economic values are transferred from studies in which the revealed or stated preference methods were used and are already completed for another location or issue. Table 15: Ranking methods
MPA PFA HPM ZTCM RUM DCA COI CVM CMA
Data requirements 4 4 3 3 2 5 4 4 4Cost 4 4 4 5 1 5 3 3 2Adequate know ledge 4 2 2 2 1 4 3 2 1Complexity 5 3 3 5 1 4 3 2 1Timing 4 3 2 1 2 5 5 2 2Reliability of result 4 4 4 4 5 1 1 4 5Transferability of outputs 4 4 3 2 3 1 1 3 5Frequency of use 5 1 2 3 1 1 1 5 3Universality of use 3 3 3 2 3 3 2 5 5SUM 37 28 26 27 19 29 23 30 28Result 1 4 7 6 9 3 8 2 4
STATED PREF. M. TCM
REVEALED PREFERENCE METHOD Methods
Criteria
Despite the outcome resulting from the analysis, the individuals must, according to their needs (e.g. object of the valuation, budget constraints, time, characteristics of the study and of the population affected and whose welfare is affected), decide which method will be chosen. Individuals may add criteria weighting which favours a certain criterion, if necessary. This could lead to a completely different order of importance of methods. In the assessment of TEV, a combination of methods is usually used (see section 5: Study case). In the table below, all the benefit categories with examples of environmental services for particular benefit category are collected. The last column shows the possible methods appropriate for calculating the economic value of each service that PA provide. Table 16: Commonly used valuation methods with different benefit category
Benefit category Examples of service flowsCommonly used Valuation Methods
Human healthMortality risks Reduced risk of: Canser fatality, Acute fatality DCA, HPM, CVM, CMA, BTMorbidity risks Reduced risk of: Canser, Asthma, Nausea DCA, COI, HPM, CVM, CMA, BTAmenities Taste, Odor, Visibility DCA, HPM, CVM, CMA, BTEcological benefitsMarket: products Food, Fuel, Fiber, Market, Timber, Fur, eather MPANon-market: recreation and aesthetics
Recreational opportunities (view ing, f ishing, boating, sw imming, hiking), Scenic vistas
PFA, AEM, HPM, TCM, CVM, CMA, BT
Indirect: ecosystem services
Climate moderation, Flood moderation, Groundw ater recharge, Sediment trapping, Soil retention, Nutrient cycling, Pollination by w ild species, Biodiversity, genetic library, Water f iltration, Soil fertilization, Pest control
PFA, AEM, CVM, CMA, BT
Non-use: existence values No associated services CVM, CMA, BTMaterials damage DCA, MPA
Source: Guidelines for Preparing Economic Analyses, EPA, 2000, p.67 [7] It is highly recommended that PA mangers and decision makers commission experts (economists) with much experience to conduct valuation studies. Otherwise, studies or
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surveys may include mistakes that render the valuation results useless. Robust and reliable numbers are therefore crucial for effective PA policies. 4. CONCLUSION In the present literature, the basic valuation methods, which are usually used to estimate the economic value of PA natural assets, are described. As we have seen, all of the valuation techniques outlined have strengths and weaknesses, and the decision on which valuation technique to use for a particular application requires experience and judgment on the analyst’s part. General points to consider when making a choice are: • The technique should be technically acceptable with respect to its validity and reliability.
Measures obtained from the technique should be consistent and accurate. Methods suffering random errors require reliability checks to judge the predictive capacity. Methods suffering non-random error contain bias problems, thereby reducing reliability and the validity of the measurement results. Validity cannot be assessed solely on the basis of technique methodology, but must be considered alongside practical predictive ability. Reliability problems will occur if the sample size of the data is too small or a survey design is deficient. Reliability is closely related to bias, which can vary depending on the good being looked at. The HPM and TCM have weak validity, since they assume the underlying theory is correct in order to generate results, whereas CVM can build in tests for reliability and validity. A more psychological approach can be taken with CVM, with direct psychometric testing of validity and reliability.
• The technique should be institutionally acceptable, so as to fit into current decision making processes.
• The technique should also be user friendly in terms of how easy or difficult it is to use in practice.
• The financial cost of the study needs to be weighed against the value of the information gained.
• It will often be possible to use more than one valuation technique and compare the results.
The estimates of value obtained from all the methods described will be somewhat uncertain. If the analyst has multiple estimates, then they will have greater confidence in the magnitude of the value of the proposed change [13; p.44].
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5. CASE STUDIES The benefits of reforestation in coastal Croatia
Background The World Bank’s financing of the Croatian Coastal Forest Reconstruction and Protection Project included reforestation of several forest areas which had been damaged by fire. As evident from the Stefano Pagiola’s study, which is focused on the war-torn coastal zone forests of Croatia, significance of environmental amenities – such as forests – to the tourism industry was revealed. Croatia’s coastal forests play an important role in the country’s tourist industry, as the primary benefit was considered to be their contribution to the landscape. Additional values of the forest included in the study are benefits from wood production, hunting, and – where appropriate – watershed functions. Considering the facts, the project was envisaged as part of a long-term program to restore and maintain favorable ecological conditions in coastal areas in support of tourism. Most of the benefits expected from the project would be improved landscape and environmental conditions of coastal forests, resulting from the reconstruction of forests destroyed by the war and from the reduction in areas of coastal forests burnt by fires. These were, in turn, expected to contribute to increased economic benefits from the rehabilitation of tourism and to also generate other commercial, social, institutional, and scientific benefit either by forest reconstruction and protection activities or by project activities related to support services. The appropriate question in this case was whether the additional benefits obtained by reforestation, compared to allowing natural regeneration to occur, justified the additional costs. In each case, the analysis centred on (i) the degree to which specific benefits would recover with reforestation; and (ii) the increased rate at which benefits would recover. Evaluation method To evaluate the benefit of the project, the economic analysis with the CVM (WTP analysis as the main tool) combined with the MPA was used in the attempt to quantify the range of benefits that would flow from the reconstruction and protection of Croatia’s coastal forest. Since the exact benefits obtained from forest areas differ from site to site, site-specific information was used. Estimates were made of the following benefits: Landscape Value - Forested landscapes significantly increase the attractiveness of resort areas and are an important aspect of the Dalmatian coast's attractiveness, as it is less likely that tourist will come to areas without such landscapes – they will only come if prices are lower. In order to quantify the benefits of the attractive, forested landscapes, two contingent valuation studies of tourist WTP for forest landscapes were conducted – one in Croatia and one in competing tourist destinations in Italy. Tourists were first shown pictures of resort areas in Croatia before and after fires had destroyed forests in their vicinity and then asked how much they would be WTP, in the form of a surcharge to their hotel bills, for protection and reconstruction of forest landscapes visible from the resort they were staying in. Both survey results showed strong preference for forested landscapes and WTP about additional 2-3 US$/tourist/day. Furthermore an analysis of hotel room prices showed that double rooms in hotels in areas with attractive forest landscapes tended to cost about 3-6 US$/day more than rooms in hotels in areas with little forest landscape. The estimation, based on the interviews with hotel managers, who predicted that they would have to reduce room prices by as much as 24-32% to remain competitive, if the surrounding forest landscapes were destroyed, also indicated that
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they consider forest landscaping an important aspect of their attractiveness and believe attendance would fall sharply. Although the magnitude and the degree of confidence in each of these estimates differed, all pointed in the same direction. In the calculations, a conservative value of WTP for forest landscapes in tourist areas of 1.50 US$/tourist/day was used. In addition to WTP for loss of visible forest landscapes, tourists were also questioned about their WTP for protection of all forests in the coastal region which reflects the value tourists place on the existence of coastal forests rather than on their amenity value. A conservative value of 0.75 US$/tourist/day for forest landscapes in the entire region was used. These values were then multiplied by the expected number of tourists in each county to obtain an estimate of the total value of landscape benefits provided by forests at the county level. While at the time of the study, the tourist population was about 20 million overnights a year, well below the pre-war level of about 60 million overnights a year, it was assumed that the tourist population would recover from its current level to its pre-war level in five years. It was assumed that the rate of recovery would be consistent with the recovery that was observed in the northern county of Istria, which was less affected by the war, during 1992-1994. Hunting - Forests also provide recreational opportunities for foreign tourists in the form of hunting activities, as areas near tourist destinations provide particularly attractive hunting venues because of their accessibility and the possibility of combining hunting with other activities during a single vacation. By using the values derived from the lease of hunting rights to foreign hunters, the benefit of these activities can be quantified. Due to the site characteristics, especially because of differences in accessibility the hunting value of the sites differs - on good hunting lands, these leases generally cost about 30 DEM/ha (20 US$/ha) with a range of 50 DEM/ha (33 US$/ha) on very good hunting land to 10 DEM/ha (7 US$/ha) on marginal hunting land. About half the coastal forest areas were considered suitable for hunting. The hunting potential of each site to be reforested was determined in consultation with Croatian foresters and World Bank forestry experts. Wood Production - Although the coastal areas are not as important for wood production as inland areas, some local wood is used for pulp and sawlogs. Pulp production was suspended at the time of the study, since the factory in Bosnia-Herzegovina was inaccessible, but was likely to resume soon as the peace process progressed. It was estimated that possible future wood shortages in Europe would make the wood from Croatia's coastal forests increasingly valuable. The value of future wood production resulting from reforestation was estimated using assumptions that only species with significant pulpwood or sawlog production potential are considered (among them are Pinus halepensis, P. pinaster, P. nigra, and Cupressus sempervirens); only 58% of useful species are assumed to be harvested; 10% of accumulated yield is harvested during thinning at 20 years, and 20% at 40 years; harvest at 80 years assumes that 30% of accumulated yield is used for pulp (except for P. halepensis, where 45% is used for it), and that 15% of accumulated yield is used for sawlogs (except for P. halepensis, where none is used); the assumed stumpage fees are 10 US$/m3 for pulpwood and 30 US$/m3 for sawlogs. Other Benefits - In addition to the main benefits mentioned above, it was assumed that the project would also have a positive impact on the following: (a) Recreational Value - as the social survey carried out during project preparation showed the recreational benefits provided by forest area, especially in close proximity to population concentrations was very valuable to local populations. However, no information was available on the magnitude of these benefits;
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(b) Watershed Protection and Micro-climatic Effects - although the coastal area of Croatia is generally not very susceptible to erosion, there are some instances when even low levels of erosion can cause significant damage for instance: clogging of drainage channels causes flooding, obstruction of roads, and increasing cleaning costs, vulnerability of hydroelectric plants to sedimentation, vulnerability of fisheries (particularly oyster beds)… Forest in watersheds is also important to hydrological cycles and by providing shade and windbreaks reforestation can also help to improve local microclimates. As with recreational benefits, these benefits are potentially quite significant on specific sites but generally minor on average. Several estimates of the additional costs due to erosion are available from Trogir with damages estimation as high as 45,000US$ in a bad year, but are usually about 20,000US$/year. Reforesting the hillsides above town, the assumption was that these damages could be essentially eliminated. Considering that per hectare benefits depend on the size of the area assumed necessary to achieve this, the reduction in damage for Trogir accounted to per hectare benefits of 695 US$/ha (assuming it would take 5 years for ground cover to be sufficient to stop erosion). Similar calculation was made for Senj; (c) Employment in Coastal Areas - although the provision of employment opportunities is not one of the project's principal aims, the estimate was that several components (forest reconstruction, cleaning and thinning roadside forests…) which would provide significant employment opportunities in coastal areas over the project implementation period and thus contribute to maintaining economic activity in areas facing difficulties during Croatia's period of reconstruction and economic transition; (d) Improved Management of Coastal Forests - the project would contribute to an improved management of coastal forests in the future by contributing to a better knowledge on silviculture, breeding, and utilization of these forest resources, and also by helping improve overall efficiency. The exclusion of these benefits, whether for lack of data or for other reasons, implies that the estimated value of forest benefits used in evaluating the benefits of the reforestation and protection activities of the project are conservative. Actual benefits, if they could be fully quantified, would likely be larger than those assumed in the calculations. Results During preparation of the reconstruction component, full economic analyses were carried out of the benefits of reforestation on 14 sites, totaling 4,419 ha, of which 7 sites listed in the table below (totalling 1,069 ha) were selected for the initial reforestation plan based on the estimated costs and benefits at each site, while the others were discarded as providing insufficient benefits or held over until additional information could be obtained. Table 17: Total Economic Benefits Of Reforestation At The Proposed Sites (Us$)
Benefits of reforestation (US$) County, site
Area planted
(ha)
Area thinned
(ha) Visible
landscape Regional landscape Hunting Wood
production Erosion
protection Total
Lika-Senj
Jasenje-Bisemijakovica 161 0 112,699 27,320 22,457 427 97.639 260,542 Zadar-Knin
Novigrad 350 0 760,997 74,288 101.057 7,481 0 943,823 Split-Dalmatia
Trogir 233 0 346,904 39,871 32,773 19.031 142,942 581,521 Dubrovnik & Neretva r.
Slano 75 20 183,704 14.183 4.025 724 0 202,636 Brsecine 70 24 190,516 15,020 4,262 1,107 0 210,905 Petrinj 60 25 161,988 13,728 3,895 676 0 180,287 Srdj 120 342 1.458.259 44.394 52.886 2.804 0 1,558,343 Source: Staff appraisal report, Republic of Croatia Coastal forest reconstruction and protection project, World Bank, 1996, p.36 [11]
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Table shows the estimated total economic benefits of the proposed reforestation activities at each site, taking into account the area to be treated, the timing of treatments, and the site-specific value of the various benefits. The analysis showed that reforestation would definitely be profitable at several sites. In every case, landscape considerations are paramount and by themselves justify reforestation. In all cases, all other benefits combined would not be sufficient to justify reforestation. Further analysis showed that reforestation in areas of strong significance to the landscape of tourist areas was justified. If reforestation was to implement at all the sites positive estimated returns, the NPV of net benefits from the reforestation sites selected would be about US$2.7 million (total benefits of about US$3.9 million minus total costs of US$1.2 million), with an economic rate of return of about 24.2%. The criteria developed for selection of additional sites to complete the planned reforestation program should ensure that rates of return on these sites would be at least 15%; it was not unreasonable to expect, however, that returns from reforestation should exceed 20% at several sites [11].
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Experimental Definition of the economic and functional value of wetlands Volano-Mesola-Goro Site in the Po Delta Park (ABSTRACT)
Wetlands are unique ecosystems that often occur at the edge of aquatic (water, fresh to salty) or terrestrial (upland) systems. These areas are the most productive among aquatic habitats and possess an undoubted environmental value. These particular habitats support a great variety of species and are characterized by a vast diversity of landscape; they are the result of physical, chemical, climatic and human interactions. We think that the primary goal in managing these areas is to tend to the higher social utility that is represented by the total of net benefits related to different individuals: private individuals who benefit directly, and private individuals who benefit indirectly. Therefore, wetlands provide benefits both to private citizens and to society, and their value is an economic value not only strictly connected to consumptive use that involves the physical use of a natural resource or the environment (use value) but also to nonconsumptive use that does not involve direct physical use of a natural resource or the environment (non-use value). In short: the total economic value (TEV). These benefits or functions usually link to goods and services important to society. Through an experimental approach, our study dealt with the estimation of TEV using a combined methodology of market based method and contingency valuation method of a particular wetland (Valle Bertuzzi formed by Valle Nuova and Valle Cantone). It is included in the context of environmental protection of the Po Delta Park and, at the same time, of interest to productive fishing activities. Researchers started from the analysis of the territorial features of the study area in order to estimate the economic and functional values of these wetlands. They also took into account the following aspects: legislative aspects and environmental constraints; economic-social and functional aspects of the natural assets to be analyzed. Data, gathered through a monitoring schedule, allowed us to construct a model of estimative analysis of total economic value for the study area and also for other areas of the same quality. In the estimation of the economic and functional values it was considered that the study area is a place characterized by mixed functions (public and private) and with multiple purposes; for these reasons it was necessary to add the private value connected to production (valliculture, hunting, tourist management) to the public value derived from the naturalistic preservation, hydro-geological protection and landscape and recreational maintenance. To calculate the private value, the market based approach was adopted. Considering the particular nature of the studied natural assets, they carried on with the analysis of unitary values, by disaggregating the main elements characterizing the assets and by taking into account their functionality. The productive activities of the owners can be transformed in money values; for this reason, they can be calculated as unitary values according to estimation criteria related to the market. On the basis of the estimation elements analyzed in our research, the value of the valley district, related to property, is calculated adding the values of the primary activity (fishing) to those of other activities performed on the same estate (hunting and tourist-recreational activities). This led to the estimated value of
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owners equal to = Vf fishing + VP hunting + VP tourism-recr. = 12,200 €/ha + 176.60 €/ha + 215 €/ha = 12,608.60 €/ha. From costs and benefits mentioned above, others can derive as result of a kind of agriculture management at the territorial level (benefits for other private individuals); such as scientific cultural services, didactic and formative activities and development of touristic -recreational activities, which indirectly generate positive social effects like occupation. Therefore we hypothesized an estimation of the benefits that are provided not only to the Bertuzzi district, but also to all the wetland inside the Park or that creates a web of relations with the protected area (activities related to tourism in particular). The following procedure resulted in a net annual return at the territorial level equal to 334.721 €/year. These areas are managed according to the criteria of productive sustainability and environmental restoration and provide, as added product, external benefits for the whole society (environmental and ecological function, landscape function, hydrological function). In this case, such value was not calculated due to the lack of relevant studies for reference and the newness of the concept. As social value of wetlands, researchers used the economic value of environmental functions involved in the standard extensive management of the fishing valley taken from data of the valley management of situations similar to those analyzed for this research equal to 1935 /ha or 290.250 € [19].
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6. FURTHER READING 1. Collins, S., Larry, E. (2007). Caring for Our Natural Assets – An Ecosystem Services Perspective,
USA: USDA. 2. Department for Environment, Food and Rural Affairs (2007). An introductory guide to valuing
ecosystem services, GB: DEFRA 3. Department for Environment, Food and Rural Affairs (2007). Securing a healthy natural
environment: An action plan for embedding an ecosystem approach, GB:DEFRA 4. FAO, 1995, Valuating forests: context, issues and guidelines, Italy. 5. James, D., & Gillespie, R. (2002). Gillespie Economics Guideline for economic effects and
evaluation in EIA, State of New South Wales: Economic Assessment Draft EIA Guidelines. 6. James, D., Gillespie, R. (2002). Guideline for economic effects and evaluation in EIA, Planning
NSW. 7. Pearce, D., Moran, D. (1994). The economic value of biodiversity Switzerland :IUCN. 8. Phillips A. (2002). Management Guidelines for IUCN Category V Protected Areas Protected
Landscapes/Seascapes, UK: IUCN. 9. The Board of the Millennium Ecosystem Assessment (2005). Living beyond our means: Natural
Assets And Human Well-Being, Millennium Ecosystem Assessment. 10. Secretariat of the Convention on Biological Diversity, (2007). An exploration of tools and
Methodologies for valuation of biodiversity and biodiversity resources and functions, Technical Series no. 28, Canada: CBD.
11. Paccagnan, V. (2007). On combining stated preferences and revealed preferences approaches to evaluate environmental resources having a recreational use, Italy: MPRA.
12. Jacobs (2004). An Economic Assessment of the Costs and Benefits of Natura 2000 Sites in Scotland, Scotland: Scottish Executive.
13. Valuing our Environment – Economic Impact of the National Parks of Wales 7. REFERENCES 1. Alcamo, J. et al. (2003). Ecosystems and Human Well-being, A Framework for assessment,
Millennium Ecosystem Assessment. 2. Cressey, P. & Lake R. (2008). Risk ranking: Estimates of the cost of foodborne disease for New
Zealand, New Zealand: ESR 3. Dudley, N. (2008). Guidelines for applying protected area management categories, Switzerland:
IUCN. 4. Hanley, N., Barbier, E. (2009). Pricing nature - Cost-Benefit Analysis and Environmental Policy,
USA: Edward Elgar. 5. IUCN (1994), Guidelines for Protected Area Management Categories, Switzerland and UK
:IUCN. 6. King, D. M., & Mazzotta, M. J. (2010). Dollar-based Ecosystem valuation methods
http://www.ecosystemvaluation.org/dollar_based.htm, february 10. 7. Lippmann, M. (2000). Economic Guidelines for Preparing Economic Analyses, USA:EPA. 8. Managing MPA. A toolkit for the Western Indian Ocean. 2010. Theme sheets: Economic
valuation. http://www.wiomsa.org/mpatoolkit/Themesheets/E6_Economic_valuation.pdf, february 20.
9. Masimo, F., Maffini S. (2008). Guide to Cost-Benefit analysis of investment project, Italy: European Commission.
10. Pagiola, S., Ritter, K., Bishop, J. (2004). Assessing the Economic Value of Ecosystem Conservation, USA: IUCN.
11. Pagiola, S. (1996). Staff appraisal report, Republic of Croatia Coastal forest reconstruction and protection project - Annex J, USA: World bank
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12. Pearce, D., Atkinson, G., Mourato, S. (2006) Cost-Benefit analysis and the environment, France: OECD.
13. Pearce, D. & Moran, D. (1994). The economic value of biodiversity, UK: IUCN. 14. Ozdemiroglu, E., Tinch, R., Johns, H., Provins, A., Powell, J., Twigger-Ross, C.(2006a). Valuing
our natural environment – Final Report, UK: Efec. 15. Ozdemiroglu, E., Tinch, R., Johns, H., Provins, A., Powell, J., Twigger-Ross, C.(2006b). Valuing
our natural environment – Annexes NRO103, UK: Efec. 16. Secretariat of the Convention on Biological Diversity, (2007). An exploration of tools and
methodologies for valuation of biodiversity and biodiversity resources and functions, Technical Series no. 28, Montreal, Canada: CBD.
17. Steiner. A. (2004). How much is an ecosystem worth? Assessing the economic value of conservation, USA: IUCN.
18. Verbič M., Slabe Erker R. (2007). Economic Valuation of environmental values of the landscape development and Protection area of Volčji Potok, Slovenia: Institute for Economic Research.
8. LINKS a) A guide to environmental economic valuation is available on the EPA website:
www.epa.qld.gov.au/environmental_management/planning and guidelines/environmental economics/, with other factsheets to be included as they become available.
b) Guidance on the environmental impacts of air quality including recommended damage cost values to apply: http://www.defra.gov.uk/environment/airquality/panels/igcb/ind ex.htm
c) Greenhouse gas policy evaluation and appraisal guidance: http://www.defra.gov.uk/environment/climatechange/uk/ukccp/ pdf/greengas-policyevaluation.pdf
d) Details on the recommended carbon values to apply in policy appraisal: http://www.defra.gov.uk/environment/climatechange/research/c arboncost/index.htm
e) Flood risk management project appraisal guidance: http://www.defra.gov.uk/environ/fcd/pubs/pagn/default.htm
f) Review of the environmental and health impacts of waste, including evidence on valuation: http://www.defra.gov.uk/environment/waste/research/health/in dex.htm
g) Methodology for taking account of environmental impacts: http://www.webtag.org.uk/webdocuments/3_Expert/3_Environ ment_Objective/index.htm
h) Guidance on external costs of fuel cycles (energy/transport): http://www.externe.info/ Guidelines in the Water Framework Directive (WFD) context: http://www.aquamoney.ecologic-events.de/
i) MethodEx: best practice in external cost assessment, extending ExternE analysis to agriculture, industry, waste and other sectors: http://www.methodex.org/
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9. ANNEX EXAMPLE OF THE QUESTIONNAIRE WHICH WAS USED FOR THE ECONOMIC EVALUATION OF SPATIAL VALUES OF THE PROTECTED AREA OF VOLČJI POTOK The Institute for Economic Research is preparing a survey entitled "The economic aspect of spatial values in the process of harmonizing the development interests and conservation requirements: An application of methods for economic evaluation of spatial values in the case of Volčji Potok Landscape Area", whose purpose is to assess the value of the wider area of čji Potok for residents and visitors. The empirical part of the present research is based on a questionnaire by which we measure the demand for spatial values expressed through the study of preferences of individuals, e.g. residents and visitors of a wider area of Volčji Potok. The survey takes the form of a personal interview between the interviewer and random sampled respondents, with the latter being informed in advance of the interview or had agreed to be interviewed in advance. Respondents must be adult, but could be either visitors or residents. The questionnaire consists of five sets of questons, from which the first four are designed for respondents and the last one for the interviewer. The following annexes are an integral part of the questionnaire:
1. The scale of income of the respondent and his/her household with the corresponding values of WTP.
2. Presentation of the qualities of a wider area of Volčji Potok with verbal and graphic description of the natural and cultural heritage, and problems occurring the area.
3. Descriptive and graphical presentation of the scenario "A" in the wider range of the Volčji Potok.
4. Descriptive and graphical presentation of the scenario "B" in the wider range of the Volčji Potok.
Annex 1 is used by the interviewer in the fourth set of questions in defining the extent of the respondent’s actual WTP in relation to his/her income conveyed through the answers to questions 1.6 and 1.7. Annex 2 serves for the presentation of Volčji Potok’s wider area at the beginning of the third set of questions. Annexes 3 and 4 serve for the presentation of both scenarios in the third or fourth set of questions. The status of the respondent (Enter appropriate letter code): R Resident V Visitor
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Hello. My name is [interviewer name]. I am conducting a survey prepared by Institute of Economic Research, which aims to assess the value of space and its traditional value on more than 2000 hectares of the area, which stretches eastward from Arboretum Volčji Potok (broad area of Volčji Potok). If you are willing to participate, I would like to ask you some questions obout your attitude to the natural and cultural assets. Your answers will be used only for the research reasons.
1.1. Please state your birth year: ................................................................................................................................. 1.2. Sex of the respondent:
� Male � Female 1.3. How many members does your household have? ................................................................................................................................. 1.4. What is your formal status (select one)?
� Employed � Self employed � Farmer � Unpaid family member (assistance to the family farm, family business) � Other forms of work (copyright, under contract, for direct payment)) � Unemployed � Pensioner � Pupil or student � Housewife � Unable to work � Another, what? .............................................................................................................. 1.5. What is your achieved level of education (choose one)?
� No schooling � Incomplete elementary school � Elementary school � Professional school � High School � College � Specialization, MSc or Phd 1.6. How long have you lived in the region? When interviewing a visitor, the interviewer is to enter the values of 0 years and 0 months ..................... years ..................... months
1 SOCIO-ECONOMIC FEATURES OF RESPONDENTS
PRESENTATION
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1.7. Please indicate which category best fits your net monthly income:
� less than 200 € � from 200 € to less than 400 € � from 400 € to less than 650 € � from 650 € to less than 1,000 € � from 1,000 € to less than 1,700 € � more than 1,700 € � (Respondent does not know or does not wish to answer) 1.8. Please indicate which category best fits your net monthly income of the household:
� less than 400 € � from 400 € to less than 850 € � from 850 € to less than 1,700 € � from 1,700 € to less than 3,000 € � from 3,000 € to less than 6,250 € � more than 6,250 € � (Respondent does not wish to answer) If the respondent did not answer the questions 1.7 and 1.8, the interview ends. However, if the respondent answered one of these two questions, we moved on to the second set of questions.
I am going to read a few statements. Please give your sincer appinion on each statement. Note that there are no true and false answers. There are just different views to the natural and cultural heritage.
Statement on the relationship to the natural and cultural heritage
1 - S
trong
ly d
isag
ree
2 - D
isag
ree
3 - I
ndiff
eren
t
4 - A
gree
5 - S
trong
ly a
gree
2.1. The government should not support the development if it is harmful to the environment, irrespective of the magnitude of the damage2.2. It is not right to invest in the natural and cultural heritage, because w e sacrif ice our income that our descendants w ill enjoy the benefits2.3 Slovenia should exploit its natural resources today in order to increase employment and living standards, regardless of the consequences for the environment2.4. Cultural and natural heritage in the nationally important landscape areas should be protected2.5 The value of the landscape does not depend on the existence of endangered plants and animal species.2.6 I do not need to contribute to the natural and cultural heritage areas, w hich I do not visit.
2 ATTITUDES TOWARDS TO THE NATURAL AND CULTURAL HERITAGE
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Now I will briefly present to you the quality of the wider area of Volčji Potok with an emphasis on development issues of the natural and cultural heritage in the area. In interaction with the respondent, the interviewer improvisingly conducts a presentation of the qualities of the area, additionally using graphical material during his description of the natural and cultural heritage as well as problems occurring in the area. 3.1. To what extent is the information on the environmental and spatial problems in the wider area of
Volčji Potok new?
� completely new � partly new � know all already 3.2. Which of the following natural and cultural values in the wider area of Volčji Potok you visit and how often?
Natural and cultural values in the w ider area of Volčji Potok
1 - L
ess
than
onc
e a
year
2 - O
nce
a ye
ar
3 - S
ever
al ti
mes
a y
ear
4 - E
ach
wee
k
5 - E
ach
day
3.2a Surrounding ponds3.2b Watercourse,mills and saw mills3.2c Castles w ith parks3.2d Kolovec forests3.2e Volčji Potok3.2f Villages and agricultural landscape3.2g Homš hill 3.3. Which of the following aspects of the wider area of Volčji Potok you consider important (you can choose up to three options)?
� Calmness � Protection of drinking water for surrounding residents � Variety of landscapes, plant and animal species � Rare and traditional settlement � "Refuge" for future generations � Historical and educational value If we continue today’s trend in the wider area of Volčji Potok, this will eventually lead to a situation that is presented in scenario "A". Interviewer presents a graphical situation of scenario 'A' to the respondent and gives him an adequate description of the scenario. To what extent are you concerned about the events presented in scenario "A"?
� I am very concerned � I am slightly concerned � I am not concerned at all
3 KNOWLEDGE AND PERCEPTION OF DEADLY BROOK WIDE AREA
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3.5. In your opinion, how great damage is likely to be inflicted on the wider area of Volčji Potok, if scenario "A" proves true?
� Very great � Great � Small � Very small
We are now moving to the last set of questions. Suppose that the task of maintaining the wider area of Volčji Potok is entrusted to a trustworthy local institution, so that scenario "B" will be achieved. The interviewer presents a graphical situation of scenario 'B' to the respondent and gives him an adequate description of the scenario. Work of such an institution, which would take care of maintenance and improvement of the landscape, should be properly financed. The following questions are therefore related to the financing of this institution for the next five years, although the protection is actually necessary at all times. Payments would be made in the form of additional compensation for the use of the building site. Before we start with the questions I would like to draw attention to some things.
a) The problem of heritage preservation is only one of the challenges faced by the communities in this area (Domžale, Kamnik and Lukovica).
b) Wider area of Volčji Potok is just one of the many important landscape-quality sites in Slovenia. c) Your income is limited and can be used for a number of other purposes. d) In Slovenia, there are many environmental and spatial problems of great significance, but we ask
you to focus only on the area shown on the map. 4.1. Are you WTP [the basic monthly amount] € monthly income of your household, or [base annual amount] € per year over the next five years, starting in January 2006, to achieve the scenario "B"? If the respondent does not answer, the interview is completed.
� Yes Followed by question 4.2c. � No � (Respondent doesn't know or doesn't want to answer) 4.2a. Are you WTP [a lower monthly fee] € monthly income of your household, or [lower annual amount] € per year over the next five years, starting in January 2006, to achieve the scenario "B"? � Yes Followed by question 4.3. � No 4.2b. Why do you not wishto contribute that amount for the realization of scenario "B"? Followed by question 4.3.
� The state should pay � Users should pay � Don't have enough money � Others, what? ...............................................................................................................................
4 PERFORMANCES OF CONTINGENCY EVALUATIONS
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4.2c. Are you WTP [higher monthly fee] € monthly income of your household, or [the maximum annual amount] € per year over the next five years, starting in January 2006, to achieve the scenario B?
� Yes � No 4.3. What is the largest amount of monthly income of your household that you are WTP over the next five years, starting in January 2006, to achieve scenario "B"?
…………………………€ If the amount, in question 4.3., is positive, then we can move to the next question, otherwise the interview ends. 4.4. What are your most important reasons for paying the contribution for the realization of the scenario "B"? …………………………………………………………………………………………………………… This is the end of the interview. Your answers are extremly important to us so thank you very much, for donation of your time and willingness to cooperate.
5.1. How well do you think the respondent has understood the questions concerning the wider area of Volčji Potok?
� Well � Not too good � Didn't understand 5.2. How much do you believe in the sincerity of the respondents answers? � I belive in his/her sincerity � I am not too sure about his/her sincerity � I doubt about his/her sincerity Name and surname of the interviewer: .................................................................................................................................... Place of the interview: .................................................................................................................................................. Date and time of the interview: ....................................................................................................................................
5 QUESTIONS FOR INTERVIEWER
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THE SCENARIOS USED AS AN EXAMPLE OF WHAT WOULD HAPPEN WITHOUT/WITH THE CONSERVATION OF THE PROTECTED AREA OF VOLČJI POTOK SCENARIO A Unplanned development scenario of Volčji Potok Landscape Development and Protection
SCENARIO B Targeted development scenario of Volčji Potok Landscape Development and Protection
