Using the choice experiment method for valuing improvements in water quality: a simultaneous application to four recreation sites of a river basin

Transcription

1 J.Poirier(CREST) Using the choice experiment method for valuing improvements in water quality 1/25 Using the choice experiment method for valuing improvements in water quality: a simultaneous application to four recreation sites of a river basin Julie Poirier CREST-LEI, GATE Exiopol Summer School July 12, 2010

2 The Water Framework Directive (WFD) J.Poirier(CREST) Using the choice experiment method for valuing improvements in water quality 2/25 European Directive 2000=60 of October 2000 Establish a Community framework for water protection Main objective of the Directive Build a water management policy at the European Union level Achieve a `good ecological status' in all European waters by 2015 ) Expects the adoption of programs of measures (=management plans) for all river basins Time extensions if costs > benets ) Cost-Benets Analysis to assess whether cost of measures are disproportional

3 Economic approaches J.Poirier(CREST) Using the choice experiment method for valuing improvements in water quality 3/25 Costs : computed by water experts Benefits : methods for `valuing environmental goods and services', based on the examination of individuals' preferences Main objectives of the study Multi-attribute valuation of local residents' preferences for water quality improvements at a specic river basin in France (which consists of a system of four recreation sites) Focus on the spatial dimension in the good that provides both use and non-use values for the sites ) Choice experiment method with site-specic attributes Estimate the non-market economic benets of moving towards good ecological status

4 J.Poirier(CREST) Using the choice experiment method for valuing improvements in water quality 4/25 Outline The choice experiment method (CE) Study area and data collection Survey design 1 The choice experiment method (CE) Study area and data collection Survey design 2 The models Choice experiments results 3 Cost-Benet Analysis (CBA) Further comparison : exclusion of protest bids 4

5 J.Poirier(CREST) Using the choice experiment method for valuing improvements in water quality 5/25 The choice experiment method (CE) Study area and data collection Survey design A few things you need to know What is an environmental good? Example : air, water, biodiversity... No monetary value but still a value which can take several forms

6 J.Poirier(CREST) Using the choice experiment method for valuing improvements in water quality 6/25 Literature The choice experiment method (CE) Study area and data collection Survey design Study area = system of spatial units ) use of site-specic attributes,! An economic valuation of simultaneous management of several recreational sites located in the same forest area (Horne, Boxall, Adamowicz, Forest Ecology and Management, 2005) Random parameters logit model to take into account heterogeneity of preferences,! An economic valuation of improvements to the ecology of two rivers (River Wear and River Clyde) in the UK (Hanley, Wright and Alvarez-Farizo, Journal of Environmental Management, 2006)

7 J.Poirier(CREST) Using the choice experiment method for valuing improvements in water quality 7/25 General framework The choice experiment method (CE) Study area and data collection Survey design Goal Elicit information about environmental preferences from individuals through the construction of an hypothetical (but realistic) market involving an improvement (or a decline) in environmental quality. Then, infer individual's WTP from those preferences.

8 The choice experiment method (CE) Study area and data collection Survey design Study area J.Poirier(CREST) A river basin, composed of a coastal strip and its three watersheds, in Lower Normandy (France) Four outdoor recreation sites, frequented primarily for water-based recreation ) Users and non-users Heterogenous in their ecological status Using the choice experiment method for valuing improvements in water quality 8/25

9 J.Poirier(CREST) Using the choice experiment method for valuing improvements in water quality 9/25 Data The choice experiment method (CE) Study area and data collection Survey design Denition of a scope of inuence for the study area : 15 kms around each river and 80 kms from the coastline Population to survey : a representative sample of the households who live in this scope of inuence Quota-sampling approach (age and occupation of the head of family, number of persons in the household, population of the cities located in the denite scope of inuence) ) 824 resident households surveyed using in-house interviews in the summer of 2008 N.B. : Quite large sample compared with other studies.

10 The choice experiment method (CE) Study area and data collection Survey design Implementation of Choice Experiments 1 An environmental good : waters of the river basin! A global system consisting of four distinct spatial units 2 Four spatial, or site-specic, attributes Two levels for each attribute : `status quo' level and `good' level 3 A monetary attribute : an annual voluntary contribution Four levels for the `price' attribute : 10 e, 20 e, 30 e, 40 e 4 Construction of 8 choice sets, each consisting of three alternative water management regimes for the four sites : two improvement alternatives and the status quo scenario N.B. : Because of respondents' cognitive capacity, the 8 choice sets were blocked in two versions of the CE, each containing 4 choice sets. J.Poirier(CREST) Using the choice experiment method for valuing improvements in water quality 10/25

11 J.Poirier(CREST) Using the choice experiment method for valuing improvements in water quality 11/25 Example of a choice set The choice experiment method (CE) Study area and data collection Survey design Figure: A simplied example of a choice set Attribute Option A Option B Status quo option Coastline Current bad status Good status Current bad status River Touques Current moderate status Good status Current moderate status River Dives Good status Current bad status Current bad status River Vie Current poor status Good status Current poor status Annual contribution 10 e 30 e 0 e Respondents are asked to choose their preferred alternative from each of the choice sets. Advantages of the CE approach : Attributes can be quantitative or qualitative in nature Provide independent values for each attribute

12 J.Poirier(CREST) Using the choice experiment method for valuing improvements in water quality 12/25 Outline The models Choice experiments results 1 The choice experiment method (CE) Study area and data collection Survey design 2 The models Choice experiments results 3 Cost-Benet Analysis (CBA) Further comparison : exclusion of protest bids 4

13 J.Poirier(CREST) Using the choice experiment method for valuing improvements in water quality 13/25 General remarks The models Choice experiments results Based on the new approach to consumer theory (Lancaster, 1966) Consistent with random utility theory (Marschak, 1960) CE assumes that : Individuals choose the alternative which maximizes their utility. ) Can apply probabilistic models to choices between the dierent alternatives available in each choice set. A good is valued in terms of its attributes. Always an attribute which takes the form of a proxy for price ) WTP estimates for changes in attribute levels can be derived from marginal utility estimates.

14 J.Poirier(CREST) Using the choice experiment method for valuing improvements in water quality 14/25 Multinomial models The models Choice experiments results Unordered multinomial outcomes that arise from individual choices Assumptions Individual i, alternative j ARUM : U ij = V j + " ij Probability of `i' choosing `j' over alternative `k' : P(y i = jjc ) = P(U ij > U ik ); 8k 2 C = P(" ik " ij < V j V k ); 8k 2 C Multi-attributes choices ) P(y i = jjc ) expressed on terms of logistic distribution The " ij 's are IID Gumbel-distributed. ) P(y i = jjc ) = P exp(v j ) h2c exp(v h)

15 J.Poirier(CREST) Using the choice experiment method for valuing improvements in water quality 15/25 The models Choice experiments results Conditional logit (CL) model All regressors are alternative specic. Functional form of the utility function : U ij = j + X 0 j x + P 0 j p + " ij X j P j is a vector of site-specic attributes describing j is the monetary cost associated with alternative j j is the alternative specic constant (ASC), which is a dummy variable that equals one when the status quo option was chosen. It captures the eects of non-observable variables that play a role in choice decisions.

16 The models Choice experiments results Random parameters (RP) logit model Limitations of the CL model : assume homogeneous preferences Functional form of the utility function : U ij = j + X 0 j x + P 0 j p + X 0 j i + " ij i N(0; x ) ) the combined error (X 0 j i + " ij ) are now correlated across alternatives. Assume that preferences relating to the four site-specic attributes are heterogeneous while preferences towards the price attribute are homogeneous. The RP logit model : allows for variation in preferences across individuals. adjusts for error correlation across alternatives. J.Poirier(CREST) Using the choice experiment method for valuing improvements in water quality 16/25

17 Estimation results The models Choice experiments results Site-specic and price attributes have the expected signs. The ASC has a positive sign ) `Cost to change'. Parameters estimates increase in absolute value when we estimate a RP logit model rather than a simple CL model. J.Poirier(CREST) Using the choice experiment method for valuing improvements in water quality 17/25

18 All the implicit prices are positive. `Naive' measure of welfare in the case of `good ecological status' at all 4 sites : 52.1 e per year and per household (with RP logit estimates) J.Poirier(CREST) Using the choice experiment method for valuing improvements in water quality 18/25 WTP estimates The models Choice experiments results Marginal WTP associated with an improvement in the quality of any attribute `a' : WTP a = a p

19 J.Poirier(CREST) Using the choice experiment method for valuing improvements in water quality 19/25 Individual heterogeneity The models Choice experiments results We include the income of the respondent interacted with the price attribute in the model in order to estimate implicit prices specic to individuals'types. WTP for each attribute vary with income. Eg. : Households whose income is less that 750 e are willing to pay 7.40 e per year for good ecological status at coastal waters.

20 J.Poirier(CREST) Using the choice experiment method for valuing improvements in water quality 20/25 Outline Cost-Benet Analysis (CBA) Further comparison : exclusion of protest bids 1 The choice experiment method (CE) Study area and data collection Survey design 2 The models Choice experiments results 3 Cost-Benet Analysis (CBA) Further comparison : exclusion of protest bids 4

21 Tools and results Cost-Benet Analysis (CBA) Further comparison : exclusion of protest bids CBA : estimate the equivalent money value of the benets and costs to the achievement of a good ecological status in the river basin P T B Net present value for the project : NPV = t C t t=0 (1+r) t NPV on the period of time Costs : 30-year period Benets : only entered in the accounts from 2015 NPV<0 ) Justication for time delays J.Poirier(CREST) Using the choice experiment method for valuing improvements in water quality 21/25

22 J.Poirier(CREST) Using the choice experiment method for valuing improvements in water quality 22/25 Cost-Benet Analysis (CBA) Further comparison : exclusion of protest bids Zero bids and status quo responses 33% of respondents always report the status quo option irrespective of the choice set. ) Ancillary question in order to know the reason underlying this choice behavior. ) Status quo responses can be categorized into two types : True zero bids (=genuine zero bids) ) real zero value False zero bids (=protest bids) ) true value for the good is positive,! Aversion to the principle of paying for environment conservation or to the payment vehicle or to the change ) Restriction of the analysis to only individuals who stated real bids (positive bids and true zero bids).

23 Cost-Benet Analysis (CBA) Further comparison : exclusion of protest bids Estimates when excluding protest bids All parameters have expected signs. All parameter estimates increase in absolute value, except ASC ) This suggests that : protest bids do aect the results. respondents tried to signal their aversion to the change through their protest bids. J.Poirier(CREST) Using the choice experiment method for valuing improvements in water quality 23/25

24 J.Poirier(CREST) Using the choice experiment method for valuing improvements in water quality 24/25 Outline 1 The choice experiment method (CE) Study area and data collection Survey design 2 The models Choice experiments results 3 Cost-Benet Analysis (CBA) Further comparison : exclusion of protest bids 4

25 J.Poirier(CREST) Using the choice experiment method for valuing improvements in water quality 25/25 Extensions CE enables to take into account both environmental and socio-economic characteristics across sites. Allow to compare costs and benets, as imposed in the WFD. CE studies are expensive and time-consuming ) Could be worth to set up a system of benets transfer in all Europe. Future work : nd a way to `treat' protest bids when running the analysis.