Choe, Whittington, Lauria (1996)

• Valuation study in Davao, Philippines• Objectives?• Valuation techniques applied?

• Objective: estimate the economic value that residents place on improving water quality in rivers and sea near their community, in particular for recreational use

• Apply two nonmarket valuation techniques– Stated-preference: CVM– Revealed-preference: travel-cost method

• Reactions?

Water quality in Davao

• What’s the status?• What’s the major source of pollution?• What are the consequences?

• Davao: second largest municipality in Philippines (1990 population: 850,000)– Most densely populated portion: on coast

• Since mid-1980s, most households have installed flush or pour-flush toilets, voluntarily– But: toilets empty into holding tanks, which seep into ground

or overflow into street drains and ditches– < 1% of households are connected to sewer lines

• Consequence: Davao River and Davao Bay have become highly polluted– What had been most popular beach, Times Beach, has

gotten little use since 1992 public health warnings

Water improvement scenarios

• Scenario 1: Water Quality Improvement Plan• Scenario 2: Sewer Plus Treatment Plan• What’s the difference?

Water improvement scenarios

• Scenario 1: Water Quality Improvement Plan– Assume there is a city-wide plan to clean up rivers

and sea and make Times Beach safe for swimming and other recreation

• Did not specify what plan would entail

– If adopted, each household will be required to pay a monthly fee

– Sample: half of households that owned homes with water-sealed toilets; all other households

• Scenario 2: Sewer Plus Treatment Plan– Assume there is a city-wide plan to construct sewer

lines and treatment plants, which will not only clean up rivers and sea and make Times Beach safe for swimming and other recreation, but will also enhance public health

– If adopted, each household will be required to pay a monthly fee

– Sample: other half of households that owned homes with water-sealed toilets

Types of values studied

Davao Use values: make Times Beach safe for recreational use, improved sanitation services

Developing countries Use values: initially, mainly water supply, sanitation, and recreation; more recently, air and water quality, health, biodiversity (inc. passive use)

Developed countries Mainly passive use values of natural areas

Choice of monetary measure of welfare change

Davao WTP for beach cleanup (Scenario 1)WTP for improved sanitation service (Scenario 2)

Developing countries Usually as above: WTP

Developed countries Usually WTP (compensating surplus, if welfare gain; equivalent surplus, if welfare loss)Sometimes WTA (e.g., for loss of protected area)• But often get protest bids

Field procedures: Davao

• What were the steps in conducting the study?

1. Conduct focus groups with small number of households, to learn about existing situation and design initial version of questionnaire

2. Pre-test questionnaire with larger number of households3. Finalize questionnaire and translate into Tagalog4. Design sampling procedure (2-stage stratified random sample of

1200 households)5. Train enumerators (role playing, practice interviews)6. Conduct survey through face-to-face interviews7. Confirm that enumerators completed interviews, and check

completed questionnaires8. Conduct followup interviews if information missing or seemingly in

errorAbout half a year, from start to finish

Field procedures

Developing countries Same as in Davao

Developed countries Similar to Davao, but:      Usually no need to translate questionnaire into

foreign language      More information is typically available for

designing the sampling frame (in Davao, 32 percent of households could not be located)

      Surveys are usually conducted via telephone or mail instead of face-to-face

Description of hypothetical good

• How did they describe the scenarios to the respondents?

Description of hypothetical good

Davao Read description from prepared textShow diagrams and pictures

Developing countries Similar

Developed countries Often more detailed description and more props: goods often less familiar, payment mechanism often less direct

Bid elicitation procedure

• What procedure did they use to elicit respondents’ WTP?

Bid elicitation procedure

Davao Two-step bidding game with random starting point (25, 50, 100, 150, 200 pesos) and open-ended final bid

Developing countries Various:      Sometimes as above      Usually just open-ended question (worse)      Sometimes referendum (“take-it-or-leave-it”)

approach (better): randomly allocate a set of “prices” across respondents, each of whom “votes” yes or no in view of the price he or she was allocated

Developed countries Referendum approach endorsed by NOAA panel and strongly favored in U.S.

Information generated by bid elicitation procedure

1. Open-ended question: yields point estimate of household’s WTP

– WTP = WTPopen-ended

– Analyze using OLS

Information generated by bid elicitation procedure

1. Open-ended question: yields point estimate of household’s WTP

– WTP = WTPopen-ended

– Analyze using OLS

2. “Yes/No” questions: classify household’s WTP into three categories

– Category 1: WTP < LCategory 2: L WTP < HCategory 3: H WTP

– Analyze using more sophisticated econometric methods (e.g., probit)

Testing the accuracy of bids

• What did they do?

1. Cooperativeness of respondents– Only 3% of households refused to be interviewed

2. Plausibility of bids, cf. current income and expenditures– Median bids = ~$1/month– Mean water bill = ~$5/month; mean income = ~$180/month

3. Explanatory power of model of determinants of WTP bids 4. Consistency of model results with economic theory5. Neutrality of survey design

– Does starting value of iterative bidding affect final bids?

6. Split-sample “scope” test– Do households that own houses with water-sealed toilets bid more in

Scenario 2 than in Scenario 1?

Same approaches are used in other contingent valuation studies

Policy implications

• What do they conclude about viability of investments in improved sanitation services?

Policy implications

• What do they conclude about viability of investments in improved sanitation services?– Not viable!

• So, should municipal/national government proceed with investments in sewerage system?

Policy applications

Davao Determine which investments in improved sanitation services, if any, are viable• Conclusion: not much is viable at present

Developing countries Similar to above, including for water supplySet entrance fees for parks

Developed countries Decide how to use public lands (e.g., harvest timber or protect?)

Determine whether public should purchase private lands to protect them

Determine compensation for environmental damage (Exxon Valdez)