using the choice experiment method for valuing ... ppt exiopol.pdf · introduction methods and data...

IntroductionMethods and DataModels of choice

DiscussionConcluding remarks

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

J.Poirier(CREST) Using the choice experiment method for valuing improvements in water quality 1/25



The Water Framework Directive (WFD)

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 > bene�ts

) Cost-Bene�ts Analysis to assess whether cost of measures

are disproportional




Economic approaches

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 speci�c 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-speci�c attributes

Estimate the non-market economic bene�ts of moving towards

good ecological status




The choice experiment method (CE)Study area and data collectionSurvey design

Outline

1 Methods and Data

The choice experiment method (CE)

Study area and data collection

Survey design

2 Models of choice

The models

Choice experiments results

3 Discussion

Cost-Bene�t Analysis (CBA)

Further comparison : exclusion of protest bids

4 Concluding remarks





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





Literature

Study area = system of spatial units ) use of site-speci�c

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)





General framework

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.





Study area

A river basin, composed of a

coastal strip and its three wa-

tersheds, in Lower Normandy

(France)

Four outdoor recreation

sites, frequented primarily

for water-based

recreation

) Users and non-users

Heterogenous in their

ecological statusJ.Poirier(CREST) Using the choice experiment method for valuing improvements in water quality 8/25




Data

De�nition of a scope of in�uence 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 in�uence

Quota-sampling approach (age and occupation of the head of

family, number of persons in the household, population of the

cities located in the de�nite scope of in�uence)

) 824 resident households surveyed using in-house interviews

in the summer of 2008

N.B. : Quite large sample compared with other studies.





Implementation of Choice Experiments

1 An environmental good : waters of the river basin

! A global system consisting of four distinct spatial units2 Four spatial, or site-speci�c, 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 : 10e, 20e, 30e, 40e

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




Example of a choice set

Figure: A simpli�ed example of a choice set

Attribute Option A Option B Status quo optionCoastline 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 10e 30e 0e

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




The modelsChoice experiments results

Outline

1 Methods and Data



Survey design

2 Models of choice

The models


3 Discussion








General remarks

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

di�erent 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.





Multinomial models

Unordered multinomial outcomes that arise from individual choices

Assumptions

Individual i , alternative j

ARUM : Uij = Vj + "ij

Probability of `i ' choosing `j ' over alternative `k ' :

P(yi = j jC ) = P(Uij > Uik);8k 2 C

= P("ik � "ij < Vj � Vk); 8k 2 C

Multi-attributes choices ) P(yi = j jC ) expressed on terms of

logistic distribution

The "ij 's are IID Gumbel-distributed.

) P(yi = j jC ) =exp(Vj )P

h2C exp(Vh)





Conditional logit (CL) model

All regressors are alternative speci�c.

Functional form of the utility function :

Uij = �j + X 0

j �x + P 0

j�p + "ij

Xj is a vector of site-speci�c attributes describing j

Pj is the monetary cost associated with alternative j

�j is the alternative speci�c constant (ASC), which is a

dummy variable that equals one when the status quo option

was chosen. It captures the e�ects of non-observable variables

that play a role in choice decisions.





Random parameters (RP) logit model

Limitations of the CL model : assume homogeneous preferences

Functional form of the utility function :

Uij = �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-speci�c

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




Estimation results

Site-speci�c 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




WTP estimates

Marginal WTP associated with an improvement in

the quality of any attribute `a' :

WTPa = ��a�p

All the implicit prices are positive.

`Naive' measure of welfare in the case of `good

ecological status' at all 4 sites :

52.1e 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




Individual heterogeneity

We include the income of the respondent interacted with the price

attribute in the model in order to estimate implicit prices speci�c

to individuals'types.

WTP for each attribute vary with

income.

Eg. : Households whose income is

less that 750e are willing to pay

7.40e per year for good ecological

status at coastal waters.




Cost-Bene�t Analysis (CBA)Further comparison : exclusion of protest bids

Outline

1 Methods and Data



Survey design

2 Models of choice

The models


3 Discussion








Tools and results

CBA : estimate the equivalent money value of the bene�ts and

costs to the achievement of a good ecological status in the

river basin

Net present value for the project : NPV =PT

t=0Bt�Ct

(1+r)t

NPV on the period of time 2010-2040Costs : 30-year period

Bene�ts : only entered in the accounts from 2015

NPV<0 ) Justi�cation for time delaysJ.Poirier(CREST) Using the choice experiment method for valuing improvements in water quality 21/25




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).





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 a�ect the results.

respondents tried to signal their aversion to the change

through their protest bids.




Outline

1 Methods and Data



Survey design

2 Models of choice

The models


3 Discussion







Extensions

CE enables to take into account both environmental and

socio-economic characteristics across sites.

Allow to compare costs and bene�ts, as imposed in the WFD.

CE studies are expensive and time-consuming

) Could be worth to set up a system of bene�ts transfer in all

Europe.

Future work : �nd a way to `treat' protest bids when running

the analysis.


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