Demand for Piped and Non-piped Water Supply Services: Evidence from Southwest Sri Lanka

In many countries water supply is a service that is seriously underpriced, especially for residential consumers. This has led to a call for setting cost recovery policies to ensure that the tariffs charged for water supply cover the full cost of service provision. Identification of factors driving piped and non-piped water demand is a necessary prerequisite for predicting how consumers will react to such price increases. Using cross-sectional data of 1,800 households from Southwest Sri Lanka, we estimate water demand functions for piped and non-piped households using appropriate econometric techniques. The (marginal) price elasticity is estimated at  − 0.15 for households exclusively relying on piped water, and at  − 0.37 for households using piped water but supplementing their supply with other water sources. The time cost elasticity for households relying on non-piped water only is estimated at  − 0.06 on average, but varying across sources. For both piped and non-piped households, we find evidence of substitutability between water from different sources. We discuss the implications of these results in terms of pricing policy.     

Asking for Individual or Household Willingness to Pay for Environmental Goods?

The aggregate welfare measure for a change in the provision of a public good derived from a contingent valuation (CV) survey will be higher if the same elicited mean willingness to pay (WTP) is added up over individuals rather than households. A trivial fact, however, once respondents are part of multi-person households, it becomes almost impossible to elicit an “uncontaminated” WTP measure that with some degree of confidence can be aggregated over one or the other response unit. The literature is mostly silent about which response unit to use in WTP questions, and in some CV studies it is even unclear which type has actually been applied. We test for differences between individual and household WTP in a novel, web-administered, split-sample CV survey asking WTP for preserving biodiversity in old-growth forests in Norway. Two samples are asked both types of questions, but in reverse order, followed by a question with an item battery trying to reveal why WTP may differ. We find in a test between samples that the WTP respondents state on behalf of their households is not significantly different from their individual WTP. However, within the same sample, household WTP is significantly higher than individual WTP; in particular if respondents are asked to state individual before household WTP. Our results suggest that using individual WTP as the response unit may overestimate aggregate WTP. Thus, the choice of response format needs to be explicitly and carefully addressed in CV questionnaire design and further research in order to avoid the risk of unprofitable projects passing the benefit-cost test.

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Proportionality of Willingness to Pay to Small Changes in Risk: The Impact of Attitudinal Factors in Scope Tests

Sensitivity (proportionality) of willingness to pay (WTP) to (small) risk changes is often used as a criterion to test for valid measures of economic preferences. In a contingent valuation (CV) study conducted in Austria, 1,005 respondents were asked their WTP for preventing an increase in the risk of being killed in an avalanche of 1/42,500 and 3/42,500 respectively. WTP for the higher variation in risk is significantly greater than WTP for the lower risk change. We find evidence that those respondents who have had personal experience of avalanches in recent years combine the information about future risk increase—as provided in the survey—with the observed number of fatal avalanche accidents in the past. Proportionality of WTP holds if such prior experience is taken into account and if attitudinal factors in scope tests are controlled for. This research was funded by alpS GmbH—Center for Natural Hazard Management, Innsbruck, Austria.     

Estimation of the public benefits of urban water supply improvements in Ethiopia: a choice experiment

Improving existing drinking water supply services in developing countries depends crucially on available financial resources. Cost recovery rates of these services are typically low, while demand for more reliable services is high and rapidly growing. Most stated preference-based demand studies in the developing world apply the contingent valuation method and focus on rural areas. This study examines household Willingness to Pay (WTP) for improved water supply services in a choice experiment in an urban area in Ethiopia, a country with the lowest water supply coverage in Sub-Saharan Africa. The design of the choice experiment allows estimation of the value of both drinking water supply reliability and safety. The estimated economic values can be used in policy appraisals of improved supply investment decisions. Despite significant income constraints, households are willing to pay up to 80% extra for improved levels of water supply over and above their current water bill. Women and households living in the poorest part of the city with the lowest service levels value the improvement of water quality most. As expected, also averting behaviour and expenditures play an important role.     

Past and present outage costs – A follow-up study of households’ willingness to pay to avoid power outages

Households’ demand for electricity continues to increase. This trend per se should indicate increased disutility from power outages. Additionally, batteries and other back-up systems have been improved, and the frequency and duration of outages have been reduced in many countries. By comparing the results from two stated preference studies on Swedish households’ willingness to pay (WTP) to avoid power outages in 2004 and 2017, we investigate whether the WTP has changed. The WTP is assessed for power outages of 1- and 4 -h durations, and whether it is planned or unplanned. We find three main differences: (i) the proportion of households stating zero WTP to avoid power outages decreased significantly from 2004 to 2017, meaning that more households are willing to pay to avoid a power outage in 2017 than in 2004; (ii) the overall WTP was considerably higher in 2017 than in 2004, but (iii) the conditional WTP, that is, WTP for those that have a positive WTP for an outage, has decreased. These results have implications for how regulators incentivize and regulate electricity suppliers, because the results suggest that a reliable supply of electricity is of greater importance now than what the literature has suggested.     

Public-good valuation and intra-family allocation

I derive values of marginal changes in a public good for two-person households, measured alternatively by household member i’s willingness to pay (WTP) for the good on behalf of the household, WTP _i (H), or by the sum of individual WTP values across family members, WTP(C). Households are assumed to allocate their resources in efficient Nash bargains over private and common household goods. WTP _i (H) is then defined by trade-offs between the public good and the household good, and WTP(C) by trade-offs of between the public good and private goods. WTP _i (H) is found to be higher (lower) than WTP(C) when member i has a relatively high (low) marginal valuation of the public good, but tends on average to equal WTP(C). As a consequence, individuals tend to represent households correctly on average when questioned about the household’s WTP for a public good, even when they are purely selfish and answer truthfully. Adding all members’ WTP answers on behalf of the household then leads to double counting. Pure and paternalistic altruism (the latter attached to consumption of the public good) move each member’s WTP on behalf of the household closer to the true sum of individual WTP, but only paternalistic altruism raises this sum.      

Economic valuation of environmental services sustained by water flows in the Yaqui River Delta

We attempted to estimate the economic value of environmental services provided by restored instream flows in the water-scarce Yaqui River Delta in Mexico. The Yaqui River begins near the U.S.-Mexico border and continues for 400 km before reaching the Oviachic dam, but has not reached the nearby Gulf of California for decades due to diversions for irrigation. These diversions have degraded the riparian ecosystem, coastal wetlands, and estuaries. Environmental services provided by restored flows in the Yaqui River would include healthy riverside vegetation, wetlands and estuaries, fish and wildlife habitats, non-use values, and recreation. A contingent valuation survey in 40 neighborhoods in the most populated Delta city, Ciudad Obregon, was administered to estimate non-market values of instream uses. Respondents were given a current and hypothetical Delta scenario (the latter assumed restored water flows in the River) and asked a willingness-to-pay (WTP) question regarding purchasing water for environmental flows through higher water bills. Results from 148 in-person interviews indicated that households would pay an average of 73 pesos monthly. WTP was found related to key variables suggested by economic theory and contingent valuation studies elsewhere: income, educational level, number of children in the household, and initial bid amount. These results will allow decision makers to compare the benefits generated by different water uses, including environmental services, and to manage scarce water resources under a long-term sustainable approach.     

Implications of Bid Design and Willingness-To-Pay Distribution for Starting Point Bias in Double-Bounded Dichotomous Choice Contingent Valuation Surveys

We examine starting point bias in double-bounded dichotomous choice contingent valuation surveys. We investigate (1) the seriousness of the biases for the location and scale parameters of the willingness-to-pay (WTP) in the presence of starting point bias; (2) whether or not these biases depend on the distribution of WTP and on the bid design; and (3) how well a commonly used diagnostic for starting point bias—a test of the null that bid set dummies entered in the right-hand side of the WTP model are jointly equal to zero—performs under various circumstances. Monte Carlo simulations suggest that the effect of ignoring starting point bias depends on the bid design and on the true distribution of WTP. A well-balanced, symmetric bid design may result in very modest biases even when the anchoring mechanism is very strong. The power of bid set dummies in detecting starting point bias is low. They tend to account for misspecifications in the distribution assumed by the researcher for the latent WTP, rather than capturing the presence of starting point bias.     

Economic Valuation of Environmental Damages due to the Prestige Oil Spill in Spain

This paper presents a parametric and non-parametric analysis of data from a contingent valuation study (CVM) conducted to estimate environmental use and passive use losses due to the Prestige oil spill. This is the first CVM study conducted in Europe after a large oil spill. The CVM survey was implemented using in person interviews. Mean willingness to pay (WTP) values were computed with both, a parametric and non-parametric approach. Parametric WTP estimation indicates that respondents in the sample are willing to pay about 40.51 € per household to avoid a similar future oil spill in Spain. This implies that on average, the Spanish society places a value of the environmental losses caused by the Prestige oil spill around 574 € million. Non-parametric estimates are slightly higher at 58.08 € per household. WTP results are similar to those obtained in the Exxon Valdez study.     

Economic valuation of habitat defragmentation: A study of the Veluwe, the Netherlands

This paper offers an economic value assessment of a nature protection programme in the Veluwe, the Netherlands. This programme involves two defragmentation scenarios: the first scenario connects the central part of the Veluwe with river forelands in a north-eastern direction (i.e. the meadows of the IJssel river), while the second scenario is focussed on defragmentation in a south-western direction (i.e. the meadows of the Rhine river). The valuation is based on a questionnaire that was administered during face-to-face interviews in the area and through the Internet. We employ a contingent valuation approach to assess the respondents' willingness to pay for the realisation of the defragmentation scenarios. It appears that the mean willingness to pay (WTP) for the two defragmentation scenarios is € 162.2 (lognormal distribution) per respondent. Because the Veluwe is considered a nature park of national importance, we performed an aggregation of individual WTP estimates over Dutch households. With the resulting aggregate estimates we can compare the total costs and benefits of the two scenarios for habitat defragmentation in the Veluwe. In addition, we test whether respondents value the two scenarios equally. We also check whether the methods of data collection (face-to-face interviews and Internet questionnaires) have distinct influences on the stated WTP responses.     

Willingness to Pay and Sensitivity to Time Framing: A Theoretical Analysis and an Application on Car Safety

Stated preference (SP) surveys attempt to obtain monetary values for non-market goods that reflect individuals’ “true” preferences. Numerous empirical studies suggest that monetary values from SP studies are sensitive to survey design and so may not reflect respondents’ true preferences. This study examines the effect of time framing on respondents’ willingness to pay (WTP) for car safety. We explore how WTP per unit risk reduction depends on the time period over which respondents pay and face reduced risk in a theoretical model and by using data from a Swedish contingent valuation survey. Our theoretical model predicts the effect to be nontrivial in many scenarios used in empirical applications. In our empirical analysis we examine the sensitivity of WTP to an annual and a monthly scenario. Our theoretical model predicts the effect from the time framing to be negligible, but the empirical estimates from the annual scenario are about 70 % higher than estimates from the monthly scenario.     

Discrete Choice Experiments in Developing Countries: Willingness to Pay Versus Willingness to Work

A concern when conducting stated preference valuation studies in rural developing or very low income contexts is the use of monetary willingness to pay (WTP) estimates. In circumstances where cash incomes are extremely low, a significant proportion of the population are not engaged in waged labour and the exchange of goods or services is augmented through barter or work exchange, the role of money is likely to be different from that within an urban developed setting. As such, ability to pay using money may be impaired and downwardly biased when compared with other mediums of exchange. In recognition of this several studies have used hypothetical labour contributions as payment vehicles and a common finding is that households are more often willing to contribute labour than they are money. In this paper we present the results of a split sample DCE using money and labour contributions as payment vehicles for improved drinking water quality in Kandal Province, Cambodia. We find little differences between the payment vehicles in terms of attribute non-attendance, marginal utilities of attributes or derived welfare values. We argue that this provides support for the use of WTP in rural developing areas where there are functioning labour markets.     

Use of Contingent Valuation to Elicit Willingness-to-Pay for the Benefits of Developmental Health Risk Reductions

We report the results of several contingent valuation (CV) surveys to elicit willingness-to-pay values from the general public for risk reductions associated with decreases in exposure to a chemical, PCBs, in the environment. We also develop Quality Adjusted Life Years (QALYs) from the survey using both standard gamble and time-tradeoff elicitation methods to explore the relationship between QALYs and willingness-to-pay (WTP), and to develop QALY weights for subtle developmental effects. The results of the CV surveys are designed for incorporation into a case study of an integrated risk model to monetize the benefits of predicted risk reductions. Respondents showed a nearly proportional, positive relationship between decreasing the risk of a 6-point reduction in IQ (a standard measure of “intelligence”) and WTP, but showed a negative relationship between risk reduction and WTP for reading comprehension as an outcome. The range of mortality risks that respondents would accept on behalf of their (hypothetical) 10-year-old child is 2 in 10,000 to 9 in 1,000 per IQ point, and WTP per IQ point is $466 ($380, $520). QALY weights elicited via time tradeoff (reduction in life expectancy) were significantly different from QALY weights elicited via a standard gamble (p = 0.001). Respondents who answered questions about ecological endpoints first were willing to pay a small additional amount when asked about human health effects, but those respondents who answered questions about human health endpoints first were not willing to pay any additional amount when subsequently asked about ecological effects. This paper has not been submitted elsewhere in identical or similar form, nor will it be during the first three months after its submission to the Publisher.     

Mixed logit estimation of willingness to pay distributions: a comparison of models in preference and WTP space using data from a health-related choice experiment

Different approaches to modelling the distribution of WTP are compared using stated preference data on Tanzanian Clinical Officers’ job choices and mixed logit models. The standard approach of specifying the distributions of the coefficients and deriving WTP as the ratio of two coefficients (estimation in preference space) is compared to specifying the distributions for WTP directly at the estimation stage (estimation in WTP space). The models in preference space fit the data better than the corresponding models in WTP space although the difference between the best fitting models in the two estimation regimes is minimal. Moreover, the willingness to pay estimates derived from the preference space models turn out to be very high for many of the job attributes. The results suggest that sensitivity testing using a variety of model specifications, including estimation in WTP space, is recommended when using mixed logit models to estimate willingness to pay distributions.     

Regulated price reforms and unregulated substitutes: the case of residential piped gas in Argentina

This paper examines the impact of regulated piped gas price changes on connection decisions and households’ welfare. The analysis explicitly considers bottled gas as a substitute for piped gas and therefore uses a simple utility maximization model that yields both a gas-type choice model and a demand specification whose parameterization allows examining households’ responses to regulated price changes. The results show that relative gas prices and household features explain households’ piped gas usage. They also provide insights on the distribution of welfare changes. The findings illustrate the impact of tariff rebalancing and unregulated substitutes on further access to regulated network services.     

The effect of distance on willingness to pay values: a case study of wetlands and salmon in California

Most contingent valuation studies in the literature utilized a pre-determined geographic market area for their sample frame. In other words, they did not include variables that would measure the extent of the geographic areas over which to aggregate willingness to pay. These studies implicitly assumed that the effects of geographic distance were moot; an assumption that could have led to an understatement of the aggregate benefit values computed in these studies. The overall goal of this study was to determine if distance affects willingness to pay for public goods with large non-use values. The data used came from a contingent valuation study regarding the San Joaquin Valley, CA. Respondents were asked about their willingness to pay (WTP) for three proposed programs designed to reduce various environmental problems in the Valley. A logit model was used to examine the effects of geographic distance on respondents' willingness to pay for each of the three programs. Results indicate that distance affected WTP for two of the three programs (wetlands habitat and wildlife, and the wildlife contamination control programs). We calculate the underestimate in benefits if the geographic extent of the public good market is arbitrarily limited to one political jurisdiction.     

The Effect of Risk Characteristics on the Willingness to Pay for Mortality Risk Reductions from Electric Power Generation

The objective of this study is to estimate willingness to pay (WTP) for the reduction of mortality risks caused by fossil fuel (natural gas, coal and oil) versus nuclear electric power generation systems and to examine the influence of risk characteristics involved with electric power generation on WTP. A choice experiment was conducted to achieve these objectives. The attributes for nuclear risks in the experiment included the probability of disasters and the expected losses if a disaster occurs. We find evidence of (i) a baseline effect (where WTP is sensitive to hypothetical versus actual baseline expected mortality); (ii) a ‘labeling effect,’ where, surprisingly, the term ‘nuclear’ has no effect on WTP, but the term ‘fossil-fueled power generation’ results in lower WTP; and (iii) disaster aversion, meaning that people focus on the conditional loss from a nuclear disaster, not the probability. We also find that the WTP for reducing deaths from a nuclear disaster is about 60 times the WTP for routine reducing fossil-fuel generation-related deaths.     

Climate Response Uncertainty and the Benefits of Greenhouse Gas Emissions Reductions

Some recent research suggests that uncertainty about the response of the climate system to atmospheric greenhouse gas concentrations can have a disproportionately large influence on benefits estimates for climate change policies, potentially even dominating the effect of the discount rate. In this paper we conduct a series of numerical simulation experiments to investigate the quantitative significance of climate response uncertainty for economic assessments of climate change. First we characterize climate uncertainty by constructing two probability density functions—a Bayesian model-averaged and a Bayesian updated version—based on a combination of uncertainty ranges for climate sensitivity reported in the scientific literature. Next we estimate the willingness to pay of a representative agent for a range of emissions reduction policies using two simplified economic models. Our results illustrate the potential for large risk premiums in benefits estimates as suggested by the recent theoretical work on climate response uncertainty, and they show that the size and even the sign of the risk premium may depend crucially on how the posterior distribution describing the overall climate sensitivity uncertainty is constructed and on the specific shape of the damage function.     

‘Adopt a Hypothetical Pup’: A Count Data Approach to the Valuation of Wildlife

The willingness to pay (WTP) for a coyote conservation program is estimated using a novel payment-vehicle, based on how many ‚problem’ coyotes respondents would be willing to sponsor for a year. This hypothetical scenario mimics an increasingly popular type of actual market. Data from a phone survey conducted in Prince Edward Island are analyzed using count data models that consider different processes explaining zero responses and the level of positive responses. This is particularly important in the case of coyotes, often regarded as an economic bad. Estimates of WTP per coyote per year around $18–$22 and annual WTP per contributor of about $46–$57 are obtained.      

Interval bidding in a distribution elicitation format

Interval bidding allows people to report a range of values for a non-market good. Herein, we allow people to choose their distribution over this range endogenously. We consider a multiplicative error model explaining the willingness to pay (WTP) which is estimated using a feasible generalized least squares estimator. We apply our framework to a representative sample of the French population who were asked about the valuation of a bear conservation programme. We find that most participants prefer stating their WTP as a range rather than a point, but the shape of the distribution greatly varies across people. Our results support the use of the interval bidding with endogenous distribution approach in valuation studies.