A Theoretical and Empirical Exploration for the Application of
Stated Preference Methods to Non-market Environmental
Valuation in Macao
Abstract
This dissertation is concerned with the potential application of stated preference methods
to non-market environmental valuation in Macao. Recent studies have recognized the
critical roles of non-market environmental valuation to protect the important
environmental resources in order to achieve sustainable development. Stated preference
methods have become the popular and useful non-market environmental valuation
methods. Despite undeniable progress, the performance and consistency of stated
preference methods has not been exhaustively studied. More research on stated
preference methods in developing countries is critical important to the successful
implementation of these methods.
Macao is a special administration region of China. Environmental conservation has
emerged as a policy and management objective. However, little is currently known in
Macao about the benefits and, therefore, the importance of the environmental goods and
services from an economic point of view. This dissertation is an attempt to fill this gap by
exploring the application of stated preference methods in estimating the economic values
of environmental goods and services in Macao using both theoretical and empirical
analysis.
The theoretical analysis consists of a literature review and an econometric development
of utility theory. The literature review identifies past studies on the total economic value
typology and fundamental elements of applied welfare economics as applied to nonmarket valuation. Other reviewed include the non-market valuation methods and stated
preference methods, especially on the evolution and current state of the contingent
valuation method (CVM) and choice experiment (CE) method. Some published articles
that compare the welfare estimations between CVM and CE method are also reviewed.
The econometric modeling of CVM and CE data is developed within the utility theory
that in turn is used to guide the empirical analysis. The empirical analysis examines two
case studies.
The management of solid waste continues to be a major challenge in urban areas
throughout the world, particularly in the rapidly growing cities and towns of the
developing world. Faced with the fact that the incinerator is reaching its capacity and
there are insufficient land resources for waste disposal, the identification of efficient
waste reduction strategies is urgently needed in Macao. From an economic perspective,
optimal solid waste management systems would be those that ensure that society gains
the maximum net benefit from the disposal of its waste. Because solid waste collection
and disposal services are often under-priced or non-priced, it is difficult to infer their
economic benefits from ordinary market prices. The first case study adopts a doublebounded dichotomous choice contingent valuation method (DC-CVM) and a choice
experiment (CE) method to measure the social benefits of an alternative solid waste
management program in Macao based on the public preferences.
In order to develop the CV and CE methodology for monetary valuation of solid waste
management programs, this study conducted a CV and CE survey in Macao. The
questionnaires used in this study were based on six focus group discussions and a pre-test
study on 60 residents in Macao. In the CV method, the respondents were asked to
evaluate this new solid waste management program and indicate their willingness to incur
personal costs in order to carry out the program. The alternative was maintaining the
current solid waste management program with no costs but more environmental pressures
and problems. A double-bounded dichotomous question was used in this study, that is, a
dichotomous choice question was followed by another one for a second price involving a
substantially larger or smaller amount. In the CE, the questionnaires were designed in
such a way that respondents were asked to choose between two alternatives: one was the
current situation and the other was a new program featuring combinations of attribute
levels and specific cost levels. This allowed us to evaluate the impacts of different
attributes on the respondent’s welfare and the willingness to support a project when its
costs were known.
The final survey was conducted face-to-face. The sample contained 520 household heads
(male or female) aged 18-65 years old. Half of the respondents received the CV
questionnaire, and the other half the CE questionnaire. The respondents were selected by
stratified random sampling based on the parameters of age, sex and population published
by official statistics.
The estimation results show that the mean willingness to pay (WTP) for the proposed
solid waste management program derived from the double-bounded DC-CVM model
with covariates is about MOP16.82 (US$2.10) per person per month, including all
respondents indicating a zero WTP. If only respondents with a positive value are included,
the mean WTP reaches up to MOP19.20 (US$2.40) per person per month. The mean
WTP for the new solid waste management program derived from CE models with
covariates is about MOP20.48 (US$2.56) per person per month if we assume a linear,
additively-separable indirect utility function. The results suggest that there is no
significant difference found from the comparison of the welfare estimations obtained
from these two stated preference techniques. This is consistent with the neoclassical
economic theory. The study also shows that the CE method has some promising
advantages over CVM. Principle of that is the ability to provide the opportunity to elicit a
deeper understanding the attributes preferred by the public which would help to achieve
efficient solid waste management options. On the other hand, the advantages of the CVM
are that it can directly estimate the economic values for a specific change in an
environmental good or service and the statistical estimation is relatively easy.
Wild biodiversity decline is of global policy concern. Black-faced spoonbill is a globally
endangered species and Macao is an important destination for its over-wintering.
However, the life of black-faced spoonbills in Macao has been threatened because some
people tend to ignore the economic values of endangered species conservation and prefer
to develop large scale construction projects near/in the ecological zone. The second case
study applies a single-bounded DC-CVM to estimate the economic values of the
conservation of black-faced spoonbills in Macao.
Although the CVM has become one of the most widely used non-market valuation
techniques, we are still a long way from standardization. One concern for CV
practitioners is the choice of payment vehicle format. Characteristics of the payment
meachanism itself may have important impacts on respondents’ perceptions of specified
dollar amounts and their willingness to pay for multidimensional policy packages.
However, only a limited amout of empirical work has been undertaken to explore the
differences between voluntary and mandatory WTP. This study addresses this issue by
using a dichotomous choice elicitation and split sample design in the field to evaluate the
possible effects of the two possible payment vehicles on respondents’ preferences for an
endangered species conservation.
As recommended by NOAA report, CVM is conventionally applied through in-person
interviews carried out by professionally trained staff. However, for decisions involving
unfamiliar and/or complex environmental policies, especially where non-use values are
being sought such as black-faced spoonbill conservation in this study, personal interviews
would appear to face some potentially serious limitations. A relatively new survey
method in developing countries called drop-off is employed. This survey method differs
from personal interviews in that respondents are given more time to consider their
preferences and to discuss their WTP question with other household members.
The empirical results suggest that the Macao people do have a positive WTP for the
conservation of black-faced spoonbills in Macao. The mean WTP of the entire sample
and the censored sample with protest responses excluded and uncertainty adjustment
were determined by both non-parametric and parametric (logit model) estimation
methods. The total benefits were estimated at about MOP75.83 (US$9.48) million in 5
years.
The results also show that the mean WTP obtained from the mandatory payment vehicle
is significantly higher than that from the voluntary payment vehicle. Thus the mandatory
payment vehicle is moderately preferred to voluntary payment vehicle for the Macao
public.
One experiment is conducted to test whether the hypothetical WTP differs from the real
WTP using a proxy surrogate good as black-faced spoonbill conservation. The results
show that they are not significantly different. The ratio of hypothetical WTP to real WTP
is 1.22. This is a starting point for conducting experiments to test the reliability of the
stated preference methods in Macao.
It could be concluded from this study that reliable information can be successfully
obtained from a well designed CVM or CE study in Macao. The study also suggests that
both CVM and CE methods should be potentially useful for future research on the
environmental valuation in Macao. Such kind of non-market environmental valuations
based on the public preferences can help policy makers to make better decisions to
increase the social welfare, which can facilitate the progress towards a sustainable
development in Macao.