An Economic Analysis of Coral Reefs
in the Andaman Sea of Thailand
1
Udomsak Seenprachawong
Abstract
The focus of this study is the valuation of coral reefs and how the information derived
from the valuation can be used to improve coral reef management in Thailand. The
study focuses specifically on the Phi Phi islands, off the west coast of southern Thailand,
in the Andaman Sea. The Phi Phi are rich in reefs that are seen by government planners
as an ecotourism destination. The annual benefit from the recreational services of Phi
Phi estimated using a travel cost method was 8 216.4 million baht (US$205.41 million),
or about US$6 243 per hectare per year. Assuming the real value of this recreational
value remains the same over 30 years, and using a real interest rate of 5 per cent, the
present value of recreation of Phi Phi is US$3 157 million. A contingent valuation
method (CVM) was used to estimate utility values associated with coral reef biodiversity
at Phi Phi. The mean willingness to pay (WTP) per visit was estimated at US$7.17 for
domestic visitors and at US$7.15 for international visitors. From this, the total value of
Phi Phi’s coral reefs was estimated to be US$0.147 million a year for domestic visitors
and US$1.24 million a year for international visitors. Using CVM the study also calculated
the mean WTP of domestic vicarious users at US$15.85. From this, the total value (use
and non-use) of the reefs was estimated to be US$497.38 million a year, or US$15 118 per
hectare per year. It is recommended that an instrument that captures the tourists’
consumer surpluses, a user fee, be introduced. Determining that fee for Phi Phi is quite
straightforward, as the value that people obtain from visiting the Phi Phi reef site is
US$7.15 to 7.17 per visit. Based on these numbers, this study suggests a basic entrance
fee of US$1 per person per visit, and a user charge for additional services from the
variety of recreational sites being offered at Phi Phi.
Introduction
Powerful economic forces are driving the
observed destructive use of coral reefs, often
delivering short-term, and sometimes very large,
economic profits to selected individuals. However,
coral reef protection is usually presumed to
conflict with economic development, and to
require the sacrifice of economic growth.
Meanwhile, some of the most important values of
coral reefs, such as their value to future
generations and intrinsic values, cannot be
quantified. The omission of these benefits in
conventional economic analysis means that coral
reefs are undervalued, and this can result in their
unsustainable use. This is of particular concern
for coral reefs in areas such as the Southern
Seaboard Development Project (SSDP) area, a
proposed new economic area intended to
alleviate the urban concentration around
Bangkok and to create a more equitable spatial
balance in the country. Unfortunately, this option
could result in the destruction of pristine coral
reefs. Because local communities in the Andaman
Sea are totally dependent on the coral reefs, and
because the rapid rate of coral reef destruction is
evident throughout Thailand, sustainable coral
reef management options urgently need to be
identified for the area. The research discussed in
this paper aims to value the benefits of coral reefs
on the west coast of the project development area
in the Andaman Sea. It is hoped that the results of
this research will prove useful to policy-makers
and other relevant parties involved in planning
the use of coastal areas in the provinces.
School of Development Economics National Institute of Development Administration Bangkapi, Bangkok 10240, Thailand.
Email: udomsak.s@nida.nida.ac.th or sudomsak@yahoo.com
1
An Economic Analysis of Coral Reefs in the Andaman Sea of Thailand
79
The SSDP area is endowed with a variety of
existing and potential tourism resources,
including beaches that co-exist with good urban
amenities in Phuket. One of the nature-based
islands with high potential for ecotourism
development is Phi Phi. The island has high use
values (e.g. recreational and tourism, educational
and scientific research) and high non-use values
(e.g. genetic resources, and both known and
unknown future uses of ecological functions). In
fact, Phi Phi is being used as an important
reference site for conducting coral reef valuation.
The results from Phi Phi may be transferred to
other coral reef sites, such as coral reefs in the
Gulf of Thailand, and specifically to those
adjacent to the coastal town of Ban Hin Krood in
Prachuab Kirikun province where it is proposed
that a thermal power plant be built.
Methods
Analysis of the economic values of coral reefs can
be based on their many functions, each of which
has an economic value. Following the
environmental economics literature (Dixon
1995), we can distinguish extractive direct use
values, non-extractive direct use values, indirect
use values, and non-use values. In this study, no
attempt is made to calculate the total economic
value. Total economic value is made up of use
value and non-use value of the coral reefs. Values
are calculated for two non-extractive direct uses –
recreation and tourism.
There are two major difficulties in recreation and
tourism valuation (Cartier and Ruitenbeek 1999).
Firstly, the recreation and tourism direct use value
attributable to a coral reef is usually estimated by
accounting for tourism revenue generated by a
particular coral reef holiday destination. From a
utility perspective, this value ignores the consumer
surplus generated by the recreational experience
and hence underestimates the values. Secondly,
there are problems relating to the bundling of a
vacation destination’s attributes. When a coral
reef is just one attribute of the bundle, tourism
revenue cannot be attributed solely to the reef.
Most studies focusing on coral reef recreation/
tourism values estimate consumer surplus using a
travel cost method (TCM) or a contingent
valuation method (CVM) (see, for example,
Driml 1999; Hundloe et al. 1987). The current
study employed both TCM and CVM to generate
estimates of reef values at Phi Phi. Initially, TCM
was used to estimate the consumer surplus for
80
domestic and international visitors to Phi Phi.
However, the estimated value from TCM may
include all the attributes of Phi Phi valued by
tourists who have come to view coral as part of
their vacation package. The CVM study was used
to isolate the consumer surplus associated with
visits to the coral sites. It focused only on tourists
visiting the reef sites.
Travel cost method
TCM is based on the idea that, although the actual
value of the recreational experience does not have
a price tag, the costs incurred by individuals in
travelling to the site are an indication of their WTP
for the experience, and so can be used as surrogate
prices. From these and other data, it is possible to
estimate an area’s consumer surplus – its value to
users as a recreational resource. The survey
approach collected information about visitors’
trips, as well as their age, income, sex and other
socioeconomic factors. Of the 850 questionnaires
distributed, 630 domestic visitors and 128
international visitors returned completed forms,
an 89 per cent response rate. This study employed
the individual travel cost method (ITCM). The
demand curve in this model relates an individual’s
annual visits to the costs of those visits. A
functional form relating the dependent variable
(visits per year) and independent variables (travel
cost and socio-economic variables) has to be
identified to obtain a more accurate demand
curve. The choice is between two functional forms:
linear and double log. This study used the double
log demand function:
(1)
Vi = number of visits of individual i
Dci = dummy variables referring to
individual i
Xji = socioeconomic features of individual
i and other variables referring to i
Pi = price paid by individual i
(integration variable)
i = 1,…,n index of observations
c = 1,…,l index of additive dummy variables
j = 1,…,k index of socioeconomic
variables
αo = constant
αc = coefficients of the additive dummy
variables
βj = coefficients of socioeconomic variables
βp = coefficient of the price variable
εi = error term
WorldFish Center | Economic Valuation and Policy Priorities for Sustainable Management of Coral Reefs
Once estimated, the model is expressed in the
following form:
(2)
For each single individual, the consumer surplus
(CS) is the integral of the demand function V
with respect to the price P between the lower
bound pli and the “choke price” or the upper
bound pui. The choke price is the price that leads
to a demand equal to zero. The indefinite integral
of the demand function is:
annual value. The entire future stream of annual
recreational values must therefore be included.
Because they happen in the future, economic
theory dictates this stream of benefits be
discounted to make them comparable with the
present. Assuming that the annual value of
recreation is constant over time, the present value
of the stream of future benefits can be calculated
using the following formula:
(9)
Contingent valuation method
(3)
The integral between pl and pu is:
(4)
The consumer surplus for each individual is
computed by plugging into the above formula
the values for each individual dummy variable
Dci, the travel cost pli, the choke price pui, and the
value of the explanatory variables Xji:
(5)
The annual consumer surplus per individual can
be computed by summing up the consumer
surplus estimates from all observed consumers
(N) and dividing this by N:
CS per individual =
(6)
The annual consumer surplus per visit is
calculated by dividing the annual consumer
surplus per individual by the annual sample
average number of visits:
CS per visit =
CS per individual/Sample average visits per year (7)
The CS per visit is then multiplied by the total
number of visitors to Phi Phi during the year to
obtain the annual total benefit of Phi Phi. Thus:
Total benefit (TB) = CS per visit x Total visitors (8)
Loss of a site usually means loss of all future
recreational opportunities, not just the current
CVM is a technique that allows the value of
environmental goods and services to be estimated
by asking people directly, usually by means of a
survey questionnaire, about their WTP for a
change in the availability of such environmental
goods and services. The individual maximum
WTP for an environmental change is assumed to
be the value the individual attaches to such a
change. The major advantage of this approach
compared with revealed preference methods is
that CVM can elicit both use and non-use values.
Another attraction of CVM is that it may be
applied at varying levels of complexity according
to the time and financial resources available for
the research.
CVM was used to see how much people would be
willing to pay for the conservation of Phi Phi’s
coral reefs. A total of 400 domestic visitors and
128 international visitors were interviewed. The
people questioned were given information about
the current conservation situation in Phi Phi.
They were told that the reef at Phi Phi is about 25
per cent degraded, and that if nothing is done
scientists estimate that it will become 40 per cent
degraded in about 20 years. Respondents were
asked whether or not they would be willing to
pay a pre-determined amount to a trust fund to
restore the coral reefs at Phi Phi totally. The
amount ranged from US$1 to US$50 a year. The
amount suggested was varied randomly among
respondents to reduce the possibility of answers
being biased by the question itself.
Hanemann (1984) shows that, if there exists a
representative consumer who has an indirect
utility function V(P,M,Q,S), the level of utility
accruing to the consumer depends on price (P),
income (M), socio-characteristics (S) and the
quality (Q). The respondent is asked if he or she
would pay to help restore the coral reefs around
An Economic Analysis of Coral Reefs in the Andaman Sea of Thailand
81
Phi Phi at the given price, P. The respondent will
say yes if:
(10)
Equation (10) shows that the respondent will
answer yes if his or her utility deriving from
improved reef quality (Q1) and paying the price
(P) is higher than not having improved reef
quality (Q0) and not paying the price (P=0). If is
the observable component of the utility, the
probability of the respondent saying yes is:
Table 1. Coral reef benefits based on the travel cost method
Sample size
Domestic
(n=630)
where
is an unobservable component of the
utility. Assuming that the random variable
follows a logistic probability distribution:
(12)
The recreational benefit of the hypothetical
market (to improve the coral reefs around Phi
Phi) is measured as WTP and is defined as:
(13)
Hanemann shows that if is linearly specified, the
probability of the respondent saying yes is:
(14)
Parameters α0 , β1, β2, and βi will be estimated
parametrically. The mean maximum WTP for
coral reef restoration can be calculated using
formula (15).
(15)
Results
Using TCM, the survey found that the total
benefits of the recreational services offered by Phi
Phi were about US$1.75 million a year for
domestic visitors and US$203.66 million a year
for international visitors. Adding these two
numbers gives a figure of US$205.41 million a
year (or US$6 243 per hectare per year) for the
total recreational benefit that Phi Phi provides.
Assuming this remains the same over 30 years,and
82
Number
of visitors
(1998)
20 540
US$85
International
(n=128)
US$1 494
136 277
Total benefits
US$1.75 million
US$203.66
million
Table 2. Coral reef benefits based on the contingent valuation
method
Users
Domestic International
(n=400)
(n=128)
Prob(yes)=
(11)
Consumer
surplus per
visit
WTP
per visit US$7.17
Number
of
20,540
visitors
(1998)
Total
US$0.147
benefits million
US$7.15
Non-users
Domestic
(n=200)
WTP per
person US$15.85
136,277
Number
in labor
31.3 million
force
(1998)
US$1.24
million
Total
US$496
benefits
million
using a real interest rate of 5 per cent, the present
value of recreation of Phi Phi is US$3 157 million
(or US$95 957 per hectare).
Using CVM, the mean maximum WTP was found
to be US$7.17 per year for domestic visitors and
US$7.15 for international visitors. From this it
was calculated that the total value of Phi Phi’s
coral reefs was US$0.147 million a year for
domestic visitors and US$1.24 million a year for
international visitors. This study, using CVM, also
calculated the mean WTP of domestic vicarious
users as US$15.85. From this, the total use and
non-use value (excluding international non use
value) of the reefs was estimated to be US$497.38
million a year, or an average of US$15 118 per
hectare per year.
Discussion
Phi Phi is representative of many coastal areas in
Thailand with potentially rich coral reefs in need
of improved management so that economic and
other benefits can be restored and enhanced. It is
apparent from this analysis that, because the reefs
generate a large consumer surplus, local and
national governments in Thailand can justify
greater expenditure on improving coastal resource
management. One way to capture the net benefit
values of Phi Phi (and so raise the money needed
to improve management) would be to directly
charge consumers.
WorldFish Center | Economic Valuation and Policy Priorities for Sustainable Management of Coral Reefs
Tourists could be charged a fee to participate in
activities that physically use the environment,
such as water sports (specifically including
snorkeling boats, and dive operations), swimming
and beach activities.
This study used CVM to estimate utility values
associated with coral reef biodiversity at Phi Phi.
WTP was estimated at US$7.15 to US$7.17 per
visit. Based on this number, this study suggests a
basic entrance fee of US$1 per person per visit to
Phi Phi. Given that Phi Phi provides numerous
recreational experiences for the visitors, additional
user charges for some special and fragile
recreational sites could be imposed. For example,
an extra fee of US$3.75 could be charged to
visitors choosing to visit the coral reef at Maya
Bay. This user charge would help raise additional
revenue for the park by targeting high-income
consumers while leaving low-income visitors
unaffected. At the same time, charging an
additional fee at the reef site would help reduce
the number of visitors and hence decrease the
negative pressure on the fragile marine
environment. This additional fee could also be
higher during times when the marine
environment is more sensitive to disturbance,
and so provide an incentive for tourists to visit at
other times.
References
Cartier, C.M. and H.J. Ruitenbeek. 1999. Review of the
biodiversity valuation literature. In H.J. Ruitenbeek
and C.M. Cartier (eds). Issues in applied coral reef
biodiversity valuation: Results for Montego Bay,
Jamaica. World Bank Research Committee Project
RPO#682-22 Final Report, World Bank, Washington
D.C., USA.
Dixon, J. A. 1995. Ecology and microeconomics as joint
products: the Bonaire Marine Park in the Caribbean,
p. 127-145. In C.A. Perrings , K.G. Maler, C. Folke,
C.S. Holling and B.O. Jansson (eds). Biodiversity
conservation: problems and policies. Kluwer
Academic Publishers.
Driml, S. M. 1999. Dollar values and trends of major direct
uses of the Great Barrier Reef Marine Park. Research
Publication 56. Great Barrier Reef Marine Park
Authority, Townsville, Australia, p. 1-12.
Hanemann, M. 1984. Welfare evaluations in contingent
valuation experiments with discrete responses. Am. J.
Agric. Econ. 66:332-341.
Hundloe, T., F. Vanclay and M. Carter. 1987. Economic and
socio-economic impacts of crown of thorns starfish
on the Great Barrier Reef. Report to the Great Barrier
Reef Marine Park Authority, Townsville, Australia.
Critical issues remain to be further explored
before the optimal policy for benefit value capture
can be determined. These include policy
procedures and processes for implementation,
including information sharing and consultation,
and the administrative arrangements for
implementation and enforcement. This would
best be conducted through the responsible
management authority, the Phi Phi Management
Committee.
Acknowledgements The author wishes to
acknowledge a research grant from the Economy
and Environment Program for Southeast Asia
(EEPSEA) and valuable comments provided by H.
Jack Ruitenbeek.
An Economic Analysis of Coral Reefs in the Andaman Sea of Thailand
83