Silvia Ferrini

Performance of Error Component Models for Status-Quo Effects in Choice Experiments

Environmental economists have advocated the use of choice modelling in environmental valuation. Standard approaches employ choice sets including one alternative depicting the status-quo, yet the effects of explicitly accounting for systematic differences in preferences for non status-quo alternatives in the econometric models are not well understood. We explore three different ways of addressing such systematic differences using data from two choice modelling studies designed to value the provision of environmental goods. Preferences for change versus status-quo are explored with standard conditional logit with alternative-specific constant for status-quo, nested logit and a less usual mixed logit error component specification (kernel logit). Our empirical results are consistent with the hypothesis that alternatives offering changes from status-quo do not share the same preference structure as status-quo alternatives, as found by others in the marketing literature, in the environmental economic literature and in food preference studies. To further explore the empirical consequences of such mis-specification we report on a series of Monte Carlo experiments. Evidence from the experiments indicates that the expected bias in estimates ignoring the status-quo effect is substantial, and—more interestingly—that error component specifications with status-quo alternative specific-constant are efficient even when biased. These findings have significant implications for practitioners and their stance towards the strategies for the econometric analysis of choice modelling data for the purpose of valuation.

Assessment of Regeneration Projects in Urban Areas of Environmental Interest: A Stated Choice Approach to Estimate Use and Quasi-Option Values

We adopt an attribute-based stated choice approach to evaluate public preferences over planning alternatives for an urban site of environmental interest. Since such projects involve some uncertainty and irreversibility, special attention is devoted to the estimation of quasi-option values associated with project development. Two distinct measures for the quasi-option value are estimated, and both coefficients indicate that the public place significant value on the reduction of the possibility of adverse irreversible effects: a more prudent development strategy is valued at about four times greater than a procedure that provides a greater chance of an undesired outcome. Furthermore, the study involves elicitation of intertemporal preferences over projects with different time spans, and estimation of the implicit discount rates: the values obtained seem high if compared with standard discount rates applied to public projects, but not far from interest rates on consumption found in the market.

Revealed and stated preference valuation and transfer: A within‐sample comparison of water quality improvement values

Benefit transfer (BT) methods are becoming increasingly important for environmental policy, but the empirical findings regarding transfer validity are mixed. A novel valuation survey was designed to obtain both stated preference (SP) and revealed preference (RP) data concerning river water quality values from a large sample of households. Both dichotomous choice and payment card contingent valuation (CV) and travel cost (TC) data were collected. Resulting valuations were directly compared and used for BT analyses using both unit value and function transfer approaches. WTP estimates are found to pass the convergence validity test. BT results show that the CV data produce lower transfer errors, below 20% for both unit value and function transfer, than TC data especially when using function transfer. Further, comparison of WTP estimates suggests that in all cases, differences between methods are larger than differences between study areas. Results show that when multiple studies are available, using welfare estimates from the same area but based on a different method consistently results in larger errors than transfers across space keeping the method constant.

Spatially explicit integrated modeling and economic valuation of climate driven land use change and its indirect effects.

We present an integrated model of the direct consequences of climate change on land use, and the indirect effects of induced land use change upon the natural environment. The model predicts climate-driven shifts in the profitability of alternative uses of agricultural land. Both the direct impact of climate change and the induced shift in land use patterns will cause secondary effects on the water environment, for which agriculture is the major source of diffuse pollution. We model the impact of changes in such pollution on riverine ecosystems showing that these will be spatially heterogeneous. Moreover, we consider further knock-on effects upon the recreational benefits derived from water environments, which we assess using revealed preference methods. This analysis permits a multi-layered examination of the economic consequences of climate change, assessing the sequence of impacts from climate change through farm gross margins, land use, water quality and recreation, both at the individual and catchment scale.

Generalized Additive Models for Nonmarket Valuation via Revealed or Stated Preference Methods

Single-site recreation demand and dichotomous choice contingent valuation analyses are typically conducted by implementing models containing strong parametric assumptions, which are rarely underpinned by theoretical arguments. This work illustrates how these assumptions can be relaxed and the estimation conducted semiparametrically by using generalized additive models (GAMs). This approach directly estimates the degree of the variables’ nonlinearities from the data, thereby avoiding subjective choices on the smoothing parameters and offering many advantages when compared to the conventional modeling techniques that dominate the environmental economics literature. Additionally, this paper illustrates how GAMs can be specified to construct theoretically consistent willingness-to-pay measures. (JEL C14, Q51)

Good parks – bad parks: the influence of perceptions of location on WTP and preference motives for urban parks

ABSTRACT Urban parks generate substantial public benefits, yet explicit economic assessments of such values remain relatively rare. Surveys of willingness to pay (WTP) were undertaken to assess such values for proposed new parks. The analysis assessed how preference motives and values varied according to the location of parks. Results revealed greater altruistic motivation and higher overall values for the creation of inner city as opposed to suburban parks. Spatial decomposition revealed that, after controlling for other determinants such as incomes, values generally increase for households closer to proposed parks, but that a significant downturn in values is evident for households located very close to a proposed inner city park; a finding which echoes concerns regarding the potential for such sites to provide a focus for antisocial behaviour. While these findings provide strong overall support for provision of public parks they highlight, the importance of perceptions of location and the potential for localised dis-benefits.

Ecosystem Services Assessment and Benefit Transfer

Ecosystem service assessments aim to integrate the natural environment into decision-making by developing linked biophysical and economic models that demonstrate how changes in the environment affect human welfare. When these analyses inform national level, strategic choices, large-scale analyses are required. Such assessments, embracing multiple ecosystem services, will often rely on the transfer of either economic or biophysical models, or both. This chapter discusses the main concepts of ecosystem service assessments and illustrates the conceptual framework with examples from the UK National Ecosystem Assessment . An analysis of the recreational and carbon values arising from land use changes shows how differences in ecological , socioeconomic or climatic factors result in high spatial heterogeneity in ecosystem services and how this variation can be incorporated within transfer values.

A Choice Modelling Approach for Assessment of Use and Quasi-Option Values in Urban Planning for Areas of Environmental Interest

This study adopts a discrete choice modelling methodology to evaluate individuals’ preferences over planning alternatives for an urban site of environmental interest. Since such projects involve some uncertainty and irreversibility, a special attention is devoted to the estimation of the quasi-option values which are associated to project development. Two distinct measures for the quasi-option value are estimated, and both coefficients indicate that the public places a significant value on reduction of the possibility of adverse irreversible effects: a more prudent development strategy is valued about four times more than a procedure that provides a lesser hedge against undesired outcomes. Furthermore, the study involved elicitation of intertemporal preferences over projects with different time spans, and estimation of the implicit discount rates: the values obtained seem high if compared to standard discount rates applied to public projects, but not far from current interest rates on consumption.

Financial Inputs for Ecosystem Service Outputs: Beach Recreation Recovery After Investments in Ecological Restoration

In the Nerbioi estuary (North Spain), the Wastewater Treatment Plant (WWTP) constructed in 1990 resulted in an abrupt decrease in water pollution and an opportunity for improved recreational experiences in the three beaches on the estuary. The monetary value of these recreational benefits was estimated using the travel cost method and compared, via a partial cost-benefit analysis, with the costs of beach maintenance. The travel cost models reveal that summer recreational trips to the three Nerbioi beaches have a value of 5.99, 7.06, and 8.09 € trip-1, respectively. Visitor’s profile and social characteristics influenced the models, while the effects of these variables also varied across beaches. Following a conservative approach, the aggregate recreational value of the estuarine beaches was estimated to be more than 3.5 million year-1. This economic benefit, obtained from summer estimates and focusing on one ecosystem service (i.e., beach recreation) from the multiple ones offered by the estuary, is sufficient to cover 100% of annual beach maintenance costs and 12% of the annual sewerage system running costs. Our findings highlight that investing in water sanitation projects such as WWTPs are not only important for the ecological recovery of degraded coastal environments, but also produce additional human benefits that are able to cover (at least) part of the running cost of these large capital investments.

Identification and evaluation of ecosystem services for a regional park: a case study in Italy

This paper analyses the ecosystem services provided by a regional park in the South of Italy. The park, constituted by 12 municipalities, aims at facilitating a smart management of cultural-historic and environmental heritage as well as the optimization in the use of local resources and peculiarities. The ecosystem services actually provided by the park (e.g. CO2 sequestration) or potentially usable (e.g. the production of olive-oil) have been identified. The aim is to highlight the essential importance of the natural capital stock and the services it provides for the local economy and for those who can take benefit from them. Neglecting the ecosystem services’ value in decision making processes entails the loss of several assets – in some cases un-replaceable, such as local biodiversity – which may imply serious consequences for the overall ecosystem and the sustainability of the local economic system.