Economic Valuation of Air Quality Improvement in Klang Valley: Validity and Reliability of Contingent Valuation and Benefit Transfer Methods

• Main Author: Afroz, Rafia
• Format: Thesis
• Language: English; English
• Published: 2004
• Online Access: http://psasir.upm.edu.my/id/eprint/394/1/549757_fsas_2004_42_abstrak_je__dh_pdf_.pdf; http://psasir.upm.edu.my/id/eprint/394/

The objectives of this study are to evaluate the validity and reliability of contingent valuation method (CVM) and the validity of transferring contingent valuation estimates from a developing to a least developing country. To evaluate the impact of additional information on the willingness to pay (WTP) of the respondents, different sub samples were presented with contingent valuation scenarios offering different levels of information. One sub-sample was given the cause of ill health episodes and the policy to be implemented to remedy the cause of the ill health episodes (context version). Another sub sample was asked to value the avoidance of episodes of ill health, but was not given any details of the cause of the episodes nor the policy that would be implemented to remedy the cause of ill health episodes (non-context version). The study has found that the CVM estimates are internally valid in both context and non-context versions since the WTP values of the respondents to avoid the ill-health episodes due to air pollution increase with the increase in some socio-economic and health variables such as income, education, asthma attack and duration of ill health episodes. The study also found that the inclusion of additional information in the presentation of scenarios in contingent valuation exercises significantly influenced the WTP values of the respondents to avoid the ill-health episodes. The average mean value of WTP of the respondents for the context version was higher than that of the non-context version i.e. RM154 for the context version and RM134 for the non-context version. After this survey, a similar non-context survey was conducted in Bangladesh and the validity of transferring WTP estimates was evaluated. The results of the study suggested that on average the mean WTP values of the respondents were US$39.59 for Malaysia and US$5.64 for Bangladesh to avoid the ill-health episodes due to air pollution. This could be explained by high income and education and stronger sensitivity to environmental problems in Malaysia. The respondents in Malaysia were willing to share 9.96 percent of their income whilst in Bangladesh the respondents were willing to share 7.17 percent of their income. The respondents with higher income were willing to pay higher share of their income than the respondents with lower income. To evaluate the validity of different approaches of benefit transfer method, several hypotheses were tested by parametric and non-parametric tests. The results of this study suggested that it was not valid to transfer the WTP estimates to avoid the ill health episodes from a developing country, Malaysia to a least developing country, Bangladesh both in terms of unit value transfer and value function transfer because of distinctive socio-economic backgrounds. The study also evaluated the validity and reliability of contingent valuation method. This was done through split and paired sample surveys using three different question formats i.e. open ended (OE), dichotomous choice (DC) and payment card (PC). The split sample was used for external scope test and the paired sample was used for internal scope test. The results of the study suggested that the WTP values of the respondents do not differ across different question formats i.e. 10.84 Sen for OE, 14.50 Sen for DC and 13.33 Sen for PC. Results of the study suggested that the WTP values of the respondents using the DC format were the highest. In the external scope test, there was significant difference between the mean WTP values for level A (i.e. 10 percent reduction in the concentration of PM10) and level B (i.e. 20 percent reduction in the concentration of PM10) between the samples. This means that the split sample passed the external scope test. On the other hand, the results of the internal scope test indicated that there was no significant difference between the mean WTP values for level A and level B between the samples. Hence the paired sample did not pass the scope test. The aggregate WTP values of the respondents was RM0.91 billion for level A air quality improvement and RM1.16 billion for level B air quality improvement in Klang Valley. The study has great implication for the application of contingent valuation method and benefit transfer method. Since, WTP to avoid the ill health episodes cannot be shown to be independent of the context in which it is valued, the validity of transferring benefits of avoided ill health episodes from one country to another must be called into question and the results of the study will not allow decision makers to apply the estimated values for the avoidance of ill health episodes in the consideration of policies with very different context. This has also great implications to works done by international organizations who intend to transfer benefit estimates from one country to another country. The results of the study indicated that there is no significant difference between the mean values of WTP for different question formats. However due to the nature of the question format, the mean WTP values using the DC method would normally be higher than those of OE and PC. Although the DC method has some limitations, this study recommends using the DC method to be used in contingent valuation survey in developing country because it is relatively easier for the respondents to answer. This study also indicates that since the split sample method has passed the scope test, it would be a recommended approach for CVM survey. Since the results of paired samples did not pass the scope test, the survey method should be taken into caution and if possible should be avoided to reduce sampling bias. Finally, the approach used and results presented in this study would be useful for efficient formulation of policies on air quality management in Malaysia.