DIFFERENT METHODS FOR ECONOMIC VALUATION OF ENVIRONMENTAL RESOURCES.pptx

Environmental economics focuses on the relationship between the environment and economics, and how to balance the costs and benefits of economic activities on the environment.

1. Welcome to seminar series of 2024-25

2. DIFFERENT METHODS FOR ECONOMIC VALUATION OF ENVIRONMENTAL RESOURCES SPEAKER Uttamkumar S. Baladaniya Reg. No. : 10-1020-3001 Ph.D. (Agri.) 3 rd Sem. Department of Agricultural Statistics BACA, AAU, Anand. Dr. D. J. Parmar Associate Professor Department of Agricultural Statistics B. A. College of Agriculture AAU, Anand. MAJOR ADVISOR Dr. Ganga Devi Assistant Professor Department of Agricultural Economics B. A. College of Agriculture AAU, Anand. MINOR ADVISOR 2

3. CONTENT 3

4. ENVIRONMENTAL ECONOMICS Environmental economics is a branch of economics that studies how economic activity and policy impact the environment and how to allocate natural resources efficiently. Goal The goal of environmental economics is to create policies and incentives that minimize environmental damage and promote sustainable development. Focus Environmental economics focuses on the relationship between the environment and economics, and how to balance the costs and benefits of economic activities on the environment. 4

5. NATURAL RESOURCES The stocks of the nature, useful to the mankind are called as Natural Resources. Examples: Air, Water, Soil, Minerals, Coal, Petroleum, Animals and Plants. In primitive age, man had used only those resources that supported his life. But the process of economic growth and increase in population have led to mismanagement of natural resources. Natural resources are resources that occur naturally in the environment and are not created by humans. They can be divided into two categories: 1. Renewable Resources 2. Non-renewable Resources 5

6. NATURAL RESOURCE MANAGEMENT What is Management of Natural Resources? Management of natural resources refers to the plan of action related to renewable and non-renewable resources. Natural resources like land, soil, water, plants and animals are affected by global warming, overpopulation, industrial expansion and other related reasons. Why is Management of Natural Resources Important? Following are the reasons why the management of natural resources is important: To maintain a balance in the ecosystem. To avoid further destruction of the environment. To avoid over-consumption of natural resources. 7

7. Reduce Recycle Reuse 8 THREE R’s OF WASTE MANAGEMENT

8. VALUING THE ENVIRONMENT Valuation is the system of expressing goods and services in economic terms. It refers to the assignment of money values to non-marketed goods and services. Example: Scenic values, biodiversity, mountain vistas etc . Values can be broadly categorized as either instrumental (capacity of use to satisfy a want) or intrinsic (being inherent). Total Economic Value: It explicitly recognizes the economic value of a good or service, some of which are tangible and directly used; some of which are intangible or remote used. TEV = UV+NUV = (DUV+IUV+OV)+(BV+EV) 9

9. WHY TO VALUE NATURAL RESOURCES ? Air Food Water Shelter Jobs Environment 10

10. TOTAL ECONOMIC VALUE 11 Any good or service is constituted of different attributes some of which are concrete and easily measured, while others may be more difficult to quantify. Such an attribute is called total economic value (TEV) .

11. MARKET FAILURE Market failure arises when the allocation of resources is not Pareto optimal. Pareto optimality means that it is not possible to make one individual better off, without making another individual worse off. A market fails when poor functioning of markets for environmental goods and services. 12

12. 1 13 1. POSITIVE EXTERNALITIES 2. NEGATIVE EXTERNALITIES

13. POSITIVE EXTERNALITIES A positive externality is a benefit of producing or consuming a product. For example, education is a positive externality of school because people learn and develop skills for careers. 14 Positive Externalities of Production & Consumption

14. 2. NEGATIVE EXTERNALITIES Negative externality in economics the imposition of a cost on a party as an indirect effect of the actions of another party. 15 Negative Externalities of Production & Consumption

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16. CLASSIFICATION OF GOOD Type of goods Excludable Non- excludable Rival Chocolate, ice cream (any private good) Common grazing land, common fishery (open-access resource) Non - rival A tolled highway or bridge ( resource) National defense, lighthouse, atmosphere, sunlight (pure public good) 17

17. 1 EXPRESSED PREFERENCE METHODS (CVM) 3. DELPHI METHOD 2. COSTLESS-CHOICE METHOD 1. TRADE- OFF GAME METHOD

18. 1 2 REVEALED PREFERENCE METHOD 6. WAGE DIFFERENTIAL APPROACH 1. TRAVEL COST METHOD 2. HEDONIC PRICE METHOD 3. PREVENTIVE EXPENDITURE METHOD 4. SURROGATE MARKET 5. PROPERTY VALUE METHOD

19. 3 COST-BASED METHOD 1. OPPORTUNITY COST METHOD 3. REPLACEMENT COST METHOD 2. RELOCATION COST METHOD

20. A. EXPRESSED PREFERENCE METHODS The demand for environmental goods can be measured by examining individuals expressed preference for these goods relative to their demand for other goods and services. These techniques avoid the need to find a complementary good or a substitute good to derive a demand curve and hence estimate how much an individual implicitly values an environmental good. Moreover, expressed preference techniques ask individuals explicitly how much they value an environmental good. 21

21. CONTINGENT VALUATION METHOD (CVM) World Bank (2002) states that Contingent valuation is a method of estimating the value that a person places on a good, usually, one that is not sold in markets Means a hypothetical market is created. Survey based economic technique for the valuation of non-market resources (Example: Environmental quality, Good health.) Claims to recover existence or non-use values which other methods cannot. 22

22. Limitations of CVM Large difference between willingness to pay and willingness to avoid measures People might not respond honestly: Participants may give answers that benefit them rather than being truthful. Hypothetical questions: Since the survey is based on "what if" scenarios, the responses might not reflect real actions. 23

23. B. REVEALED PREFERENCE METHOD Purpose: Valuing non-market goods like parks , forests or lakes. Data Used: Information on visitors' travel expenses (transportation, accommodation, entry fees) and time costs. Assumption: Travel costs act as a proxy for the price visitors are willing to pay Applications: Policy decisions, resource conservation, and evaluating the impact of environmental changes. 24 1. TRAVEL COST METHOD

24. GRAPHICAL REPRESENTATION OF TCM 25 The travel-cost approach looks at the pattern of recreational use of a lake and uses this information to derive a demand curve to estimate the total amount of consumers’ surplus. To do this, visitors are divided into a number of origin zones of increasing distance from the lake. Then a survey is used to determine the time and monetary cost involved in reaching to the lake.

25. 26 MERIT AND DEMERIT (TCM)

26. 2. HEDONIC PRICE METHOD The underlying assumption of the hedonic price method is that the price of a property is related to the stream of benefits to be derived from it. The hedonic price approach attempts to identify how much of a property differential is due to a particular environmental difference between properties and how much people are willing to pay for an improvement in the environmental quality that they face and what the social value of improvement is. So, the demand for goods, say housing is considered as a derived demand. 27

27. 28 The hedonic price function describing the house price Pi of any housing unit is given below: Pi=f [S 1i …………S ki , N 1i ,……………. N mi , Z 1i …………. Z ni ] Where, S represents structural characteristics of the house i i.e. type of construction, house size and number of rooms. N represents neighborhood characteristics of house i , that is accessibility to work, crime rate, quality of schools etc . Z represents i.e. air quality (Z) This represents house price increases with improvement in air quality

28. 29 MERIT AND DEMERIT (H PM)

29. 30 Surrogate Markets When no market exists for a good or service and therefore, no market price is observed, then surrogate (or substitute) markets can be used to derive information on values. Property-value Method In the property-value method, a surrogate market approach is used to place monetary values on different levels of environmental quality. Wage-differential Approach The wage-differential approach is a surrogate market approach that uses information on differences in wage rate for similar jobs in different areas to estimate monetary values for different levels of environmental quality.

30. 1. OPPORTUNITY COST METHOD Method estimates the value of a resource based on the benefits foregone from its next-best alternative use. It is commonly used in environmental economics to value resources like forests or water. For example, the value of a forest can be calculated by comparing the income from timber harvesting to the benefits of preserving it for ecosystem services. This method assumes that resources are scarce and choosing one use means sacrificing .. another . Opportunity Cost=Value of Alternative Use−Value of Current Use 31 C. COST BASED METHOD

31. 2. RELOCATION COST METHOD This is a cost-based technique used to estimate the monetary value of environmental damages based on the potential costs of relocating a physical facility that would be damaged by a change in environmental quality. This method relies on data on potential expenditures. 32

32. 3. REPLACEMENT COST METHOD The Replacement Cost Method estimates the value of an environmental resource or ecosystem service based on the cost of replacing it with an alternative that provides similar benefits. This method assumes that the replacement cost reflects the value of the lost resource or service. 33

33. REVIEW OF LITERATURE

34. ESTIMATING POSITIVE EXTERNALITIES OF NITROGEN FIXATION BY PULSES Bhat and Umesh (2016) Karnataka 35

35. Table 1: Estimating positive externalities of nitrogen fixation by pulses partial budgeting framework No. Added Cost b. Reduced Cost @40kgN Items Value (Rs/ha) Items Value (Rs)/ha 1. Farmers: Savings in urea application for next crop Reduction in transportation and labour costs in application of urea Savings in application losses of urea (10%) Total 466 100 47 613 Government: Savings in subsidy 1221 2. Government: Savings in subsidy 1221 3. Environment: Reduction in potential environment damages due to production and use of synthetic nitrogen fertilizers 1137 Total (a) Total (b) 2971 No. c. Reduced Return d. Added Income 1. Improvement in soil-health: Build-up of soil-fertility through soil physical and biological properties Improvement in soil organic content Total (c ) Total (d) Total (a+c) Total ( b+d ) 2971 Net Income from change = Rs 2971 per ha 36

36. WILLINGNESS TO BUY ORGANICALLY GROWTH ETHNIC GREENS AND HERBS Ramu et al., (2015) USA 37

37. Variable Coefficient Availability 0.398 * Food safety 0.496* Health care 0.488*** Food Label 0.572** Distance -0.021** Income less 20k -0.592* Income 21k to 40k -0.566* Self employments 0.602** Table 2: Results of willingness to buy organically grown greens and herbs 38 * Significant at 10 per cent level of probability ** Significant at 5 per cent level of probability *** Significant at 1 per cent level of probability

38. WILLINGNESS TO PAY FOR CROP INSURANCE PREMIUM - A STUDY ON MAIZE FARMERS IN INDIA Kiran and Umesh (2015) Karnataka 39 300 Maize grower selected by using purposive sampling technique

39. Parameters Estimates Standard Error Probability Bid value (Premium rate) -1.8639 * 0.0962 0.000 Age (Yrs) 0.0183 ** 0.0102 0.072 Area under maize (ac) 0.0070 0.0152 0.647 Income (Rs) -0.0003 0.0001 0.713 Sum insured (Rs) 0.0001 ** 0.0009 0.096 Constant 0.6533 0.5391 0.000 Table 3: Logit regression of willingness to pay (WTP) more premium for maize crop insurance 40 * Significant at 5 per cent level of probability ** Significant at 10 per cent level of probability

40. WILLINGNESS TO PAY FOR THE QUALITY OF DRINKING WATER Abdul and Eatzaz (2007) Pakistan 41

41. Sr. No. Variable Coefficient 1 Constant -249.95 2 Education of decision maker 1-8 year (age) 24.34 3 Education of decision maker 9-12 year (age) 42.90 4 Education of decision maker 13-15 year (age) 168.33* 5 Education of decision maker 16 or above (age) 215.18* 6 Newspaper habit of decision maker 69.14* 7 Diarrhoea 40.06* 8 Sex of decision maker 100.59** 9 Occupation decision maker 203.31* Table 4: Estimation of the willingness to pay for the quality of drinking water 42 * Significant at 5 per cent level of probability ** Significant at 1 per cent level of probability n =514

42. EVALUATING THE DEMAND FOR AQUACULTURE INSURANCE: AN INVESTIGATION OF FISH FARMERS' WILLINGNESS TO PAY IN CENTRAL COASTAL AREAS IN CHINA Zheng et al ., (2018) China 43 1280 fish farmer are randomly selected from city

43. Independent variable Coefficient Probability Age -0.271 0.018* Experience -0.135 0.099** Household size 0.128 0.098** Income -0.054 0.044* Land 0.047 0.076** Loss 0.497 0.000* Education 0.750 0.000* Awareness toward agriculture insurance 0.788 0.000* Awareness toward commercial insurance 0.302 0.065** Constant 0.536 0.319 Bid -0.041 0.027* WTP 579 Table 5: Evaluating WTP demand for aquaculture insurance 44 * Significant at 5 per cent level of probability ** Significant at 10 per cent level of probability

44. AN ECONOMIC VALUATION OF THE KAKUM NATIONAL PARK: AN INDIVIDUAL TRAVEL COST APPROACH Daniel and Daniel (2012) G hana 45 224 sample selected by random sampling technique who visited the site all over the world.

45. Figure 1: Marital status of respondent Figure 3: Employment status of respondent Figure 4: Relation between travel cost and visitation rate 46 Figure 2: Educational status of respondent

46. CASE STUDY: ENVIOURNMENTAL VALUATION OF GIR NATIONAL PARK AND SANCTUARY Vaghadiya (2018) Gujarat 47

47. Sr. No. Area of visitor Number of visitor Percent 1 Gujarat 64 69.9 2 Maharashtra 21 22.8 3 Rajasthan 3 3.3 4 Other 4 4.3 Total 92 100 Sr. No. Education Number of visitor Percent 1 Secondary school 1 1.1 2 High Secondary school 16 17.4 3 Graduation 58 63 4 Higher Education 17 18 Total 92 100 Table 6: Area of visitor Table 7: Education of visitor 48

48. Table 9: Recreational activity in Gir Sr. No. Activity Main attraction Other attraction 1 Lion watching 87 2 Bird watching 40 3 Forest watching 5 69 Table 10: Cost of tourist for trip Sr. No. Type of cost < 25% cost 25 -50% cost 50% -75% cost > 75% cost Total visitor 1 Travelling cost 24 15 15 38 92 2 Recreational cost 77 10 5 - 92 3 Food and accommodation cost 53 8 22 9 92 Table 8: Employment of visitors Sr. No. Occupation Number of visitor Percent 1 Gov. employee 23 25 2 Own business 32 34.8 3 Private job 30 32.3 4 retired 6 6.5 5 Student 1 1.1 Total 92 100 49

49. ECONOMIC VALUATION OF CULTURAL HERITAGE USING THE TRAVEL COST METHOD Florentina et al., (2021) Romania 50

50. Model Distance Cost of transport Duration of Stay No. of Visits Satisfaction Level Income Age Studies Distance 1.000 Cost of transport 0.106 1.000 Duration of Stay 0.542 0.149 1.000 No. of Visits 0.456 0.162 0.374 1.000 Satisfaction Level 0.324 0.346 0.351 0.463 1.000 Income 0.241 0.315 0.289 0.318 0.349 1.000 Age 0.137 0.266 0.172 0.073 0.090 0.330 1.000 Studies 0.191 0.313 0.227 0.226 0.263 0.573 -0.077 1.000 Table 11: Correlation of all the numerical or rank variables included in the study 51

51. AN ECONOMIC VALUATION OF THE BUNSO ECO-PARK, GHANA: AN APPLICATION OF TRAVEL COST METHOD Kwaku et al., (2024) G hana 52

52. Figure 5: Age of respondent Figure 7: Employment status of respondent Figure 6: Educational status of respondent 53

53. INFLUENCE OF THE URBAN GREEN SPACES OF SEVILLE (SPAIN) ON HOUSING PRICES THROUGH THE HEDONIC ASSESSMENT METHODOLOGY AND GEOSPATIAL ANALYSIS Emilio et al., (2022) Spain 54

54. Variable Coefficient Probability Constant -120.443 0.000 Size(m 2 ) 30.032 0.000 Bedroom(n) 98.725 0.000 Age(year) -53.31 0.000 Green Area 11.145 0.000 Table 12: Independent variable and coefficient of linear HPM 55

55. VALUING THE IMPACT OF AIR POLLUTION IN URBAN RESIDENCE USING HEDONIC PRICING Sebastian et al., (2021) G hana 56

56. V ariable Coefficient Constant 18.729 Educational service 0.038* Super market ‒0.030* Construction area 0.491*** Parcel land 0.256*** Number of bathroom 0.141*** Number of bedroom 0.145*** Garden 0.096*** House age ‒0.032*** Particular matter ‒1.733** Carbon monoxide ‒1.103*** Nitrogen oxide ‒2.765*** Ozon (O 3 ) ‒0.857*** Temperature (T) 2.641** Adjusted R 2 0.92 Table 13: Hedonic price regression model 57 * Significant at 10 per cent level of probability ** Significant at 5 per cent level of probability *** Significant at 1 per cent level of probability

57. COST BENEFITS ANALYSIS AND FEASIBILITY FOR OFFICE RELOCATION IN THE PUBLIC SERVICE AGENCY Mahardhika et al., (2019) Indonesia 58

58. Sr. No. Discussion Normal Condition Changing Condition 1 Benefit Down A Net present value (NPV) 21,331 19,289 B Internal rate of return (IRR) 95.74% 85.11% C Cost benefit analysis (CBA) 2.09 1.99 D Payback period (PP) 5 5.33 2 Cost Rising A Net present value (NPV) 21,331 20,355 B Internal rate of return (IRR) 95.74% 85.60% C Cost benefit analysis (CBA) 2.09 1.99 D Payback period (PP) 5 5.52 Table 14: Simulation to changing condition when benefits fall and cost 59

59. CONCLUSION The review of literature highlights diverse valuation approaches for understanding environmental and economic impacts Externalities, as shown significant environmental benefits from sustainable practices like pulse farming CVM studies emphasize the role of education and affordability in determining willingness to pay for essential services TCM findings underline the influence of travel costs and accessibility on the value of natural and cultural resources HPM demonstrates how environmental quality and urban green spaces affect property values. Relocation studies show the feasibility and economic viability of adaptive strategies under changing scenarios, showcasing the broad utility of these methods in policy and decision-making Hedonic Price Method (HPM), Travel Cost Method (TCM) and Contingent Valuation Method (CVM), all these methods deserve scientific scrutiny, have room for improvement and should be employed cautiously 60

60. Thank you..