Discussion on methodological issues

Similar to the transport cost and hedonic price methods, the contingent valuation method (CVM) is a benefit-based method. But unlike the two other methods, CVM is based on a market’s reconstruction and thus it is a direct valuation method. The reconstructed market is supposed to elicit the value of the environmental good through interviews of citizens based on questionnaires. On the contrary to indirect methods which use an existing market (real estate or transport costs), contingent valuation can assess non-use values such as bequest or existence values.

Despite its undeniable advantages and its wide use during the past two decades, there is considerable controversy over whether it adequately measures people's willingness to pay

for environmental quality. Criticism of contingent valuation stresses warm glow and free-riding as possible causes for biased willingness to pay figures. They all derive from the same reason, the one which makes non-use values assessment possible. Data are based on respondents’ answers and as such are subjective. Warm glow effects and free-riding are not the only disadvantages of data directly coming from concerned people. Protest answers or difficulties to give a price to an environmental good are also prone to subjectivity.

• People have practice in making choices with market goods, so their purchasing decisions in markets are likely to reflect their true willingness to pay. CVM assumes that people understand the good in question and will reveal their preferences in the contingent market just as they would in a real market. The exercise is a hard task:

respondents are supposed to express their WTP as a sum of use and non-use values, each divided in sub-values such as existence values. In the same time, they are supposed to take into account budget constraint. Moreover, most people are unfamiliar with placing monetary values on environmental goods and services.

Therefore, they may not have an adequate basis for stating their true value. This is especially true when respondents are forced to value attributes they have little or no experience. In such cases, the amount and type of information presented to respondents may affect their answers. It is the case with shallow groundwater as respondents can not see and may, for some of them, even not know before the interview. As presented above, respondents might have a misperception of the good and of its current use, e.g. assuming that shallow groundwater is used as source for drinking water while it is not – and thus providing a WTP value attached to drinking water.

• The expressed answers to a willingness to pay question in a contingent valuation format may be biased because the respondent is actually answering a different question than the interviewer had intended to ask. When valuing shallow groundwater, respondents may answer to the question “How much would you be ready to pay to improve water quality in general?”

• The question can also be understood as “How much would you be ready to pay to improve environment quality?”. Because of altruism, some respondents may express a positive willingness to pay. Pure altruism is connected to the simple desire of an individual to increase the level of a public good for others than him, generally his children (bequest value). Impure altruism is a “moral satisfaction” about the act of giving for a social good. Respondents feel good and derive utility from “doing good”.

This motivation, first identified by Olsen (1965) and later referred as “warm glow”

affect by Becker (1974) is not an economic motivation and is not relevant in the case of contingent valuation. Unless assuming that utility can increase with the taxes level regardless of their use, the value derived from this motivation biases results.

• Alternatively, some respondents may value the good, but state that they are not willing to pay for it, whereas not willing to pay should be equivalent to give no value to shallow groundwater. Because they do not want to reveal it as a sign of protest, they say they refuse to pay. There are different reasons to refuse to pay. Respondents might think it is not acceptable in principle or they do not believe money will be spent for the purpose specified (i.e. cleaning groundwater pollution). Or they might think money should be taken from other financial sources such as the state budget or existing financial resources allocated to communal services. The separation between protest answers and true zero answers (i.e. answers from respondents who effectively attach a zero value to groundwater quality improvements) are central to CVM. The reasons obtained from the Latvian survey are summarized in Table 14 below.

Table 14. Difference between true zero bidders and protesters in the Latvian survey

Why are you not willing to pay for groundwater quality improvements?

Number and % of

respondents Interpretation Cleaning shallow groundwater from pollution is not

important enough 9 (3.4%) True zero bid

It is not acceptable to me in principle 41 (15.4%) Protest response

My income is too low 115 (43.2%) True zero bid

Other thing where to spend money are more

important for me 41 (15.4%) True zero bid

Other reasons (please specify): 58 (21.8%) I don’t believe that collected financial resources

will be used/spent for groundwater quality improvements

11 Protest response

Financial resources should be taken from other sources (state budget, municipal budget, private companies, national environmental fund…)

30 Protest response

Financial resources should be found obtained from what I already pay for communal services and taxes

15 Protest response

I do not make money myself 2 True zero bids

I do not know 2 (0.7%)

Total: 266 (100%)

• Protesters are not less sensible to groundwater quality than other respondents since more than half of them specify that it is important or very important to have a shallow groundwater of good quality in Riga. Moreover, among respondents refusing to pay, there is a link¹⁰ between protesting and citing environmental problems as the most important problems for the region: true zero bidders quote such problems less than protesters.

• Another reason to understate declared amounts is free-riding. As a public good, everyone can use shallow groundwater. If citizens pay for an improved shallow groundwater quality, everyone even those who did not pay will derive benefits from better quality. Respondents may declare a smaller or even refuse to pay because of this free-riding effect.

The impact on the way the interview was performed on respondents’ answers was also investigated. Overall, home interviews induce a higher probability of refusing to pay than interviews in offices, squares, shopping centres or streets. This means that having more time and being more comfortable to think about the subject reduces the reluctance to pay.

The issue of scenario choice was also investigated. As mentioned above, three different scenarios were proposed to interviewees. Before announcing a WTP value, respondents had to choose among these scenarios. The choice of a scenario could already be considered as a means of announcing WTP, since for each scenario the costs of implementation were included in the scenario description. Considering only respondents who were willing to pay, the mean WTP for the basic scenario is 36.11 euros, 23.49 for Scenario 1 (moderate improvement) and 24.41 for Scenario 2 (maximum improvement). When including zeros, the mean WTP values are 7.22, 12.12 and 12.05, respectively. At the view of this result, the WTP is surprisingly high for the basic scenario as compared to Scenario 1 (moderate improvement) or Scenario 2 (maximum improvement). But as few people chose the basic

10 Chi2 test was used to assess such a relation.

scenario, statistical tests revealed that the mean WTP values for the three groups are equal¹¹, even when zero bidders are included in the mean calculation.

The issue of use and non-use values were further investigated. When accepting to pay and declaring WTP values, respondents do not all have the same motivations. Some want to pay because they think about the future needs of their children, others because they think they may use shallow groundwater in the future. The scale proposed to assess which motivation between use and non-use values is the stronger in justifying willingness to pay was proposed as already presented above. Only 243 respondents accepting to pay proposed an answer to the scale. The mean value of the answers was -0.32 thus very close to zero, with a standard deviation of 2.27. Nevertheless the nullity of the mean scale value was rejected and the mean considered as statistically different from zero and negative. This implies that use considerations have been more important in justifying people’s willingness to restore shallow groundwater quality than non-use values for the Latvian case study. Among the three scenarios, one could have expected different reasons justifying respondents’ willingness to pay. However, the mean scale values computed for the three sub-samples (depending on respondent’s scenario choice) are equal among sub-samples – partly as a result of the low number of respondents having chosen the basic scenario. Thus, motivations are statistically the same for the three scenarios sub-samples.

8.4 Identifying factors influencing willingness to pay: results from