The Environmental Valuation in Economic Terms

Introduction and Context

There is an increasing recognition that environmental valuation in economic terms is crucial to determine costs and hence aid in policy considerations. It is through environmental valuation that economic benefits can be realized (Health and Environment Linkages Initiative par. 1). By putting into consideration the implications of environmental pollution, this is a summary and analysis of the environmental valuation carried out by Fredrick Carlsson and Olof Olof Johansson-Stenman as outlined their article ‘Willingness to Pay for Improved Air Quality in Sweden’.

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The purpose of the study was to quantify the willingness to pay (WTP) measures of increased quality of air; the study targeted Swedish people living in big cities and other places. The environmental issue being addressed by the study was air pollution. The establishment of the WTP parameters is critical because it helps economists formulate policies that target the improvement of the environment quality.

Methods and Data

There are varied valuation methods that are used by economic decision-makers to appraise options for interventions. In the arena of the environment, valuation practices provide information on the benefits of assigning economic value to environmental goods and services (Mishra 8). In the current study, the valuation method used is the contingent valuation method (CVM). The procedure for the study of measures the WTP entailed a survey that included 3240 people in 1922 households.

The study was divided into two; the first was a panel survey that targeted people who participated in a 1993 Household Market and Nonmarket Activities (HUS) survey, while the second was a supplementary survey that addressed young people born between 1975 and 1977 (Carlsson and Johansson-Stenman 662). The data collection method for the first survey entailed interview via telephone and self-enumerated questionnaire, which was sent to the already interviewed people through the phone conversation. However, for the supplementary survey, the telephone interview was not carried before a personal interview was done.

The reasons for the differences in the procedure for data collection relates to the nature of CVM studies. According to the past literature review, CVM emphasizes on the collection of data from well-informed respondents; hence, the need to carry out the personal interview with first-timers. This complicated how the researchers had to interact with the respondents in matters of air pollution. For instance, the complexity of whether to give the young people facts about air pollutions and the related impacts or to allow the autonomy to judge the information about air pollution based on various sources. Therefore, due to the nature of the study, the latter was adopted.

The data collected included the sex of the participants, their income, place of residence, and occupation. The people described the reasons for supporting or objecting to the pay for increased air quality. Also, the data captured the degree to which the respondents perceived air pollution in terms of its impacts on nature and health. The data was operationalized to present it empirically. The data was then analyzed by using two-equation models; the probit and structural equations which helped in estimating the individual’s WTP, i.e. determining if they are positive and the maximum WTP.

Results and Discussion

Results

The findings showed that 80% of the respondents with positive WTP attributed their decision to the health effects related to air pollution. On the other hand, there were 40% of the participants with positive response who considered the damage to the environment to be of crucial importance for their WTP. Overall, 96% of the study participants responded to the valuation questions. In terms of gender, men had higher mean WTP compared to women. Also, people who reside in cities had larger mean WTP compared to other people. However, further analysis at a significance level of 5% established that the difference in the average WTP between people in big cities and other places was relatively smaller (Carlsson and Johansson-Stenman 665).

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Discussion

The mean WTP difference was regarded as small because air pollution is more common in big cities than in other areas. The mean WTP was 160SEK/month or 200SEK/year which compared similar studies conducted in Nordic countries on air pollution. Concerning the benefit estimates, WTP can be pointed out to be positively dependent on both the individual and the income of the household, i.e. WTP increases with income.

Also, WTP was found to be high for people who work in environmental organizations just as it as for men, people in big cities, and people who own their houses. However, it was low for retired people. The estimates obtained present critical data that can be applied in the policy formulation on matters relating to the reduction of air pollution. For example, they can be used to ascertain the cost of environmental goods such as pollution from transport vehicles.

Besides, Torgler and Garcia-Valiñas pointed out that it is important to understand how people make decisions when faced with scarcity (542). In this case, it was established an increase in income resulted in additional WPT. However, it is important to note that there is an opportunity cost for every action (Knights 4); as such, it implies that paying for the reduction in air pollution will subsequently reduce the cost associated with healthcare bills that result due to environmental pollution.

Besides, the estimated marginal income of an individual’s education and income was found to be significant and positive in the two equations, i.e. probit and structural equations. This implies that any policy measures that are taken to increase the income and educational status are likely to result in additional WTP.

Conclusions and Criticisms

WTP is correlated to individual factors such as wealth, education, income, and other personal attributes. These are critical parameters that can be used by economic policymakers when drawing synergies for the reduction of air pollution in Sweden. It is also evident that the responses to CV are related to the ‘purchase of moral satisfaction’. This denotes the benefits that the participants attribute to the reduction of air pollution based on health and environmental implications.

Despite establishing these important parameters and their relation with WPT, the study did provide recommendations on measures economists should take to implement policies that reduce the uncertainties related to air pollution.

Also, the method and data collection is an issue that affected the study. When using CVM, it is recommended to use referendum questions as they present everyday decisions on consumptions (Veisten 321). However, despite choosing CVM, the researchers used open-ended questionnaires, which could be attributed to the many incomplete questionnaires. The paper could be improved by including costs related to air pollution and determining how benefits of the positive WTP compare with the costs.

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Works Cited

Carlsson, Fredrik, and Olof Johansson-Stenman. “Willingness to pay for improved air quality in Sweden.” Applied Economics 32.6 (2000): 661-669. Print.

Health and Environment Linkages Initiative. Using economic valuation methods for environment and health assessment. n.d. Web.

Knights, Paul. “Economic Environmental Valuation: An Analysis of Limitations and Alternatives.” BIOMOT Report 1.1 (2013): 1-7. Print.

Mishra, SK. “Valuation of environmental goods and services: an institutionalistic assessment.” Urban Studies 3.1 (2003): 1-13. Print.

Torgler, Benno, and Maria Garcia-Valiñas. “The determinants of individuals’ attitudes towards preventing environmental damage.” Ecological economics 63.2 (2007): 536-552. Print.

Veisten, Knut. “Scope insensitivity in contingent valuation of complex environmental amenities.” Journal of environmental management 73.4 (2004): 317-331. Print.

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StudyCorgi. (2020, November 11). The Environmental Valuation in Economic Terms. Retrieved from https://studycorgi.com/the-environmental-valuation-in-economic-terms/

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StudyCorgi. "The Environmental Valuation in Economic Terms." November 11, 2020. https://studycorgi.com/the-environmental-valuation-in-economic-terms/.

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StudyCorgi. 2020. "The Environmental Valuation in Economic Terms." November 11, 2020. https://studycorgi.com/the-environmental-valuation-in-economic-terms/.

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