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TH E MONETARY VALUATION OF THE ENVIRONMENTAL IMPACTS OF
ROAD
TRANSPORT STATED PREFERENCE APPROACH
P.S Nelson
Booz Allen &
Hamilton
J.G Towriss
Cranfield School of Management
-
Centre for Logistics and Transportation
1. Introduction
Transport conveys many benefits to mankind but also has negative side effects such as
road casualties, and environmental impacts such s noise, vibration, ir pollution, etc.
Transport is necessary fo r people and firms, it is important fo r the economy s
whole, but it produces a certain number
of
undesirable effects such s pollution,
congestion, accidents and consumptiono scarce resources ,(Alexandre,
1995 .
Economists argue that at present many of the environmental costs of transport are being
externalised (i.e. not included in the market). Many goods and services have prices that
can be observed in the market place, for example the costs of road construction and
maintenance. Environmental goods and services are not invariably bought and sold in
the
market
place (e.g. air quality), and are therefore external to it.
It
is argued that the
effect of these external costs is an imbalance in the market,
so
that the environment is
under valued
or
not valued at all. The environment is therefore seen as a free
commodity that can be over utilised. Excessive depletion of environmental resources
occurs when their utilisation is external to the cost functions
of
those supplying or
using transport services (Button, 1990).
In an attempt to internalise these costs, monetary values are increasingly called for,
so
that
the true cost of man's impact on the environment is considered. Roads have a long
lifetime, therefore in terms of long-term environmental protection the correct decisions
need to be made and a 111 life cost-benefit assessment is required. Environmental
factors are often via series of quite sophisticated and ingenious procedures, examined
in quantitative manner, but are rarely reduced to the common denominator ofmoney
which is the currency
of
the standard cost-benefit ja m ew or k used fo r hansport
injastructure appraisal (Bannister and Button, 1993).
In
the United Kingdom the evaluation b e w o r k for the appraisal of
trunk
road
infrastructure considers both the environmental and economic impacts of a trunk road
scheme with the economic and environmental impacts being separated. The results are
presented in tabular form showing both quantified and unquantified impacts on a
number of different population groups. The decision-maker
is
therefore presented with
a balance sheet of large number of disparate elements, from which he/she has to base
a decision.
SACTRA, the Standing Advisory Committee on Trunk Road Assessment,
in
the
UK,
published its report on the Assessment
of
Environmental Impacts of Road Schemes in
1992. The report suggests that a common unit of measurement of economic and
environmental factors would make the decision process simpler and more consistent.
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That is that the environmental factors should be incorporated into a cost-benefit
appraisal process, where monetary values are used as relative weights on the different
impacts
of
transport infrastructure. Support for the use of economic tools to value
environmental impacts
is
not solely from SACTRA. The following quotation typifies
the support for economic appraisal of the impacts of transport infrastructure on the
environment:
“when deciding upon transportpolicy initiatives it is important that environmental
considerations are placed
on
the same footin g as other potential impacts (such as those
relating to mobiliiy, vehicle operating costs, regional development, industrial growth,
etc.). This can be achieved by adopting common unit of evaluation”(OECD, cited in
Alexandre, 1995).
This paper reports upon reasearch undertaken by the author’s on the use of Stated
Preference techniques to place monetary values on the environmental impacts of new
road schemes.
2. Monetary Valuation Techniques
In order to include environmental factors in a cost-benefit framework, monetary values
need to be assigned. Therefore, some method of placing monetary values on
environmental impacts is required. Rendel Planning (1992) suggest that such methods
must be:
robust and technically acceptable;
have institutional acceptability;
have public acceptability;
be user-friendly and cost-effective.
Several methods of monetary valuation have been used in
a
variety of different fields,
generally on individual projects, e.g. power stations, airports, recreation and amenity
sites. The techniques can be divided into two types, indirect and direct.
i)
Indirect Techniques
The methods use either a surrogate market or data from other sources to generate
valuations. The indirect methods are shadow pricing, dose-response, expert opinion and
surrogate market techniques: travel cost method and hedonic pricing. There are a
number of difficulties with theses methods. For example expert opinion
has
the
weakness that it
is
assumed that people like district valuers have sufficient knowledge
of factors that influence house prices to provide surrogate market prices as a function of
environmental impacts which
are
systematically varied. Hedonic pricing suffers from
the weakness that the explanatory variables are often inter-related resulting in problems
of multi-collinearity in the regression analysis. Kroes and Sheldon in Button,
1993)
state that the limitations of surrogate market methods are as follows:
b
b
difficulty in obtaining information on the
full
range of options open to the
individual;
cannot easily handle new forms of environmental impacts or impacts of existing
nuisances;
it is assumed in Revealed Preference that those involved have
full
information
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on the options available;
ii) Direct Techniques
These use market research survey techniques to gather valuations directly from
individuals. The direct technique currently most commonly used is the contingent
valuation method (CVM), which
sks
people directly for their willingness to pay for
environmental improvement in a hypothetical scenario. One of the main weaknesses of
CVM is bias which can arise from variety of sources. Johansson (1990) identified
these as follows:
can handle qualitative information, but only in a restricted fashion.
Strategic bias
- respondents
try
to bias their answers to encourage a strategy they
prefer.
This
deliberate bias or overstatement is described by SACTRA (1992),
respondentsmay state sums of money which are much greater than those which would
in truth satisfi them in the knowledge that
no
real charge is being threatened and their
answ ers may influence po licy in desired direction .
Learning bias can also affect strategic bias in that the simple nature of the CVM
bidding games make them relatively simple to learn. This learning process can allow
strategic bidding and can therefore affect the final bid.
Starting Point bias- the starting point for the bidding game affects the final bid.
Johansson (1990) suggests that the higher the starting biarange the higher the
maximum willingness to pay.
Information bias - the type and amount of information provided can affect the final
bid. There is evidence in the C VM research literature, too, that the amount and kind of
information provide d to the respondents in a CV M su we y may aflect their response to
valuation questions (Tunstall and Coker, in Coker and Richards (Ed), 1992). Baughan
and Savill(l994) describe one of the major problems in CVM to be the description of
not only the physical conditions but also their consequences, for example the volume
and traffic and its associated nuisance level.
Method of Payment bias
-
the payment medium used, e.g. taxes, cash payment, affects
the
fin l
bid. A study by Bateman et al. (1993) noted that changing from charitable
fund donation to income t x payment nearly doubled the willingness to pay value.
Respondents preferred the t x as it ensured everyone would pay (cited in Bateman,
1994).
CVM can be used to elicit both willingness to pay and willingness to accept values.
Major disparities between these two values have been revealed, although traditional
economic theory suggests that willingpess to accept and willingness to pay values
should be similar. Johanssen (1993) identifies divergences up to a factor of 10 (cited in
Bateman, 1994).
3
Stated Preference Techniques and Valuation
The term Stated Preference (SP) refers to a variety
of
individual techniques such as
trade-off analysis, transfer price analysis, and conjoint analysis. The techniques use the
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SP techniques, therefore, have all the advantages of the CVM when compared to the
indirect valuation techniques. However, they also have potentially significant
advantages over
CVM,
especially in terms of eliminating bias in response.
5
The road scheme chosen for the research was the
A428
Bedford Western By-pass, the
scheme being particularly suitable because it impacted upon a large and relatively
dense population and also because some of the population experienced an
environmental loss whilst others experienced a gain. The following section details the
design of the Stated Preference research. The basic method employed was non-adaptive
'trade off In order to concentrate on the methodological aspects of the SP technique,
the experiments concentrated on
a
few environmental attributes only. This is in contrast
to the
JMP
study that investigated
12
different policy impacts. The smaller number
of
attributes meant that the research could focus upon the SP methodology, analysis and
statistics in greater detail than is possible with a wider ranging survey. This simpler
format also allowed the SP experiments to be presented to the respondent as a pen and
paper exercise rather than using computer based methods.
The non-adaptive approach to the SP experiments requires that the SP designs have to
be tailored, so that respondents face scenarios showing the existing situation and
scenarios that they could reasonably expect in the future.
This
tailoring of the
experiment, used existing and perceived levels of attributes
so
that options could be
built around existing experience
(Ortuzar
and Willumsen,
1994).
The tailored design
ensured a more realistic choice context, and with the
im
of obtaining more reliable
results. In order to tailor the experiments in this way a range of pre-SP data collection
and analysis was required. These were included in the three main stages of the research
design:
SP Fieldwork
5 1 Pre-SP Data Collection and Analysis
Very little research has been conducted to identify people's salient attributes relating to
the impact of transport on the environment. These issues are also likely to differ
between geographical areas.
A
SP design required information that related directly to
respondents within a particular geographical area or socio-economic grouping, etc. This
ensured that the hypothetical SP choice scenarios were realistic and used existing or
perceived levels of attributes
so
that options were built around existing experience
(Ortuzar and Willumsen,
1994).
An
initial pre-SP data collection phase was necessary
to gather these base data. The initial data collection phase included discussion groups
and an attitudinal survey of residents
of
the study area.
5 1 1 Discussion Groups
Initially, a number of discussion groups were used to gain the required base
information for the
SP
scenarios. The discussion groups provided background
information,
so
that the hypothetical SP scenarios were based on realistic assumptions,
The Design of the Stated Preference Research
pre-SP data collection and analysis, and design of
SP
experiments;
analysis of SP experiments and conclusions.
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i.e. to ensure that the
SP
experiments did not contain elements that were not important
to the respondent. In order to construct a realistic set of SP choice situations it was
necessary to identify the environmental attributes that most affect or annoy people and
the levels of these impacts that affect households. It was also important to identify a
payment mechanism to which people could easily relate For this purpose, several
discussion groups were employed to discuss these issues, and to isolate the
environmental attributes for the SP survey. The discussion groups were designed to
discuss the following issues:
attitudes to the environmental consequences of transport:
which environmental impacts are most important?
how do people perceive differences
in
traffic levels and the impacts on the
environment?
attitudes to payment for environmental gain, or compensation for environmental
loss:
are people willing in theory to pay for a better environment?
do people connect payment (e.g. tax) with improvements in the environment?
what method of payment is most easily understood?
approximately how much are people willing to pay?
A secondary stage of pre-SP data collection was required to gather more detailed
information. The data from the discussion groups was used
to
design an attitudinal
survey to gain further information for the SP experiment.
5.1.2 Attitudinal
Survey
The attitudinal survey used the results of the discussion groups to define a more
structured survey,
in
order to gain more detailed information from the local population.
For example, the environmental impacts defined in the discussion groups were placed
in
a rating exercise so that the most important impacts could be identified.
The data gained from the discussion groups and attitudinal surveys were as follows:
definition of important attributes;
definition of attribute levels, particularly monetary levels;
information on how environmental impacts are perceived;
definition
of
method
of
payment.
5.2
The
Stated
Preference Survey
The survey was conducted at residences
in
the Kempston and Queens Park areas of
Bedford,
with
both areas experiencing reductions in traffic flow through the opening of
the
by-pass. The attributes included in the SP experiment were:
*
Road Safety
Air Pollution
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*
Road Tax
ir
Pollution
Road Tax
Journey Time to Bedford
*
The first
two
are environmental attributes carried forward
from
the discussioii groups
and attitudinal surveys. Journey Time was included as a control variable
in
order for
values of time obtained
from
the research to be compared with other studies for
validation purposes. Road Tax
was
included as the monetary attribute in the design.
The attribute levels are shown in Table One
Journey Time to Central Bedford
3
3
2
Table One Attribute Levels
3 50%
10% E20
4 30% 50
E50
5 30
30%
E20
6
30% 10
E100
7
1
0
50
E20
8
10%
30%
El00
10%
10%
E50
5mins
5
mins
10
mins
10 mins
10mins
5 m i n s
10
m i n s
The experimental design together
with
the associated attribute levels is shown
in
Table
Two
Table Two Experimental Design and Attribute Levels
ttribute
Respondents were asked to respond to a discrete choice experiment between the
approximate present situation, the base card (shown on an orange card) and a potential
new situation (shown on a series
of
white cards). The new situations were always better
in terms
of
environmental attributes, but had an additional cost component.
Respondents were therefore, being asked to imply a willingness to pay for an
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Journey Time
-0.016 -20.26 Yes
Air Qua lity -0.022
-11.24 Yes
Constant
-0.044
-0.30 No
The journey time attribute was included in the model to validate the results obtained.
Therefore, the non-significance of
this
attribute had a significant effect on the
interpretation of the results, in the sense that it was not possible to gain a value of time
for comparison with other studies. Therefore, it is not possible to validate the
environme ntal utility m odel values in
this
way. However an indication of the validity of
the values can be gained by comparison with the CVM results from the attitudinal
survey and also with results from the
JMP
study. Table Four shows this comparison.
E5 1.97 hou r
E l . 19 dec. in traffic
Table Four
-
Comparison with JMF and Attitudinal Study
Air Quality
Road Safety
Total
Attitudmal Study
Willingness to Pay
JMP Study
50 Decrease in Road Traffic
Value
per
Year
SP Resu lts Total Data Set:
E56
E60
E116
100
222
The results of the SP experiments compared well with the results from the attitudinal
survey willingne ss to pay questions. The total value for
ir
quality and road safety was
similar to that of the C VM result. However, the CVM result may have been expected to
be higher due to the impact of strategic bias, people may have been expected to
overstate their w illingness to pay. Also although air quality and road safety were the
most important factors
in
the attitudinal survey other important factors were also
recorded (these were not all included in the SP experiments, e.g. noise, vibration).
Therefore, it would be expected that the CVM willingness to pay value would be h igher
than the
SP
valuations.
The JMP igure was almost double that gained
in
the
SP
experiments, two possible
reasons for this are:
impacted on the results gained.
the
JMP
study was an overall figure, therefore it 'may include other attributes
than ir quality and road safety;
the difference in location, time of survey, road environment might have
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7
Conclusions
This paper has introduced SP techniques as a method for placing monetary values on
environmental impacts.
It
has shown that SP techniques are applicable to the area of
environmental valuation. Respondents were able to respond logically to a carefully
designed and controlled experiments and statistically significant monetary valuations
were gained for measurable levels of ir quality and road safety. SP has therefore been
revealed as a potentially viable method for valuation of environmental impacts of road
transport. However, before the methodology can achieve the public and institutional
acceptability that it requires, for inclusion in
an
economic appraisal process, further
research
is
required to refine the methodology.
Problems and issues have arisen from the research upon which this paper is based and
these need to be resolved before SP methods can be used as a means of including
monetary valuations of environmental costs and benefits within an economic
framework of trun road appraisal The main areas of concern that need to be addressed
in future research are:
The selection and particularly the measurement o f attributes and
attribute levels - one method may be to use attitudinal scales to relate
measurable changes in traffic levels or pollution levels to attitudes (e.g.as in the
I).
Bias
-
further research
is
required into forms of bias as a whole, but particularly
in SP experiments the bias due to the impact of method of payment and further
investigation into the impact of information bias brought about by different
forms
of representing attributes. Further research is required to identify the
pattern of this bias and why it occurs,
s
this has a significant impact on the
monetary valuations derived.
More case studies
-
finally more case studies of monetary valuation of
environmental
s
s
some of
provide a
impact via
SP
are required. Further studies, may resolve
the issues raised in this research, but also perhaps more importantly
pool of monetary values for comparison and possible future use in road
investment appraisal.
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