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Valuing the environment: recent UKexperience and an application toGreen Belt LandNick Hanley a & Jacqui Knight ba Department of Economics, Queens University, Kingston, K7L3N6, Canadab PIEDA, 10 Chester Street, Edinburgh, EH3 7RA, UKPublished online: 23 Feb 2007.

To cite this article: Nick Hanley & Jacqui Knight (1992) Valuing the environment: recent UKexperience and an application to Green Belt Land, Journal of Environmental Planning andManagement, 35:2, 145-160

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Journal of Environmental Planning and Management, Vol. 35, No. 2, 1992 145

Valuing the Environment: Recent UK Experience andan Application to Green Belt Land

NICK HANLEY

Department of Economics, Queens University, Kingston K7L 3N6, Canada

JACQUI KNIGHT

PIEDA, 10 Chester Street, Edinburgh EH3 7RA, UK

ABSTRACT This paper reviews recent UK work in the valuation of environmental costsand benefits. A brief description of available methods, and of major problem areas, ispresented first. We then look at UK applications of contingent valuation, travel cost methodsand hedonic pricing to a wide range of environmental resources, such as water quality,forests and urban landscapes. A contingent valuation study of the value of preservinggreenbelt in Chester is then reported. We conclude with some cautions about the inter-pretation of valuation results.

Introduction

One of the fastest growing areas of research interest in environmental economicsis the valuation of environmental resources. From the economic impacts of theExxon Valdez disaster, to visibility issues in the Grand Canyon, to the preservationof wetlands, there appears to be an exponentially increasing number of papersappearing in the literature. Coupled with this has been a greatly increased demandfor such valuations by state and federal authorities. In the United States, thishas followed from legislation such as the Comprehensive EnvironmentalCompensation and Liability Act (CERCLA) and President Reagan's ExecutiveOrder 12291. In the UK, there has also been a great increase in demands for suchvaluation exercises, due in part to the publication of the report by Pearce et al.(1989), the 1990 White Paper This Common Inheritance (DoE, 1990), and relatedfollow-ups such as the 'Policy Appraisal and the Environment' exercise (Depart-ment of the Environment, 1991). The purpose of this paper is to summarize theexisting methodologies that are available for environmental valuation;1 to listsome recent UK applications of some of these techniques;2 and to consider indetail a previously unreported application to an area of current interest to land-use planners, namely the preservation of the Green Belt. We conclude with somereservations about the scope and validity of valuation methods.

A Brief Review of Available Methods

In a competitive market for a resource, the interaction of supply and demandproduces an equilibrium price which, under certain conditions, is a good indication

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of the benefit to society of one more (or one less) unit of the resource in question-its marginal social benefit (shown by the demand curve) and its marginal socialcost (shown by the supply curve). Changes in the level of supply of such resourcesmay be valued in economic terms through the concepts of consumers andproducers surplus. Consumers surplus is the excess of total value (area underthe demand curve) over actual expenditure; producers surplus is approximatedby pure profits. Whilst it is well known that market prices are often a very poorguide to marginal social benefits and/or costs3, at least a demand curve existswhich can be estimated from market data. For many environmental resources,however, no such market exists: for instance, no market exists for clean air. Inaddition, it seems likely that many environmental resources will be valued notjust by those who directly use them, but by others as well. For example, a cleanriver may be of value to both those who fish and those who do not: people inthe latter category derive satisfaction from just knowing that clean rivers exist.This, as Pearce et al. (1989) point out, means that concentrating solely on uservalue will underestimate the economic value of environmental resources byexcluding these 'existence' values. How then to put a figure on the total economicvalue (the sum of user and existence values) of such resources?

Two broad classes of methodology exist, which we may define as direct andindirect. Indirect methods seek to infer the value of an environmental resourcefrom peoples' behaviour in related markets, or from effects on production ofchanges in environmental quality. The principle approaches here are householdproduction function methods, avoided costs, dose response functions and hedonicpricing. Household production function approaches model households ascombining purchased commodities with environmental quality to 'produce'desired service flows. The best-known variant here is the travel cost approach(TC), whereby households combine expenditures on travel with environmentalresources such as a forest to 'produce' forest recreation. By using travel costs asa proxy for price, consumers surplus for users of the forest can be estimated (Bowes& Krutilla, 1989). Problem areas with the travel cost technique include the treat-ment of 'meanderers' and holidaymakers (as distinct from day-visitors), and thevaluation of leisure time. The method is also quite restrictive in terms of whatit can be applied to (namely outdoor recreation sites), whilst it cannot measureexistence values. For detailed criticisms and extensions of this and all the othermethods discussed below, see (in increasing order of technical difficulty!) Pearce& Turner (1989), Hanley (1991), Hanley & Spash (1992), and Braden & Kolstad(1991).

Avoided cost methods measure the opportunity cost of changes inenvironmental quality, for example, the impact of increased groundwater qualityon reduced expenditures on water treatment equipment. Dose-response functionstrace links between emissions of a pollutant such as sulphur dioxide, to physicaldamages in receiving environments (such as damage to forest growth), toeconomic impacts on production. This method has been used extensively in thevaluation of the impacts of air pollutants such as tropospheric ozone on agriculturalcrops: see, for example, Adams & McCarl (1985); and to value pesticide damagesto fisheries (Kahn, 1991).

The hedonic pricing method estimates implicit prices (marginal values) forenvironmental quality attributes such as the level of air pollution in a city, byfinding a statistical relationship between the environmental variables of interestand the price of a marketed commodity, most usually housing. A hedonic price

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equation explains the variation in house prices in a geographic area throughvariations in site characteristics (such as the number of rooms in a given house),neighbourhood variables such as crime rate, and environmental variables suchas levels of suspended particulates or noise. Once an implicit price for, say, noisehas been established, a demand curve can be estimated which takes into accountthe socio-economic characteristics of those individuals making purchases includedin the sample. The method is however, restricted in what it can be applied to,is very demanding in data terms and produces results which are often verysensitive to functional form choice (see Garrod & Allanson, 1991). Moreover, ithas been criticized as resting on untenable assumptions about the housing market(see Freeman, 1979, for details).

The principle method of direct environmental valuation is contingent valuation(CV). In principle, CV is a very simple method. A hypothetical market isestablished for the environmental resource in question. People are then askedto respond to changes in the level of supply, or quality, of the environmentalgood, by stating either maximum willingness-to-pay (WTP) or minimumwillingness-to-accept compensation (WTAC) sums. These 'bids' are then averagedand aggregated to a total value figure. In addition, researchers usually try tostatistically explain bids by estimating bid curves: these relate bids to thosevariables thought likely to influence WTP or WTAC, such as income andpreference-proxies. This bid curve then becomes one means of assessing thevalidity of the CV exercise—are parameter values in accordance with a prioriexpectations? How much of the variation in bids can be explained? It is alsonecessary to isolate protest bids before computing average bids. Protest bids arezero bids tendered for reasons other than a zero value being placed on the resourcein question. For example, an individual may refuse to pay anything for thepreservation of heathland because she believes that she has a moral right topreserved heathland, or because she objects to the design of the hypotheticalmarket. A second test of the validity of CV results is thus the percentage of protestbids of total responses: a high percentage indicating that there were faults withthe design of the survey. A third test for validity is whether results can be repeatedif the same (or a similar) sample is faced with the same valuation exercise:encouraging results on this can be found, for example, in Loomis (1989).

CV has become very popular as a valuation method as: (1) it is relatively easyto use; (2) it can be applied in principle to a very wide range of environmentalresources; and (3) it can estimate both use values and existence values. A fulldiscussion of CV can be found in Mitchell & Carson (1989), Hanley (1989c), andBateman & Turner (1992). There is insufficient space here to do anything like fulljustice to current research areas in CV, but we list and briefly comment on someof these areas below:

Do Stated Bids Over- or Under-state True WTP/WTAC?

An early criticism of CV was that individuals were unlikely to reveal their truevaluations. If it was thought that bids might be collected, then individuals wouldfree ride in the Samuelson sense, since the public (environmental) good was non-excludable in consumption. However, many theoretical economists have arguedrecently that incentives for such strategic behaviour are much weaker than waspreviously thought (see the survey in Hanley & Munro, 1992), whilst experimental

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and field surveys have both failed to show up much evidence of strategicbehaviour (Milon, 1989).

Information Impacts on WTP

In most models of preference formation, information is crucial. For example, whatpeople know about the hole in the ozone layer will have an influence on theirWTP to prevent additional ozone-depleting chemicals being produced or emitted.The fact that changes in information sets could significantly affect CV bids wasinitially viewed as a problem (Samples et al., 1986); however, since Randall (1986),CV researchers have argued that this sensitivity is a desirable characteristic ofCV, since it would otherwise fail to pick up what are in all likelihood significantinfluences on preferences. Attention is now centred on how information can beexpected to impact on bids (Bergstrom et ah, 1990).

Differences between WTP and WTAC Bids

When CV researchers have sought both WTP and WTAC amounts in a givensurvey, it has often been the case that WTAC bids have been significantly greaterthan WTP bids, and by a greater degree than could be explained by income effects.Again, what first was seen as a problem for CV is now viewed rather differently.On the design level, it may be that believable WTAC scenarios are rather moredifficult to construct than believable WTP ones. On the theoretical level, however,economists now believe that in many cases, WTP values should be very differentfrom WTAC amounts (Knetsch, 1989). This is due to principally two phenomena:that individuals experience loss aversion (Kahneman & Tversky, 1979); and thatindividuals have moral objections to compensation for environmental loss (Sagoff,1988). Loss aversion may be described as a preference for what one has over whatone could get: we attach a greater value to preserving our present endowmentof environmental quality than to increasing it: this phenomenon is also referredto as an endowment effect. Moral objections to, for instance, monetarycompensation for the loss of a community woodland are well-documented in theliterature (see, for example, Hartley, Munro & Jamieson, 1991); and may resultin individuals tendering very high bids in order to signal these objections.

An alternative explanation for differences between WTP and WTAC bids hasbeen offered by Hanneman (1991), who argues that when an environmental goodhas very few substitutes, WTP and WTAC should be very different; only whenmany substitutes exist should the two measures converge. The degree of differencebetween the two value measures should therefore be predictable by consideringhow many substitutes the environmental good in question has. Shogren et al.(1992) have recently produced experimental evidence to support this proposition,although their evidence does not prove that endowment effects are absent whensubstitution possibilities are low.

Mental Account Bias and Warm Glow Effects

The economic theory of consumer choice that lies behind demand curves (andthus consumers surplus) is based on the maximization of utility subject to a budgetconstraint. In a hypothetical market, this constraint is not binding. Mental accountbias (Hoevenagel, 1991) in CV occurs when individuals have some 'account' in

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their minds for environmental protection, most easily envisaged as a part of theirtotal planned expenditure (which cannot exceed the present value of their expectedlifetime income). Say that Sally has decided that this year she is willing to spend£500 on environmental protection. A CV researcher asks her in January what shewould be willing to pay to save a local forest from destruction: she bids £200.Another CV researcher asks her in April what she would be willing to pay tosave the porpoise population off the Scottish coast by paying higher local authoritytaxes to improve sewage treatment: Sally bids £300. Then in August yet anotherCV researcher asks what she would be willing to pay to save rain forest in Brazil:Sally bids £300, but she has now 'broken' her environmental account. However,WTP amounts are most frequently a small percentage of total expenditure (around1%), whilst individuals may well revise their environmental budgets upwardsin the light of information on additional environmental problems.

Warm glow effects occur when individuals state positive bids for environmentalpreservation or improvements not because those bids represent the value theyplace on the resources in question, but because responding in this way makesthem feel good. Kahneman and Knetsch (1992) claim to have found evidence ofthis phenomenon empirically, but it is not clear at present to what extent thisrepresents a serious problem for CV.

Recent UK Work: A Rapid Overview of the Recent Past

In this section, a brief account is given of environmental valuation work in theUK, as reported in the literature. Whilst most work of importance is includedhere, it is inevitable that there are omissions: for these, we apologize. We restrictour attention to three methods: contingent valuation; the travel cost method; andhedonic pricing.

Contingent Valuation Work

CV has been applied to a wide range of environmental valuation problems inthe UK, although the number of people involved in this work is still quite small.Economists at the University of Stirling have carried out several CV studies. Theearliest of these, reported in Hanley (1988), concerned the benefits to ruralhouseholds in Eastern England from a cessation of the practice of straw burning,which at the time the study was carried out (1985) was a common method ofdisposing of unwanted residuals from wheat and barley crops. This practice hadresulted in a number of well-reported external costs, such as hedgerow losses,road accidents and nuisance to householders. Both WTP and WTAC amountsare reported, with WTAC exceeding WTP both in terms of mean bid andpercentage of protest bids. Hanley (1989a) discusses another CV study of ruralhouseholds in Eastern England, this time aimed at estimating the benefits ofreducing nitrate levels in drinking water to below the World Health Organizationlimit of 50 mg/1. Estimates of mean WTP of around £13 per household per yearwere combined with an estimate of the population in receipt of excess-nitrate waterto produce a total benefit figure. This was compared to the costs of reducing nitratelevels by treatment; a benefit-cost ratio in excess of unity indicated that treatmentwould result in a net increase in social welfare.

Wildlife resources have also been studied by the Stirling team. Hanley & Harley(1989) report the results of two CV studies of the use benefits attaching to two

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bird reserves owned by the RSPB (Handa Island and Loch Garten); whilst Hanley,Munro & Jamieson (1991) detail results of a CV experiment on user preservationbenefits for heathland (Avon Forest heath in Dorset)4 and ancient semi-naturalwoodland (Birkham Wood, North Yorkshire). These two experiments are ofinterest in that they examine the effect of changes in information on stated WTPand WTAC. Motives for protest bidding are also closely examined. Hanley & Craig(1991) use CV to estimate preservation benefits for the Flow Country of Caithnessand Sutherland. Both user and existence benefits were estimated. These benefitsare combined with afforestation benefits in the Krutilla- Fisher model (see Pearce& Turner, 1990), which produces the result that further afforestation of the FlowCountry is economically inefficient. This result is shown to be robust in termsof quite large changes in key parameter values.

A series of CV studies have also been carried out at Stirling on behalf of a jointScottish Office/Scottish Enterprise initiative (Hanley, 1992). This looked at theapplication of CV in the kinds of settings (projects) with which such publicagencies typically have to cope. An emphasis was placed on trying to find stablerelationships between WTP for environmental improvements, and socio-economicvariables such as income, age and education. Experiments were also conductedon different payment vehicles, different bid collection mechanisms, and therelationship between option price and demand uncertainty. Projects analysedincluded: landscaping of old mine workings (Roslin Bing, near Edinburgh);publicly funded restoration of inner-city buildings, where landscapeimprovements are used as justifications for undertaking these projects (VictoriaStreet, Edinburgh, and Spiers Wharf, Glasgow); the creation of communitywoodlands (the Central Scotland Woodlands Project); and new downhill ski sitesin popular mountain areas (Aonach Mor, near Fort William).

Finally, Hanley & Common (see Hanley, 1989b) and Hanley & Ruffell (1992)have applied CV to the benefits of forest recreation on Forestry Commission sites.In the former study, CV was used alongside travel costs in valuing recreationat a single site, Achray Forest. In the latter, CV and the hedonic travel cost methodwere used to value the physical characteristics of forests, using data gathered from60 UK forests.

Elsewhere, CV has also been widely used. Economists at the University ofNewcastle upon Tyne have employed CV to estimate the value of preservingparticular landscapes in the Yorkshire Dales (Willis & Garrod, 1991a). This wasdone by showing respondents colour photographs of alternative Dales landscapes,and asking them to state maximum WTP bids for each. Highest mean bids werefor preserving the existing landscape, and for an enhanced 'conserved landscape'.The benefits of the most preferred landscapes could then be compared with thecosts of achieving/retaining them. A test was included for mental account bias,whilst aggregation problems are also discussed. Willis and Benson (1989) appliedCV to forest recreation.

The benefits of improving river water quality have been the subject of extensivestudy using CV (Green et ah, 1990; Green and Tunstall, 1991,1992). Surveys havedistinguished between direct recreational users (such as anglers), those livingadjacent to rivers, and those not living adjacent to rivers. This last group wasincluded to test for existence values. Water quality variation was conveyed torespondents in terms of three criteria: the existence of wildfowl; fish population;and suitability for bathing. The bid vehicle used was water rates, and a biddinggame was used to reveal maximum WTP for stated improvements. Bid curves

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were used to explain these bids; and also whether respondents would experiencean 'increase in enjoyment' resulting from the water quality improvement.

No significant change in bids was found when the survey was repeated 12months later (see also Loomis (1989) for test-retest evidence in CV). Green andco-authors have also applied CV to valuing beach recreation and coastal protection(Green et ah, 1990). Locals, day visitors and those on holiday were interviewedat ten UK sites. In the 1988 survey (six sites), respondents were questioned asto what determined their selection of beaches to visit and what recreationalactivities they pursued. Individuals were asked to place a monetary value on theenjoyment of a beach visit; this ranged from £3.30 at Filey to £10.50 at Clacton(1988 and 1989 £s respectively). The 1989 survey focused on the loss in recrea-tional values that would occur with increased beach erosion. Tests for validitywere reported in both studies. Interestingly, both the river water improvementsand coastal recreation studies were funded by the UK government out of a desireto include non-market effects of actions such as sea defence repairs and pollu-tion reduction into a formal cost-benefit analysis. As Green has pointed out, thishas characterized many recent UK applications of CV (and TC). Whilst this islaudable in that it indicates a desire on the part of government to improve theefficiency of resource allocation decisions by not excluding environmental effects,this pattern of funding can be argued to also hinder methodological development:funding agencies may be reluctant to publicly release valuation studies, thusmaking the process of peer group review much more difficult. Recent(unpublished) work by Green and colleagues includes CV estimates of the valueof canal restoration (Ravensbourne River) and of coastal protection (Hurst Spit,the Solent).

Turner, Bateman & Brooke (1992) report a study aimed at estimating the costsof not repairing sea defences in the Aldeburgh area. These costs include propertydamage, agricultural losses and recreational/amenity losses, which were valuedusing CV. Value figures were produced for both local and non-local users of thearea. Further work on the benefits of land preservation by expenditure on coastaldefences in the Broads area is reported in Bateman et al. (1992): this hasconcentrated on the choice of bid vehicle (trust funds versus tax payments), onannual compared to once-off payments and on mental account bias. No statisticallysignificant evidence of either mental account bias or a temporal embedding effectwas found, whilst the tax payment mechanism was found preferable on a numberof grounds. Open-ended, dichotomous choice and bidding game scenarios wereall employed, and checks for both strategic behaviour and non-response biasmade. However, at the time of writing, no numerical results were publiclyavailable.

Finally, CV work has been carried out by Bishop & Stabler (1991) on the benefitsof community woodlands. They note the recent policy emphasis on creating andrestoring woodlands close to large population centres. Such forests are arguedby bodies such as the Countryside Commission to result in a wide range of socialbenefits, including wildlife conservation, educational opportunity and leisurefacility provision. Recreational values for two community forests (Derwent Walkin Tyneside and Whippenwell Wood in Hertfordshire) were estimated at £0.96and £1.33 per visit respectively. Interestingly, Bishop & Stabler found that a travelcost estimation was not possible in either case, due to the high proportion ofvisitors who either walked or cycled to the site and who enjoyed this travel time(thus not counting it a cost).

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Travel Cost Work

Most travel cost work in the UK has been carried out in connection with forestrecreation, funded by the Forestry Commission. Mention has already been madeof Hanley (1989) and Hanley & Ruffell (1992). Willis & Benson, summarized inWillis (1991), have carried out the most extensive UK work, producing valuesfor the whole Commission forest estate. Using zonal visits as the dependentvariable in their analysis, Willis & Benson produce a figure of £53 million foraggregate recreation benefits, raising the rate of return on forestry by a small(< 1%) amount on average. In later work, Willis & Garrod (1991b) use a dependentvariable of individual visits per annum on the same data set, and produce a muchsmaller figure for aggregate recreation benefits of £8.6 million. Willis & Garrodhave also used travel costs to estimate the recreation values of canals (Willis,Garrod & Dobbs, 1990).

Price has also made extensive use of the travel costs model, and has lookedin particular at econometric issues—such as the treatment of heteroskedasticity(Price, 1991) and the treatment of multi-visit trips (Price, 1978). Price has alsocompared travel costs with contingent valuation estimates, to compare elasticitiesfor specific sites relative to those for a broader class of recreational resource (Price,1986). Finally, Harrison & Stabler (1981) examine the use of travel costs to valuecanal-based recreation, whilst Cheshire & Stabler (1976) used the method to valuevisits to an archaeological site in Berkshire.

Hedonic Price (HP) Studies

Far less work has been done using hedonic pricing in the UK. There has beenno work done here, for example, on the benefits and costs of air pollution levels,possibly due to the absence of a database of a sufficient level of spatialdisaggregation (although many US studies exist applying hedonic prices to airquality—see, for example, Brookshire et al., 1982). Garrod & Willis (1991) haveapplied hedonic pricing to try and capture elements of the benefits of forests notpicked up by the recreation demand studies reported above. They use a largedatabase of house price differentials with landscape characteristics detail, includingthe proportion of land area in any zone covered by three categories of woodland,house characteristics, and geographic area. A linear Box-Cox functional form wasused. Percentage of broadleaved woodland and percentage of pre-1920s coniferwoodlands (both percentages are relative to total land area) were found to besignificant determinants of house prices. This significance allowed for implicitprices to be calculated, and the values of extending, for example, the area ofbroadleaves, to be calculated.

Button & Pearce (1989) report an interesting variant of the HP model: they simplyasked estate agents by how much property prices would increase around the Forthand Clyde canal in Glasgow. This gave a figure of about £500,000 in present valueterms for the 'environmental benefits' of canal restoration.

Valuing the Environment: A Case Study of Greenbelt Protection

As an example of the types of valuation problem which seem likely to be metin practice should the methods described above be institutionalized into publicsector decision-making, we consider here the value of preserving greenbelt areas(Knight, 1991).

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The Problem in Context

The concept of greenbelts around population centres dates from the end of thelast century, and the ideas of Ebenezer Howard. The first greenbelt to beestablished in the UK was around Greater London in the 1930s. Greenbelts didnot become widely adopted as planning tools, however, until the 1950s, whenthe Department of Environment issued a number of circulars (42/55 and 50/57)setting out the purposes of greenbelts. These were to (1) safeguard the countrysideby checking the growth of large built-up areas; (2) prevent neighbouring townsfrom merging; and (3) preserve the individual identities of towns. The importanceof greenbelts was confirmed by Planning Policy Guidance Note 2 issued in 1988,which stated that the "government attaches great importance to Green Belts whichhave been an essential element of planning policy for more than three decades".Greenbelts now cover about 3.8 m ha in England.

The success of greenbelts in preventing urban sprawl is in a sense illustratedby the wishes of the building industry lobby to see the concept relaxed, and allowmore construction on greenfield sites, especially in areas such as the South Eastand the Midlands where population densities are high. Greenbelts are seen aspermanent obstacles to the operation of the housing market (Elson, 1991):however, this permanence (see Department of the Environment, 1984) may beone reason why public support for greenbelts is high; in a 1989 survey for theConsumers Association, 80% of a controlled sample of 2300 stated that "GreenBelts should be preserved at all costs".

In an earlier study of the net benefits of preserving greenbelt land, Willis &Whitby (1985) calculated net social benefits from agricultural output on greenbeltland, and from 'amenity benefits'. These latter could be estimated by eitherhedonic price or contingent valuation methods. Willis & Whitby note Wabe's(1970) estimates of the increase in value of houses in London from proximity tothe greenbelt. However, as they point out, it is difficult to disentangle the neteffects of greenbelt designation on house prices. This is because, in the absenceof greenbelt designation, some premium would still attach to houses near to thecity's edge unless all fringe land were immediately developed if greenbeltprotection were to be removed. Willis & Whitby report an earlier study by Willis,which used contingent valuation to estimate the WTAC of households in areasbordering the Tyneside greenbelt to avoid the removal of greenbelt protection.WTP estimates (i.e. maximum payments to protect greenbelts) were also sought—mean WTAC was £104/household/year; mean WTP was £35/household/year(both values, 1981 £s). After considering the opportunity costs of greenbeltdesignation (net returns forgone from housing developments), they conclude that"the amount of present Tyneside greenbelt acreage is probably justified" (Willis& Whitby, 1985, p. 157).

The greenbelt debate in the city of Chester reflects many of these nationalarguments. Chester is a compact Roman/medieval city, located in a bend of theRiver Dee, just south of Liverpool. As well as being a commercial and shoppingcentre for a large and largely prosperous surroundings, it also attracts a greatnumber of tourists. Chester's greenbelt, which virtually surrounds the city, wasestablished in 1962, and greenbelt designation covers about 40% of thesurrounding countryside (Cheshire County Council, 1990). The most recentrevision of the county structure plan indicates a reduction of 1,000 acres (417 ha)in greenbelt to allow for new housing developments. Three existing greenbeltsites were scheduled for planning permission for around 7,800 new houses.

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The argument over this de-designation of part of the greenbelt followedpredictable lines, with proponents (including the city and county councils, anda consortium of house building firms) arguing that the development was essentialto the economic well-being of the city.5 Opponents, principally the conservationlobby (including the Council for the Protection of Rural England) and localcommunity associations (i.e. residents), argued that: a limited release of greenbeltland now would increase the likelihood of further, future reductions; there wasno 'need' for extra housing; the local infrastructure could not support the develop-ment; and on wildlife conservation, landscape and amenity grounds, the develop-ment was undesirable.

To an extent, dis-amenity effects of new buildings will show up as decreasesin the capital value of houses near to the development. However, such economiccosts would underestimate total environmental costs, since those living away fromsuch areas may also value the greenbelt, either because they use it (for instance,for walking), because they derive utility from viewing it, or for existence/bequestmotives. We attempted to estimate these largely non-market external develop-ment costs using CV, for one of the three proposed de-designation sites, theWrexham Road site, where 900 houses were planned on a 91.5 acre (38 ha) plot,which is currently pasture.

Design and Results of a Contingent Valuation Study

Essential elements in any CV survey include:

• a realistic hypothetical market;• that respondents be familiar with the resource being valued;• that protest bidding can be identifed; and• that sufficient data is collected to estimate bid functions.

The hypothetical market used here was that of payments to a trust fund, whichmight be established to purchase the Wrexham Road (WR hereafter) site andconserve its existing state. This was felt to be the most realistic option, sinceconservation bodies frequently raise funds to purchase threatened sites in thisway (an example being the RSPB's successful appeal for the purchase of AbernethyForest). However, use of a once-only payment mechanism may have resultedin a problem, which we comment on below. We included a question as to thefamiliarity of respondents with the greenbelt controversy in Chester; as expected,this showed that only 11% stated that they were 'unfamiliar' with the controversy.Protest bidders were identified by asking all those who tendered a zero bid tostate their reasons for doing so. We analyse protest bids below. Finally, data wascollected on socio-economic variables and preference indicators thought likely,a priori, to influence bids. WTP amounts only were sought, using an open-endedquestion.

Surveying was done at four locations in the Chester area during Summer 1991.These locations were:

(LI) households in streets directly adjacent to the proposed development;(L2) households within a village outside the greenbelt (the village of Waverton);(L3) households located at non-adjacent parts of the city of Chester;(L4) passers-by in Chester centre: this was an attempt to capture values from

tourists.

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All respondents were shown maps of Chester showing the WR site, and thedistribution of total greenbelt land around the city. All respondents wereinterviewed face-to-face, using a single interviewer. Households in locations L1-L3were sampled randomly. Of 260 questionnaires, 166 usable responses wereobtained, a response rate of 64% overall. Response rate was highest for the LIgroup (80%) and lowest for the L3 group (51%).

Respondents were asked, in introductory questions, about their use of thegreenbelt and their views on housing developments in Chester. Most people usedthe greenbelt once or twice a week. Most common reasons for use were walkingand dog-walking. Whilst only 10.2% were strongly opposed to housingdevelopments within the Chester area, 57% were strongly opposed todevelopments within the existing greenbelt. With respect to reasons formaintaining the greenbelt, respondents were asked to score a number of possiblemotives on 5-point Likert scales, from 1 (not important) to 5 (very important).On this basis, nature conservation was the most important reason, with a meanscore of 4.5. This was closely followed by maintaining landscape quality, witha mean score of 4.3.

Of 166 responses, 89 (54%) were willing to pay some positive amount to securethe WR site from development. Mean WTP ranged from £0 to £1,000. These figureswere stated as once-only bids, so in theory should represent the discounted sumof a flow of preservation benefits into perpetuity. Kahneman & Knetsch (1992)have argued that respondents do not distinguish between once-only bids andannual payments, effectively ignoring future benefits. This has a bearing on howmean WTP figures are interpreted. Mean WTP, excluding 45 protest bids (27%of the sample) but including 32 genuine zero bids (19%) was £43 per individual(this is clearly less, in real terms, than the value obtained by Willis & Whitby).6

The 95% confidence interval, given a sample standard deviation of 165.638, is£13.59 to £72.61, whilst the modal bid was £50. As is frequently the case in CVstudies, the mean bid is dramatically raised by a small number of high bids.

Of those tendering protest bids, reasons for protesting were as follows:

• 38% of total protesters objected to the hypothetical nature of the trust fundand were unwilling to commit expenditure unless more details of its operationand management were supplied;

• 33% argued that the government has an obligation to protect greenbelt areas;• 27% objected to the bid vehicle itself (i.e. the trust fund) and would prefer

to pay for protection in some other way;• 2% found the questionnaire to be insufficiently clear to respond.

An attempt was made to explain the variation in WTP bids across respondentsby estimating a bid curve. The model specified was:

WTP = a + falnc + fcAge + foEduc + j34LTse + /35LV + f36WV + (37AV + ftjAT

where:Inc = gross household income;Age = age of respondent;Educ = categorical variable: highest educational level attained by

respondent;Use - number of times respondent visits/uses greenbelt area;LV = Likert score of landscape importance;WV = Likert score of wildlife importance;

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AV = Likert score of amenity importance;AT = Likert score of attitude to housing development in green belt;a, /3i . . . £ = parameters to be estimated.

This model was estimated using ordinary least squares; however, results weredisappointing in that, of the variables listed above, only Inc was a signifcantdeterminant of WTP at the 95% level. Coefficient signs, in all cases where ana priori expectation could be formed, were consistent with this expectation (sothat, for example, WTP increases with Use and with LV, WV and AV); however,the adjusted R2 value was only 8%, so that little variation in bids is explainedby variables on which data were collected.

As was stated above, the mean bid of £43 per individual should represent aninfinite stream of preservation benefits, discounted to the present at the socialrate of time preference, s. If this is what the value represents, then its annualequivalent may be found by multiplying by s: if the UK public sector test rateof discount of 6% is used, then this annual sum is £2.59 per individual per year.However, as noted above, Kahneman & Knetsch (1992) found that mean WTPfor once-only payments, when compared to mean annual payments for a givengood "provide no reliable indication that. . . respondents discriminate(d) betweenpayment schedules that differed greatly in total present value". They refer to thisas a problem of 'temporal embedding'. This could be interpreted as implying thatthe once-only bids reported in our study are much greater in annual-equivalentterms than the implicit-discounting argument suggests.

This issue is particularly crucial in this case, since if the implicit-discountingstory holds, CV bids can be argued to be too small in aggregate to outweighdevelopment benefits. The value of the Wrexham Road site for housebuildingwas estimated by local estate agents as £2.268 million with planning permission.This is the WTP of housebuilders for the land, and thus an approximation of thepresent value of expected profits (net benefits) of house construction, net ofconstruction costs. Very crudely, we could argue that the aggregate WTP forpreserving the site across the relevant population (which we take to be that ofChester) would have to be bigger than this sum for preservation to be efficienton Kaldor- Hicks grounds. Given the number of individuals in this population(117,000), this means the required preservation bid is £24.23 per individual.7 Bidsin the CV study suggested to respondents that "as big an area of greenbelt aspossible" would be purchased with their contribution. This makes calculationof how much of this Chester greenbelt bid to attribute to the threatened sitedifficult. Respondents were shown maps indicating the area of the threatenedgreenbelt, so suppose for the present that their bid was for this whole amount(1,000 acres (417 ha)). The WR site is 90 acres (36 ha), so assume that 10% of themean bid can be attributed to WR. Then the actual preservation value is around£4.30 per person, which is less than the required guesstimate. However, ifrespondents were actually stating annual amounts (rather than an amountdiscounted to perpetuity), then actual WTP in present value terms at a 6% realdiscount rate is (£4.3/0.06), or £71.67, which is much greater than the requiredguesstimate. However, this aggregation of benefits could be performed in manydifferent ways (by varying assumptions over size of benefiting population, andover the implicit preservation value per ha), so that this is not a firm enoughfinding in this case to base a decision on regarding development (especially giventhe low explanatory power of the bid curve). However, what we have shown

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is that the economic benefits of preserving greenbelt land are significantly differentfrom zero: this says that the amenity/wildlife/landscape benefits of the greenbeltare economically relevant.

Conclusions

This paper has reviewed the reasons behind the expansion in economic evalua-tions of environmental quality, and the principal alternatives for performing suchvaluations. Recent work in the UK was summarized with regard to three of thesemethods: contingent valuation; travel costs; and hedonic pricing. Of the three,CV seems likely to continue to dominate in terms of numbers of applications dueto: (1) its simplicity; (2) the wide number of instances in which is can be applied;and (3) that both the alternatives are fairly restrictive in terms of potentialapplications. In addition, hedonic pricing studies require large data inputs.However, it has not been our intention to suggest that CV is capable of beingapplied to any issues, or that applications are problem free. With regard to thefirst point, Cummings et al. (1986) have defined a set of 'reference operatingconditions' under which CV works best. We have listed the more important ofthese. We also noted that there are several problematic areas remaining in CVresearch, notably mental account bias and warm glow effects. We then illustratedhow CV can be applied in the kind of situations that local government agenciesare likely to confront; here, it was pointed out that problems existed, in thisinstance, with the bid vehicle (the trust fund) and temporal embedding.

Given the increasing number of CV studies likely to be published, it is importantthat criteria are developed to appraise how well the method has been appliedin each case. Possible criteria are listed in Fischoff & Furby (1988) and in Mitchell& Carson (1989), whilst an exemplary illustration of how to appraise a CV studyis provided by Smith (1992). Mitchell and Carson's criteria include sampling andaggregation procedures, survey scenario, survey procedures, data analysis andevidence of reliability.

One issue that has not been addressed here is that of value transfer: in otherwords, is it necessary to conduct original valuation exercises in all cases whereit is desirable to quantify environmental impacts? Or can benefits/costs be'transferred' from other similar cases? Two comments are in order here. First,for many environmental assets, benefits will be entirely site specific and unique,due to the very many factors that go to make up perception of environmentalquality: for example, a CV value for preserving Ben Nevis from furtherdevelopment could not sensibly be transferred to the preservation of Ben Hopein Sutherland, as the two mountains are in unique settings and have unique rockcharacteristics. Second, there may be classes of similar environmental assets (suchas flower meadows in the Yorkshire Dales, or Forestry Commission forests ofcertain species composition), where values can be transferred and possiblyweighted for variations in measured characteristics. However, to perform thislatter task, it is necessary to be able to explain variations in measured benefits;this has not always proved easy.

Environmental valuations will undoubtedly continue to grow in both numberand scope in the UK as elsewhere; it is very important for those involved in usingthese estimates, as of course it is for those involved in actually producing them,to remember that many problems still remain to be worked out, and that suchestimates should continue to be treated with caution.

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Acknowledgements

We thank Paul Selman for his encouragement to write this review paper; andJoy Leslie, John Woodward, David Jeffreys and Beresford Adams Estate Agentsfor help in the Chester research. We also thank an anonymous referee for helpfulcomments. All errors and omissions are, however, our own responsibility.

Notes

1. An alternative summary is Turner et al. (1992).2. Barde & Pearce (1991) offer a less comprehensive survey.3. For example, if a firm produces polluting emissions as well as marketable outputs, then the social

cost of production will exceed the private cost, yet the market interaction takes account of theprivate costs alone.

4. Also reported in Hanley & Munro (1992).5. Full details are provided in Knight (1991).6. It is not clear whether Willis & Whitby either identified or excluded protest bids or outliers whilst

the bid vehicle used was also different. Furthermore, Willis & Whitby questioned only those livingin areas adjacent to the greenbelt; these individuals may have a higher mean WTP than the popula-tion we sample, since all will suffer capital losses if greenbelt protection is removed. This is clearlynot necessarily the case in the L3 and L4 groups of our sample.

7. Assuming that 80% of this total are economically active, i.e. capable of formulating and expressingan effective demand.

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