Valuation of ecosystem services V

Charit tingsabadh

26 September 2007

On Stated Preference

• When to use

• How to Use

• Things to watch out for..

• Let us look at an EXAMPLE

• The Phi Phi Island Visit, Dr. Udomsak, again!

An Economic Analysis of Coral Reefs in the Andaman Sea of Thailand

Udomsak SeenprachawongSchool of Development Economics

National Institute of Development Administration THAILAND

Issues and Significance

Measures for coral reef protection are often presumed to conflict with economic development, and are said to sacrifice of economic growth. The omission of these benefits in conventional economic analysis means that coral reefs are undervalued, which can result in unsustainable use. This is of particular concern for coral reefs in areas such as the Southern Seaboard Development Project area. 

The Southern Seaboard Development Project areas are endowed with a variety of existing and potential tourism resources, including the beaches coexisting with a good urban amenity in Phuket, magnificent coastal views of Phang Nga and Krabi. One of the nature-based with high potential for ecotourism development is Phi Phi Islands.

Phi Phi Islands have high values, coming from both the use values (e.g. recreational and tourism; educational and scientific research) and non-use values (e.g. genetic resources and future uses, both known and unknown, of ecological functions). In fact, Phi Phi is being used as an important reference site for conducting coral reef valuations elsewhere. It is a well-known site with relatively easy access and good opportunities for collecting reliable data.

Economic Valuation of Coral reefs

An economic valuation of the benefits of coral reefs can provide information for the design of coastal area management plans. The analysis of economic values of coral reefs can be carried out based on the reefs’ many functions (Bakus, 1982 and Tomascik, 1993 cited in Cesar, 1996) including:

Direct use value (extractive)

       Food/other resources (fishery)

       Construction material

       Pharmaceuticals and other industrial chemicals

Direct use value (non-extractive)

       Tourism and recreation

       Education and scientific interest

Indirect use values

       Biological support

       Coastal protection

Non-use values

       Genetic resources

       Known and unknown future uses of the functions above

MethodologyThis study employed both TCM and CVM to

generate estimates of the reef value at Phi Phi. It first used the TCM to estimate the consumer surplus for both domestic and international tourists to Phi Phi Islands. For this, travel cost data was collected from visitors who had had a recreational experience of the coral reefs (such as diving, snorkelling and fishing). However, the estimated value from the TCM may include all the attributes of Phi Phi Islands, valued by those who have come to view coral as part of their whole vacation package.

To isolate the consumer surplus associated with visits to the coral sites alone, a CVM study was conducted that focused on both domestic and international tourists who visited the reef sites only. In addition, the CVM study was used to estimate the non-use values (option, existence and bequest values) of coral reefs at Phi Phi from domestic non-users.

Objective of the study • to estimate the recreational benefits

(consumer surplus) of Phi Phi Islands;

• to estimate the consumers’ willingness to pay (WTP) for improved coral reef quality at Phi Phi Islands; and

• to use these values to determine the entrance fee for visiting the reef sites at Phi Phi Islands.

Vi = number of visits of individual i

Dci = dummy variables referring to individual i

Xji = socio-economic features of individual i and other variables referring

to i

Pi = price paid by individual i (integration variable)

i = 1,…,n index of observations

c=1,…,l index of additive dummy variables

j= 1,…,k index of socio-economic variables

o = constant

c = coefficients of the additive dummy variables

j = coefficients of socio-economic variables

p = coefficient of the price variable

i = error term

Pj

l

cicic

i

k

jji

D

i PXeV

1

10

Travel Cost Method

CS per individual =

)(1

11

1

10

bl

bu

k

j

D

ppXb

eCS j

j

l

ccc

)(1

11

1

10

bli

bui

k

j

D

i ppXb

eCS ji

j

l

ccic

N

iiCS

N 1

1

Contingent Valuation Method

Hanemann (1984) shows if there exists a representative consumer who has an indirect utility function . The level of the consumer’utility depends on price (P), income (M), socio-characteristics (S) and the quality (Q). The respondent is asked if he would pay to help restore the coral reefs at Phi Phi Islands at the given price, P. The respondent will say yes if

),,0(),,( 01 SQMVSQPMV

The above equation shows that the respondent will answer yes if his utility deriving from improved reef quality (Q1) and paying the price (P) is higher than not having improved reef quality (Q0) and not paying the price (P=0). If V is the observable component of the utility, the probability of the respondent saying yes is

Prob(yes) = Prob

where ε is an unobservable component of the utility. Assuming that the random variable ε follows a logistic probability distribution, one can write:

]),,0(),,([ 00

11 SQMVSQPMV

Prob(yes) =

where -V =

Hanemann shows that if is linearly specified, then the probability of the respondent saying yes is

Log

Parameters 0 and i will be estimated parametrically.

The mean maximum WTP for coral reef restoration can be calculated using formula

Mean maximum WTP =

Ve 1

1

),,0(),,( 01 SQMVSQPMV

iiSQP

yesob

yesob

210])(Pr1

)(Pr[

)]1[ln(1 20

1

iiSQe

In this study, the questionnaire was aimed at collecting information for both the TCM and the CVM. Specifically, it was divided into the following sections:

1) The first section attempted to identify the costs of travel faced by individuals in visiting the site, by asking them their origin, the vehicle used to reach the site, the time employed to reach the area from their origin and the trip plan. This section is thus relevant to the TCM.

2)The second section was devoted to the collection of socio-economic data. It is assumed here that age, education, income, profession, number of family members, and so on, are important determinants in visitors’ behaviour towards recreational use of, or visits to Phi Phi.

3)The third section consisted of questions aimed at investigating the environmental concern and awareness of visitors. It is assumed that the higher the awareness of environmental problems, the higher the perception of the coral reef’s recreational value will be. This section also contained the scenario presentation and the WTP elicitation questions.

Survey Strategy A pre-test survey of 60 questionnaires was carried out during April 12-20, 2000, both on and off the site. The purpose of this pre-test survey was twofold. Firstly, it was used to discuss the questionnaire and its formulation with the interviewee, permitting misunderstandings to be corrected and other relevant questions to be included. Secondly, the pre-test survey served to decide a possible range of values for the maximum WTP to be used in this study’s final dichotomous choice elicitation format.

The main survey was carried out over three trips to Phi Phi during July 2000 to January 2001. A total of 850 TCM questionnaires were distributed (to 700 domestic visitors and 150 international visitors). However, there were 70 domestic non-responses and 22 international non-responses.

The number of completed questionnaires was therefore from 630 domestic visitors and 128 international visitors for the TCM.

For the CVM survey, a total of 550 personal interviews were conducted (with 420 domestic visitors and 130 international visitors). The survey yielded 528 usable interviews (from 400 domestic visitors and 128 international visitors).

In addition, 200 domestic ‘vicarious users’ (non-users in the rest of Thailand who value the existence of Phi Phi’s coral reefs) were interviewed to estimate the non-use values of the coral reefs at Phi Phi.

Scenario Design

The hypothetical market is stated as follows:

“There are many ways of measuring marine biodiversity. One simple indicator is coral abundance, in terms of area covered. An abundance of zero (ABU = 0) would mean that all of the coral has disappeared. An abundance of 100 (ABU = 100%) means that the reef is in its natural pristine state. The reef at Phi Phi Islands, according to the best scientific evidence, is about one-quarter degraded: at ABU = 75%”.

If we ‘do nothing’, scientists estimate that it will fall to a value of ABU = 60% in about 20 years. Current ongoing management of the area will maintain the level of biodiversity at a stable level of abundance. This level corresponds to a 75% abundance on the index just explained. A trust fund will be established to help the ecological restoration of Phi Phi’s coral reef system if contributions are adequate. The trust fund will be held by the Phi Phi Islands Committee for exclusive use on projects to increase the biodiversity at Phi Phi Islands from the current 75% ABU to a 100% ABU.

Examples of the projects proposed include treatment of sewage to a high standard, a new drainage system for storm water, planting mangroves and coastal plants to reduce the impacts of run-off, and establishing monitoring of fish, plant life and mangroves.”

Elicitation FormatThe elicitation format chosen in this study was the dichotomous

choice format. This means that respondents were asked whether they were willing or not to pay a pre-determined contribution amount to the trust fund:

“Would you be willing to pay US$__________ per year for the next 5 years to a trust fund to help restore the coral reefs of Phi Phi Islands from their current level of 75% ABU to 100% ABU?”

(Answer Yes or No, dichotomous choice format!)Payment VehicleThe payment vehicle used in this study is the amount of contribution

to the trust fund.

Sample size CS pert visit Number of visitors (1998)

Total benefits

Domestic (n=630)

3,403 Baht(USD85)

20,540 70 million Baht(USD1.75 million)

International (n=128)

59,760 Baht(USD1,494)

136,277 8,146 million baht(USD205 million)

Table 1 Estimates of benefits based on the travel cost method

Users Non-users

Domestic(n=400)

International (n=128)

Domestic(n=200)

WTP per visit 287 Baht(USD7.17)

286 Baht(USD7.15)

WTP per person 634 Baht(USD15.85)

Numbers of visitors (1998)

20,540 136,277 Numbers of labor force (1998)

31.3 million

Total benefits 6 million Baht (USD 0.15 million)

50 million Baht (USD1.24 million)

Total benefits 19,840 million Baht(USD497 million)

Table 2 Estimates of benefits based on the contingent valuation method

Marine National Park Sea Area (ha)

Region Recreational Values Million baht/year(US$ million/year) 

Total ValuesMillion baht /year(US$ million/year)

Tarutao 126,000 Andaman 31,467 (787) 76,194 (1,905)

Mu Ko Ang Thong 8,400 West Gulf 2,083 (52) 5,040 (126)

Mu Ko Surin 10,205 Andaman 2,530 (63) 6,123 (153)

Hat Nai Yang 8,000 Andaman 1,984 (50) 4,800 (120)

Khao Laem Ya-Mu Ko Samet

12,000 East Gulf 2,976 (74) 7,200 (180)

Mu Ko Similan 9,300 Andaman 2,306 (58) 5,580 (140)

Mu Ko Chang 4,480 East Gulf 1,110 (28) 2,688 (67)

Mu Ko Phi Phi 32,900 Andaman 8,216 (205) 19,895 (497)

Mu Ko Lanta 10,850 Andaman 2,690 (67) 6,510 (163)

Benefit Transfe

r,

apply result to other si

tes

Charging for Conservation

To allow Phi Phi to realise its potential as an eco-tourism destination, it is proposed that entrance and user fees be introduced to reduce visitor numbers at peak times and spread tourist traffic. Based on the estimated value for ‘willingness to pay’, a basic entrance fee of 40 baht (USD 1) per person per visit – twice the current rate - should be implemented. An additional fee of 150 baht (USD 3.75) for visits to specific particularly sensitive coral reef areas should be supplemented.

Because it has been found that foreign visitors were not willing to pay significantly more than locals for visiting the park and in order to prevent animosity among foreign tourists, this study counsels against a larger fee for foreigners. Instead, it suggests a voluntary hotel fee of 40 baht (USD 1) per bed night. This study suggests a voluntary fee to reduce opposition from hoteliers and recommends that information leaflets be provided to tourists to explain to them what the money is for and how it will be spent.

  Many other areas along Thailand’s coast have similar coral resources to Phi Phi.

The conservation and management model suggested by this study could be adapted to many of them, making marine conservation an integral part of the country’s economic development strategy.

 

THANK YOU

Udomsak SeenprachawongSchool of Development EconomicsNational Institute of Development AdministrationTHAILANDEmail: udomsak.s@nida.nida.ac.th

Some comments

• Demand curve not shown, has to be derived

• Application of benefit transfer result, not formula, need to be reconsidered

• Sites not similar, different attributes, so BT may be questionable

PUTTING A PRICE ON PARADISE:

ECONOMIC POLICIES TO PRESERVE THAILAND'S CORAL REEFS

 A summary of EEPSEA Research Report 2001, An Economic Analysis of Coral Reefs in the Andaman Sea of Thailand, by Udomsak Seenprachawong (School of Economics, Sukhothai Thammathirat Open University, Thailand; contact: ecassudo@stou.ac.th

“visitors value Phi Phi ... and will pay to conserve it" This report provides an economic assessment of the value of coral reefs in the Andaman Sea of Thailand. The study found that the reefs studied could generate large economic returns through recreation and that tourists were willing to pay for conservation measures. It suggests a number of levies and charges that could help remove tourist pressure from the reefs and help pay for their conservation.

 

Millions of people have read about “The Beach” and or seen it in the Leonardo de Caprio film while many others have visited it, or similar ones, in Thailand’s Andaman sea. And there lies the rub: The famous ‘paradise’ islands of Phi Phi are so popular that they are in danger of being loved to death. Tourists from all over the world are putting increasing pressure on this fragile ecosystem. In response to this problem, a new study has found justification to introduce a system of charges to reduce the pressure the islands’ coral reefs and provide money for their conservation.

The study, by Udomsak Seenprachawong, from the School of Economics at Thailand’s Sukhothai Thammathirat Open University, is not only important for its implications for the islands of Phi Phi. As the first study of its kind in Thailand, it is also relevant to many other marine sites in the country.

  

To investigate what options might be available for improved marine conservation and management in Phi Phi, Seenprachawong used a number of valuation methods to work out the economic value of the coral reefs around the islands. He found that the annual value of the area to visitors was over 8,200 million baht (US$205 million). He also found that the use and non-use values of Phi Phi coral reefs represented an annual value of some 19,900 million baht (US$497 million). Based on his results, Seenprachawong recommended that the local and national government of Thailand should allocate a larger percentage of their annual budgets to managing coastal resources and that tourists should be charged an admission fee of 40 baht(USD1) alongside other payments for using the island’s resources.

The Study Site

 

Located about 45 km. east of Phuket in the Andaman Sea, Phi Phi comprises four main islands. These include Phi Phi Don and Phi Phi Lae, part of the Had Nopparat Thara-Phi Phi Islands National Park. The Phi Phi area is of great environmental significance as it marks the boundary between two of the region’s major oceans, the Pacific and the Indian, and includes extensive coral reefs and mangrove forest - home to a wide variety of marine and terrestrial flora and fauna.

Phi Phi offers the tourist amazing recreational possibilities, including a wide range of diving opportunities and exquisite beaches. Over the past few years, the islands have grown into one of the busiest tourist destinations in Thailand. In 1998, over 150,000 tourists visited the islands, 85% of them foreign. Sadly, this has led to degradation of the reefs as marine traffic, and other destructive activities have increased along with the tourist trade.

 

Valuing the Reef

 

It was clear to Seenprachawong that Phi Phi requires a better management plan - one that maximises the positive and minimizes the negative impacts of tourism. To provide information for such a plan, he set out to calculate the recreational and tourism value of Phi Phi’s reefs. To do this, Seenprachawong used two methods: travel cost (TCM) and the contingent valuation (CVM).

 

TCM is based on the idea that, although the actual value of the recreational experience does not have a price tag, the costs incurred by individuals in travelling to the site are an indication of their willingness to pay for the experience be used as surrogate prices. From this and other data, it is possible to estimate the area’s consumer surplus - a measure of its value to users as a recreational resource.

 

Seenprachawong’s survey approach collected information about visitors’ trips, as well as their age, income, sex and other socio-economic factors. 850 questionnaires were distributed; 630 domestic visitors and 128 international visitors returned completed forms. 

The survey found that the total benefits of the recreational services offered by Phi Phi were about 69.9 million baht (USD 1.75 million)a year for domestic visitors and 8,146.4 million baht (USD 203.66 million) a year for international visitors. Adding these two numbers up gives a figure of 8,216.4 million baht (USD 205.41 million) a year for the total recreational benefit Phi Phi provides.

Targeting the Tourists 

Seenprachawong used CVM to see how much people would be willing to pay for the conservation of Phi Phi’s coral reefs. Over 400 domestic visitors and 128 international visitors were interviewed. The people questioned were given information about the current conservation situation in Phi Phi. They were told that the reef at Phi Phi island is about one quarter degraded and that if nothing is done, scientists estimate that it will become 40% degraded in about 20 years. Respondents were asked whether they would be willing to pay a pre-determined amount to a trust fund to totally restore the coral reefs at Phi Phi island. This ranged from 50 to 2,000 baht a year for domestic tourists and from USD 1 to USD 50 a year for internationalvisitors. The amount suggested was varied randomly among respondents to reduce the possibility of people’s answers being biased by the question itself.

Seenprachawong found that the mean maximum willingness to pay for domestic visitors was 287 baht (USD 7.17). For international visitors the figure was 286 baht (USD 7.15). From this he calculated that the total value of Phi Phi’s coral reefs were 5.89 million baht (USD .147 million) a year for domestic visitors and 49.6 million baht (USD 1.24 million) a year for international visitors. Seenprachawong also used his results to calculate the mean willingness to pay of domestic vicarious users– 634 baht (USD 15.85) – and from this the total economic value (use and non-use) of the reefs. This he estimated to be 19,895 million baht (USD 497.38 million) a year. 

Charging for Conservation 

From Seenprachawong’s findings, it is clear that Phi Phi can generate large economic returns from recreation. It is also clear that people are willing to pay for conservation measures - vital if development pressure is not to kill the goose that lays this golden egg.

 To allow Phi Phi to realise its potential as an eco-tourism destination, Seenprachawong suggests that

entrance and user fees be introduced to reduce visitor numbers at peak times and spread tourist traffic. Based on his calculated value for ‘willingness to pay’, he recommends a basic entrance fee of 40 baht (USD 1) per person per visit – twice the current rate. This he feels, should be supplemented by an additional fee of 150 baht (USD 3.75) for visits to specific particularly sensitive coral reef areas. Because he found that foreign visitors were not willing to pay significantly more than locals for visiting the park and in order to prevent animosity among foreign tourists, Seenprachawong counsels against a larger fee for foreigners. Instead, he suggests a voluntary hotel fee of 40 baht (USD 1) per bed night. He suggests a voluntary fee to reduce opposition from hoteliers and recommends that information leaflets be provided to tourists to explain to them what the money is for and how it will be spent.

 A Way Forward for Thailand? Seenprachawong also makes a strong case for local and national governments to increase their expenditures for

managing the resource - especially since much of the economic benefit from coastal resource management in Phi Phi goes to the local economy.

 Many other areas along Thailand’s coast have similar coral resources to Phi Phi. The conservation and

management model suggested by Seenprachawong could be adapted to many of them, making marine conservation an integral part of the country’s economic development strategy.

 40 baht = 1 USD

Further Readings

• Look in the folder-CVM

• Pick 2 studies to prepare your own summary presentation, in a comparative way, by headings.

• Add your comments and assessments