As some of Environmental Impact Assessment (EIA) objectives are provided by
Economic Valuation (EV) techniques, using of Economic Valuation (EV) methods
in the EIA procedure of projects has grown significantly in recent years (Lindhjem
et al., 2007; Abelson, 1996; Georgiou
et al., 1997; McCracken and Abaza, 2001; Pearce
et al., 2002; Chen, 2009). We desire to
choose the best option among all of options in the EIA procedure like EV process.
Further, EIA intends to identifies the environmental cost and benefit analysis
of the projects to the community. Accordingly, economic valuation techniques
can offer mentioned EIA objectives clearly.
Any EV also needs to build on a careful assessment of physical impacts which
is the output of well-conducted EIA processes. With these obvious synergy between
EIA and EV, it is surprising that the two traditions have not more often merged
into what can be termed environmental economic impact assessment
(EEIA). Some scattered initiatives of EEIA have been furthered, for example
by the World Bank (World Bank, 1996; Dixon
and Pagiola, 1998) and the Asian Development Bank (ADB,
The Contingent Valuation Method (CVM) is one of environmental economic valuation
frequent employed techniques. It was originally proposed by Ciriacy-Wantrup
(1947). This study was about soil erosion. Davis (1963)
used CVM for two types of non-use values including, option and existence values.
Now, it is recognized as a simple, flexible nonmarket valuation method which
is widely used in Cost-Benefit Analysis (CBA) and Environmental Impact Assessment
(EIA) (Venkatachalam, 2004).
CVM is a broadly used nonmarket valuation method. It has application in the
EIA (Mitchell and Carson, 1989; Cummings
et al., 1986). It can estimate all of values types or total values
(Walsh et al., 1984; Choe
et al., 1996; Tukker, 2000). It elicits
the individuals preferences for the basic infrastructural projects such
as water supply and sanitation (Venkatachalam, 2004).
In spite of concerns about CVM validity and reliability (Smith,
1993; Freeman, 1993; Arrow et
al., 1993), it is commonly used in developed and developing countries
(Whittington et al., 1992). The validity refers
to the accuracy and reliability refers to consistency
or reproducibility of its results (Kealy et
The first objective of this study is to show practically how CVM (as an economic
valuation technique) is a capable tool which has application in EIA. This study
is the first attempt of applying CVM in Iran Environmental Impact Statement
(EIS). It can replace with Cost Benefit Analysis (CBA) in EIA procedure in the
future. The second objective is finding an important answer to an important
question: Tehran-Shomal freeway has economic explanation or not? This answer
will be found with quantities results via a Logit model.
We complete EIA for a freeway construction with economic valuation carrying
out. Our selected method is CVM because it can estimate both of use and non-use
values along freeway. These values refer to natural resources along freeway.
Each project should have economic explanation. Otherwise policy makers ignore
to having it. Many studies use CBA for finding economic explanation. We apply
economic valuation for finding economic explanation. Because it considers all
of values like environmental values which has any market. In the traditionally
economic explanation environmental values are ignored because they have not
any monetary valuation.
MATERIALS AND METHODS
Study site: The study site is Tehran-Shomal freeway. Tehran-Shomal freeway
with 121 km length joins Tehran as Iran capital city to Chalus in the north
of Iran. Chalus is a tourism city. It is near to Caspian Sea. Tehran-Shomal
freeway also, is a part of the International North-South Transport Corridor
(INSTC) connecting eastern Asia to Europe from Iran and Russia.
The first study of freeway plan returns to 1974 then it has been left until
1996. As the NGOs and people worried about environmental degradation, the project
was faced a challenge. After 16 years, the physical progress is less than 10%.
Examining the difference between the availability of inputs and outputs with
and without the project is the basic method of identifying project costs and
benefits. It is, also normally the same as after/before comparison.
The comparison of with/without is an attempt to measure the cost/benefit arising
from the project. The after/before comparison, fails to account
for changes in the environmental quality directly because it has not market
price. Therefore, there are two options presented in this study as illustrated
in Table 1.
Contingent valuation method: We used Contingent Valuation Method (CVM)
in this study. It has been frequently employed as one of the ordinary approaches
to estimate all of the economic values of non-market goods, for instance plants,
wildlife and environmental quality goods (Hanemann, 1994).
The component of all values is illustrated in Fig. 1:
||Options in Tehran-Shomal freeway construction project
||Component of total values
If we combine Eq. 2 and 3 we will have:
where, TEV: Total economic values:
||Non use values
||In direct values
The non use value can, however, be subdivided into existence, bequest and option
value. For example in a wetland beside Tehran-Shomal freeway, existence value
reflects benefits from the improvements of domestic water supply services that
can play an important role to avoid health dangers and impacts. However, many
households are willing to pay for protection from such health impacts of water
services, even those located in remote.
The bequest value is the value a habitant places on the ability to conserve
a resource so that it can be used by future generations. In other words, respondents
might be willing to pay to restore water quality for the time being and in future
but from knowledge that their heirs and future generations will have good water
||Relationship between TEV, WTP and estimation methods
The third part of nonuse value is option value; the concept of option value
refers to the value placed on a resources future use. For instance, if
there are some plants have not any importance now but would be have pharmacological
value for future generation. It is an example for option value. For estimating
non-use values we can use methods like: Contingent Choice Model (CCM) and Contingent
Valuation Method (CVM).
The CVM base is the stated intentions of individuals Willingness To Pay
or (WTP) (Walsh, 1986). CVM is named contingent because
it fundamentally tries to determine from respondents what t hey would be willing
to pay under certain hypothetical market scenarios (Lee
and Han, 2002; Voeks and Rahmatian, 2004).
The object of CVM is to measure consumer surplus for the environmental qualities.
There are two advantages of contingent valuation method. First, CVM is able
to assess an individual's WTP of the present conditions and also values their
WTP with hypothetical changes. Second, CVM is able to value trips with multi
destinations by asking hypothetical questions for each specified destination
(Lee and Han, 2002). CVM is a demand side approach with
Hypothetical markets (Chen, 2009). It allows individuals
to state their willingness to pay for changes in the quantity or quality of
environmental goods and services. The demand-side valuation relies on the estimation
of individual demand for non-market goods. CVM is the most popular stated preference
CVM uses a questionnaire to create a realistic but hypothetical market or referendum.
It allows respondents to indicate their WTP (Mitchell and
Carson, 1989). WTP is the most important part in the questionnaire design
We used Dichotomous Choice (DC) question, in our study. The DC approach was
first used by Bishop and Heberlein (1979). The individuals
in the DC approach are asked only to accept or reject a suggested price under
a hypothetical market scenario. It needs answer only a Yes or No
where each individual is confronted with a different price. It is easier for
them to make their decisions in the DC question because they are familiar with
discrete choices in market transactions (Hanemann, 1994).
DC format is generally considered as the better-quality elicitation method.
If we summarize our study, we can offer it in following steps: identification
natural resources along Tehran-Shomal freeway, classification of environmental
impacts, quantification of environmental impacts, set-up the hypothetical situation,
face to face interview, elicit of WTP, model definition, valuation natural resources
along Tehran-Shomal freeway evaluation and CVM steps is summarized generally
at Fig. 3.
In some models, other coefficients may include socio-demographic characteristics,
attitudinal questions, or trip characteristics. From above equation, Hanemann
(1989) showed that the mean WTP can be calculated as Eq. 5
Hanemann also stated where the probability that a respondent would be willing
to pay for an annual permit could be estimated by Eq. 7:
Under the dichotomous-choice approach, survey respondents were asked whether
or not they would to pay for supporting natural resources beside. The respondent
answered yes if utility from the recreation experience with the
associated loss of $X in income would be greater than or equal to the individuals
original utility level without it. The Yes respondent would hypothetically
take (R = 1) and the No respondent would choose not to willing to
pay (R = 0). Therefore, the probability of a Yes response is represented
Because the individuals utility function is not observable for us, we
can assume that the utility function has a stochastic term which
results in the following transformation of the probability function:
ε0 and ε1are error terms
with means of zero. If the distribution of the difference in the error terms
is assumed to follow a logistic distribution, then a Logit model can be estimated
(Hanemann, 1984, 1989; Loomis,
1987). We estimated a Logit model in our study because WTP is a dummy variable.
RESULTS AND DISCUSSION
For economic explanation we should sum all of costs for freeway construction.
It includes construction costs and environmental costs. The project mangers
stated total costs of freeway construction US$ 1127.23x106. We apply
CV method for environmental degradation costs. CV method can offers mean WTP.
We estimate mean WTP after running Eq. 2 for our data rooted
in the questionnaire.
Our questionnaire has four parts: Awareness, attitude, willingness to pay scenarios
and Scio-economic profile of respondents. The first part of the survey evaluates
respondents knowledge about related topics to case study. It also warms
up them to go to more important section, the attitude part is essential because
it affected the heart of questionnaire which is WTP scenarios. We carried out
pretest with 200 individuals. After estimation according Cochran equation with
pretest data, it was done with 511 individuals (Cochran, 1963).
Data was entered in an excel file and then transfer to work file of Eviews software.
We obtain a Logit model (Eq. 3) with coefficients will come
in Table 2.
||Coefficients variable for model
We estimated mean WTP US$ 1.84 per household per month or US$ 22.13 annually.
It is with regarding our model coefficients. We calculated total WTP also US$
77.23x106. According to Chen (2009) the
CVM is applied not only for the evaluation of an environmental sensitive facility
but also for damage assessment and the calculation of compensation payments
in the practical world. So, it is a reflection of damage assessment of Tehran-Shomal
freeway construction, too.
The purpose of environmental economic valuation is to support the links between
the environment and the economy. Despite the fact that the environment and the
economy have been regarded as separate and distinct traditionally, now they
are seen as closely interrelated. Sustainable development needs the integration
of environmental, economic and social concepts. It justifies how to allocate
public spending on different parts of environment.
EIA and economic valuation techniques like CVM have some similarities. The
EIA needs the use of a specific economic valuation technique specially CVM.
It necessitates specific impacts be quantified in monetary terms. The EV techniques
(e.g., CVM), in EIA often concentrate on the construction phase of the projects.
Since there are likely to be environmental impacts during the construction,
operational and decommissioning phases of a project like our case study which
is a freeway. Thus, the economic valuation should apply to the full life period
of the project.
Both CVM as economic valuation tool and EIA have the same basic purpose of
supporting decision making on the environmental aspects of a major project.
CVM is a tool used to perform the economic valuation of the natural resources.
In the same time, EIA is a process to evaluate potential positive and negative
environmental impacts of a project. One of the weaknesses of EIA relates to
low offering quantity results. This weakness can be complimented by applying
CVM as environmental economic tool. CVM can play an invaluable role in improving
EIA. Thus, we can enter economic valuation techniques like CVM in the EIS as
a new stage. It is a substitute of Cost Benefit Analysis (CBA). We replace CVM
in EIA procedure instead of CBA.
EV could enter into the EIA procedure from the preliminary screening of projects
to the (EIS) stage and we put it in final step. In the EIS, EV is valuable in
judging and comparing significance of impacts (as an alternative to standard
EIA weighting/scaling or ranking/rating techniques), determining the appropriate
level of mitigation, comparing alternatives and generally providing a more transparent
and objective analysis of tradeoffs that is more informative for decision-making
(Lindhjem et al., 2007).
We compared total costs of freeway construction with the total benefit of Tehran-Shomal
freeway construction in the last step. Our results showed total costs of freeway
construction is less than total benefits of freeway construction. It demonstrates,
even we consider CVM results as an externality or environmental costs and add
it to construction costs; Tehran-Shomal freeway construction has economic explanation
from economic view.
In conclusion, we applied CVM as an economic valuation for EIA completion procedure
in a practice manner. And found a quantities result for making sound decision
via a Logit model with CVM.