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Economic Valuation of Riverside Wetland Services

in the Lower Moshi Irrigation Scheme



Abstract: We attempted to estimate the economic value of riverside wetland services in the
Lower Moshi Irrigation Scheme in Tanzania. The Rau river water is the source of water for
irrigation in the Lower Moshi irrigation Scheme. The Scheme is found in the Moshi Rural
District in Kilimanjaro region about 20km from Moshi town. Over abstraction for irrigation
water from the river, caused degradation of the riverside wetland. The conservation of
riverside wetlands in the Rau river will provided by healthy riverside vegetation, fish and
wildlife habitats, water purification, soil erosion control and recreation. The objective of this
study was to estimate non marketed value of riverside wetland service provided by
conservation of riverside wetland services in the Rau River in the LMIS in which contingent
valuation survey in 105 households in the lower Moshi irrigation Scheme were administered.
Respondents were given a current and hypothetical scenario and asked a willingness-to-pay
(WTP) question regarding purchasing water for conservation of riverside wetland services
through higher irrigation water fees. Results from 105 household interviewed indicated that
households would pay an average of Tshs 27 860 per Ha per annum. WTP was found related
to key variables suggested by economic theory and contingent valuation studies elsewhere:
income, educational level, number of children in the household and initial bid amount. These
results will allow decision makers to compare the benefits generated by different water uses,
including riverside wetland services, and to manage scarce water resources under a long-
term sustainable approach.
Keywords: Contingent Valuation Method; Riverside Services; Willingness-to-Pay



Abiud January Bongole
School of Business Studies and Economics,
University of Dodoma
P. O Box 395, Dodoma, Tanzania

I SSN 2319-9725

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1. Background:
This article addresses the economic value of various services provided by conservation of the
Rau river wetland in the Lower Moshi irrigation Scheme. The study used the Contingent
Valuation Method (CVM) to elicit the willingness to pay for the services provided by the
riverside wetland in the Rau river in the Lower Moshi Irrigation Scheme (LMIS). Ecosystem
products do have an economic value and can represent an important source of income for
rural and urban communities (Speelman, 2008). Riverside wetlands, for example, exhibit
large diversity in size and shape, are complex and dynamic ecosystems that protect rivers by
storing nutrients and reducing sediment loads. Considerable progress needs to be made in the
science and art of river side wetlands development planning and management to conciliate
production and conservation objectives (Kosz, 1994).
An increasing scarcity of water supply relative to demand has resulted into resource
competition, insufficiency water to support riverside wetland ecosystems, recreational
amenity and disputes among multiple users. Due to the increase of water resources
competition, the livelihoods of the poor and other vulnerable groups like women and children
are highly insecure (Kadigi et al., 2006).
According to a number of studies, water scarcity in the Lower Moshi Irrigation Scheme has
resulted into a severe deficit in water available for irrigation and conservation of riverside
wetland services. As a result, water demands are not being met. Decreased instream flow of
water in the Rau river causes poor conservation of the functions and services provided by
riverside wetlands while the competition for water between upstream and downstream
farmers has been increased (Turpie et al., 2003).
This in turn requires a good understanding of the value of riverside wetland services and the
implications of water management for conservation of riverside wetland services (Johnson
and Baltodano, 2004). In other words, decision makers and other stakeholders need to be
precisely informed of the economic value of riverside wetland services if efficient
management and allocation of water resources are to be achieved (Kadigi et al., 2006).
The quantification of the value of irrigation water and riverside wetland services is a
relatively new area of research, particularly in developing countries. Although studies by
Kadigi et al., (2006), Tupie et al., (2003) and Maganga (2001) among others have gone to
lengths to estimate the economic value of irrigation water using Residual Imputation Method,
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much less attention has been paid in to measuring the economic value of ecosystem services
in complex natural systems such as rivers using Contingent Valuation Method.
This study estimated the non marketed value of riverside wetland services provided by
conservation of riverside wetland services in the Rau River in the LMIS. The results of this
study will allow decision makers to compare the benefits generated by different water uses,
including riverside wetland services, and to manage scarce water resources under a long-term
sustainable approach.
2. Literature Review:
2.1 Economic Valuation of Wetland Services:
According to Loomis (1987) and Brander and Jane (2006) dollar values for in-stream flows
can often compare favorably against the value of water in traditional economically beneficial
uses such as irrigation. While still relatively limited in number, attempts by ecological and
environmental economists and other researchers to assess the monetary value of protecting
in-stream flow and associated riparian areas to sustain several environmental services are
increasing.
There are several techniques that can be used to value the benefits of improved ecosystem
services. The Non-market valuation approaches can be divided into two categories: revealed
preference and stated preference methods.
2.2 Revealed Preference Methods
Revealed preference methods, also known as indirect valuation methods, look for related or
surrogate markets in which the environmental good is implicitly traded (Birol and Phoebe,
2006; Garrod, 1999). Information derived from observed behaviour in the surrogate markets
is used to estimate willingness to pay (WTP), which represents an individual's valuation of,
or the benefits derived from, the environmental resource. Two such methods prevalent in the
environmental economics literature are the hedonic pricing and the travel cost methods.
These methods are suitable for valuing those water resources that are marketed indirectly and
are thus only able to estimate their use (direct and indirect) values (Ojeda et al., 2008; Chiueh
and Ming, 2008).
The revealed preference methods include the Travel Costs, Replacement Cost, Avertive
Expenditures, Production Function Approach, Net Factor Income, Cost-of-Illness (COI), and
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Market prices. The description of several revealed preference approaches, advantages, and
disadvantages as well as their use for valuing water, are discussed in detailed by Birol and
Phoebe (2006).
2.3 Stated Preference Methods
According to Birol and Phoebe (2006), Stated Preference Methods (SPM) also called Direct
Valuation Methods, have been developed to solve the problem of valuing environmental
resources that are not traded in any market, including the surrogate. In addition to their ability
to estimate use values of environmental goods, the most important feature of these survey-
based methods is that they can estimate the nonuse values, enabling the estimation of each
component of TEV.
Stated preference methods, such as Conjoint, Choice Experiments, and Contingent Valuation,
attempt to solve the problem of non-use valuation of water by capturing benefits that may be
neglected by the other methods. These methods are commonly used to estimate the non-use
value of the environment by directly surveying consumers on their willingness to pay (WTP)
for existing or potential environmental attributes in a hypothetical, constructed market. The
most commonly used form of questioning on hypothetical futures is the CVM (Chiare and
Peter 2008; de Oca and Bateman, 2006). According to Birol and Phoebe (2006) and Ojeda et
al. (2008) the advantage of CVM is that, it does not require the conceptual linkage between
market prices and a non-market resource, since the researcher elicits information on the value
of the amenity directly by using a questionnaire or interview to create a hypothetical market
or referendum in which individuals reveal the values they place on the resource.
2.4 Empirical Examples Of Resource Valuation
There are a range of studies that have examined the economic value of natural resources
using the contingent valuation methods. The empirical results from the studies are somewhat
mixed. Griffin and Mjelde (2000), for example, examined customers preferences in seven
Texan cities, using CVM. Loomis (1987) found that, when instream flow rates were 30% of
peak flows in several rivers in the western United States. The values of in-stream flow are at
least as much as the value of water for use in irrigation. However, just imposing a minimum
flow constraint also has its problems because it imposes a fixed relative allocation of
resources between in-stream and out-of-stream uses. A recent study by Travisi and Nijikamp
(2008), on economic assessment of the non-market benefits of safety improvements in the
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environmental and health safety of agricultural production revealed that, the annual WTP of
an Italian household ranges from 874 to protect all the 15 endangered bird species; 1 465
to eliminate soil and groundwater contamination in farmland areas (currently set at 65%); to
1 286 to eliminate all the cases of acute pesticide intoxication.
Ojeda et al. (2008) used CVM in a study on the economic value of environmental services
provided by in-stream flows of water in the Yaqui River Delta in Mexico. In the study,
respondents indicated that they were willing to pay an average of 73 Pesos/month to restore
in-stream flows in the water-scarce Yaqui River Delta. Shins and Kims (2005), study on the
economic valuation of environmentally friendly agriculture for improving environmental
quality, found that environmentally friendly agriculture improved the quality of the
environment quality with respect to the conservation of water and soil, species and ecosystem
diversity in addition to stimulating agriculture.
2.5 Contingent Valuation Method:
There are cases in which it is not possible to derive value measures from observing individual
choices through a market. Ojeda et al. (2008), call the methods developed to measure
environmental values in such cases hypothetical methods. In such an approach, respondents
are offered a hypothetical market in which they are asked to express WTP for existing or
potential environmental conditions not registered in any real market.
The most common form of questioning on hypothetical futures is called the contingent
valuation method (CVM). It involves asking individuals directly, what they would be willing
to pay for particular goods or services contingent on some hypothetical change in the future
state of the world. The monetary values obtained thereafter, are said to be contingent upon
the nature of the constructed market and the commodity described in the survey scenario
(Shyamsundar and Kramer, 1996).
According to Lankford and Franks (2000), many analysts have applied the CVM to water-
related issues. However, a limitation on ascertaining the marginal value of water may occur,
because the questions asked do not relate to incremental changes in water supply or quality,
but to the value of the site or policy itself. However, Young (2005) argued that, questions
regarding different amounts of water for fishing, boating or streamside recreation, illustrated
with photographs of alternative situations, have elicited useful estimates of the marginal
value of stream flow.
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The CVM has great flexibility, allowing valuation of a wider variety of non-market goods
and services than is possible with any of the indirect techniques. It is currently the available
method for estimating non-use values, in other words it is the only method that has any hope
of measuring existence values, that is, the value that individuals place on a scarce natural
resource by simply knowing that it exists in an improved state (Han and Zhao 2007).
According to Ojeda et al. (2008) for natural resources, contingent valuation studies generally
derive values through the elicitation of respondents WTP to prevent damage to, or to restore,
natural resources.
In CVMs, random or stratified samples of individuals selected from the general population
are given information about a particular problem, and are presented with a hypothetical
occurrence such as a disaster and a policy action that ensures against the disaster. They are
then asked how much they would be willing to pay, for instance, in extra utility taxes, income
taxes, or access fees either to avoid a negative occurrence or bring about a positive one
(Griffin and Mjelde, 2000). The actual format may take the form of a direct question (how
much), or it may be a bidding procedure (a ranking of alternatives) or a referendum (yes/no)
votes. Economists generally prefer the referendum method of obtaining values, since it is one
most people are familiar with (Windevoxhel, 1993).
The resulting data are then analyzed statistically and extrapolated to the population that the
sample represents. These studies are conducted as face-to-face interviews, telephone
interviews or mail surveys. The face-to-face interviews are the most expensive survey
administration format, but it is considered as the best, especially if visual material needs to be
presented. However, non-response bias is always a concern in all sampling frames, because
on average, people who do not respond have different values compared to those people that
respond (Moran and Dann, 2008).
3. Methodology:
3.1 Data Collection:
The study was conducted in Lower Moshi irrigation Scheme which covers Chekereni, Oria,
Mabogoni and villages where primary data were collected. The objective of this study was to
estimate non marketed value of riverside wetland service provided by conservation of
riverside wetland services in the Rau River in the LMIS in which contingent valuation survey
in 105 households in the lower Moshi irrigation Scheme were administered. Respondents
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were given a current and hypothetical scenario and asked a willingness-to-pay (WTP)
question regarding purchasing water for conservation of riverside wetland services through
higher irrigation water fees. A sampling unit for this study was a household which was
randomly selected in all villages with 5 percent as the sampling intensity for households in
each village. A random sample should represent 5 percent of the total population as a
representative of that population (Bailey, 1994). A total of 105 households were interviewed
where both qualitative and quantitative data were collected. Secondary data such water
consumption and price of irrigation water in paddy and maize production were obtained from
Lower Moshi Irrigation Scheme office and Kilimanjaro Agricultural Training Center
(KATC).

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Figure 1: Map of Kilimanjaro Region showing Lower Moshi Irrigation Scheme

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3.2 Determination of Environmental Services (Riverside Wetland Services):
The important activity was to undertake a CVM to identify the functions or services used to
describe the environmental outcomes. Based on this methodology, different riverside wetland
services used in conservation of the Rau River were identified; such as the prevention and
control of soil erosion, natural purification of water, and habitat for fish, amphibians, birds
and other wildlife. This was done through focus group meetings/ discussions.
3.3 Description of Payment Vehicle:
Selection of the right payment vehicle depends on the resource to be valued, the socio-
economic characteristics of the sample, and the institutional structure governing the area
(Chiueh and Ming, 2008). In this study, fund contribution was used as the payment vehicle to
the riverside wetlands services conservation in the Rau River as proposed by Ojeda et al.
(2008) and de Oca and Bateman (2006) in their respective CVM studies in Mexico City and
Loomis (2000) in a CVM study in California.
3.4 Survey Structure:
The format for the survey was based on previous CVM questionnaires conducted around the
world, such as those by Loomis et al. (2000) and de Oca and Bateman (2006). This is in
terms of the introductory questions, background information, proposals, alternatives, visual
aids and WTP questions. In addition, the respondents were presented with the following
information (shown in appendix 1) to frame the hypothetical market and set the CVM
scenario, in the form of photographs. The respondents were first handed a card that listed the
key riverside wetland services such as prevention and control of soil erosion, natural
purification of water, and habitat for fish, amphibians, birds and other wildlife. The survey
questions are listed in appendix 1. In addition, the respondents were presented with the
following information to frame the hypothetical market:
a) Background of Rau River: The descriptions on agricultural activity, summary of some
of the environmentally sensitive issues and ecosystem health losses that the Rau River
is facing due to the lack of water in the River were presented.
b) Riverside wetland services used in conserving the Rau River: The information on the
key riverside wetland services that could be provided by the Rau River riverside
wetland was presented.
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c) Scenario description: The overall riverside wetland services under the current
conditions and with increased riverside wetland services used to conserve the
existence of the Rau River wetland were explained.
d) Payment vehicle: The interviewer explained that improvement of the Rau River
riverside wetland would require the provision of funds for environmental management
and the funds would be obtained by increasing the irrigation water fee per Ha per
irrigation season.
3.5 Questionnaire Design and Administration:
The primary data for this study were collected from January 2008 to March 2009 using a
structured questionnaire. Information collected was willingness to pay to conserve riverside
wetland services, as dependent variable, while the independent variables were income, age,
Household size, bid amount and sex.
Secondary data were obtained from KATC and KADP in the Lower Moshi. The pre-testing
of questionnaire was done in the study area in December 2008 before final data collection.
Necessary tasks such as translating the questionnaire from English to Kiswahili were done
before the actual data collection.
3.6 Data Analysis:
Quantitative and qualitative techniques were used to analyze the data. For more precise
analysis, computer based statistical programs (Microsoft EXCEL, LIMDEP 8.0 and SPSS 12)
were used. Descriptive statistics, charts and tables were used to present the results. Different
analytical tools were used to estimate willingness to pay for conservation of riverside wetland
services.
3.7 Estimation of the Economic Value of Riverside Wetland Services:
The CVM was used to elicit information on household willingness to pay for the conservation
of riverside wetland services. Two different sets of household WTP information were used as
dependent variables in the analyses, that is, the yes/no answers to the first annual bid offered
in the Dichotomous choice format question and the follow-up question which allowed the
respondents to give an open-ended maximum WTP answer. The bid amount X was assigned
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randomly to the respondents and came from a set of possible values in the range of 20,000 to
50,000Tshs per annum in increments of 5,000Tshs.
A logit model was applied to fit the yes/no answers to the first water fee offered in the
Dichotomous choice format question data.
6 5 5 4 4 3 3 2 2 1 1 0
_ | _ | _ | _ | _ | _ | | + + + + + + = Y
(1)

Where Y=
( )
( )
(

Yes P
Yes P
Log
1

and are the probabilities that a respondent accepts or rejects the payment of
a certain bid respectively.
is the intercept term and
6 5 4 3 2 1
, , , , , | | | | | | are the variable coefficients.
Bid is the bid amount. The expected sign of the coefficient is (-), as respondents are bound
to reject a payment as it gets higher.
Gender is a nominal variable. There are no priori indications for its expected sign
(Raggkos and Asimakis,2006).
The expected sign of the coefficient of variable Age is (+),
HH - Household size
3.8 Factors That Determine The Willingness To Pay For Riverside Wetland
Services:
The factors that determine the WTP were analysed using ordinary least square (OLS)
regression to test the robustness of the model, which has been commonly applied in other
similar studies (Ojeda et al., 2008). To simplify the regression analysis, the socio-
demographic and attitude variables were subjected to tests to determine whether the mean
responses for a given independent variable were statistically different.

6 6 5 5 4 4 3 3 2 2 1 1 0
_ | _ | _ | _ | _ | _ | | + + + + + + = WTP (2)
Where;
( ) Yes P ( ) Yes P 1
0
|
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WTP- Willingness to pay
is the intercept term and
6 5 4 3 2 1
, , , , , | | | | | | are the variable coefficients.
Bid is the bid amount. The expected sign of the coefficient is (-), as respondents are bound
to reject a payment as it gets higher.
Gender is a nominal variable. There are no priori indications for its expected sign
(Raggkos and Asimakis, 2006).
The expected sign of the coefficient of variable Age is (+).
HH - Household size
The mean WTP from the dichotomous choice results was calculated using the formula:
(3)

Where
-
is the total number of responses
- is the bid level
- is the number of yes responses to that bid level
4. Results:
4.1 Economic Value of Riverside Wetland Services:
The economic value of riverside wetland services was elicited through dichotomous
questions on the willingness to pay for the conservation of the riverside wetlands services.
4.1.1 Dichotomous Choice Results:
Table 1 shows the distribution of initial bids and the corresponding answers from the
respondents.
0
|
i
N
i
i
Y X
N

=1
1
N
i
X
i
Y
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Bid level in
Tshs
Number of
Respondents per
given bid level
Number of respondents
agreeing to bid level
Number of respondents
not agreeing to bid level
20 000 15 15 0
25 000 21 20 1
30 000 20 18 2
35 000 14 13 1
40 000 18 15 3
45 000 10 5 5
50 000 7 2 5
Total 105 88 17
Table 1: Distribution of initial bids and corresponding answers
Using the formula in Eq. (3), mean WTP was calculated at the mean of the other independent
variables. The resulting annual mean willingness to pay per household to conserve riverside
services in the Rau river was Tshs 27 860 per Ha per annum (equivalent to 19.9 US$ per Ha
per annum)
4.1.2 WTP Distribution:
The distribution of WTP obtained from the follow-up open ended question is shown in Figure
2. The mean WTP for riverside wetland services was Tshs 36,195 per Ha per annum
(equivalent to US$ 25.8 per Ha per annum). The mean WTP from the open-ended question is
significantly higher than the mean WTP calculated from the dichotomous choice question.
This is because, on average, most respondents who accepted the initial bids indicated a WTP
that was significantly higher than the initial bid when asked for their maximum WTP, while
respondents who did not accept the initial bid chose a slightly lower WTP than the initial bid.
The WTP distribution shown in figure 2 appears to be normally distributed which means that
the sample comes from a normally distributed population of observations.

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Figure 2: Distribution of willingness to pay
4.1.3 Statistical Analysis
Results from the t-test and the one-way ANOVA test indicated that the t and F statistics,
respectively, were greater than the statistical critical values (at least at the 0.05 significance
level) for six variables: bid amount, income, sex, age, education and household size. This
implies that, the mean WTP is not equal across different groups for the variables and
confirms that they have a significant influence on WTP.
Table 2 below shows the estimated coefficients and their associated t- statistics for logit
model and linear regression model as shown in equations 1 and 2. In addition, the sign
expected for each coefficient is also indicated in the Table.

0
2
4
6
8
10
12
14
16
18
20000 24111 28222 32333 36444 40555 44666 48777 52888 More
Willingness To Pay (WTP)
F
r
e
q
u
e
n
c
y
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Linear regression model Logit regression Model

Expected sign
of coefficient
Estimated
coefficient t-Statistic
Estimated
coefficient t-Statistic
Constant 4.61 4.908 66.463 1.7
Bid amount - 0.293 3.909 -14.005 2.82
Income + 0.19 6.191 5.295 3.11
Information + -0.017 -0.361 0.996 0.78
Sex -0.038 -0.949 0.212 0.2
Age + 0.037 0.404 0.454 0.13
Education + 0.028 0.449 2.273 0.97
Household + -0.002 -0.044 -1.364 1.89
Adjusted R
2
38.3 43.3
Table 2: Logit and Linear regression models results

The linear and logit regression analyses gave roughly similar results in terms of the number
of significant determinants and the corresponding levels of significance associated with the
estimated coefficients. The four significant determinants for the WTP bids were found to be
the initial bid amount, number of years of formal education, Size of households and
household annual income. On the one hand, as expected, the coefficient associated with the
initial bid amount had a positive sign for the linear model, indicating that the higher the
amount of money (in Tshs) the respondent was asked to pay initially, the higher the
respondent's final WTP. On the other hand, the coefficient associated with the initial bid for
the logit model was negative, indicating that respondents were more likely to give a negative
answer as the initial bid increased.
The WTP also increased with income and household educational level. Finally, it was found
out that the WTP also decreased with the number of household size, which is different from
the result found in most WTP studies (Ragkos and Asimakis, 2006).
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The adjusted R
2
of the linear and logit models were 0.41 and 0.43, respectively, which,
according to Mitchell and Carson (1989), are more reliable. The linear model fit is slightly
inferior to the logit model fit, but the relative similarity between these two types of models
indicates that the WTP-determinant relationships found here are robust.
5. Conclusion And Recommendations:
In view of the major findings of the study, the following are the conclusions made. Access to
irrigation water and suitable wetland for wet and dry season irrigated agriculture constitute
one of the most important determinants of livelihood in the Lower Moshi Irrigation Scheme.
Cultivation of crops such as paddy, sunflower and maize (as are the main crops under
irrigation in the area), require easy access to water and at the same time, protection of
riverside wetland which assist in the purification of polluted water (to access quality water for
irrigation), control erosion and hence high yield for the cultivated crops.
Decreasing water supplies in the Lower Moshi Irrigation Scheme and poor water inflows in
the Rau River especially during the dry seasons, affect negatively the existence of important
services conserved by Riverside wetlands. Thus it can be concluded that, current water use
practices in the Lower Moshi Irrigation Scheme are unsustainable since there is high
allocation of water for agricultural activities, thus leaving aside other important sectors such
as riverside wetlands which also need water to conserve their services.
Since farmers are willing to pay for the conservation of riverside wetlands, the government
should establish riverside services conservation projects where farmers will participate
through contributions for the water they use for irrigation for the purpose of the riverside
services conservation.
Funds collected should be used for conservation activities they should not misused, since this
will discourage farmers from contributing to the project. The initial amount that the farmers
would contribute should be reasonable, so that every farmer would be able to pay as higher
amounts could lead to a low willingness to pay as found in the study.



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Acknowledgements:
The preparation of this work has been possible through the grace of our almighty GOD. We
are grateful to the Kyela District Council, Tanzania, Department of Agriculture and Livestock
Development for providing financial support for this study. This is gratefully acknowledged.
We are also thankful to all people who participated in the data collection in the study area.
Finally we are indebted to Water Use Association members, households, key informants,
KATC management and Water Authorities for providing the required information and data
for this study.

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24. Young, A. (2005). Non marketed economic valuation for irrigation water policy
decisions: Methodological Issue. 131:21-25 Journal of Contemporal Water Research
and Education Issue 131:21

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