Cost of Environmental Degradation Training Manual

Training Manual on
The Cost of Environmental
Degradation (COED)
Methodology
July 1‐5, 2008
Crowne Plaza Hotel
Beirut, Lebanon
For further details contact:

Mutasem El Fadel
Professor of Environmental Engineering
Faculty of Engineering and Architecture
American University of Beirut
Bliss Street, PO Box 11‐0236
Riad El Solh 1107 2020
Beirut, Lebanon
Phone: +961 (0)1 350 000 Ext. 3470
Fax: +961 (0)1 744 462
Mobile: +961 (0)3 228 338
Email: mfadel@aub.edu.lb
ACKNOWLEDGEMENTS
Special thanks are extended to Dr. Dahlia Lotayef, Senior Environmental Specialist at the
World Bank and METAP Coordinator for the Middle East and North Africa Region, and
Ms. Saliha Dobardzic METAP Operations Officer at The World Bank, as well as Mr. Fadi
Doumani, Consultant at the World Bank for their support and assistance during the
preparation for this workshop.
The following references have been quoted directly, adapted or used as a primary
source for major parts of this document. Secondary and indirect references are cited
within the document. While the document provides a good introductory summary for
most related topics, it is by no means a complete resource on the subject. The reader is
highly advised to consult relevant references similar to those cited below for in depth
examinations.
1. Asafu-Adjaye, J. 2005. Environmental Economics for Non-economists. Techniques

and Policies for Sustainable Development. 2nd Edition. World Scientific Publishing
Co., London.
2. Barton, D.N. The transferability of benefit transfer: contingent valuation of water
quality improvements in Costa Rica. Ecological Economics, 42, 147–164, 2002.
3. Chapman, D. 1999. Environmental Economics: Theory, Application, and Policy.
Addison Wesley, USA.
4. Garrod G. and Willis K.G. 2001. Economic Valuation of the Environment: Methods
and Case Studies. Edward Elgar Publishing, UK.
5. Hodge, I. 1995. Environmental Economics: Individual Incentives and Public Choices.
MACMILLAN PRESS LTD.
6. Hussen, A. M. 1999. Principles of Environmental Economics, Ecology, and Public
Policy. Routledge, UK.
7. King, D.M. and Mazotta, M. Ecosystem valuation. www.ecosystemvaluation.org
8. McComb, G., Lantz, V., Nash, K., and Rittmaster, R., 2006. International valuation
databases: Overview, methods and operational issues. Ecological Economics, 60,
461-472.
9. Ministère de l’Aménagement du Territoire et de l’Environnement, 2002. Plan
National d’Actions pour l’Environnement et le Développement Durable (PNAE-DD).
République Algérienne Démocratique et Populaire
10. Prüss-Üstün, A., Campbell-Lendrum, D., Corvalán, C., Woodward, A. 2003.
Introduction and methods: Assessing the environmental burden of disease at
national and local levels. Environmental Burden of Disease Series, No. 1. World
Health Organization, Geneva.
i
11. Sarraf, M., Larsen, B., and Owaygen, M. 2004. Cost of environmental degradation:
The case of Lebanon and Tunisia. Environment Department Paper No. 97, The World
Bank, Washington D.C.
12. Kuchler, F and Kohler, E. 1998. Assigning Values to Life: Comparing Methods for
Valuing Health Risks. Agricultural Economic Report No. 784. Food and Rural
Economics Division, Economic Research Service, U.S. Department of Agriculture,
Washington, D.C.
13. World Bank, 1998. The Effects of Pollution on Health: The Economic Toll. In Pollution
Prevention and Abatement Handbook. The World Bank.
14. World Bank, 2002. Cost Assessment of Environmental Degradation in the Arab
Republic of Egypt. Sector Note. Report No. 25175 –EGT. Rural Development, Water
and Environment Department, Middle East and North Africa Region, The World
Bank.
15. World Bank, 2003. Cost Assessment of Environmental Degradation in the Kingdom of
Morocco. Report No. 25992-MOR. Water, Environment, Social and Rural
Development Department, Middle East and North Africa Region, The World Bank.
16. World Bank, 2004. Cost Assessment of Environmental Degradation in the Syrian Arab
Republic. World Bank. METAP.
17. World Bank, 2007. Economic Assessment of Environmental Degradation due to the
July 2006 Hostilities in the Republic of Lebanon. Sector Note. Report No. 39787-LB.
Sustainable Development Department, Middle East and North Africa Region, The
World Bank.
18. Whittington, D. Improving the performance of contingent valuation studies in
developing countries. Environmental and Resources Economics, 22, 323-367, 2002.
19. Whittington, D. 1996. Administering Contingent Valuation Surveys in Developing
Countries. Economy and Environment Program for Southeast Asia (EEPSEA).
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WORKSHOP OVERVIEW
Day Session Time Topic
1 1 08:30‐10:00 Participants’ registration
Official opening
1. Introductions and purpose of the workshop
10:00‐10:30 Coffee break
2 10:30‐12:00 2. Brief overview of basic economic principles
3. Introduction to environmental valuation
3 12:30‐14:00 The revealed preference approach
4. The productivity method
(Theory, application, advantages, limitations, case‐studies)
5. The market price method
6. The damage cost, replacement cost, and substitution cost methods
14:00‐15:30 Lunch
4 15:30‐17:30 Case‐studies on the productivity method and the market values approach
2 5 08:30‐10:00 The revealed preference approach (cont’d)
7. The travel cost method
6 10:30‐12:00 The revealed preference approach (cont’d)
8. The hedonic pricing method
9. The averting behavior method
7 12:30‐14:00 Group Exercises:
Ayubia National Park In Pakistan (Travel Cost)
Non‐Priced Forest Recreation Areas In Malaysia (Travel Cost)
Valuing Landscape and Amenity Attributes In Central England
(Hedonic Pricing)
14:00‐15:00 Lunch
8 15:30‐17:30 Presentation and discussion of group exercises
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Day Session Time Topic
3 9 08:30‐10:00 The stated preference approach
10. The contingent valuation method
10 10:30‐12:00 The stated preference approach (cont’d)
11. The discrete choice method
12. The benefit transfer method
11 12:30‐14:00 Group exercise: Stated preference approach
Air quality in Beijing
Ecosystem services in Ejina China
Environmental services in the Yaqui River Delta, Mexico
Sustainable development in Sweden coastal zone
Coastal ecosystems in Phang Nga Bay, Thailand
14:00‐15:00 Lunch
12 15:30‐17:30 Presentation and discussion of selected group exercises
Case‐studies: Coastal zone in North Lebanon, Climate Change MENA
Region
14:00‐15:00 Lunch
4 13 08:30‐10:00 13. Cost‐benefit analysis
Case‐studies: wastewater and solid waste management
14 10:30‐12:00 14. The value of life and health
Including the burden of disease (DALY), the human capital approach,
the cost of illness approach, and the contingent valuation approach
Case studies: Drinking water quality; Emissions from the cement industry;
Particulate matter in urban areas; Lead phase‐out
5 15 8:30‐10:00 Case studies: Drinking water quality; Emissions from the cement industry;
Particulate matter in urban areas; Lead phase‐out
16 10:30‐12:00 Group exercises on the value of life and health:
Urban air pollution from particulates in selected MENA countries
Water, sanitation and hygiene in selected MENA countries
17 12:30‐14:00 Presentation and discussion of group exercises
14:15:30 Lunch
18 12:30‐14:00 Wrap‐up case with various concepts: the July 2006 War in Lebanon
15. Policy implications and workshop conclusion
Workshop evaluation
14:00‐15:00 Lunch

The highlighted titles are detailed in the following section.
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ABBREVIATIONS

BCR = Benefit Cost Ratio
BoD = Burden of Disease
CAC = Command and Control
CBA = Cost Benefit Analysis
COED = Cost of Environmental Degradation
COI = Cost of Illness
CS = Consumer Surplus
CVM = Contingent Valuation Method
DALYs = Disability Adjusted Life Years
Dh = Dirham
DRRs = Dose‐Response Relations
EA = Environment Agency
EIA = Environmental Impact Assessment
GBD = Global Burden of Disease
GDP = Gross Domestic Product
GIS = Geographic Information System
HCA = Human Capital Approach
HPM = Hedonic Price Method
IRR = Internal Rate of Return
MC = Marginal Cost
MBI = Market‐based instruments
MENA = Middle East and North Africa
METAP = Middle East Technical Assistance Program
MR = Marginal Revenue
NPV = Net Present Value
NSB = Net Social Benefit
O&M = Operation and Maintenance
OC = Opportunity Cost
RAD = Restricted Activity Days
SCBA = Social cost benefit analysis
TCE = Trichloroethylene
TCM = Travel Cost Model
UK = United Kingdom
US = United States
USD = United States Dollar
VOSL = Value of Statistical Life
W Korean Won
WHO = World Health Organization
WLD = Work Loss Days
WTA = Willingness to Accept
WTP = Willingness to Pay
WWTP = Wastewater Treatment Plant

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Regional Training Workshop on:
The Cost of Environmental Degradation Methodology
Session 1
OF THE WORKSHOP
INTRODUCTIONS AND PURPOSE
SESSION 1
1 INTRODUCTION AND PURPOSE OF THE WORKSHOP
Environmental degradation has become one of the most prominent adverse phenomena
in today’s world. The scope of environmental problems has grown substantially in the
past decade and will continue to expand and diversify more in the future; no generation
has ever faced a more daunting agenda. The world today confronts a multitude of
environmental problems, more than ever before, over a wider range of spatial and
temporal scales, and requiring various skills for proper control. Within this context, the
Middle East and North Africa (MENA) region is no exception in suffering from serious
environmental problems and natural resource degradation. Environmental pollution is
evident throughout the region which is exhibiting various types of degradation whether
water (coastal and inland surface, and ground), soil, and air (indoor and outdoor).
According to the Middle East Technical Assistance Program (METAP)/World Bank
Country studies1, the cost of environmental degradation in seven countries (Lebanon,
Syria, Jordan, Egypt, Tunisia, Algeria, and Morocco) ranges between US$228 million per
year in Jordan and US$4.2 billion per year in Egypt. Figure 1 illustrates the distribution of
the average estimated annual damage costs of environmental degradation in countries
in the MENA region by country and category in percent of Gross Domestic Product
(GDP).
Figure 1. Average annual damage costs of environmental degradation from studies in MNA countries
(percentage of GDP)
1
METAP website: www.metap.org
1
According to Figure 1, the cost of environmental degradation in MENA countries
constitutes between 2 and 5 percent of the country’s GDP, as compared to 1‐2% of GDP
in OECD countries, 4.5% of GDP in 1991 in India, 3.3% of GDP in Mexico, and 8% of GDP
in China. Yet, it is important to note that these results are underestimates because of
data limitations. As such, they do not include damage stemming from several potential
contributors such as untreated industrial, hazardous, and hospital wastes or losses of
forest cover and biodiversity. Also owing to data constraints, the impact of inadequate
treatment of industrial and municipal wastewater is limited to coastal recreational and
tourism losses.

The Cost of Environmental Degradation (COED) methodology in the MENA region is an
environmental economics tool developed by the METAP/World Bank. This tool enables
key professionals to carry out assessments of the economic cost of environmental
degradation. It has been successfully used in the valuation of environmental degradation
on a macroeconomic and sector levels, in terms of giving an estimate of GDP lost to
environmental degradation. The importance of economic valuation of environmental
degradation is that it allows the quantification of benefits of environmental projects/
policies, thus fostering the incorporation and prioritization of environmental issues in
decision‐making. It can be a powerful means for raising awareness about environmental
issues and fostering progress towards sustainable development. However, a main
obstacle to conducting policy‐relevant and timely studies in environmental economics is
the shortage of human capacity at governmental ministries/organizations as well as
academic institutions.

The current project, which is funded by the World Bank/ METAP and implemented by
the American University of Beirut, aims at enhancing regional capacity in environmental
economics. This document was prepared as part of the training course in COED
methodology. It aims to provide participants a comprehensive and easy to use reference
on this subject and follows the same sequence of the course syllabus.
2
Session 2
BRIEF OVERVIEW OF BASIC
ECONOMIC PRINCIPLES
&
INTRODUCTION TO ENVIRONMENTAL
VALUATION
SESSION 2

2 BRIEF OVERVIEW OF BASIC OF ECONOMIC PRINCIPLES

Activities of economic agents contribute to the generation of pollution. The operation of
the market system is intimately related to the nature and amount of pollution
generated. The purpose of this session is to introduce the participants to the basic
concepts of economic analysis, in terms of how markets work and why markets fail.

2.1 The competitive market
A market can be defined as the coming together of consumers (or buyers) and producers
(or sellers) to exchange goods and services for money. The buyers and sellers do not
have to be physically present to carry out transactions. Usually a market exists for a
single good or service. Markets may be classified according to the numbers of sellers and
buyers. In a perfectly competitive market, there are many buyers and sellers. A
monopoly is a market in which there is a single seller, such as the utilities sector in many
countries, where the government is the sole provider of electricity and water. An
oligopoly is an intermediate case in which there are few sellers. The Australian car
manufacturing market is an example of an oligopoly because there are four main sellers.
A monopsony is a market in which there is a single buyer. For example, a small town
with a single major industry that is the sole buyer of labor.

The competitive market has the following characteristics:
− There are many buyers and sellers and none of them are influential enough to affect
the market price or output
− The buyers and sellers are free to enter and leave the market in response to price
changes
− The goods and services being offered for sale are identical or homogeneous. This
implies that buyers do not care from whom they buy, provided prices are identical
− All the participants in the market have perfect knowledge. That is, consumers know
product prices and producers know input prices.

2.1.1 Consumer behavior and demand
The demand function is a curve that indicates how much of a good a consumer will buy
at various prices (Figure 2). Note the inverse relationship between price and quantity
demanded. This is referred to as the Law of Demand. That is, given income, preferences
and prices of alternative goods, an individual will be willing to purchase decreasing
amounts of a given good (or service) as its price increases.

3
− The points on the curve represent the
maximum amount an individual is willing
to pay for different quantities of q1

− The individual's demand for good q1 is
defined given that all other goods and
income remain constant

− The demand curve is defined for a given
period of time. Thus, the demand curve in
a different period of time will have a
different shape and position
Figure 2. Individual demand function for a good q1

2.1.2 The concept of elasticity
The term 'elasticity' refers to the responsiveness of the quantity demanded (or supplied)
to changes in other variables (e.g., price and income). The concept of elasticity is
important because a key factor in the functioning of the economic system is the reaction
of economic agents to price incentives. Own price elasticity of demand is the ratio of the
change in quantity demanded of a given good to the change in its own price. That is:

εD = (percent change in quantity of q1 demanded)/ (percent change in price of q1)

Depending on the magnitude of the elasticity parameter, own‐price elasticity of demand
can be perfectly elastic, relatively elastic, relatively inelastic, or perfectly inelastic, as
illustrated in Table 1.

4
Table 1. Forms of elasticities
Type Graph Description
Perfectly elastic A small increase in the price of the
| εD | = ∞ good causes the quantity demanded
to fall to zero. In practice, no good has
perfect price elasticity.
Relatively elastic A small change in the price of the
| εD |>1 good causes a relatively large change
in quantity demanded. In general,
most luxury goods tend to be
relatively price elastic.
Relatively inelastic In this case, a change in the price of
| εD |<1 the good causes little change in
quantity demanded. Necessities such
as food and utilities (e.g., water and
energy) tend to be relatively price
inelastic.
Perfectly inelastic A change in the price of the good does
| εD |=0 not lead to a change in quantity
demanded

Cross‐price elasticity of demand refers to the responsiveness of the quantity of a
demanded good (q1) as a result of changes in another good (q2).

εD 12 = (percent change in quantity of q1 demanded)/ (percent change in price of p2)

1. εD12>0, implies q1 and q2 are substitutes. That is, an increase in the price of one good
causes consumers to switch to the other, resulting in an increase in the quantity
demanded of the second good. Examples of substitute goods are sugar and
NutraSweet, bus and rail transportation, etc.
2. εD12<0, implies q1 and q2 are complements. Complementary goods are consumed
together and therefore an increase in the price of one good leads to a reduction in
its consumption, and hence a reduction in demand.

Income elasticity of demand refers to the responsiveness of the quantity of a demanded
good (q1) as a result of changes in another good (q2)
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ηγ = (percent change in quantity of q1 demanded)/ (percent change in income)

1. ηγ > 0, implies the good is a normal good. Most goods are normal goods because an
increase in income leads to an increase in quantity demanded.
2. ηγ < 0, implies the good is an inferior good. That is, an increase in γ leads to a
decrease in q1. There are not many practical examples of inferior goods. However, a
low‐ income family that currently consumes dried vegetables might reduce their
consumption and switch to fresh vegetables in response to an increase in household
income.

2.1.3 Producer behavior and supply
The production function of a good q is a function of various inputs, including labor, land
and capital that are used in producing good q. The producer's aim is to maximize profit
subject to the constraint of the above production function. Given the profit motive, the
producer will increase the output of q if its price rises so as to increase profits. The
production function (Figure 3) is positively sloped because producers are willing to
supply more as price increases. In addition, the curve refers to a given point in time.

− The supply curve is also the marginal
cost (MC) curve. That is, it indicates
the cost of producing each additional
unit of the good. In order to maximize
profits, the producer will increase
production up to the point where
marginal revenue (MR), the price per
unit of output in a competition market,
just equal marginal cost.
Figure 3. Market supply function

2.1.4 Market Equilibrium in the Competitive Market
The interaction of supply and demand forces in the market determines the equilibrium
or market clearing price, and the equilibrium quantity demanded. The equilibrium price,
in turn, determines the price for each unit of output, that is, marginal revenue. In Figure
4, market equilibrium is achieved at point E. Thus, at price PE, the market demand is
exactly equal to the quantity the market is willing to supply (SE).

6

Figure 4. Equilibrium in the market for a product Q1

Now suppose the market price per unit of Q1 increased to P’, the producer will supply S’,
while the consumer will demand only D’, which will result in demand deficit (Figure 5).
To clear the deficit, the producer will decrease the price and the consumer will increase
the purchase. The producer will decrease the quantities supplied until equilibrium is
reached and demand equals supply. On the other hand, if market price decreases to PA,
the consumer demand increases to DA. However, the producer is not willing to supply at
this price, causing a shortage in the market. This will put upward pressure on prices and
the producer will respond by increasing supply. As the price goes up, consumers will
reduce their purchases until the price decreases, at which point, quantity demanded will
be equal to quantity supplied (Figure 5).

Figure 5. Shift in market equilibrium for product Q1

Factors that can shift the demand curve include income, prices of substitutes or
complements, and consumer tastes and preferences. An income increase causes an
upward or rightward shift in market equilibrium, while an income decrease causes a
downward or leftward shift. For example, an increase in per capita income in a given
population (with all other factors constant) will shift the demand curve for mobile
telephones upwards. However, due to the excess demand, the price of mobile
telephones will rise to re‐establish equilibrium.
7

Decrease in income Increase in income
Figure 6. Shift in market equilibrium with change in income

A decrease in the price of substitutes for a good will cause the demand curve for the
good to shift downward, while a decrease in the price of complements for the good will
cause the demand curve to shift upward. For example, a decrease in the price of oil will
cause a downward shift in the demand for natural gas. The quantity of natural gas falls
and the price also falls to re‐establish equilibrium.

Factors that can cause the supply curve to shift include, price of inputs, taxes, subsidies,
improvements in technology and weather for agricultural products. A decrease in the
price of inputs for making good q will make the supply curve for q to shift outwards,
whereas an increase in the price of inputs will cause an inward shift. Improvement in
technology will cause an outward shift because more output can be produced with the
same level of inputs. For agriculture and other forms of production that are weather
dependent, deterioration in weather conditions will cause a leftward shift in the supply
curve.

Decrease in input price Increase in input price
Figure 7. Shift in market equilibrium with change in inputs

The examples of equilibrium illustrated above are highly simplified in order to convey
the basic concepts. In real life, equilibrium does not tend to be static. The demand curve
8
is constantly shifting due to changes in tastes and incomes, while the supply curve also
shift in response to resource constraints and technological advances. One important
assumption underlying the market equilibrium analysis above is that property rights are
well defined. That is, the seller owns the rights to the good or service and can therefore
appropriate any benefits from the sale.

2.1.5 Consumer and producer surplus
Consumer and producer surplus are illustrated in Figure 8. Consumer surplus is the
maximum amount of money consumers are willing to pay for the good or service minus
the market price. It is a measure of net benefits or welfare (Δ abc). The sole reliance on
only the market price could result in an under estimation of benefits. Producer surplus is
the net benefits received by the producer and is given by the difference between the
market price and marginal cost (Δ bcd).

Figure 8. Consumer and producer surplus

2.1.6 Application of the Competitive Model‐ The socially optimal level of forestry
Clear felling of timber has several undesirable effects on society, including loss of forest
cover and associated problems such as increased soil erosion, loss of soil nutrients, loss
of biodiversity, etc. Assume that the stumpage price is currently p. At this price, q logs
will be harvested (Figure 9). Now suppose that the government charges an extra $5 per
log to cover the environment damage. This policy will result in an upward shift in the
supply curve from S to S’ by a vertical distance of $5 (Figure 9). assuming the demand for
logs remains constant during the period of the analysis, the quantity of logs harvested
will decline and equilibrium will be re‐established at q’, the socially optimal level.

9

Figure 9. Socially optimal level of forestry

2.2 Market Failure
Market failure occurs when some costs and/or benefits are not fully reflected in market
prices. The market system fails to function properly for many kinds of environmental
goods because such resources, including the services they provide, are often not traded
in markets. There are many reasons for market failure including:
− Property rights related to ecosystems and their services are often not clearly defined
− Many ecosystems provide services that are public goods
− Many ecosystem services are affected by externalities
− Type of market structure

2.2.1 Property rights
When property rights are not well defined or absent in the economic system, there is no
incentive for an individual to invest in an asset because they cannot appropriate the full
benefits. When one purchases an asset, it comes with a set of well‐defined ownership
rights and responsibilities. These have the following general characteristics:
− Well defined: in the form of registration certificate of purchase receipt. In some
cases the entitlement may be informal and may have been institutionalized by social
or cultural norms.
− Exclusive: the buyer is the only one who has the right to use the asset, although he
may choose who else may use it and under what conditions. It is important to note
that restrictions accompany ownership rights.
− Transferable: the buyer may transfer property rights of his asset to another
individual either permanently by selling it or temporarily by renting it.
− Secure and enforceable: the property rights to an asset are secure and enforceable.
Effective enforcement involves the effective detection and apprehension of violators
and application of an appropriate penalty. To be effective, the penalty must exceed
the actual or anticipated benefits of violation.

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Property rights regimes
In practice, there are different types of property rights regimes. The complete set of
property rights described above is at one end of the spectrum and is typical of private
goods. At the other end of the spectrum, there are public goods, with congestion goods
in between these two. Public goods can be classified into pure public goods, semi public
goods, and open access or common property goods (Figure 10).

Goods
and
Services
Private goods Congestion goods Public goods
Open access & Semi-public Pure public goods

common property goods
goods

Figure 10. Taxonomy of environmental goods

Most environmental goods fall under the category of pure public goods or open
access/common property goods. In such cases lack of well‐defined property rights
results in market failure. A consequence of market failure is inefficient allocation of
resources (e.g., excessive pollution). For example, a farmer has the right to prevent
someone from polluting his or her land, but cannot prevent anyone from polluting a
nearby river. Furthermore, he or she may have no legal right to receive compensation
from the upstream polluters. The upstream polluters, who do not bear costs of their
activities, have no economic incentives to limit the amount of pollution especially when
they know that the farmer has no property rights. This type of market failure has led to
calls for governments to intervene in the market.

Private vs. public goods
As mentioned earlier, a private good has characteristics such as exclusivity,
transferability, security, and enforceability. In addition, a private good has a positive
marginal cost. That is, the cost of supplying one additional unit is above zero. A private
good is rival in consumption. That is, once someone consumes the good, another person
cannot consume it. On the other hand, a pure public good is non‐exclusive and non‐rival
in consumption, and has zero marginal cost. 'None exclusive' and 'non‐rival' mean the
11
good is available to everyone and that one person's consumption of the good does not
reduce the amount available to others. 'Zero‐marginal costs' means the cost of supplying
an additional unit of the good to any particular individual is zero. Examples of pure
public goods are national defense, biodiversity, clean air, flood protection, noise and
visual amenities. A distinctive characteristic of a pure public good is that consumers do
not have the option of not consuming. As suggested earlier, a pure public good will be
under‐provided because the owner cannot appropriate the full benefits.

Open access goods are rival in consumption, non‐exclusive, non‐transferable, and often
non‐enforceable even when ownership rights exist. Examples of open goods are ocean
fisheries and migratory wildlife. Common property goods (e.g., common grazing land)
are rival in consumption and are exclusive for a group of people (e.g., a local
community). Rights of use may be transferable by individuals or the group. There may
not be legal or formal title to ownership but the group may be able to enforce their
ownership rights by means of social sanctions. Under open access or common property
rights regimes, the resource will be overexploited. However, under some form of
common property systems, resource management is likely to be more efficient because
it is based on communal rules and customs.

Semi‐public (or quasi public) goods are non‐rival in consumption, have a zero marginal
cost of provision and are non‐exclusive although ownership rights exist. An important
distinction of semi‐public goods is that even though the owner or the providers of the
service cannot exclude others form consumption, consumers can choose not to
consume. Examples of this category of goods include radio and TV broadcasts and
lighthouse.

Congestion goods are exclusive and can be either non‐rival or rival in consumption. Such
goods do not fall neatly into any of these categories and may exhibit characteristics of
private goods or public goods at different levels of consumption. An example of this type
of good is a campsite, roads, bridges, an art gallery, fishing and boating sites, and a
historic site.

2.2.2 Externalities
As the word suggests, an externality is an effect that is 'external' to the causing agent.
That is, the person causes an effect that impact on other people. An externality is said to
exist when some agent A (individual or firm) takes an action which has an impact on
another agent B, that B has not chosen to accept. In an externality, agent B cannot
12
choose the level of the impact like in a normal economic transaction and the impact on
B is not a deliberate attempt from A. An externality is often negative. This occurs when
the affected person suffers a loss in utility that is uncompensated. Examples of negative
externalities are air, water and noise pollution. A positive externality (external economy
or external benefit) occurs when the effect is beneficial to the affected person. An
example of a positive externality is immunization. Another example of a positive
externality is where one firm's technological breakthrough benefits other firms in the
industry who have not contributed to the research costs.

The following factors give rise to externalities:

1. Interdependence between economic agents: the market system fails to 'price' this
interdependence, as a result of which the affected party is uncompensated.
2. Lack of or weak property rights: due to lack of or weak property rights, the affected
party is unable to demand that the externality be reduced or ask for compensation.
3. High transactions costs: the cost of negotiating, implementing and enforcing and
agreement between the parties may be high.

Once the affected agent is compensated for his or her loss of welfare, the externality is
said to be 'internalized', and society is better off by the gainer compensating the loser.

Types of externalities
Externalities can be classified into relevant externalities, pareto‐relevant externalities,
static or dynamic externalities, and pecuniary externalities. A relevant externality is
when the affected person is made worse off by the activity and wants the offending
person to reduce the level of the activity. A pareto‐relevant externality exists whenever
its removal results in a pareto improvement. A pareto improvement is a situation where
it is possible to take action such that the affected person is made better off without
making the offending person worse off. A dynamic externality exists when the
externality has adverse impacts for the future. To illustrate static and dynamic
externalities, take the example of two fishers who are operating under an open access
or property rights regime. A static externality is when one creates an externality for the
other by overfishing. However, the externality can become dynamic if the offending
party is harvesting fish that may have some future value. This could happen, for
example, if the offender is harvesting juvenile fish species. In this case, the opportunity
cost of the fish reflects a forgone value in the sense that there will be adverse impacts
for the future. A pecuniary externality is a form of externality that is transmitted through
the price system. An externality is usually an 'unpriced' effect. However, a pecuniary
13
externality occurs when the externality is transmitted through higher prices or reduced
costs. An example is increased rental prices in an area due to a new business opening
there. Pollution is not a pecuniary externality because the effect is not transmitted
through higher prices. Even if penalties exist, they do not reflect the amount of damage
inflicted on the environment.

2.2.3 Type of Market Structure
The type of market structure or organization can also cause market failure. We consider
the following two cases: a perfectly competitive market with external costs and a
monopoly.

Resource allocation in a perfectly competitive market
Consider a gold mining company that dumps mine tailings into a nearby river without
paying for clean up or treating the waste. In this case, production at the mine includes
the production of gold as well as pollution. Or to put it differently, the river water is an
unpriced input in the gold production process. Let us define the following variables:
D = demand curve for gold; MCp = marginal private cost of producing gold (i.e., the
firm's supply curve); MSC= marginal social cost (Figure 11).

Figure 11. Resource allocation in a competitive market with externalities

We assume that MSC is greater than MCp at any level of output because society
considers both the costs of pollution as well as gold production, but the company
considers only its marginal private cost. The marginal social cost of gold production is
therefore given by the marginal external cost, the cost of disutility caused by the
externality, plus the marginal private cost. That is:

C=MCp+ MSC

14
Under a perfectly competitive market structure, the company maximizes its producer
surplus by producing q0 units of gold. However, from society’s point of view, q0 is not
the efficient allocation. Society's net benefits could be maximized by producing less gold,
that is, q’ units. The triangular area Δabc represents a deadweight loss to society. Note
the following observations about Figure 11:

1. The socially optimal level of pollution (which is assumed to be proportional to gold
production) is not zero. This implies that it may not be socially optimal to have zero
pollution.
2. In a perfectly competitive market where pollution is unpriced (i.e., there is no
pollution abatement), production results in more output that is socially desirable,
resulting in excessive pollution.
3. If pollution abatement is enforced, the company will reduce pollution but raise the
price per unit of output, resulting in reduced output of gold. However, in this case,
the reduced output is the socially efficient level and the higher price is also the
efficient price.

Resource allocation in a monopoly
Assuming a perfectly competitive market and a system of private property rights, the
price mechanism will combine to result in an efficient allocation of resources. However,
the presence of monopoly rights causes market failure or inefficient allocation of
resources from society's point of view. Take the case of a single monopolistic firm with a
marginal cost curve, MC, facing a market demand curve, D (Figure 12). Under perfect
competition, q units of the good will be supplied by setting the price = marginal revenue
(MR) = marginal cost (MC). Note, however, that in the case of a monopoly, the demand
curve is above the marginal revenue curve and therefore price is not equal to marginal
revenue.

Figure 12. Resource allocation in a monopoly
15

Monopoly profit is maximized by setting MR equal to MC. This results in less output, qm,
and a higher price, pm. Consumer surplus under a monopoly is apmb, which is less than
consumer surplus under perfect competition, Δ ap’c. Recall that the demand curve (D)
represents the marginal benefit of goods to consumers. Figure 12 indicates that for a
monopolist, marginal benefit exceeds marginal cost and therefore the level of output
(qm) is inefficient. Consequently, there is dead weight loss to society represented by
triangle Δbdc.

The monopolist's production decision may be somewhat unexpected because it seems
to suggest that less pollution will be created in a monopoly than in perfect competition.
Furthermore, the monopolist's higher initial price (pm) suggests that, given a fixed stock
of natural capital, the price path will be less steep over time than in perfect competition.
However, caution must be exercised in making such comparisons because other factors
such as elasticity of demand affect the outcome.

2.3 Policy failure
Policy or government failure occurs when the government creates incentives for the
prices of certain goods and services to be lower than the actual cost of production per
unit. An example of policy failure is a government subsidy on pesticides which provides
incentives for farmers to use more pesticide than is socially efficient, resulting in adverse
environmental impacts. Other types of subsidies include guaranteed prices for
agricultural products and subsidies which tend to encourage large scale production and
loss of forest cover. In general, subsidies in the developing countries are on the decline
as most of them have adopted structural adjustment programs over the past two
decades.

2.3.1 Solutions to environmental pollution problems
Two main approaches have been proposed for dealing with externality problems. The
first approach, known as the property rights or market solution, was proposed by Ronald
Coase and involves allowing the free market system to solve the problem through
bargaining between the affected parties. However, it is based on assumptions that may
not apply in the real world, including, zero transaction costs, well‐defined property
rights, perfect competition, and no free‐rider effect. The second approach is by means of
government intervention. There is always a need for government interventions to
correct externality problems. Government pollution control policies can take two main
forms: market based instruments (MBI) and command‐and control (CAC) instruments
(Figure 13).
16

Figure 13. Government pollution control policies

Command and control instruments are the oldest form of pollution control policies. They
require setting the standard and monitoring and enforcing it. They have the advantage
of being a widely understood form of policy and being more pragmatic and socially
acceptable than MBIs. On the other hand, such policies provide no incentive for
pollution reduction beyond standards. In addition, penalties tend to be too low and
enforcement too weak. Governments must know the marginal social cost and marginal
social benefits curves to set an optimal penalty and penalties need to be revised
frequently, which is costly. Furthermore, financial costs for setting and enforcing
standards are high; political costs may arise if standards are stringent; and standards are
uniformly set to all firms and regions.

As for market‐based instruments, they use price or some other economic variables to
provide incentive for economic agents to abate pollution. They have the advantage of
achieving the same objective as CACs at a lower cost, and of generating significant
revenue for the government. However, they cannot be applied where the institutional
framework is weak.

When choosing the right instrument for pollution abatement and control, various
criteria need to be considered including, economic efficiency, effectiveness in achieving
the desired environmental objective, adaptability to changing circumstances, equity in
the distribution of costs and benefits among different groups in the society, and political
acceptability.
17
3 INTRODUCTION TO ENVIRONMENTAL VALUATION

The proper valuation of non‐market environmental commodities has significant policy
implications. In the past, such commodities have been assigned zero to low values due
to difficulties involved in assigning economic values. Failure to properly account for the
values of some environmental resources has resulted in decisions that have had
negative implications for the environment and society.

An environment resource has a range of values that need to be accounted for. These
values can be categorized into use‐values and non‐use values (Figure 14).

Figure 14. The elements of total economic value

Some of the environmental functions are used directly, either contributing towards the
production of marketed outputs or else contributing to consumption directly. For
example, agricultural land provides the medium for the production of crops and timber.
The environment may also be used directly for consumption purposes, for recreation or
as landscape value. The third category of use values is the ecological functions of the
environment, such as flood control, waste assimilation, or carbon storage. Alternatively,
non‐use or intrinsic values are inherent in the good. The satisfaction we derive from the
good is not related to its consumption per se. Non‐use values comprise existence value,
bequest value, and option value. Existence value arises from the benefit that an
individual derives from knowing that a resource exists or will continue to exist regardless
of the fact that he has never seen or used this resource, or intends to see or use it in the
future. An example is the international outcry over the whaling issue. Bequest values
arise from the benefit that individuals derive from knowing that a resource will be
18
available for their children and children’s children. Option value is a little more complex.
It represents the value of potential uses. An individual is prepared to pay now, to retain
options for future uses.

Use values can be readily measured by market prices or other means and are well‐
accounted for in decision‐making processes. However, non‐use values are problematic
because they can constitute a significant component of total economic value, and yet
they are not traded and therefore cannot be valued by market prices. For this purpose,
non‐market valuation techniques have been developed.

3.1 Non‐market valuation techniques
Non‐market valuation methods can be broadly classified into two categories, revealed
preference models and stated preference models (Figure 15).

Preferences
Revealed Stated
preferences Preferences
Market Travel Cost Hedonic Averting Contingent Choice

Values Methods Markets Behavior Valuation Experiments

Figure 15. Non‐market valuation methods

Revealed preference models make use of individual behavior in real and simulated
markets to infer the value of an environmental good or service. For example, wilderness
is valuated from the cost incurred to travel to the area for recreation. Revealed
preference models measure use values only. The choices made are real rather than
hypothetical. The revealed preference models are based on a clear principle but
complicated applications. Examples of revealed preference methods include the travel
cost method, the hedonic pricing methods, the averting behavior method, and the
market values method.

Stated preference models attempt to elicit environmental values directly from
respondents using survey techniques such as questionnaires. They are flexible and
19
applied to a wide range of goods and they measure both use and non‐use values.
However, these models are subject to many biases. The following chapters discuss in
detail the various non‐market valuation methods.
20
Sessions 3 & 4
THE PRODUCTIVITY METHOD
&
THE MARKET PRICE METHOD
&
THE DAMAGE COST, SUBSTITUTION
COST, AND REPLACEMENT COST
SESSIONS 3 & 4

4 THE PRODUCTIVITY METHOD

4.1 Theory
The production function method is one of the most widely used valuation techniques. It
focuses on environmental resources as an input to the production of goods and services.
It is used to estimate the economic value of ecosystem products or services that
contribute to the production of commercially marketed goods. Thus, if a natural
resource is a factor of production, then changes in the quantity or quality of the
resource will result in changes in production costs, and/or productivity of other inputs.
This may affect the price and/or quantity supplied of the final good. It may also affect
the economic returns to other inputs. For example, agricultural production is a function
of soil (S) and other inputs (x). As soil quality declines from S1 to S2 due to soil erosion,
the production function shifts to Q2 (Figure 16). Accordingly, the farmer has the option
of producing at Q2 or to keep production at Q1 by increasing other inputs from X1 to X2.

Figure 16. The production function curve

Two types of benefits (or costs) may be important (Figure 17):
− Changes in the quality or price to consumers of the final good will result in changes
in consumer surplus
− Changes in productivity or production cost changes will result in changes in producer
surplus

21

Figure 17. Market supply and demand functions

Thus, the economic benefits from improvements in the resource can be estimated using
changes in observable data.

The production‐function method is most easily applied in two specific cases:
− Cases where the resource in question is a perfect substitute for other inputs: For
example, improved water quality in a reservoir means that less chlorine is needed
for treating the water. An increase in quantity or quality of the resource will result in
decreased costs for the other inputs. The benefits of improved water quality can be
directly measured by the decreased chlorination costs.
− Cases where only producers of the final good benefit from changes in quantity or
quality of the resource and consumers are not affected: For example, improved
quality of irrigation water may lead to greater agricultural productivity. If the market
price of the crops to consumers does not change, benefits can be estimated from
changes in producer surplus resulting from increased income from the other inputs.
The profits per acre will increase, and this increase can be used to estimate the
benefits of improved irrigation water quality

Selected applications of the production function method are outlined in Figure 18.

Pressure Ö Environmental Ö Productivity Impact Ö Change in Income
Impact
Overgrazing Ö Soil erosion Ö Reduced capacity of soil Ö Reduced farmers
to sustain crops income
Wastewater Ö Polluted river Ö Reduced capacity to Ö Reduced income of
discharge sustain fish stocks fishermen
Increased Ö Air pollution Ö Increased respiratory Ö Lost workdays
vehicle use problems among
workers
Uncontrolled Ö Salinity of Ö Declining yields Ö Reduced farmers
irrigation cropland income
Figure 18. Selected applications of the productivity method
22
4.2 Applying the Productivity Method
Steps to be followed when applying this method include:
1. Determine the physical impact solely arising from the driving force or behaviour
under study. Note that it is sometimes difficult to differentiate impacts due to a
series of complex biological interrelationships.
2. Collect data on how changes in the quantity/ quality of the natural resource affect
costs of production for the final good, supply and demand for the final good, and
supply and demand for other factors of production. Sources of data include
experimental data using field trials and statistical data using cross‐section or time‐
series data. Experimental data are usually difficult to extrapolate, while statistical
data are available for short time horizons and are difficult to control for other
factors.
3. Link the impact of changes in the quantity/ quality of the resource to changes in
consumer surplus and/or producer surplus. Problems encountered with this step
include:
− Distorted prices due to government interventions
− Change under study is not large enough to impact market price
− Change in market price is too large
− Change in production alters costs
4. Estimate the economic benefits

The productivity method has the advantage of being a straightforward methodology
that is inexpensive to apply due to limited data requirements and ready availability of
relevant data. However, this methods does not account for non‐use values, hence it
provides only the lower bound estimate. Furthermore, it is limited to valuing resources
that can be used as inputs in production of marketed goods. It also requires information
on the scientific relationships between actions to improve quality or quantity of the
resource and the actual outcomes of those actions. Finally, if the changes in the natural
resource affect the market price of the final good, or the prices of any other production
inputs, the method becomes much more complicated and difficult to apply.

4.3 Illustration 1‐ Polluted municipal drinking water reservoir
A municipal drinking water reservoir is polluted by agricultural runoff. The economic
benefits of implementing measures that eliminate the runoff need to be determined.
Accordingly, the productivity method was selected because environmental quality
directly affects the cost of producing municipal drinking water. In addition, cleaner
water is a direct substitute for other production inputs, such as water treatment
23
chemicals and filtration. Thus, the benefits of improved water quality can be easily
related to reduced purification costs.

To apply the production‐function method, first, specify the production function for
treated drinking water. Inputs include water of a particular quality from the reservoir,
chemicals, and filtration, while outputs include pure drinking water. Second, estimate
how the cost of treatment changes when reservoir water quality changes, using the
production function estimated in the first step. Calculate the quantities of treatment
chemicals and filters needed for different levels of reservoir water quality and multiply
these quantities by their costs. Third, estimate the economic benefits of protecting the
reservoir from runoff, in terms of reduced purification costs. If all runoff is eliminated,
the reservoir water will need very little treatment and the purification costs for drinking
water will be minimal. Compare the outcome to the cost of treating water where runoff
is not controlled. The difference in treatment costs is an estimate of the benefits of
eliminating runoff. The benefits for different levels of runoff reduction can also be
estimated. This requires information about the projected success of actions to reduce
runoff, in terms of the decrease in runoff and the resulting changes in reservoir water
quality.

4.4 Illustration 2‐ Values of Wetlands in the Peconic Estuary, Long Island
The Peconic estuary encompasses productive wetlands of different types, including
eelgrass, salt marsh, and intertidal mudflats. Development and resulting water quality
degradation have reduced the quantity of these wetlands. Various management actions
for the estuary and surrounding land areas need to be considered and assessed using a
productivity study for wetlands.

The study focused on valuing marginal changes in acres of wetlands, in terms of their
contribution to the production of crabs, scallops, clams, birds, and waterfowl, assuming
that wetlands provide both food chain and habitat support for these species. The
productivity of different wetlands types in terms of food chain production was
estimated and linked to production of the different species of fish. The expected yields
of fish and birds per acre of habitat were valued using commercial values for fish,
viewing values for birds, and hunting values for waterfowl.

The study results estimated that:
− An acre of eelgrass is worth $1,065 per year
− An acre of salt marsh is worth $338 per year
− An acre of intertidal mudflat is worth $68 per year, in terms of increased productivity
24
of crabs, scallops, clams, birds, and waterfowl

Based on the results the economic value for productivity services of preserving or
restoring wetlands in the estuary can be calculated. Note that these values are an
understatement of the total economic value for the wetlands, as they only address
values in production of commercially and recreationally valuable species. They overlook
other services, such as erosion and storm protection or aesthetics.

4.5 Case‐study: Degraded agricultural land & rangeland in Morocco
About 93% of Morocco is arid. Fragile soils suffer from water and wind erosion.
Furthermore, overexploitation and unsustainable management is resulting in arable land
loss, decrease in crop yield, silting of dams, loss in biodiversity, and loss in terms of
attenuating emissions of gases causing greenhouse effect. In Morocco, around 65 million
ha of pastureland provide 30% of overall animal food requirements. Erosion, drought,
overgrazing, land clearing and removal of woods are resulting in degraded pastureland.

4.5.1 Methodology
Degradation of agricultural land is estimated by calculating the value of lost agriculture
production due to a decrease in land productivity. Since the majority of agricultural land
is planted with cereals, the cost of degraded agricultural land corresponds to the value
of lost cereal production. As for the degradation of rangeland, it is estimated by
calculating the cost of lost forage production

Step 1: Estimation of degraded agricultural land
FAO classified the degradation of 8.7 million ha in Morocco as “severe”. According to the
FAO, three scenarios are possible:
− 10 to 25% of land is severely degraded
− 25 to 50% of land is moderately degraded
− 50 to 100% of land is slightly degraded

Surveys did not show any case of severe land degradation, thus only moderate and slight
degradation are used.

Step 2: Estimation of the decrease in agricultural yield
Young estimated the decrease in cereal yield as follows:
− Slight degradation corresponds to a 5% decrease in cereal yield
− Moderate degradation corresponds to a 20% decrease in cereal yield

25
Given that the mean yield for cereals in Morocco is 1 Ton/ha, then a slight degradation
will result in a decrease of 50 Kg/ha in cereal production, while a moderate degradation
will result in a 200 Kg/ha decrease.

Step 3: Assessing the cost of degraded agricultural land
The average of the lower bound and the upper bound of moderate and slight
degradation were used. The adopted selling price of cereal was 2,580 Dh/Ton.
Accordingly, the average cost of agricultural land degradation is estimated at Dh 1,263
million, constituting 0.36% of the GDP (Table 2).

Table 2. Assessing the cost of degraded agricultural land
Parameter Lower limit Upper limit
Moderate erosion 25% 50%

Degraded agricultural land (000 ha) 2,175 4,350
Level of decrease 20% 20%
Decrease in yield (Kg/ha) 200 200
Lost production (Tons) 435 870
Lost value (millions of Dh) 1,122 2,244
Slight erosion 50% 100%

Degraded agricultural land (000 ha) 4,350 8,700
Level of decrease 5% 5%
Decrease in yield (Kg/ha) 50 50
Lost production (Tons) 217.5 435
Lost value (millions of Dh) 561 1,122
Average (millions of Dh) 842 1,683

Step 4: Estimation of degraded pastureland
When estimating the cost of degraded pastureland, calculations considered only the
areas with dominant steppe and forest covers, excluding the Saharan region. The total
dominant steppe area considered was 12 million ha and the total dominant forest area
considered was 5.1 million ha. According to REEM, 46% of dominant steppe is degraded,
amounting to 5.52 million ha, and 19% of dominant forest area is degraded, amounting
to 0.969 million ha.

Step 5: Estimation of the loss of productivity
The Ministry of Agriculture and Agricultural Development estimated land productivity as
79 FU/ha/year (FU: Forage Unit equivalent to 1Kg Barley) for steppe and 558 FU/ha/year
26
for forest. The Ministry of Agriculture and Agricultural Development adopted 2 levels of
loss, 6% and 10%. Accordingly, the estimated productivity loss was as follows:
Steppe: 6% 26.1 million FU / year
10% 43.6 million FU / year
Forest: 6% 26.1 million FU / year
10% 43.6 million FU / year

Step 6: Assessing the cost of rangeland degradation
Given that the price of barley is 2,270 Dh/Ton, the FU price is 2.27 Dh. Accordingly, the
average cost of rangeland degradation is estimated at 177.4 Dh million, which
constitutes 0.05% of the GDP (Table 3).

Table 3. Assessing the cost of rangeland degradation
Parameter Steppe Forest Total

Pasture area (000ha) 12,000 5,100 17,100
Degraded area (%) 46% 19%
Degraded area (000ha) 5,520 969 6,489
Land productivity (FU/ha/year) 79 558
Loss in yield in degraded area 10%
Lost yield (000FU/year) 43,608 54,070 97,678
Lost value (million Dh) 99.0 122,7 221.7
Loss in yield in degraded area 6%
Lost yield (000FU/year) 26,165 32,442 58,607
Lost value (million Dh) 59.4 73,6 133.0
Average (million Dh) 79.2 98.2 177.4

Based on the above estimations, the total cost of land degradation, including both
agricultural and rangeland, is estimated to range between Dh 975 and 1,895 million,
with an average of 1,440 million Dh, which constitutes 0.41% of the GDP.

5 THE MARKET PRICE METHOD

The market price method makes use of observed market prices for environmental goods
and services. It values changes in quantity and/or quality of a good or service by using
standard economic techniques for measuring the economic benefits from marketed
goods. This method is applied for goods and services with established markets, and
27
which have direct uses, such as plantation timber, commercial fisheries, and tourism;
some indirect uses, such as value of water from protected watersheds; and some option
values, such as gene research and forest conservation.

5.1 Applying the Market Price Method
Market price represents the value of an additional unit of that good or service, assuming
the good is sold through a perfectly competitive market. Applying the method requires
data to estimate consumer surplus and producer surplus. To estimate consumer surplus,
the demand function must be estimated, which requires time series data on the quantity
demanded at different prices, and data on other factors that might affect demand, such
as income or other demographic data. To estimate producer surplus, data is needed on
variable costs of production and revenues received.

5.2 Advantages and limitations
The advantages of the market price method include the following:
− It is relatively simple and straightforward
− It relies on actual market values
− The price, quantity and cost data are easy to obtain for established markets
− The method uses observed data of actual consumer preferences
− The method uses standard, accepted economic techniques

The application of the market price method is associated with several issues and
limitations including:
− Market data may only be available for a limited number of goods and services
provided by a resource
− Available market data may not reflect the value of all productive uses of a resource
− The true economic value of goods or services may not be fully reflected in market
transactions, due to market imperfections and/or policy failures
− Seasonal variations and other effects on price must be considered
− Cannot be easily used to measure the value of larger scale changes that are likely to
affect the supply of or demand for a good or service
− Does not deduct the market value of other resources used to bring ecosystem
products to market, and thus may overstate benefits

5.3 Illustration 1‐ Closure of a commercial fishing area due to water pollution
Water pollution is causing the closure of a commercial fishing area. The benefits of
cleanup need to be evaluated before deciding on their implementation. The market
28
price method was used because the primary resource affected is fish, for which market
data are available.

The objective is to measure the total economic surplus for the increased fish harvest
that would occur if the pollution is cleaned up. The difference between economic
surplus before and after the closure must be estimated. The results of the analysis can
be used to compare the benefits of actions that would allow the area to be reopened, to
the costs of such actions.

Step 1
Use market data to estimate the market demand function and consumer surplus for the
fish before the closure. Assume a linear demand function, where the initial market price
is $5/g and the maximum willingness to pay is $10/g. At $5/g, consumers purchased
10,000 g fish/yr, thus spending $50,000 on fish per year. The shaded area on the graph
represents the total consumer surplus received from the fish before the closure = ($10‐
$5)*10,000/2 = $25,000 (Figure 19).

12
10
P rice ($/g)
8
Consumer surplus
6
4
2
0
0 5,000 10,000 15,000 20,000 25,000
Quantity demanded (g)

Figure 19. Demand for fish before closure

Step 2
Estimate the market demand function and consumer surplus for the fish after the
closure. The market price of fish increased from $5/g to $7/g. The total quantity
demanded decreased to 6,000 g/yr. The new consumer surplus is ($10‐$7)*6,000/2 =
$9,000 (Figure 20).

29
12
10
P rice ($/g)
8 Consumer surplus
6
4
2
0
0 5,000 10,000 15,000 20,000 25,000
Quantity demanded (g)

Figure 20. Demand for fish after closure

Step 3
Estimate the loss in economic benefits to consumers by subtracting benefits after the
closure from benefits before the closure. The loss in benefits to consumers is 25,000 ‐
9,000 = $16,000.

Step 4
Estimate the losses to producers by first measuring the producer surplus before the
closure. Producer surplus is measured by the difference between the total revenues
earned from a good, and the total variable costs of producing it. Before the closure,
10,000 g of fish were caught per year. Fishermen were paid $1/g, with their total
revenues amounting to $10,000 per year. The variable cost to harvest the fish was
$0.50/g (total variable cost = $5,000 per year). The producer surplus before the closure
was $10,000 ‐ $5,000 = $5,000.

Step 5:
Measure the producer surplus after the closure (Table 4).

Step 6:
Calculate the loss in producer surplus due to the closure (Table 4).

30
Table 4. Summary of calculations
Before closure After closure
Fish caught per year = 10,000 g Fish caught per year = 6,000 g
Fishermen were paid $1/g Fishermen were paid $1/g
Total revenues = 1 × 10,000 = $10,000 per year Total revenues = 1 × 6,000 = $6,000 per year
Variable cost to harvest fish = $0.50/g Variable cost to harvest fish = $0.60/g
Total variable cost = 0.5 × 10,000 = $5,000 per year Total variable cost = 0.5 × 6,000 = $3,600 per year
The producer surplus = $10,000 ‐ $5,000 = $5,000 The producer surplus = $6,000 ‐ $3,600 = $2,400
Loss in producer surplus due to the closure = $5,000 ‐ $2,400 = $2,600

Step 7:
Calculate the total economic losses due to the closure. Total economic loss = lost
consumer surplus ($16,000) + lost producer surplus ($2,600). Thus, the benefits of
cleaning up pollution in order to reopen the area are equal to $18,600.

Finally, it is important to note that this example is based on assumptions that greatly
simplify the analysis. Some factors might make the analysis complicated. For instance,
some fishermen might switch to another fishery after the closure, and thus losses would
be lower.

6 DAMAGE COST AVOIDED, REPLACEMENT COST, AND
SUBSTITUTE COST METHODS
These methods estimate values of ecosystem services based on the costs of avoiding
damages due to lost services, the cost of replacing ecosystem services, or the cost of
providing substitute services. These methods assume that the costs of avoiding damages
or replacing ecosystems or their services provide useful estimates of the value of these
ecosystems or services. They also assume that if people incur costs to avoid damages
caused by lost ecosystem services, or to replace the services of ecosystems, then those
services must be worth at least what people paid to replace them. The damage cost
avoided, replacement cost, and substitute cost methods are most appropriately applied
in cases where damage avoidance or replacement expenditures have actually been, or
will actually be, made.

The damage cost avoided method uses either the value of property protected or the
cost of actions taken to avoid damages as a measure of the benefits provided. For
example, if a wetland protects adjacent property from flooding, the flood protection
31
benefits may be estimated by the damages avoided if the flooding does not occur or by
the expenditures property owners make to protect their property from flooding. The
replacement cost method uses the cost of replacing an ecosystem or its services as an
estimate of the value of the ecosystem or its services. As for the substitute cost method,
it uses the cost of providing substitutes for an ecosystem or its services as an estimate of
the value of the ecosystem or its services. For example, the flood protection services of a
wetland might be replaced by a retaining wall or levee.

6.1 Applying the methods
Step 1: Assess the environmental service provided
This is done by specifying the relevant services, how they are provided, to whom they
are provided, and the levels provided. For example, in the case of flood protection, this
would involve predictions of flooding occurrences and their levels, as well as the
potential impacts on property.

Steps 2 and 3
For the damage cost avoided method, estimate the potential physical damage to
property, either annually or over some discrete time period. Then calculate either the
dollar value of potential property damage, or the amount that people spend to avoid
such damage.

For the replacement or substitute cost method, identify the least costly alternative
means of providing the service and calculate the cost of the substitute or replacement
service. Then establish public demand for this alternative, which requires gathering
evidence that the public would be willing to accept the substitute or replacement
service in place of the ecosystem service.

Examples of applications of these methods
− Valuing improved water quality by measuring the cost of controlling effluent
emissions
− Valuing erosion protection services of a forest or wetland by measuring the cost of
removing eroded sediment from downstream areas
− Valuing the water purification services of a wetland by measuring the cost of filtering
and chemically treating water
− Valuing storm protection services of coastal wetlands by measuring the cost of
building retaining walls
− Valuing fish habitat and nursery services by measuring the cost of fish breeding and
stocking programs
32
The advantages of these methods include:

− They may provide a rough indicator of economic value, subject to data constraints
and the degree of similarity or substitutability between related goods.
− They are less data and resource‐intensive, whereby it is easier to measure the costs
of producing benefits than the benefits themselves, when goods, services, and
benefits are non‐marketed.
− Data or resource limitations may rule out valuation methods that estimate
willingness to pay
− They provide surrogate measures of value that are as consistent as possible with the
economic concept of use value, for services which may be difficult to value by other
means

Issues and limitations associate with these methods include:
− They do not provide a technically correct measure of economic value, which is
properly measured by the maximum amount of money or other goods that a person
is willing to give up to have a particular good, less the actual cost of the good.
− They assume that expenditures to repair damages or to replace ecosystem services
are valid measures of the benefits provided.
− They do not consider social preferences for ecosystem services, or individuals’
behaviour in the absence of those services.
− They may be inconsistent because few environmental actions and regulations are
based solely on benefit‐cost comparisons, particularly at the national level. For
instance, the cost of a protective action may exceed the benefits to society.
Alternatively, the cost of actions already taken to protect an ecological resource will
underestimate the benefits of a new action to improve or protect the resource.
− The replacement cost method requires information on the degree of substitution
between the market good and the natural resource. Substitute goods are unlikely to
provide the same types of benefits as the natural resource.
− The goods/services being replaced probably represent only a portion of the full
range of services provided by the natural resource. Thus, the benefits of an action to
protect or restore the ecological resource would be understated.
− Without evidence that the public would demand the least cost alternative for the
affected ecosystem, this methodology is not an economically appropriate estimator
of ecosystem service value.

33
6.3 Illustration 1‐ Restoration of degraded wetlands
An agency is considering restoring some degraded wetlands in order to improve their
ability to protect the surrounding area from flooding. Cost‐based methods are used
because the agency is only interested in valuing the flood protection services of the
wetlands and because a limited budget is available for the valuation study.

Step 1
Conduct an ecological assessment of the flood protection services provided by the
wetlands to determine the current level of flood protection and the expected level of
protection after full restoration of the wetlands

Step 2
The Damage Cost Avoided method is applied using two different approaches
− Use the information on flood protection obtained in the first step to estimate
potential damages to property if flooding were to occur. Estimate, in dollars, the
probable damages to property if the wetlands are not restored.
− Determine whether nearby property owners have spent money to protect their
property from the possibility of flood damage by purchasing additional insurance or
by reinforcing their basements. These avoidance expenditures would be summed
over all affected properties to provide an estimate of the benefits from increased
flood protection.

Note that the two approaches are not expected to produce the same estimate.

The replacement cost method cannot be applied since flood protection services cannot
be directly replaced.

The substitute cost method can be applied since a substitute for the affected services
such as a retaining wall or a levee might be built to protect nearby properties from
flooding. In this case, estimate the cost of building and maintaining such a wall or levee.
Also determine whether people would be willing to accept the wall or levee in place of a
restored wetland.

Step 3
Compare the cost of the property damages avoided, or of providing substitute flood
protection services to the restoration costs to determine whether it is worthwhile to
restore the flood protection services of the wetlands.

34
6.4 Illustration 2: Soil Erosion in Korea using the replacement cost method
Urban growth and industrial development in Korea caused farming activities to move
into hilly upland area. Inadequate soil management techniques and errors in field layout
and construction resulted in soil erosion of these upland areas. It is required to evaluate
the benefits of proposed new soil management techniques, including retaining the soil
and nutrients on the upland areas and protecting downslope areas from damage by the
eroded soil.

The researchers measured the cost of physically replacing lost soil, nutrients, and water
in upland areas and the cost of compensating for downstream losses by:
− calculating the annual soil loss per hectare, nutrient loss/hectare, and water
runoff/hectare (Table 5)
− calculating the expected losses, in terms of replacement costs, if the new
management practices were not implemented. The net present value of the losses
amounted to W 2,039,662, using a 15 year time horizon.

Table 5. Cost of replacement activities
Measured parameter Cost (W/ha/yr)
Recovering and replacing eroded soil 80,000
Fertilizer and spreading to replace lost nutrients 31,200
Annual field maintenance and repair 35,000
Damage to downstream fields in lost production 30,000
Supplemental irrigation to replace lost water 92,000
Total cost of soil erosion under existing management 268,200
Net present value using a 15 year time horizon 2,039,662

Then calculate the costs with the new management techniques, including compensation
payments, soil replacement, nutrient replacement, and mulching. The net present value
of the costs of new management techniques was estimated at W 1,076,742.

The cost of new management techniques (W 1,076,742) is about half the replacement
cost (W 2,039,662). Thus, the proposed preventive steps are worth implementing.

6.5 Illustration 3: Oil spill damage in Puerto Rico (replacement cost method)
The Zoe Colocotroni was a ship that spilled oil off the coast of Puerto Rico. The case was
taken to court to determine the monetary damages resulting from the spill’s effects on
the local ecosystem. The replacement cost method was used to estimate monetary
35
damages. This was done by calculating the number of lower trophic organisms killed by
the spill and adding up the cost of purchasing these organisms from a scientific
catalogue. However, the US Court of Appeals rejected the use of the replacement cost
method in this case, as it was not planned to actually purchase the organisms and
restore them to the ocean. By the time such a plan could have been carried out, the
organisms would have restored themselves. Thus the costs of purchasing the organisms
did not accurately measure the actual ecosystem damages.
36

Session 5
THE TRAVEL COST METHOD
SESSION 5

7 THE TRAVEL COST METHOD

The travel cost method (TCM) is used to estimate use values associated with ecosystems
or sites that are used for recreation. The concept of using travel costs to value recreation
was first proposed by Hotelling in 1949 and formalised by Clawson (1959). This concept
assumes that the value of the site or its recreational services is reflected in how much
people are willing to pay to get there. This method is useful in planning for the provision
and management of outdoor recreation, such as changes in access costs for a
recreational site, elimination of an existing recreational site, addition of a new
recreational site, and changes in environmental quality at a recreational site.

7.1 Theory
The travel cost method is based on the premises that the cost an individual incurs in
visiting a site reflects his valuation to the site, and that individuals will react to an
increase in entry fees the same way as they would react to an increase in travel cost.
That is, at some high level of entry fee or travel cost, no one would visit the site. By
asking visitors questions relating to where they had travelled from and the costs they
had incurred, and relating this information to the number of visits they make per year, a
trip generation function can be generated for the recreational site under question. An
aggregate demand curve is then derived for visits to the sites per year. The demand
curve shows how many visits people would make at various travel cost prices and is thus
used to estimate the willingness to pay for people to visit the site. The curve is
downward sloping, where the travel cost is inversely related to the number of visits.
That is, people who live farther from the site will visit it less often, because it costs more
in terms of actual travel costs and time to reach the site. Other factors that might affect
the number of visitors to the site include a visitor’s income, the availability of alternative
sites or substitutes, ad factors like personal interest in the type of site, or level of
recreational experience.

Travel cost models can assume a linear functional form or a log‐linear functional form.
Figure 21 illustrates the linear functional form.

37

Figure 21. Linear demand curve

V = α + βC +γS
Where: V = number of visits to a site
α = constant
β = coefficient of C, usually negative
C = cost of travel to gain access to site
γ = coefficient of S, probably negative
S = cost of travel to gain access to the respondent’s preferred substitute site

The travel cost model is used to estimate α, β, and γ. The estimated consumer surplus
(CS) for an individual making q visits to the site is as follows:

CS = ‐q2 / 2β

Note that this functional form implies finite visits at zero costs and it has a critical cost
above which negative visits will be demanded.

The Log‐Linear functional form is illustrated in Figure 22.

Figure 22. Log‐linear demand curve

38
lnV = α + βC +γS

Where: V = number of visits to a site
α = constant
β = coefficient of C, usually negative
C = cost of travel to gain access to site
γ = coefficient of S, probably negative
S = cost of travel to gain access to the respondent’s preferred substitute site

The travel cost model is used to estimate α, β, and γ. The estimated consumer surplus
(CS) for an individual making q visits to the site is as follows:
CS = ‐q / β

This functional form has been widely used in TCM models. It implies a finite number of
visits at zero cost, and it never predicts negative visits even at very high costs.

7.2 Forms of TCMs
There are three forms of TCMs: the zonal TCM, the individual TCM, and the random
utility approach.

7.2.1 Zonal TCM approach
In the Zonal TCM approach, concentric zones are defined around each site such that the
cost of travel from all points in a given zone is approximately constant (Figure 23).
Visitors to the site are grouped according to their zone of origin. This approach is the
simplest and least expensive. It can rely on secondary data and it is suitable when
visitors’ origins are relatively evenly distributed and it is unsuitable for linear
recreational sites.

Figure 23. Concentric zones around site S

Steps to apply the Zonal TCM:
1. Identify the site and collect data from visitors on their points of origin, number of
visits from each origin zone, round‐trip mileage from each zone, travel costs per
mile, and demographic information about people from each zone.
2. Define zones of origin and allocate visitors to the appropriate zone. Zones are
commonly defined based on the straight line distance from the site. Geographic
39
Information system (GIS) techniques allow redefining zones based on road distances
or travel times.
3. Calculate zonal visits per household to the site by estimating the number of
households per zone and dividing the number of household visits originating in the
zone by the total number of households in the zone.
4. Calculate the average travel cost from each zone to the site.
5. Use census data to derive variables relating to zonal socio‐economic characteristics.
6. Use data collected above to estimate the trip generation function:

Vh/Nh = f(Ch,Xh,Sh)
where: Vh = # of visits from zone h
Nh = population of zone h
Ch = travel cost from zone h
Xh = a vector of socio‐economic variables that explain changes in V
Sh = a vector of substitute recreational site characteristics for residents of zone h

7. Derive the demand curve
8. Obtain zonal household consumer surplus estimates through integrating under the
demand curve
9. Calculate aggregate zonal consumer surplus by multiplying consumer surplus per
household by the number of households in each zone
10. Aggregate zonal consumer surplus estimates to obtain an estimate of total consumer
surplus or the benefits of the site

7.2.2 Individual TCM methodology
The Individual TCM uses the number of visits made per year by an individual, rather than
the zonal visits, as the basis for generating the demand curve. This method requires
more data collection, as compared to the zonal TCM, and slightly more complicated
analysis. Yet, it is more flexible. It is applicable at a wider range of sites, and it gives
more precise and statistically efficient results.

Steps in applying the Individual TCM:
1. Identify the site.
2. Use an on‐site questionnaire survey to collect data from visitors relating to the cost
of travel to the site, the number of visits to the sites, recreational preferences, and
socio‐economic characteristics.
3. Specify the trip‐generation function:

40
Vij = f(Cij,Tij,Qi,Sj, Yi)

where: Vi = # of visits made by individual i to site j
Cij = travel cost incurred by individual i when visiting site j
Qj = a vector of perceived qualities of the recreation site j
Sj = a vector of available substitute recreational site characteristics
Yi = household income of individual i

4. Estimate the travel cost model taking truncation into account for non‐visitors
behavior
5. Derive demand curve and obtain household consumer surplus estimates through
integrating under the demand curve
6. Calculate aggregate consumer surplus for the site

Note that more complicated and thorough applications of the individual TCM may also
collect information about:
− exact distance that each individual travelled to the site
− exact travel expenses
− the length of the trip
− the amount of time spent at the site
− other locations visited during the same trip, and amount of time spent at each
− substitute sites that the person might visit instead of this site, and the travel distance
to each
− other reasons for the trip (is the trip only to visit the site, or for several purposes)
− quality of the recreational experience at the site, and at other similar sites (e.g.,
fishing success)
− perceptions of environmental quality at the site
− characteristics of the site and other, substitute, sites

7.2.3 The random utility approach
This approach allows for much more flexibility in calculating benefits, yet it is the most
complicated and expensive. It is best suited to estimate benefits for specific
characteristics of sites, rather than for the site as a whole, and it is most appropriate
when there are many substitute sites. The random utility approach focuses attention on
the choice among alternative sites for any given recreational trip and assumes the visitor
is comparing utilities for available destinations. It first models the individual’s decision
on whether or not to participate in recreational activity, and then models the decision
on the number of visits. Models used include probit, tobit, and logit.
41
7.3 Advantages and limitations of TCMs
Advantages of the TCM include the following:
− It is based on real data rather than stated willingness to pay and as such provides
true values
− It is relatively inexpensive to apply
− On‐site surveys provide opportunities for large sample sizes, as visitors tend to be
interested in participating
− The results are relatively easy to interpret and explain

However, the TCM is associated with various issues and limitations that should be taken
into consideration, including the following:
− The method assumes that people perceive and respond to changes in travel costs
the same way that they would respond to changes in admission price.
− The simplest models assume that individuals take a trip for the single purpose of
visiting a specific recreational site. Thus, if a trip has more than one purpose, the
value of the site may be overestimated.
− Defining and measuring the opportunity cost of time, or the value of time spent
travelling, can be problematic. There is no consensus on how to account for time,
whereby travel time may be a benefit if people enjoy the travel itself, leading to an
overestimation of the value of the site.
− The availability of substitute sites will affect values. For example, if two people travel
the same distance, they are assumed to have the same value. However, if one
person has several substitutes available but travels to this site because it is
preferred, this person’s value is actually higher. Some of the more complicated
models account for the availability of substitutes.
− The assumption that travel costs reflect recreational value may not always be true.
Those who value certain sites may choose to live nearby, resulting in low travel
costs, but high values for the site.
− Visits to certain sites could be seasonal and thus survey results could be biased
unless survey is conducted for a long period.
− Interviewing visitors on site can introduce sampling biases to the analysis.
− Measuring recreational quality and relating it to environmental quality can be
difficult.
− Standard travel cost approaches provides information about current conditions, but
not about gains or losses from anticipated changes in resource conditions.
− The demand function requires enough difference between distances travelled to
affect travel costs and for differences in travel costs to affect the number of trips
42
made. Thus, the TCM is not well suited for sites near major population centres
where many visitations may be from "origin zones" that are close to one another.
− The travel cost method is limited in its scope of application because it requires user
participation. Thus, it cannot be used to assign values to on‐site environmental
features and functions that users of the site do not find valuable. It cannot be used
to value off‐site values supported by the site, or to measure non‐use values. It
excludes non‐users who may have significant values for the site
− Certain statistical problems can affect the results, including, choice of the functional
form used to estimate the demand curve, choice of the estimating method, and
choice of variables included in the model

7.4 Illustration‐ Recreational fishing site
A site used mainly for recreational fishing is threatened by development in the
surrounding area. Pollution and other impacts from this development could destroy the
fish habitat at the site, resulting in a serious decline in, or total loss of, the site’s ability
to provide recreational fishing services. Resource agency staff wants to determine the
value of programs or actions to protect fish habitat at the site.

The TCM was selected because the site is primarily valuable to people as a recreational
site. In addition, this site has no endangered species or other highly unique qualities that
would make non‐use values for the site significant. Furthermore, the expenditures for
projects to protect the site are relatively low. Alternative approaches, including the
contingent valuation or contingent choice methods, might produce more precise
estimates of values for specific characteristics of the site and could capture non‐use
values. However, they are considerably more complicated and expensive to apply.

7.4.1 Application of the Zonal Travel Cost Approach

Step 1
Define a set of zones surrounding the site by concentric circles around the site, or by
geographic divisions such as metropolitan areas or counties surrounding the site at
different distances.

Step 2
Collect information on the number of visitors from each zone and the number of visits
made in the last year. For this example, assume that the staff at the site keeps records of
the number of visitors and their zip code, which can be used to calculate total visits per
zone over the last year.
43
Step 3
Calculate the visitation rates per 1,000 population in each zone, which is the total visits
per year from the zone, divided by the zone’s population in thousands (Table 6).

Table 6. Visitation rates for the site
Zone Total Visits/Year Zone Population Visits/1000
0 400 1,000 400
1 400 2,000 200
2 400 4,000 100
3 400 8,000 50
Beyond 3 0
Total visits 1,600

Step 4
Calculate the average round‐trip travel distance and travel time to the site for each
zone. Using average cost per mile and per hour of travel time, calculate the travel cost
per trip, by assuming that this cost per mile is USD 0.30. The cost of time is calculated
using the simplest approach involving the average hourly wage. It is assumed that the
average hourly wage is 9 USD/hour or $0.15 USD/minute for all zones; although in
practice it is likely to differ by zone (Table 7).

Table 7. Travel cost calculation
Zone Round Trip Round Trip Distance × Travel Time × Total Travel
Travel Travel Time Cost/mile ($.30) Cost/minute ($.15) (Cost/Trip)
Distance
0 0 0 0 0 0
1 20 30 $6 $4.50 $10.50
2 40 60 $12 $9.00 $21.00
3 80 120 $24 $18.00 $42.00

Step 5
Estimate the trip generation function using regression analysis. This allows the
estimation of the demand function for the average visitor. The analysis might include
demographic variables, such as age, income, gender, and education levels, using the
average values for each zone. To maintain the simplest possible model, calculating the
equation with only the travel cost and visits/1000:

Visits/1000 = 330 – 7.755 * Travel Cost
44
Step 6
Construct the demand function for visits to the site. The first point on the demand curve
is the total visitors to the site at current access costs, or 1,600 visits per year. The other
points are found by estimating the number of visitors with different hypothetical
entrance fees. For example, start by assuming a $10 entrance fee, plugging this into the
estimated regression equation, V = 330 – 7.755C, gives the data in Table 8.

Table 8. Deriving the demand curve
Zone Travel Cost Visits/1000 Population Total
plus $10 Visits
0 $10 252 1,000 252
1 $20.50 171 2,000 342
2 $31.00 90 4,000 360
3 $52.00 0 8,000 0
Total Visits 954

This gives the second point on the demand curve: 954 visits at an entry fee of $10. In the
same way, the number of visits for increasing entry fees can be calculated (Table 9).
These points give the demand curve for trips to the site (Figure 24).

Table 9. Number of visits for increasing entry fees
Entry Fee Total Visits
$20 409
$30 129
$40 20
$50 0

60
Added cost per trip
50
40
30
20
10
0
0 400 800 1200 1600 2000
Total visits

Figure 24. Demand curve for the trips to the site

45
Step 7
Estimate the total economic benefit of the site to visitors by calculating the consumer
surplus, or the area under the demand curve. The total estimate of economic benefits
from recreational uses of the site is around $23,000 per year, or around $14.38 per visit.
Thus, if the actions to protect the site cost less than $23,000 per year, the cost will be
less than the benefits provided by the site. If the costs are greater than this, the staff will
have to decide whether other factors make them worthwhile.

7.4.2 Application of the Individual Travel Cost Approach
Step 1
Conduct a survey of visitors on:
− location of the visitor’s home –distance travelled to the site
− how many times they visited the site in the past year or season
− the length of the trip
− the amount of time spent at the site
− travel expenses
− the person’s income or other information on the value of their time
− other socioeconomic characteristics of the visitor
− other locations visited during the same trip, and amount of time spent at each
− other reasons for the trip (is the trip only to visit the site, or for several purposes)
− fishing success at the site (how many fish caught on each trip)
− perceptions of environmental quality or quality of fishing at the site
− substitute sites that the person might visit instead of this site

Step 2
Estimate the relationship between number of visits and travel costs and other relevant
variables using regression analysis. Use individual data rather than data for each zone.
The regression equation gives the demand function for the “average” visitor to the site
and the area below this demand curve gives the average consumer surplus.

Step 3
Multiply the average consumer surplus by the total relevant population in the region
where visitors come from to estimate the total consumer surplus for the site.

Step 4
Value estimates can be improved by adding other factors to the statistical model,
including additional data about visitors, substitute sites, and quality of the site. Including
46
information about the quality of the site allows the researcher to estimate the change in
value of the site if its quality changes. In this case, two different demand curves would
be estimated; one for each level of quality. The area between these two curves is the
estimate of the change in consumer surplus when quality changes

7.4.3 Application of the Random Utility Approach
The agency might want to value the economic losses from a decrease in fish
populations, rather than from loss of the entire fish stock. The random utility approach
focuses on choices among alternative sites which have different quality characteristics. It
assumes that individuals will pick the site that they prefer, out of all possible fishing
sites. This model requires information on all possible sites that a visitor might select,
their quality characteristics, and the travel costs to each site.

Step 1
Conduct a telephone survey of randomly selected residents of the state, asking residents
if they go fishing or not. If they do, then ask a series of questions: how many fishing trips
they took over the last year (or season), where they went, the distance to each site, and
other information similar to the information collected in the individual travel cost
survey. One might also ask questions about fish species targeted on each trip, and how
many fish were caught.

Step 2
Estimate a statistical model that can predict the choice to go fishing or not and the
factors that determine which site is selected. If quality characteristics of sites are
included, the model can estimate values for changes in site quality, for example the
economic losses caused by a decrease in catch rates at the site.

7.5 Case application‐ Hell Canyon preservation
The following is a case application of the Travel Cost Method as part of the efforts to
preserve the.

The Hell Canyon is situated on the Snake River separating Oregon and Idaho. It offers
spectacular vistas and outdoor amenities to visitors and supports important fish and
wildlife habitat. It also has economic potential as a site to develop hydropower. Yet,
generating hydropower there would require building a dam. The dam and resulting lake
would significantly and permanently alter the ecological and aesthetic characteristics of
Hell Canyon. During the 1970’s, there were controversies regarding the future of Hell
47
Canyon. Thus, environmental economists were asked to develop an economic analysis
justifying the preservation of Hell Canyon in its natural state.

Accordingly, the net economic value (cost savings) of producing hydropower at Hell
Canyon was $80,000 higher than at the "next best" site which was not environmentally
sensitive. The recreational value of Hell Canyon was estimated via a low‐cost/low
precision travel‐cost survey at about $900,000. Even if the "true value" of recreation at
Hell Canyon was ten times less than their estimate, it would still be greater than the
$80,000 economic payoff from generating power there as opposed to the other site.
Congress voted to prohibit further development of Hell Canyon, based largely on the
results of this non‐market valuation study.

7.6 Case‐study: The value of forestry in Britain
The travel cost method was used to estimate the total recreational value of Forestry
Commission Woodland in Great Britain, by Willis. In order to do this it was first
necessary to define some representative forest types. Using a statistical technique called
cluster analysis, 14 similar groups of forests were identified and travel cost studies were
undertaken of sample forests from each of these groups. Interviews were undertaken
with visitors in 15 forests. Visitors to sites were allocated into 20 concentric distance
zones, at five‐mile intervals. Those from further away were allocated together into a
single further zone. Willis then estimated relationships between the visit rate from each
zone and the transport costs, taking account of the socio‐economic characteristics of the
zones.

These relationships, referred to as trip generating functions, were then used in order to
estimate the consumer surplus, or the total value of each visit, represented by the
maximum willingness to pay, less the cost of each trip. Summing across all visitors to
each site produced estimates of the total value for each site. Some of the results are
shown in Table 10. This shows the estimated consumer surplus per visit, the consumer
surplus per hectare of forest at the survey site, the total annual number of visitors at all
of the forests within this group of forests and the total consumer surplus generated by
this group of forests.

48
Table 10. Consumer surplus estimates for non‐priced recreation for forest districts
Forest Consumer surplus Consumer surplus Annual number of Total consumer
per recreational per hectare of visitors to the cluster surplus
visitor (£) forest of forests (1000s) (£million)
(£/ha)
New Forest 1.43 425 8,000 11,440
Loch Awe 3.31 <1 34 0.114
Brecon 2.26 27 2,117 4.784
South Lakes 1.34 31 1,968 2.637
Thetford 2.66 14 4,742 10.718

By summing all of the estimates of consumer surplus, it is possible to obtain an estimate
of the value of non‐priced recreation for Forestry Commission forests as a whole. This
gives a figure of £53 million. This compares with a figure of £71 million income to
Forestry Enterprise, the timber production arm of the Forestry Commission, from the
sale of timber 1988. In this year, there was an annual net subsidy of £8.5 million paid on
forestry recreation and amenity. This amount represents a net cost to the Forestry
Commission of providing facilities, such as visitor centers, forest walks, wildlife
conservation and amenity tree planting. The figures indicated the importance of
recreation in the role of the Forestry Commission and suggested that its provision for
non‐priced recreation represents good value.

49

50

&
Session 6
THE HEDONIC PRICING METHOD

THE AVERTING BEHAVIOR METHOD
SESSION 6

8 THE HEDONIC PRICING METHOD

The Hedonic Pricing Method (HPM) is used to estimate the value or price of an
environmental feature by looking at actual markets where the attributes are traded. It is
most commonly applied in relation to the public’s willingness to pay for housing/
property and in labour markets for health economic valuation.

8.1 Theory
The HPM is based on the assumption that people value the characteristics of a good, or
the services it provides, rather than the good itself. Thus, prices will reflect the value of a
set of characteristics, including environmental characteristics that people consider
important when purchasing the good. For example, the price of a car reflects the
characteristics of that car, in terms of transportation, comfort, style, luxury, fuel
economy, etc. One can value the individual characteristics of a car or other good by
looking at how the price people are willing to pay for it changes when the characteristics
change.

The HPM assumes that the price of a product is a function of its characteristics; the
range of product choices is continuous; the choice is based on perfect information and
with no mobility restrictions; and the amount of a particular characteristic can be varied
independently.

The HPM is relatively straightforward and uncontroversial to apply, because it is based
on actual market prices and fairly easily measured data. If data are readily available, it
can be relatively inexpensive to apply. However, if data must be gathered and compiled,
cost can increase substantially.

The HPM is usually applied ex post, to examine the effects of developments and policies
after implementation. It can be used to estimate economic benefits or costs associated
with:
− Environmental risk. For example, the effect of information of different levels of
earthquake damage on property values
− Environmental quality, including water pollution, such as the impact on waterfront
property; air pollution; noise, such as the impact of highway noise and aircraft noise;
soil quality and erosion
51
− Environmental amenities, such as aesthetic views, proximity to recreational sites,
hazardous sites, waste management sites, etc.

The hedonic technique may also be applied to wage rates. It is based on the assumption
that an individual choice of job may be influenced by the job location if it improves
access to desirable services. The main issue with this technique is high unemployment,
where individuals cannot satisfy their demand for environmental improvement due to
unavailability of suitable jobs in areas of higher environmental quality.

8.2 Applying the Hedonic Pricing Method using housing prices
The price of a house is related to the structural characteristics of the house (plot size,
number of rooms, garage space, structural integrity, etc.), local socio‐economic and
public sector characteristics (unemployment rate, social conditions, quality of schools,
etc.) and local amenity (environmental quality, access to services, communications, etc.).
Upon controlling for non‐environmental factors, any remaining differences in price can
be attributed to differences in environmental quality. For example, if all characteristics
of houses and neighbourhoods in a given area were the same, except for the level of air
pollution, then houses with better air quality would cost more. This higher price reflects
the value of cleaner air to people who purchase houses in the area.

Step 1
Collect the needed information. Data requirements fall into two broad categories:
− Specific data: cross‐section and/or time‐series data on property values and property
and household characteristics for a well‐defined market area including, structural
and locational information, and details of purchase or tenancy (price, date, personal
and financial particulars of the purchasers).
− Local data: pertaining to the area where transaction occurred including,
neighbourhood, amenity, environmental, and socio‐economic factors, and a
measure or index of the environmental amenity of interest.

Sources of data depend on country/ state involved. These may include government
agencies, estate agents and realtors, mortgage granting institutions, GIS, postcode
classification of neighbourhood types, etc.

Step 2
Analyze the data using regression analysis, relating the price of the property to its
characteristics and the environmental characteristics of interest. The analysis will
indicate how much property values will change for a small change in each characteristic,
52
holding all other characteristics constant. This analysis may be complicated by a number
of factors. For example, the relationship between price and characteristics of the
property may not be linear, whereby prices may increase at an increasing or decreasing
rate when characteristics change. Another factor is multicollinearity, where many of the
variables are likely to be correlated, so that their values change in similar ways. This can
lead to understating the significance of some variables in the analysis.

Different functional forms and model specifications for the analysis must be considered.
Restrictive functional forms include: linear, semi‐log, log‐linear, and linear Box‐Cox.
These involve simple and transparent relationships between variables. Other more
flexible functional forms may also be used.

The advantages of the HPM include:
− It can be used to estimate values based on actual behaviour and choices.
− Property markets are relatively efficient in responding to information, so can be
good indications of value.
− Property records are typically very reliable.
− Data on property sales and characteristics are readily available through many
sources, and can be related to other secondary data sources to obtain descriptive
variables for the analysis.
− It is a versatile method that can be adapted to consider several possible interactions
between market goods and environmental quality.

The issues and limitations that are associated with the HPM include:
− The scope of environmental benefits that can be measured is limited to things that
are related to property values.
− It will only capture people’s willingness to pay for perceived differences in
environmental attributes, and their direct consequences. Thus, if people aren’t
aware of the linkages between the environmental attribute and benefits to them or
their property, the value will not be reflected in home prices.
− It assumes that people are free to select the combination of characteristics satisfying
their preferences, given their income. However, the housing market may be affected
by outside influences, like taxes, interest rates, or other factors.
− It is relatively complex to implement and interpret, requiring a high degree of
statistical expertise.
− The results depend heavily on model specifications.
53
− It is susceptible to multicollinearity i.e. a high degree of correlation among the
variables under study which makes it difficult to estimate their individual effect. For
example, air pollution measures where the levels of one form of pollution (PM) is
closely related to levels of another (NO2)
− Large amounts of data must be gathered and manipulated.
− The time and expense to carry out an application depends on the availability and
accessibility of data.

8.4 Illustration‐ Open space preservation program
Agency staff wants to measure the benefits of an open space preservation program in a
region where open land is rapidly being developed. The Hedonic Pricing Method is used
because housing prices in the area appear to be related to proximity to open space, and
because data on real estate transactions and open space parcels are readily available.
Alternative approaches include the travel cost method, if the open space of concern is
used mainly for recreation. Survey‐based methods, like contingent valuation or
contingent choice may be used, but these are more difficult and expensive to apply.

Step 1
Collect and compile data on residential property sales in the region for a specific time
period including
− Selling prices and locations of residential properties
− Structural characteristics (lot size, number and size of rooms, number of bathrooms)
− Local socio‐economic characteristics
− Local amenity including the environmental characteristic of concern‐ the proximity
to open space

Collect data on the amount and type of open space within a given radius of each
property, noting the direct proximity of a property to open space. Data may be obtained
from computer‐based GIS maps.

Step 2
Statistically estimate a function that relates property values to the property
characteristics, including the distance to open space. The resulting function measures
the portion of the property price that is attributable to each characteristic. Estimate the
value of preserving open space by looking at how the value of the average home
changes when the amount of open space nearby changes

54
Step 3
Evaluate agency investments in open space preservation and determine the benefits of
preserving each parcel, which can then be compared to the cost

8.5 Case Study 1: Values of Environmental Amenities in Marickville and Rockdale,
Sydney
An early study of hedonic prices was undertaken in two municipalities in Sydney,
Marrickville and Rockdale by Peter Abelson. Data were collected from house sales in
these areas in 1972 and 1973, giving a total sample of 1,414 observations. Information
was included on about twenty characteristics of each property and its local
environment. These included the size, age and construction of the house, the size of the
plot of land, the type and amount of traffic on the road outside the house, access to
public transport and shops, aircraft noise, zoning and whether there were any plans for
road widening. Some of these variables could be measured directly, such as the number
of rooms. Some were measured on a subjective scale. For example, road traffic levels
were described on a three point scale (noisy, normal and quiet). For a third group of
variables it was only possible to define whether or not an item was present, such as
whether or not the house had a double garage.

Various different types of statistical relationships between house prices and
characteristics were tested. These were able to explain about two thirds of the variation
in house prices. The major determinants of house prices were found to be house quality
and size and plot size. Aircraft noise was found to be a significant determinant of house
prices in Marrickville. The results indicated that the price of a very noisy house would be
about $1,250 less than that of a quiet house. For higher priced houses in Rockdale the
difference was about $3250. The price difference between a house on a noisy road in
Marrickville and one on a quiet road was about $1,400 or 5.6 per cent of the house
price. The value of a good view (assessed subjectively) in Rockdale was valued at about
$440 compared with an average view, which in turn was worth $440 more than a poor
view.

Abelson recognizes the limitations of his analysis. There were difficulties in measuring
several of the housing attributes. The hedonic prices which were estimated may not
represent the willingness to pay for amenities because buyers may not have been well
informed when making decisions about house purchase or the housing market may not
have been in equilibrium, i.e. residents may not have been able to select the houses and
characteristics which would best meet their preferences. Abelson did not undertake the
55
second stage to the analysis, so that the estimates may only relate to small changes in
environmental characteristics.

8.6 Case‐study 2: Quarries in Mount Lebanon
Quarries can cause various environmental impacts, including destruction of natural
vegetation and habitats, air pollution from dust, and a reduction in aesthetic value in
and around such localities. There are more than 700 quarries in Lebanon, of which more
than half are in Mount Lebanon province. Many of the quarries are abandoned with
minimal or no rehabilitation and many have been established with little consideration
for the environment and surrounding human settlements. While it would be a significant
undertaking to assess the damage cost of all the quarries, the impact of four quarries on
surrounding settlements in Mount Lebanon was assessed in this study.

8.6.1 The methodology
The cost of degradation due to quarrying was estimated by measuring the loss in land
and apartment values associated with a reduction in aesthetic value. A survey of impacts
on surrounding areas around four quarries in Mount Lebanon (Shnanaayer, Abou‐Mizan,
Antelias, and Nahr Ibrahim) was conducted. Additional impacts recorded to occur during
quarries operation include, structural damage to buildings and infrastructures from
explosives used, dust pollution, and traffic congestion due to quarry transport activities.
These impacts represent a fraction of the losses in land and apartment values and were
not included in this assessment.

The degradation cost associated with the surveyed quarries cannot be extrapolated to
the other quarries in Lebanon (>700), due to differentials in property prices and
locations

Step 1: Estimate the loss in land value around surveyed quarries
First, determine the area of land affected. Then, multiply the area of land by the decline
in land price, based on information from municipality officials and real estate agents
(Table 11). Note that the area around Nahr Ibrahim quarry experienced a reduction in
land prices during quarry operation due to traffic congestion and dust. However, after
quarry closure land prices were no longer affected anymore (contrary to other quarries).

56
Table 11. Calculation of loss in land prices due to quarrying
Quarry Areas affected Land area Decline in land Loss in land
affected price value
(m2) (US $/m2) (US $ million)
Shnanaayer Shnanaayer municipality 600,000 125 75.0
Abou‐Mizan Shirine, Bteghrine, and other 175,000 7.5 1.3
villages
Antelias Raboueh and Qornet Chehouane 100,000 50 5.0
municipality
Total 875,000 93 81.3
Annualized loss (“low”)* 8.1
Annualized loss (“High”)* 9.6

Step 2: Estimate the loss in apartment values around surveyed quarries
First, determine the number of apartments affected and their surface areas. Then,
multiply the estimated are by the decline in apartment price, based on information from
municipality officials and real estate agents. Only the quarries in Shnanaayer and
Antelias are overlooked by residential buildings (Table 12).

Table 12. Calculation of loss in apartment prices due to quarrying
Quarry Areas affected Apartments Decline in Loss in
affected apartment apartment value
(m2) price (US $ million)
(US $/m2)
Shnanaayer Shnanaayer municipality 36,000 225 8.1
Antelias Raboueh and Qornet Chehouane 8,000 100 0.8
municipality
Total 44,000 202 8.9
Annualized loss (“low”)* 0.9
Annualized loss (“High”)* 1.0

Step 3: Estimate land value occupied by other quarries (not surveyed)
Caution is warranted before extrapolating costs to other quarries in Lebanon due to
differentials in property prices and location. As a conservative estimate, the cost of
degradation associated with the more than 700 other quarries is calculated as the value
of the land that the quarries occupy. Estimated land value ranges between 3 and 5
US$/m2. Average size of quarry ranges between 15,000 and 20,000 m2 (Table 13).

57
Table 13. Calculation of land value occupied by quarries
Lower bound Higher bound
Number of quarries 710
2
Average area of quarry (m ) 15,000 20,000
2
Average land value (US $/m ) 3 5
Total land value (US $ million) 207.6 415.3
Annualized loss (US $ million/year)* 5.0 5.9
Percent of GDP (%) 0.03 0.04
Total losses in land value were annualized at a discount rate f 10% over 20 to 100 years (high and low
estimates)

Step 4: Assess the total cost of degradation due to quarries
The total cost of degradation due to quarries is assessed by summing up the loss in land
value around surveyed quarries, the loss in apartment value around surveyed quarries,
and the annual land value occupied by all quarries (Table 14). Accordingly, the average
total annual degradation cost due to quarries in Lebanon is 15.25 USD million or 0.10
percent of the GDP.

Table 14. Calculation of the total cost of degradation due to quarries
Parameter Lower Higher
bound bound
Loss in land value around surveyed quarries (US $ million) 8.1 9.6
Loss in apartment value around surveyed quarries (US $ million) 0.9 1.0
Annual land value occupied by all quarries (US $ million) 5.0 5.9
Total loss (US $ million) 14.0 16.5

This is estimated at USD 48 million. As an annual damage cost, this corresponds to USD
5‐6 million per year. In total, the annual damage cost of quarries is conservatively
estimated at USD 14‐16 million, or about 0.1 percent of GDP.

9 THE AVERTING BEHAVIOR METHOD

Actions are taken to reduce or avoid the consequences and costs of environmental
damage. The costs incurred due to these actions are considered equivalent to the costs
of environmental degradation. Averting behaviors may include, drinking bottled water
or purchasing water filters due to polluted water, frequent painting of dwellings due to
58
smoke emissions from a nearby factory, moving away from a polluted location, installing
air purifiers, staying indoors, installing soundproof walling to reduce noise, etc. In many
cases, several types of aversive expenditures are undertaken simultaneously. For
example, possible action in response to a noisy road may include installing double
glazing and moving to another area. Thus the total benefits are estimated by summing
up all expenditures.

The application of this technique differs with the type of pollution and the aversive
behavior adopted. A general methodology includes:

Step 1‐ Identification of the environmental hazard and the affected population
Monitoring equipment may be used to measure variables indicative of the
environmental hazard. Common sense should be adopted in defining the population at
risk.

Step 2‐ Observation of the responses of individuals
Survey design should avoid biased sample, strategic bias, and self‐selection. Public
expenditures should be indentified and included with the Willingness to Pay (WTP)
estimation.

Step 3‐ Measurement of the cost of taking action
One should understand why the individual is taking a certain action and if the chosen
course is enough to avoid the hazard.

Issues to consider when applying this methodology include:
− Some actions are difficult to monetize, such as moving house and leaving a familiar
neighborhood, thus the cost of the action is a minimum estimate.
− Some impacts have consequences with no possible averting actions, such as the
impact of air pollution on reduced visibility or the impact of air pollution on lake
acidification. Hence the cost of the action is not accurate or complete.
− Some goods provide additional non‐environmental benefits, for example, bottled
water tastes better, or air conditioning ameliorates room temperature. This needs to
be accounted for to avoid overestimation of benefits.
− Some are only partial substitutes for the environment. For example, double glazing
partially reduces noise, this discomfort may still occur. This should be included in the
analysis.

59
9.1 Case Study 1: The Cost of Pesticide Contamination of Drinking Water
Consider the cost of pesticide contamination of drinking water. Households may take a
variety of possible actions in order to reduce the risks faced by pollutants. Abdalla and
his colleagues have studied the responses of residents in Perkasie, a small town in
Pennsylvania, USA, to the chemical contamination of water supplies. In late 1987,
Trichloroethylene (TCE) was detected in well supplying water to the area. Levels of TCE
were as high as 35 parts per billion, well in excess of the Environmental Protection
Agency's limit 5 parts per billion. As there were no means of reducing the
contamination, water consumers were notified of the contamination in June 1988. No
solution had been implemented as of December 1989. A postal survey was undertaken
in September 1989 of a sample of 1,733 households in the town. Replies were received
from 761 respondents, a response rate of about 45 per cent. The questionnaire asked
for information on actions taken to avoid exposure to the chemical. These included
increased purchases of bottled water by those who had previously purchased it,
purchases by those who had not purchased it before, installation of home water
treatment systems, bringing in water from other sources and boiling water. On the basis
of the responses received, the costs of the actions were estimated. Because the water
treatment systems would last for longer than the expected period of chemical
contamination, only a proportion of this cost was included. The results are shown in
Table 15. As there is no clear logic for choosing the value to attach to the time spent on
averting behavior, the table shows two possible approaches.

Table 15. Costs of averting actions undertaken
Actions undertaken Low estimatea (USD) High estimateb (USD)
Increased purchase of bottled water 11,135 11,135
New purchases of bottled water 17,342 17,342
c
Home water treatment systems 4,691 4,691
Hauling water 12,513 34,013
Boiling water 15,633 64,135
Total cost 61,313 133,334
a
Time valued at minimum wage rate (3.35 USD/hr)
b
Time valued at estimated hourly wage
c
Because such a system would last for longer than the contamination period, a proportion of the
cost was included

The results should be regarded as a minimum estimate of the costs of the chemical
contamination. It is notable that, despite the requirement that households should be
notified, only 43 per cent of respondents were aware of the presence of TCE in their
water. It must be assumed therefore that expenditure would have been higher had
60
more people known about the contamination. It must also be assumed that the averting
behavior by households did not remove all consequences of the chemical
contamination. No allowance has been made for any possible ecological impacts which
may not have any impact on local consumers or which would not be affected by actions
taken within the home. The analysis does suggest that if the contamination could be
avoided for an expenditure of USD 60,000, this should be undertaken. However, this is
not to say that preventative measures should not be undertaken if they cost more than
this figure. The full costs of contamination may well by substantially higher than the
costs identified in this survey.

9.2 Case‐study 2: Consumption of Bottled Water in Lebanon
Lebanon’s population consumes a large quantity of bottled water mostly due to the
perception that municipal water is of a low quality. Water pollution and possible
contamination of municipal water in the distribution system has a cost to society.
According to the State of the Environment Report (SOER), bottled water expenditure
represent 0.60% of total per capita expenditure. The average price of one liter of bottled
water is 0.23 US$. Thus, bottled water consumption is about 115 liters per capita per
year (Table 16).

Table 16. Bottled water consumption in Lebanon
Parameter Unit Value
Per capita expenditures in Lebanon US$/capita/yr 4,465
Per capita bottled water expenditures in Lebanon % 0.60
Bottled water expenditure in Lebanon US$/capita/yr 26.8
Average price of bottled water in Lebanon US$/liter 0.23
Actual bottled water consumption in Lebanon Liter/capita/yr 115

Some consumption is due to taste and lifestyle preferences. This estimate is based on
bottled water consumption in Europe and the United States in the 1970s (prior to the
large increase in bottled water consumption in the 1980s and 1990s, widely believed to
be due to perceptions of inferior municipal water quality). The expected bottled water
consumption associated with preference is estimated in the Table 17. The expected
consumption is adjusted for GDP per capita differentials and price differentials between
several European countries (in the 1970) and Lebanon.

61
Table 17. Estimate of expected bottled water consumption in Lebanon if consumers perceived no health
risk of potable municipal water
Unit Value
GDP per capita 2000 (Western Europe and USA) US$/capita 17,253 ‐ 27,750
GDP per capita 2000 in Lebanon US$/capita 3,875
Bottled water consumption in several European countries in Liter/capita/yr 30
1970’s
Income elasticity of bottled water demand 0.25 to 0.4
Price elasticity of bottled water demand (“low”) ‐1.5 to ‐1.5
Price elasticity of bottled water demand (“High”) ‐2 to ‐2
Average price of bottled water in European countries US$/liter 0.3 to ‐0.3
Average price of bottled water in Lebanon US$/liter 0.23
Expected bottled water consumption in Lebanon “Low” Liter/capita/yr 30 ‐ 24
Expected bottled water consumption in Lebanon “High” Liter/capita/yr 34 ‐ 27

The cost of municipal water of inferior quality (in terms of bottled water consumption) is
the difference between actual bottled water consumption and the estimated
consumption associated with taste and lifestyle preferences. The cost is estimated at
US$82 ‐89 million per year, or around 0.5 percent of GDP (Table 18).

Table 18. Estimation of bottled water consumption to protect against risk
Parameter Value
Low High
Actual bottled water consumption in Lebanon (Liter/capita/yr) 115 115
Expected bottled water consumption in Lebanon “Low” (Liter/capita/yr) 30 24
Expected bottled water consumption in Lebanon “High” (Liter/capita/yr) 34 27
Average expected bottled water consumption in Lebanon (Liter/capita/yr) 32 26
Bottled water consumption to protect against risk (Liter/capita/yr) 83 89
Lebanese population in 2000 (million capita) 4.2
Total bottled water consumption to protect against risk (million liter/yr) 356 383
Total cost of bottled water consumption to protect against risk (million US$/yr) 82 88
% GDP 0.49 0.53

62

Sessions 7 & 8
APPROACH:
GROUP EXERCISES
THE REVEALED PREFERENCE
SESSIONS 7 & 8

GROUP EXERCISES

The group exercise comprised of the following case‐studies:

Ayubia National Park in Pakistan‐ The Travel Cost Method
Himayatullah, 2003. Economic Valuation of the Environment and the Travel Cost Approach: The Case of
Ayubia National Park. The Pakistan Development Review 42: 4 Part II (Winter 2003) pp. 537–551

Non‐priced Forest Recreation Areas in Malaysia‐ The Travel Cost Method
Garrod G. and Willis K.G. 2001. Economic Valuation of the Environment: Methods and Case Studies.
Edward Elgar Publishing, UK.

Valuing Landscape and Amenity Attributes in Central England‐ Hedonic Pricing
Garrod G. and Willis K.G. 2001. Economic Valuation of the Environment: Methods and Case Studies.
Edward Elgar Publishing, UK.
63

64
Session 9
METHOD
THE CONTINGENT VALUATION
SESSION 9

10 THE CONTINGENT VALUATION METHOD

The Contingent Valuation Method (CVM) is the most widely used method for estimating
non‐use values. It is called “contingent” valuation, because it is contingent on simulating
a hypothetical market for the good in question. It involves directly asking individuals
how much they would be willing to pay (WTP) to preserve or use a given good or service
or the amount of compensation they would be willing to accept (WTA) to forgo specific
environmental services. The CVM can be used to estimate economic values for all kinds
of ecosystem and environmental services, for both use and non use values. The CVM has
been applied to estimate the values of landscape, recreation, beaches, water quality,
nature conservation, endangered species, visibility and air quality, etc. Yet, the CVM is
the most controversial of the non‐market valuation methods, whereby many
economists, psychologists and sociologists, for many different reasons, do not believe
that the dollar estimates that result from CV are valid. In addition, many jurists and
policy‐makers will not accept the results of CV. However, studies have shown that a
carefully composed and tested study, where the circumstances are not too distant from
the experience of the respondent and the issue is not too emotive, can produce answers
of value.

10.1 Steps in a CVM Procedure
10.1.1 Setting up the hypothetical market
This step involves devising a convincing contingent valuation scenario to demonstrate
that respondents are actually stating their values for these services when they answer
the valuation questions. A reason for the good or service needs to be established and
pictorial aids could be of use.

10.1.2 Obtaining bids
Bids, or the people’s WTP values, are obtained through a questionnaire survey. Possible
bid vehicles include income taxes, property taxes, value added or sales tax, utility bills,
entry fees, and payments into a trust fund. Yet, not all bid vehicles are viable options in a
given situation. The chosen bid vehicle should have a plausible connection with the
valued amenity and should be perceived as fair and equitable. People have different
views on the acceptability of different types of taxes.

Focus groups should precede surveys. They provide insight on the respondents’ likely
understanding of and attitude towards the issue being investigated. They also provide
65
valuable information in framing and designing a CV study and questionnaire survey.
Focus groups are usually drawn from a cross‐section of the population, stratified by
social class. Around 8 to 10 participants in a focus group meet for one to two hours to
discuss their understanding of the context of the good, the good itself, its value, who
should provide it, how it should be paid for, whether they should contribute, and how
much they are willing to pay. However, care should be taken when handling focus
groups due to many reasons. For instance, responses may be influenced by the person
conducting the focus group. In addition, focus group participants have a longer time to
think about the issue than in a typical CV survey and they have more information to base
their judgment on. Furthermore, individuals behave differently in group situations
compared to situations when they are alone.

As mentioned previously, bids are obtained through a questionnaire survey and an
elicitation format where respondents are asked to state their maximum WTP to increase
quantity/ prevent quantity decrease of an environmental good or their minimum WTA
compensation to forgo an increase in the quantity/ accept less of the good. Various bid
elicitation methods may be used including, bidding games, payment cards, open‐ended
questions, and close‐ended questions. Bidding games are when respondents are given
progressively higher bids until they reach their maximum WTP. The payment card
method involves providing a range of values to the respondent on a card, and asking him
to choose from them. In open‐ended questions, no value is specified, and respondents
are asked to report their maximum WTP. However, this method is not recommended as
respondents that have no prior experience in purchasing the good in question may find
it difficult to respond. Close‐ended questions can be asked under various formats. One is
the dichotomous choice referendum, where a single amount is offered and respondents
are asked to agree or disagree. In the double‐bounded referendum, respondents who
disagree are offered a lower amount and those who agree are offered a higher amount.
This method is highly recommended. In the trichotomous choice, respondents are
offered three choice: ‘yes’, ‘no’, and ‘indifferent’.

In the questionnaire survey, three sets of information are obtained from respondents
(Figure 25).

66

Figure 25. Information obtained in questionnaire surveys

Note that data on use, preferences and substitutes should be collected at the beginning
of the questionnaire. Respondents must be reminded of their budget constraints when
eliciting their bids.

Questionnaires are administered in a number of ways, including face‐to‐face interviews,
self‐filled questionnaires, telephone interviews, and mail shots. Face‐to‐face
interviewing is the usual method adopted. It allows the definition and explanation of the
good more thoroughly and it minimizes non‐response. However, it is expensive to
conduct. Self‐fill questionnaires involve questionnaires left at recreation sites for visitors
or in public places. While this is a cheap data collection method, it can only be used with
questions that can be easily comprehended and it often yields a low response rate. Mail
shots are used where the hypothetical market is easily explained to respondents. This
method is most appropriate when respondents are widely scattered over space, and
when they have expert knowledge and interest in the good. Only questions that are
easily comprehended may be used in mail shots. Finally, telephone interviewing is often
faced with problems due to the absence of visual cues and due to the difficulty in
maintaining respondents’ attention. A combined telephone interview and mail shot is
usually recommended as it can be cost‐effective and it can increase the response rate.
The telephone secures the respondent’s interest and the mail follow‐up provides visual
and questionnaire material.

Deciding on a sample size for the questionnaire is a crucial step, as it determines the
precision of the sample statistics used as mean WTP/ WTA. The larger the sample, the
smaller the variation in mean WTP measured by standard error and confidence intervals.
Mitchell and Carson (1989) devised a system to determine sample size based on choice
of acceptable deviation between the ‘true’ and estimated WTPs. For a deviation of 5%,
95% of the time, a sample of 6,000 is needed; while for a deviation of 20%, 90% of the
time, a sample of 286 is needed Mitchell and Carson argue that a sample greater than
67
600 is needed for applications seeking to evaluate policy. This ensures a deviation of
15%, 95% of the time.

10.1.3 Estimating mean and median WTP/WTA
WTP means, medians, modes, trimmed and modified estimators, and standards of
deviation can be found from individual bids. Mean WTP, or trimmed or modified
estimators based on mean WTP are the most appropriate, as they represent cardinal
measures of the utility that individuals derive from the good. Median WTP is
recommended because it is unaffected by large bids and because it is lower than the
mean WTP and may underestimate the value. As for the trimmed estimator, it involves
trimming the top and bottom 5% or 10% of the distribution of WTP observations.
However, this may result in the omission of some true estimates of WTP. The modified
estimator is considered to provide the truest value, as it identifies and excludes biased
and illegitimate responses by a series of questions included in the questionnaire.

Probit, logit and random utility models can be used for close‐ended referendum bids.
Bid curves can also be estimated by regressing WTP against socio‐economic variables.
Differentiating bid curves (dWTP/dV) provides the demand curve for the good and the
consumer surplus can thus be calculated as the area under the curve.

WTPi = f(Yi, Vi, Pi, Si, Ei)

Where, Y = income level; V = visits; P = preferences = S = substitutes; E = socio‐economic
variables (age, education, etc.)

10.1.4 Aggregating WTP or WTA amounts
Mean WTP/ WTA from the sample survey are aggregated across the total population.

TOTAL VALUE of the good/ service = (mean WTP) × (# of population units)

While mean WTP/ WTA may be modest for non‐use benefits, the populations over
which they are aggregated can be large.

10.1.5 Assessing the validity of CV studies
The validity of the CV study is assessed by examining three aspects: content validity,
criterion validity, and construct validity. Content validity examines the appropriate
framing of the study and questions asked in relation to the good being valued. Criterion
validity involves the comparison of CV estimates with actual market or simulated market
68
experience. As for construct validity, it examines the convergence between a CV
measure and other methods such as travel cost and hedonic price measures of the value
of the same good. It measures the extent to which the findings of the CV study are
consistent with theoretical expectations.

10.2 Considerations and biases
When applying a CV study, the following need to be considered:
− Before designing the survey, learn as much as possible about how people think
about the good or service in question.
− Determine the extent of the affected populations or markets for the good or service
in question, and choose the survey sample based on the appropriate population.
− The choice scenario must provide an accurate and clear description of the change in
environmental services associated with the event, program, investment, or policy
choice under consideration. Convey this information using photographs, videos, or
other multi‐media techniques, as well as written and verbal descriptions.
− Specify whether comparable services are available from other sources, when the
good is going to be provided, and whether the losses or gains are temporary or
permanent.
− The respondent must believe that if the money was paid, whoever was collecting it
could effect the specified environmental change.
− Respondents should understand the frequency of payments required, for example
monthly or annually, whether or not the payments will be required over a long
period of time in order to maintain the quantity or quality change, and who would
have access to the good and who else will pay for it, if it is provided.
− Thoroughly pre‐test the valuation questionnaire for potential biases.
− Include validation questions in the survey to verify comprehension and acceptance
of the scenario and to elicit socioeconomic and attitudinal characteristics of
respondents.
− Make sure that survey results are analyzed and interpreted by professionals before
making any claims about the resulting dollar values.

The CVM is associated with many biases that need to avoided or minimized. These
include:
− Hypothetical bias: occurs since individuals do not have to pay their stated amounts.
This will cause them to overstate their true WTP. This bias is not very significant.
− Embedding effect: occurs when WTP is lower when it is valued as part of a more
inclusive good. This is attributed by some to the existence of substitutes.
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− Strategic bias: occurs when an individual deliberately overstates/understates the bid
to influence a particular outcome. This bias is difficult to detect and test but, it is not
significant.
− Bid vehicle bias: occurs when respondents give different WTP amounts, depending
on the specific payment vehicle chosen. For example, an individual disliking taxation
might understate his WTP. In such cases, a neutral vehicle such as a trust fund is
recommended.
− Starting point bias: occurs when a start‐off amount is misinterpreted by the
respondent as a cue for an appropriate WTP range. Extensive pre‐tests may minimize
this bias.
− Information bias: occurs when insufficient information makes it difficult on the
respondent to give a proper valuation, especially if the issue is new to him. Too much
information will be a definite source of bias
− Part‐whole bias: occurs when respondents asked to valuate a given asset and then to
valuate a part of it tend to give a similar answer. This is minimized by reminding
respondents of their budget constraints and by restricting valuation to whole goods
rather than parts of goods.
− Non‐response bias: occurs because people with interest in the subject are more
likely to respond. Non‐respondents are likely to have, on average, different values
than individuals who do respond. This is minimized by using questions that are easy
to answer.

Biases may be minimized by including certain questions as part of the survey. The
following are show cards prepared to elicit legitimate and illegitimate reason for WTP
answers.

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Show card to elicit legitimate and illegitimate reason for NOT being WTP towards
low flow alleviation in rivers
Question Bias
a. I cannot afford to pay more water charges at present
b. I have no interest in having different flow levels in rivers
c. I would not pay anymore in water charges but I would be prepared to Payment vehicle
pay by some other means of payment
d. Someone else should pay rather than me Strategic
e. The water company should pay not customers Bid vehicle
f. Low levels in rivers are not a problem
g. I require more information to answer this question
h. Other reasons. Please specify
i. Don’t know
j. Refused to answer

Show card to elicit legitimate and illegitimate reason for being WTP towards low water quality
Question Bias
a. It was the most I could afford to pay
b. Rivers and beaches are important for recreation and I am happy to pay to ensure that
they are well looked after
c. I would pay this much each year to ensure that rivers and beaches are protected for
future generations
d. Rivers and beaches are important for wildlife and ecology and I am happy to pay to
ensure that they are well looked after.
e. I wanted to show my support for environmental improvement in general Strategic
f. It’s an important issue and by saying I’d pay such a large sum each year I hope to get Strategic
something done about it
g. I’m very concerned about this issue and although I’m not sure I could afford to pay this Hypothetical

much each year I wish I could
h. Rivers and beaches are important for a number of reasons and I am happy to pay to
ensure that they are well looked after
i. Other reason. Please specify;
j. Don’t know
k. Refuse to answer
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Advantages associated with the CVM include:
− It is the most widely accepted method for estimating total economic value including
use values and all types of non‐use values
− It is straightforward and highly flexible, whereby it can used to estimate the
economic value of virtually anything
− It requires few theoretical assumptions
− The nature and results of CV studies are easy to analyze and describe. Dollar values
can be presented in terms of a mean or median value per capita or per household, or
as an aggregate value for the affected population.
− A great deal of research is being conducted to improve the methodology, make
results more valid and reliable, and better understand its strengths and limitations.

Issues and limitations associated with the CVM include:
− There is considerable controversy over whether CVM adequately measures people's
willingness to pay for environmental quality. CV assumes that people understand the
good in question and will reveal their preferences in the contingent market just as
they would in a real market. However, most people are unfamiliar with placing dollar
values on environmental goods and services and may not have an adequate basis for
stating their true value.
− Expressed answers to a willingness to pay question may be biased.
− Respondents may make associations among environmental goods that the
researcher had not intended. For example, if asked for willingness to pay for
improved visibility (through reduced pollution), the respondent may actually answer
based on the health risks that he or she associates with dirty air.
− WTA very significantly exceeds WTP. This result may invalidate the CVM approach,
showing responses to be expressions of what individuals would like to have happen
rather than true valuations.
− The “ordering problem”: in some cases, people’s expressed willingness to pay for
something has been found to depend on where it is placed on a list of things being
valued.
− Difficulty to validate externally the estimates of non‐use values.
− When conducted appropriately, contingent valuation methods can be very expensive
and time‐consuming, because of the extensive pre‐testing and survey work.
− Many people, including jurists policy‐makers, economists, and others, do not believe
the results of CV.

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10.4 Illustration‐Mining on public land
A remote site on public land provides important habitat for several species of wildlife.
The management agency in charge of the area must decide whether to issue a lease for
mining at the site. For this purpose, they must weigh the value of the mining lease
against the wildlife habitat benefits that may be lost if the site is developed. Non‐use
values are the largest component of the value for preserving the site because few
people actually visit it, or view the animals that rely on it for habitat. This necessitates
the use of the CVM.

Step 1
Define the valuation problem by determining what services are being valued and who
the relevant population is. In this case, the resource to be valued is a specific site and
the services it provides are primarily wildlife habitat. Because the land is federally
owned public land, the relevant population would be all citizens of the U.S.

Step 2
Make preliminary decisions about the survey itself: whether it will be conducted by mail,
phone or in person; how large the sample size will be; who will be surveyed, etc. The
answers will depend, among other things, on the importance of the valuation issue, the
complexity of the question being asked, and the size of the budget. The researchers
decided to conduct a mail survey, as they want to survey a large sample, over a large
geographical area. They are asking questions about a specific site and its benefits, which
should be relatively easy to describe in writing in a relatively short survey

Step 3
The actual survey design may take six months or more to complete. It is accomplished in
several steps. It starts with initial interviews and/or focus groups with the types of
people who will be receiving the final survey, in this case the general public. The
researchers would ask general questions about peoples’ understanding of the issues
related to the site, whether they are familiar with the site and its wildlife, and whether
and how they value this site and the habitat services it provides. In later focus groups,
the questions would get more detailed and specific in order to help develop specific
questions for the survey and to decide what kind of background information is needed
and how to present it. People might need information on the location and
characteristics of the site, the uniqueness of species that have important habitat there,
and whether there are any substitute sites that provide similar habitat. The researchers
would also want to learn about peoples’ knowledge of mining and its impacts, and
whether mining is a controversial use of the site. If people are opposed to mining, they
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may answer the valuation questions with this in mind, rather than expressing their value
for the services of the site. At this stage, different approaches to the valuation question
and different payment mechanisms would be tested. Questions that can identify any
“protest” bids or other answers that do not reveal peoples’ values for the services of
interest would also be developed and tested at this stage.

After a number of focus groups, pretesting of the survey is started. The survey should be
pretested with as little interaction with the researchers as possible. Pre‐testing will
continue until a survey is developed that people seem to understand and answer in a
way that makes sense and reveals their values for the services of the site.

Step 4
At this stage, actual survey implementation takes place. The survey sample is selected.
The sample should be a randomly selected sample of the relevant population, using
standard statistical sampling methods. For instance, a mailing list of randomly sampled
U.S. Citizens may be obtained and a standard repeat‐mailing and reminder method may
be used to get the greatest possible response rate for the survey.

Step 5
The results are compiled, analyzed and reported. Data must be entered and analyzed
using statistical techniques appropriate for the type of question. The researchers also
attempt to identify any responses that may not express the respondent’s value for the
services of the site. They can deal with possible non‐response bias in a number of ways.
The most conservative way is to assume that those who did not respond have zero
value.

Step 6
The final step involves estimating the average value for an individual or household in the
sample, and extrapolating this to the relevant population in order to calculate the total
benefits from the site. If the mean willingness to pay is $.10 per capita, the total benefits
to all citizens would be $26 million.

10.5 Sample application 1‐ Mono Lake
Reduced water flows to Mono Lake affect food supplies for nesting and migratory birds.
The State of California Water Resources Control board has to decide about the water
quantity to be allocated to Los Angeles from sources flowing into Mono Lake. A
contingent valuation study was conducted to measure the use and non‐use values of
citizens in California households for increased water flows in Mono Lake. An initial mail
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survey was conducted where residents of California were told that, according to
biologists, the higher flows to the lake were needed to maintain food supplies for
nesting and migratory birds. Residents were then asked whether they would pay more
on their water bill for higher cost replacement water supplies, so that natural flows
could once again go into Mono Lake. According to the respondents, average WTP per
household was $13 per month or $156 per year. The total benefits exceeded the $26
million cost of replacing the water supply by a factor of 50. As follow‐up to this survey,
the State of California hired a consulting firm to perform a more detailed CV survey. The
new survey involved the use of photo‐simulations showing what the lake would look like
at alternative water levels. It gave detailed information about effects of changing lake
levels on different bird species. The survey was conducted over the telephone with
people who had been mailed information booklets with maps and photo‐simulations.
Survey respondents were asked how they would vote in a hypothetical referendum
regarding Mono Lake. This study showed that the benefits of a moderately high (but not
the highest) lake level were greater than the costs. Accordingly, the California Water
Resources Control Board reduced Los Angeles’ water rights by half, from 100,000 acre
feet to about 50,000 acre feet, to allow more flows into Mono Lake.

10.6 Case‐study‐ Exxon Valdez Oil Spill
At 12.04 a.m. on 24 March 1989, the oil tanker Exxon Valdez ran aground on Bligh Reef
in Prince William Sound, Alaska. It was carrying crude oil from wells on Alaska's North
Slope, brought to Valdez through the Tans‐Alaska pipeline. From Valdez, the crude is
carried by tankers to refineries in the southern United States. The Exxon Valdez was
carrying more than 50 million gallons of crude oil, of which approximately 11 million
gallons poured into the Sound. This was the largest spill in United States history. By
August, the oil had moved across nearly 10,000 square miles of water and about 1,600
miles of the Sound's convoluted shoreline was heavily oiled.

The oil had a massive impact on wildlife in the area, killing many birds and marine
mammals. Over 20,000 dead birds were recovered, mostly murres but also many other
species including 100 bald eagles. The total numbers killed were probably three to six
times the numbers recovered. About 2,650 sea otters died, probably about 40 per cent
of the population in the affected area. Seals and many other species were also killed or
damaged by the spill, including plants and microorganisms. However, none of these
losses threatened the extinction of the species involved. It was expected that bird and
mammal populations would recover to their pre‐spill levels in about three to five years.

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The spill had a variety of impacts on human values. The Sound is important for
commercial and recreational fishing and tourism, and these uses were severely damages
by the oil spill. These types of impact could be valued relatively easily. However, we may
anticipate that the area also has significant non‐use values: existence, option and
bequest values. As part of an assessment of the total damages arising from the oil spill, it
would be important to find some means of estimating the extent of these non‐use
values. In connection with legal action taken by the State of Alaska against Exxon
Corporation and related companies, a contingent valuation study was commissioned
from a number of well‐known economists working in the field of valuation.

The study involved a survey of residents across the United States. Alaska was excluded
from this as the aim was to focus on non‐use values. In principle, the survey should seek
to estimate the population's willingness to accept compensation for the damage arising
from the Exxon Valdez oil spill. However, because of the difficulty involved in designing
surveys of this sort, it was decided to adopt a willingness to pay approach. The valuation
question was based on a hypothetical proposal for a scheme to prevent future oil spills
of the sort which had just been experienced. Respondents in the survey were asked to
indicate whether or not they would vote for a proposal to provide escort ships to
accompany oil tankers through the Sound. The ships would carry special booms which
could be put into place immediately any oil spill occurred so as to hold the oil within a
confined area. The spilt oil could then be skimmed off the surface and taken away for
safe disposal. This system has been used successfully by the Norwegians in the North
Sea. Without this scheme, respondents were told that over the next ten years, another
large oil spill can be expected to occur in Prince William Sound. The scheme would be
paid for from a special tax on oil company profits and from a single tax on all
households.

In carrying out the survey, after investigating respondents' prior knowledge of the issue,
interviewers provided respondents with information on the Exxon Valdez oil spill and its
impacts. The basic valuation question put to each respondent was whether or not he or
she would vote for a proposal to implement the scheme, given a specified level of a
single one‐time tax on each household. The initial tax values were set at $10, $30, $60
and $120 for different households. If respondents answered that they would be
prepared to vote for the scheme at this level of tax, the amount was raised and the
question asked just once more. If they refused to vote for the scheme, the amount was
lowered and the question was asked just once more. The survey also collected
information on interests in environmental issues, the composition of the respondent's
household, education and incomes.
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Excerpts of the administered questionnaire:
The only mammals killed by the spill were sea otters and harbour seals. This
card shows information about what happened to Prince William Sound.
According to scientific studies, about 580 otters and 100 seals in the Sound
were killed by the spill. Scientists expect the population size of these two
species to return to normal within a couple of years after the spill.
Many species of fish live in these waters. Because most of the oil floated on
the surface of the water, the spill harmed few fish. Scientific studies indicate
there will be no long‐term harm to any of the fish populations.

#2. Of course, whether people would vote for or against the escort ship
program depends on how much it will cost their household
At present, government officials estimate the program will cost your
household a total of $______. You would pay this in a special one‐time
charge in addition to your regular federal taxes. This money would only be
used for the program to prevent damage from another oil spill in Prince
William Sound.
If the program cost your household a total of $______, would you vote for or
against it?”

#3. What if the final cost estimate showed that the program would cost your
household a total of $_______. Would you vote for or against the program?

#4. What is it about the program that made you willing to pay something for
it?

#5. Before the survey, did you think the damage caused by the Valdez oil spill
was more serious than was described to you, less serious, or about the same
as described?

#6. Is anyone in your household an angler, birdwatcher, backpacker, or
environmentalist?

#7. This card shows amounts of yearly incomes. Which category best
describes the total income from all members of your family before?

A total of 1,043 interviews were successfully completed, achieving a response rate of 75
per cent. The proportions of respondents indicating that they would vote for the
proposed scheme at the alternative tax levels are shown in Table 19. As would be
expected, the proportion falls as the specified cost of the scheme increases, although
there is little difference between the $30 and $60 questions.

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Table 19. Positive response to alternative tax levels
Questionnaire Initial tax level per Percent of
version household (USD) respondents willing to
pay taxes
A 10 67
B 30 52
C 60 51
D 120 34

From these results, it is possible to estimate statistically a figure for the median
willingness to pay. This is midpoint in the distribution, so that there is an equal number
of a figure above and below the median. The preferred estimate was for $31 per
household. A figure of $94 was estimated as the mean willingness to pay, but the nature
of the questions asked meant that this figure is unreliable. Just over one‐third of
respondents were not willing to vote for the scheme at either of the prices offered to
them and of these one third indicated that a reason for this negative response was that
they felt that the oil companies should pay. Varying the assumptions used in the analysis
either tended to increase the estimated median willingness to pay or else had little
effect on it.

It is possible to extrapolate the results of the survey in order to estimate the total value
for the non‐use values lost in the United States as a whole. This figure is obtained by
multiplying the total number of households by $31 and produces a figure of $2.8 billion,
with a confidence interval of $2.4 billion to $3.2 billion.

This analysis was at the centre of a fierce debate. If Exxon and the other companies were
found to be liable for the damage caused, they would face an enormous bill for the non‐
use values alone. The debate focused on the role of contingent valuation in estimating
these sorts of values. In this context a panel of distinguished economists was established
by the National Oceanic and Atmospheric Administration, including two Nobel Prize
winners, to examine the role of contingent valuation in the valuation of non‐use values
for the purposes of assessing the damages from oil spills. The panel concluded that
contingent valuation studies can convey useful information that is sufficiently reliable
from a starting point for the process of assessing damages in the courts. However, they
had reservations about the ways in which contingent valuations have often been
undertaken and set out a series of guidelines for the way in which they believed that
they should be undertaken.
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&
Session 10
THE DISCRETE CHOICE METHOD
THE BENEFIT TRANSFER METHOD
SESSION 10

11 DISCRETE CHOICE METHOD

Contingent choice, also referred to as conjoint analysis, was developed in the fields of
marketing and psychology to measure preferences for different characteristics or
attributes of a multi‐attribute choice. It asks the respondent to state a preference
between one group of environmental services or characteristics, at a given price or cost
to the individual, and another group of environmental characteristics at a different price
or cost. It is especially suited to policy decisions where a set of possible actions might
result in different impacts. For example, improved water quality in a lake will improve
the quality of several services provided by the lake, such as drinking water supply,
fishing, swimming, and biodiversity. While contingent choice can be used to estimate
dollar values, the results may also be used to simply rank options, without focusing on
dollar values.

The contingent choice method is similar to contingent valuation, whereby it involves
asking people to make choices based on a hypothetical scenario. Furthermore, it can be
used to estimate economic values for any ecosystem or environmental service and it can
be used to estimate non‐use as well as use values. Yet, the contingent choice method
differs from contingent valuation in that it requires people to evaluate several
alternatives separately, it does not directly ask people to state their values in dollars,
and the values are inferred from the hypothetical choices or tradeoffs that people make.

There are a variety of formats for applying contingent choice methods. Contingent
rating, contingent ranking and paired rating are summarized in Table 20, and choice
modeling is detailed in the section below.

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Table 20. Types of contingent choice formats
Contingent Rating − Respondents presented with a set of attributes associated with each alternative
− Respondents requested to rate their preference for several alternatives on a
scale
− Ratings regressed against attributes
− Marginal rate of substitution between an attribute and its price provides an
estimate of the value of the attribute
− Summing up all values provides the aggregate WTP for the environmental value
Contingent − Respondents asked to rank all alternatives from least preferred to most preferred
Ranking − Analysis similar to contingent rating
− Rankings converted to rating scale and analyzed with multiple regression
techniques
− Other measures such as probit, or logit analysis may be used
Paired Rating − Respondents presented with successive sets of two choices and asked to rate the
difference between them in terms of preference on a scale
− Data analyzed using multiple regression, probit, or logit models
Choice modeling − Respondents presented with a series of alternatives, each defined by a set of
attributes and containing three or more resource use options
− Attributes varied across alternatives
− Respondents to choose preferred alternative
− More flexible and versatile but requires complex survey designs

11.1 Choice experiments
Choice experiments are used to examine the response of the individual to changes in the
attributes of the scenario as well as the scenario as a whole. They allow breaking down
the relevant attributes of the situation and determining preferences over attributes and
they allow for more flexibility than CVM. Choice experiments attempt to identify the
utility the individuals have for the attributes of the goods and services by examining the
tradeoffs that they make between them when making choice decisions. Steps in the
choice modeling experiment are summarized in and detailed below:

1. Identify the good or service to be investigated
2. Identify key attributes and determine the attribute levels to be used
The initial screening of the attributes is a crucial stage in study design. The attributes
should be familiar and relevant to respondents and the attribute levels should be
measureable using quantitative or qualitative scales. Attributes may be portrayed
verbally or pictorially, etc. Defining an appropriate number of attributes is important
whereby too many attributes burden the respondents and too few cause problems
with estimation and reliability. Pre‐testing and focus groups are helpful in defining
attributes and determining their numbers.
3. Develop an appropriate experimental design for profiles
This involves the specification of a factorial or fractional factorial experimental
design to estimate the utility for the good in question. An orthogonal main‐effects
plan sampled from the complete factorial design is used to select the profiles to be
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used in the choice experiment. Procedures in computer packages such as SAS and
SPSS may be used to create an orthogonal matrix based on the attribute levels
specified by the researcher
4. Design questionnaire survey and incorporate choice experiments. The types of
questionnaires that may be adopted along with a description of each are presented
in (Figure 26).

Face‐to‐face interviews Self‐fill questionnaires
− The usual method adopted − Questionnaires left at recreation sites for
− Allow the definition and explanation of the good visitors or in public places
more thoroughly − Low response rate
− Minimize non‐response − Cheap data collection
− Expensive to conduct − Only questions that can be easily comprehended
may be used
Telephone interviews Mail shots
− Problems due to absence of visual cues − Used where hypothetical market easily
− Problems due to difficulty in maintaining explained to respondents
respondents attention − Most appropriate when respondents
− A combined telephone interview and mail shot − Are widely scattered over space
can be cost‐effective and increase response rate − Have expert knowledge, interest in the good,
− Telephone secures respondent’s interest etc.
− Mail follow‐up provides visual and questionnaire − Only questions that are easily comprehended
material may be used

Figure 26. Types of survey questionnaires

5. Perform pre‐tests and undertake survey
6. Analyze choices made and determine trade‐offs made by respondents. Random
utility theory is used to model the choices as a function of attribute levels, based on
the hypothesis that individuals make choices based on the attributes of the
alternatives along with some degree of randomness. Following repeated
observations of choice, one can examine how the levels of various attributes affect
the probability of choice. An assumption of normality leads to the binary probit
model, while an assumption of a Gumbel distribution means that the multinomial or
Mother Logit can be employed.
7. Calculate welfare measures
8. Aggregate over population of relevance

Whatever format is selected, choices that respondents make are statistically analyzed
using discrete choice statistical techniques, to determine the relative values for the
different characteristics or attributes. If one of the characteristics is a monetary price,
then it is possible to compute the respondent’s willingness to pay for the other
characteristics.

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A good contingent choice study will consider the following:

− Before designing the survey, learn as much as possible about how people think
about the good or service in question. Consider people’s familiarity with the good or
service, as well as the importance of such factors as quality, quantity, accessibility,
the availability of substitutes, and the reversibility of the change.
− Determine the extent of the affected populations or markets for the good or service
in question, and choose the survey sample based on the appropriate population.
− The choice scenario must provide an accurate and clear description of the change in
environmental services associated with the event, program, investment, or policy
choice under consideration. If possible, convey this information using photographs,
videos, or other multi‐media techniques, as well as written and verbal descriptions.
− The nature of the good and the changes to be valued must be specified in detail, and
it is important to make sure that respondents do not inadvertently assume that one
or more related improvements are included.
− The respondent must believe that if the money was paid, whoever was collecting it
could effect the specified environmental change.
− Respondents should be reminded to consider their budget constraints.
− Specify whether comparable services are available from other sources, when the
good is going to be provided, and whether the losses or gains are temporary or
permanent.
− Respondents should understand the frequency of payments required, for example
monthly or annually, whether or not the payments will be required over a long
period of time in order to maintain the quantity or quality change, and who would
have access to the good and who else will pay for it, if it is provided.
− In the case of collectively held goods, respondents should understand that they are
currently paying for a given level of supply. The scenario should clearly indicate
whether the levels being valued are improvements over the status quo, or potential
declines in the absence of sufficient payments.
− If the household is the unit of analysis, the reference income should be the
household’s, rather than the respondent’s, income.
− Thoroughly pre‐test the questionnaire for potential biases. Test different ways of
asking the same question and test whether the question is sensitive to changes in
the description of the good or resource being valued.
− Conduct post‐survey interviews to determine whether respondents are stating their
values as expected.
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− Include validation questions in the survey to verify comprehension and acceptance
of the scenario and to elicit socioeconomic and attitudinal characteristics of
respondents.

The main advantages of the contingent choice method include:
− It can be used to value the outcomes of an action as a whole, as well as the various
attributes or effects of the action.
− It does not ask the respondent to make a tradeoff directly between environmental
quality and money. The tradeoff process may encourage respondent introspection
and make it easier to check for consistency of responses. Respondents may be able
to give more meaningful answers to questions about their behavior (i.e. they prefer
one alternative over another), than to questions that ask them directly about the
dollar value of a good or service or the value of changes in environmental quality.
− Respondents are generally more comfortable providing qualitative rankings or
ratings of attribute bundles that include prices, rather than dollar valuation of the
same bundles without prices.
− Even if the absolute dollar values estimated are not precise, the relative values or
priorities elicited by a contingent choice survey are likely to be valid and useful for
policy decisions.
− It minimizes many of the biases that can arise in open‐ended contingent valuation
studies where respondents are presented with the unfamiliar and often unrealistic
task of putting prices on non‐market amenities.
− It has the potential to reduce problems such as expressions of symbolic values,
protest bids, and some of the other sources of potential bias associated with
contingent valuation.

The main issues and limitations that are associated with a contingent valuation process
include:
− Respondents may find some tradeoffs difficult to evaluate, because they are
unfamiliar.
− The respondents’ behavior underlying the results of a contingent choice study is not
well understood. Respondents may resort to simplified decision rules if the choices
are too complicated, which can bias the results of the statistical analysis.
− If the number of attributes or levels of attributes is increased, the sample size and/or
number of comparisons each respondent makes must be increased.
− When presented with a large number of tradeoff questions, respondents may lose
interest or become frustrated.
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− Contingent choice may extract preferences in the form of attitudes instead of
behavior intentions.
− By only providing a limited number of options, it may force respondents to make
choices that they would not voluntarily make.
− Contingent ranking requires more sophisticated statistical techniques to estimate
willingness to pay.
− Translating the answers into dollar values, may lead to greater uncertainty in the
actual value that is placed on the good or service of interest.
− Validity and reliability for valuing non‐market commodities is largely untested.

11.3 Illustration‐ Mining in public land
There is a remote site on public land that provides important habitat for several species
of wildlife. The management agency in charge must decide whether to issue a lease for
mining at the site. Suppose that there are several possible options for preserving and/or
using the site, including allowing no mining and preserving the site as a wilderness
habitat area, or specifying various levels and locations for the mining operation, each of
which would have different impacts on the site. The contingent choice method was
selected because the outcomes of several policy options need to be valued and because
non‐use values are the largest component of the value for preserving the site. Thus,
TCM will underestimate the benefits of preserving the site. The CVM might also be used,
but the survey questions might become very complicated.

Contingent choice and contingent valuation have very similar application. The main
differences are in the design of the valuation question(s), and the data analysis.

Step 1
Define the valuation problem by determining exactly what services are being valued,
and who the relevant population is. In this case, the resource to be valued is a specific
site and the services it provides is wildlife habitat. Because it is federally owned public
land, the relevant population would be all citizens of the U.S.

Step 2
Make preliminary decisions about the survey, including whether it will be conducted by
mail, phone or in person, how large the sample size will be, who will be surveyed, and
other related questions. In this case, the researchers decided to conduct a mail survey
since it will be administered to a large sample over a large geographical area. Questions
about a specific site and its benefits should be relatively easy to describe in writing.

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Step 3
The actual survey design is accomplished in several steps. It starts with initial interviews
and/or focus groups with the types of people who will be receiving the final survey, in
this case the general public. In the initial focus group, the researchers would ask general
questions about peoples’ understanding of the issues related to the site, whether they
are familiar with the site and its wildlife, and whether and how they value this site and
the habitat services it provides. In later focus groups, the questions would get more
detailed and specific. Different approaches to the choice questions are tested. Each
choice might be described in terms of the site’s ability to support each of the important
wildlife species. People will be making tradeoffs among the different species that might
be affected in different ways by each possible choice of scenario. After a number of
focus groups, pretesting of the survey is started. The survey should be pretested with as
little interaction with the researchers as possible. People would be asked to assume that
they’ve received the survey in the mail and to fill it out. Then the researchers would ask
respondents about how they filled it out, and let them ask questions about anything
they found confusing. A mail pretest might be conducted. This process is continued until
a survey is developed that people seem to understand and answer in a way that makes
sense and reveals their values for the services of the site.

Step 4
At this stage, actual survey implementation takes place. The survey sample is selected.
The sample should be a randomly selected sample of the relevant population, using
standard statistical sampling methods. For instance, a mailing list of randomly sampled
U.S. Citizens may be obtained and a standard repeat‐mailing and reminder method may
be used to get the greatest possible response rate for the survey.

Step 5
The results are compiled, analyzed and reported. The statistical analysis for contingent
choice is often more complicated than that for contingent valuation requiring the use of
discrete choice analysis methods to infer willingness to pay from the tradeoffs made by
respondents. The researchers need to estimate the average value for each of the
services of the site, for an individual or household, and then extrapolate to the relevant
population in order to calculate the total benefits from the site under different policy
scenarios. The average value for a specific action and its outcomes can also be
estimated, or the different policy options can be ranked in terms of peoples’ preferences

The results of the survey might show that the economic benefits of preserving the site
by not allowing mining are greater than the benefits received from allowing mining. The
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mining lease might not be issued, unless other factors override these results. The results
might indicate that some mining scenarios are acceptable, in terms of economic costs
and benefits. The different options should be ranked and the most preferred option
selected.

11.4 Case‐application: Landfill Siting in Rhode Island
With its primary landfill nearing capacity, the State of Rhode Island was faced with the
need to choose locations for new landfills. Besides technical considerations, the State
wanted to address the social and economic tradeoffs and values related to the location
of a landfill to avoid some of the controversy associated with landfill siting. A contingent
choice, paired comparison, survey was conducted. The survey asked Rhode Island
residents to choose between pairs of hypothetical sites and locations for a new landfill,
described in terms of their characteristics. The site comparisons described the natural
resources that would be lost on a hypothetical 500 acre landfill site area surrounding the
landfill. Each comparison gave the cost per household for locating a landfill at each
hypothetical site or location. The results were used by the State to predict how residents
would vote in a referendum on different possible landfill locations. First, 59 possible
sites were selected, based on geological and public health criteria. Sites were ranked
using the contingent choice survey results, in order to come up with a short list of
potential sites. The final decision, based on geological, public health, public preferences,
and political considerations, was to expand the existing landfill site.

11.5 Case‐study: The Environmental Costs of Low River Flows
11.5.1 Background
River flows may be reduced to sub‐optimal levels by natural phenomenon such as low
rainfall, or may be caused by the abstraction of water either from the river itself or from
the underlying aquifer. In the United Kingdom (UK) when river flows are seriously low,
the Environment Agency (EA) is responsible for the design and implementation of
schemes to alleviate this problem. A number of options are available to the EA to
alleviate low flows in these rivers. All of the available options involve a cost, and before
any decisions are made regarding which particular solutions to the low flow problem are
adopted, careful consideration has to be given to the question of whether or not the
additional benefits from increasing the flow to some environmentally acceptable flow
regime outweigh the costs involved.

The case study focuses on the south west of England, an area encompassing 176
beaches designated as Euro‐beaches by the European Community, with other smaller
beaches and coves, and approximately 4,000 miles of rivers. The particular focus was on
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seven rivers that were identified as being seriously affected by low flows at certain times
of the year. Given that the benefits of increasing river flows were likely to comprise both
use values and non‐use values, it was decided that some form of expressed preference
method would be most appropriate to elicit willingness to pay. The issue of non‐use
values was an important consideration, and any survey of the general public was likely
to result in a high proportion of non‐users being samples. This would include who do not
visit rivers at all and, more commonly, individuals who not visit any of the designated
low‐flow rivers in the south west of England. This lack of familiarity would have made it
difficult for respondents to give meaningful answers to an open‐ended WTP question or
to a bidding game relating to EA activities. This consideration led to the concentration on
the choice experiment approach with the aim of estimating the marginal WTP of the
general public for unit improvements in low flow alleviation in rivers in the south west of
England. The choice experiment would also be used to estimate the public's marginal
WTP for unit improvements in the numbers of clean beaches and miles of unpolluted
rivers in the area.

This concentration on marginal WTP confronts the issue of scale and should provide
more robust welfare estimates for decision making. Furthermore, the more holistic
choice experiment approach is less vulnerable to other sequencing effects such as
embedding.

11.5.2 The benefits of low flow alleviation
The total economic value of low flow alleviation in a given river is the sum of all use
values derived from it, plus any non‐use values which this activity may generate. Use
values are benefits arising either directly or indirectly from the improvement in flows,
while non‐use values are generated by the consumption of the flow of information
about the good which is consumed as a preservation benefit, i.e. a value arising from the
knowledge that the river remains healthy and viable and will persist. A survey of the
general public survey in the south west of England was carried out in the summer of
1996, including both users and non‐users. Non‐users were identified as those
respondents who did not visit any of the low flow rivers in the south west specified in
this project.

11.5.3 Questionnaire design
A series of focus groups was undertaken prior to the design of the questionnaire with
the intention of informing the design process and suggesting the levels of information
that respondents would require. The focus groups suggested that the public considered
problems of coastal and river pollution to be the most pressing water quality issues in
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the south west; however, when shown a portfolio of photographs illustrating the varying
effects of low flows most participants agreed that this issue was also important (though
not as pressing as pollution, to which it was seen as a contributory factor). The design of
the questionnaire was intended to provoke respondents into thinking more deeply
about the consequences of their response to the choice experiments and to make those
responses as realistic as possible given the artificial context. The effect of the
questionnaire design on welfare estimates in this case should have been to limit them
rather than inflate them, thus leading to conservation welfare estimates that can be
interpreted as lower‐bound figures. The magnitude of welfare estimates was limited by
using a sequence of questions and statements designed to remind respondents of other
environmental quality issues that they might wish to support, rather than allowing them
to focus on the water quality issues with which this study was concerned. The notion of
a multi‐good environment was introduced early in the questionnaire, when respondents
were asked questions regarding their donations to good causes and their willingness and
ability to contribute more to such causes in the future. This helped to establish a context
within which respondents could begin to determine how much they would be willing to
pay towards water quality improvements. This approach was tested and refined over
two separate pilot surveys. The notion of a multi‐good environment was introduced
early in the questionnaire, when respondents were asked questions regarding their
donations to good causes and their willingness and ability to contribute more to such
causes in the future. This helped to establish a context within which respondents could
begin to determine how much they would be willing to pay towards water quality
improvements. This approach was tested and refined over two separate pilot surveys.

Respondents were then presented with a brochure describing the EA's activities under
three headings: reducing river pollution; monitoring marine pollution in coastal waters;
and improving flows in low flow rivers. Text was kept to a minimum and illustrations
were used wherever possible. Information was limited to bullet points describing the
problem being tackled, its causes and consequences and what the EA was doing to
tackle the problem across the south‐west. Rather than just emphasize the scale of the
problem, the brochure also attempted to show how much had in fact been achieved in
tackling these problems. This had the twin effects of demonstrating that additional
spending could bring about further positive environmental benefits, but that current
levels of spending (£90 million per year in 1996) were already achieving significant
improvements in each of the categories shown in the brochure.

The focus on activities in the south west was thought most appropriate in a survey that
would cover a wide variety of households in that region. Specifically, it was felt that
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respondents would relate better to more familiar local issues than to national ones and
this would promote more considered response to the choice experiment questions. In
the choice experiments, respondents were given a sheet similar to that shown in Figure
27 and asked to choose one of the three choices. Having made their choice respondents
were shown three more cards and asked to choose their preferred choice from each.
Cards were chosen at random form an orthogonal set of 64 choice cards. In the choice
experiments the issue of low flows is embedded in a broader set of water quality goods
discouraging a single focus on the issue of low flows. This confronts the issue of
embedding by ensuring that respondents act consistently and make choices based on
the same set of related goods.

CARD 06
Please choose one column
CHOICE 1 CHOICE 2 CHOICE 3

(current situation)
Increase in water charges needed to No increase £5 increase £10 increase
achieve targets
Beaches in the South West NOT MEETING 9 beaches 5 beaches 3 beaches
European standards on cleanliness
Rivers in the South West WITHOUT good 990 miles 350 miles 350 miles
quality water
Rivers in the South West WITHOUT 130 miles 80 miles 60 miles
acceptable flow levels
Figure 27. Example of a choice experiment card

11.5.4 River usage by the general public
Nearly half of the households interviewed claimed to live one mile or less from a river;
and more than two‐thirds lived within two miles of a river. Most households regularly
undertook recreational activities along rivers, with only 23% claiming not to undertake
some form of regular recreation along rivers. Around 88% of households had visited
more than one river the 12 months preceding the survey, but only 45% had visited one
of the low flow rivers in the south west. The frequency of visits to beaches over the
summer months had much the same distribution as visits to rivers, though greater
differences began to emerge during the winter.

11.5.5 Empirical Results
Preliminary questions demonstrated public perceptions of the abstraction problem.
Nearly three‐quarters of respondents thought that rivers were an important source of
water; but just over half thought too much water was being abstracted from rivers by
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water companies and other users. Investigations into the public's WTP for good causes
showed that 80% of respondents would prefer to see additional public expenditure on
the natural environment (a lower rate than for health or education). However, only 40%
of respondents indicated that they would be willing to contribute more than they
currently contribute towards that they considered 'good causes'.

Following Adamowicz et al. (1996) the responses from choice experiments were used to
estimate a discrete choice model of the probability Pr(i) of choosing a given alternative i:

Pr (i) =exp (sVi)/∑exp (sVj)

Models were estimated using linear and quadratic functional forms. Under the quadratic
specification some attribute coefficients were not statistically significant; therefore the
linear functional form was used for benefit estimation. Table 21 reports WTP for the
marginal improvements in water quality defined by unit reductions in the number of
polluted beaches and the lengths of river affected by low flows and poor water quality.
Respondents were willing to pay between £1.31 and £1.43 to ensure that one additional
beach meets EC standards on cleanliness and £0.02 to clean up a mile of polluted river.
Similarly, respondents were willing to pay up to £0.06 per mile to improve conditions on
low flow rivers. These estimates were used for the purposes of aggregation, but this
relies on the presumption that it is reasonable to assume constant marginal WTP for
water quality improvement measures across the south west. This may be the case for
beaches but it is possible that following substantial reductions in the length of rivers
affected by low flows and pollution that WTP for additional lengths to be improved.

Table 21. WTP for marginal improvement in water quality
Reduction Extended specification
1 polluted beach £1.307 £1.431
1 mile of polluted river £0.017 £0.019
1 mile of low flow river £0.052 £0.058

11.5.6 Estimating the number of users and non‐users
The population of users for this study was defined to encompass all households who had
visited a given low flow river in the two‐year period immediately preceding the survey.
Respondents were shown a list of the seven low flow rivers that were the main focus of
this study and asked whether or not they had visited these rivers at any time during the
last two years. This data can be used to estimate the number of households that visit
each low flow river. Nearly 45% of households in the south‐west had visited at least one
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of the low flow rivers during the last two years. Table 22 reports results for each river to
give an estimate of the bi‐annual number of visitors to each river. The population of the
south west is divided into user and non‐user households for each of the seven low flow
rivers. It also reports the length of each river affected by low flows. This latter figure is
important in the estimation of the aggregate benefits of low flow alleviation. Although
quite high, these estimates seemed reasonable. Rivers are linear features and instead of
offering a single point of access provide many and varied opportunities for individuals to
encounter them. Added to this is the fact that all of the rivers are located in areas with
considerable scenic attractions where local people as well as those from further afield
would be expected to enjoy the considerable recreational opportunities on offer.

Table 22. User and non‐user populations for low‐flow rivers from the south west
River User Households Non‐user households Miles affected by low flows
Allen 85,897 1,562,533 20
Upper Avon 230,717 1,417,713 35
Meavy 166,760 1,481,670 7
Otter 157,982 1,490,448 5
Piddle 157,854 1,490,576 16
Tavvy 240,155 1,408,275 16
Wylye 162,481 1,485,949 30

11.5.7 Aggregate benefit estimates
The choice experiments reported in the previous section can be used to derive random
utility models based on the subsets of users and non‐users defined previously. These
models yield estimates of the marginal WTP for a unit decrease in the length of rivers
affected by low flows. The estimate for users will comprise a combination of use values
and nonuse values, while for non‐users the estimate is made up entirely of non‐use
values. The validity of this latter estimate is highly suspect because the coefficient on the
LOWFLOW variable in the non‐users' model was not statistically significant at any
reasonable level. This implies that when selecting their preferred card in the choice
experiments, the non‐user population did not give much weight to improvements in low
flow rivers. Rather, their choices were based upon cost and the improvements that
could be made to polluted rivers and beaches.

The population of low flow river users was estimated at 734,161. For each low flow river,
the maximum aggregate annual benefit for user households is calculated by multiplying
this figure, first by the length of river affected by low flows, and then by £ 0.076 per mile
(see Table 23). The proportion of this amount contributed by visitors can also be
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calculated using the same procedure and substituting the estimated number of visitors
for the user population. The aggregate benefits for non‐user households are calculated
in a similar fashion, using the marginal value of £0.0435.

Table 23. Approximate aggregate annual benefits for improving low flows
River Aggregate benefits for Aggregate benefits for Aggregate benefits for
user Households visitor households non‐user households
Allen £1,115,925 £130,563 £795,414
Upper Avon £1,952,868 £613,707 £1,391,975
Meavy £390,574 £88,716 £278,395
Otter £278,981 £60,033 £198,854
Piddle £892,740 £191,950 £636,331
Tavvy £892,740 £292,028 £636,331
Wylye £1,673,887 £370,457 £1,193,121

11.5.8 The costs of low flow alleviation
The costs of various options to alleviate low flows on rivers in the south west were
calculated by Environmental Resources Management. Table 24 summarizes the present
values of the costs of the cheapest available option for low flow alleviation on six of the
seven rivers: no solution has yet been put forward for low flow alleviation on the Tavy.
Table 24 also reports the present value of the benefits of low flow alleviation for the
user sub‐sample. Present values were calculated by assuming a constant flow of benefits
across the period 1997 to 2017 and discounting at 6%. Net benefits and benefit cost
ratios were calculated using these figures. These figures can be used to carry out partial
benefit‐cost analysis in order to identify which options require further investigation
before they can be implemented (Table 24).

Table 24. Net present value of aggregate benefits for improving low flows across the length of the rivers
River Present value Present value of Net present Benefit‐cost
of costs aggregate user value ratio
benefits
Allen 11,867,000 13,915,000 2,048,000 1.17
Upper Avon 763,000 24,252,000 23,589,000 31.92
Meavy 80,000 4,870,000 4,790,000 60.88
Otter 34,430,000 3,480,000 ‐30,950,000 0.10
Piddle 5,471,000 11,132,000 5,661,000 2.03
Tavvy Unknown 11,132,000 ‐ ‐
Wylye 224,000 20,873,000 20,649,000 93.18
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Benefits exceed costs by a wide margin for the rivers Avon, Meavy and Wylye, and to a
lesser extent for the Piddle. Costs are prohibitive only on the Otter, while the benefit‐
cost ratio for the Allen suggests that while benefits probably exceed costs there is
relatively little difference between them. As benefits are based only on the user sample,
these benefit‐cost ratios ignore any benefits that might accrue to non‐users but include
non‐use benefits for low flow river visitors who do not visit the river in question. If only
the present value of the aggregate benefits accruing to visitors is considered then the
least cost solutions for the Piddle and Allen fall to levels substantially below that of the
associated costs, while the benefits for the A von, Meavy and Wylye still outstrip costs
by a ratio of at least 10 to 1 .

The results of the study strongly suggest that there are considerable welfare gains to be
made from implementing the least cost low flow alleviation options on the Rivers Wylye,
Meavy and Upper Avon. Similarly, there is strong evidence to suggest that only a low
flow alleviation option costing considerably less than the one costed in this study would
be justified on the Otter. The benefits of the least‐cost low flow alleviation options for
the Piddle and Allen can only be justified on the basis of non‐use values, and then only
tentatively. In these cases we would recommend that investigation of the non‐
recreational benefits of low flow alleviation be carried out to provide a clearer picture in
a fuller benefit‐cost analysis.

12 THE BENEFIT TRANSFER METHOD

The benefit transfer method involves transferring values that have been estimated for a
similar good or service from another location/context to the current location/context. It
represents a useful method under budget and time constraints. This method has been
applied to value the impact of improved water quality on recreation values and public
health. It has also been the normal procedure adopted in regulatory command and
control mechanisms in which common standards are applied. For instance, the EU
assumes that benefits of environmental improvement are of equal value in different
areas of the EU. Yet, it should be noted that benefit transfers can only be as accurate as
the initial study.

The simplest type of benefit transfer is the unit day approach, where existing values for
activity days are used to value the same activity at other sites. The estimates are based
on expert judgment in combining and averaging benefit estimates from a number of
existing studies and “unit day values” may be adjusted for characteristics of the study
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site when they are applied. A more rigorous approach involves transferring a benefit
function from another study. The benefit function statistically relates peoples’
willingness to pay to characteristics of the ecosystem and the people whose values were
elicited. Adjustments can then be made for differences in these characteristics, thus
allowing for more precision in transferring benefit estimates between contexts.

12.1 Approaches for applying benefit transfer and assessing the validity of the
attempts
12.1.1 Unit day values
The ‘unit day value’ was applied by the US Forest Service in the 70s and 80s. Federal
guidelines in 1982 recommended a value of $6.10‐$17.90 per day for specialized
recreation (wilderness use, trout fishing, big‐game hunting, white water boating) and
$1.50‐$4.50 per day for general recreation (picnicking, swimming, small game hunting,
camping, boating). When applied to a new site, unit day values are adjusted on the basis
of the demand functions of site‐visitors. Demand depends on site attributes such as
congestion, accessibility and parking conditions, environmental quality; scenery, pests,
water, air, climate, socio‐economic characteristics of recreationalists, preferences, price,
and availability of substitute sites. None of these factors will be identical across different
sites. Expert judgment is required to assess what the benefits of a new site might be
from a range of possible values. The unit day values can be updated to account for
inflation and observed changes in price and income elasticities for recreation over time.

12.1.2 Transfer from HPM models
Benefit transfer from studies using hedonic price models may be applied by relying on
judgments of real‐estate agents’ to adjust the results. Yet, while some research
suggested close correlation between estate agents’ estimates of total house price and
estimates derived from a hedonic price model, other research revealed discrepancies.

12.1.3 Transfer from TCM models
Benefit transfer via the Travel Cost Model may be applied by transferring demand
functions from existing facilities, resembling closely the prospective facility in the type of
recreation provided. If the catchment areas of the two sites are mutually exclusive, then
multiplying the existing site coefficients by the values for independent variables of the
new site will give estimates of the number of visits and benefits attributable to the new
site. This approach is expected to yield more accurate results than simply applying an
average value of benefit per visitor day to the site. However, if the proposed facility is
situated within the catchment area of an existing facility, the existing demand function
should be applied to the new site as if unique. If the new consumer surplus exceeds the
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existing one, the net gain from having the new facility is the difference between the two.
The lack of homogeneity in product mix may be remedied by valuing the different
recreational activities separately and then aggregating, rather than developing a
demand curve for the site as a whole. Errors in Benefit Transfer via TCM may occur due
to several reasons, including, choosing the wrong functional form, selecting an
incomplete or inappropriate set of arguments, measuring arguments incorrectly such as
value of time, income, cost of access, measuring the dependent variable with error, and
the presence of substitute sites. The latter could be cancelled out if sites are randomly
distributed via a simulation model.

12.1.4 Transfer from CVM models
Benefit transfer from studies using contingent valuation models can be affected by ex
ante‐ ex post valuation perspective, whereby some estimates elicited after the
uncertainty about the good is removed are employed in an ex ante project appraisal.
Application may also be affected by scale or quantity value. For instance, if the new
good or policy is identical to the old and lies within the same market area, then it
represents an additional quantity of the good and should be valued less than the existing
good at the site. The sequential position of the supply of the good may also affect
application, particularly where goods are complements or substitutes. In this case, the
sequence in which a particular good is provided in relation to others determines its
value. Other factors influencing application of benefit transfer via CVM include
differences in attributes, as well as compositional effects, or when respondents have
difficulty in disentangling the structure of the substitution and complementary
interrelationships among attributes within the same holistic set.

12.1.5 Transfer from meta‐analysis
Benefit transfer may also be applied via meta‐analysis, where data‐based aids are used
to explain variations in estimated benefits across different studies with the aim of
applying past results to future resource policy decisions. This approach attempts to
assess environmental values by investigating the relationship between benefit estimates
(WTP), the features of the goods, and the assumptions of the models. It entails the
systematic application of statistical methods to assess common features and variations
across a wide range of prior studies. It is undertaken using a variety of techniques
encompassing qualitative and quantitative econometric methods. Yet, meta‐analysis is
relatively underdeveloped in the field of benefit transfer. However, it is important as a
means of investigating the factors and issues involved in the derivation and construction
of value. For example, Walsh et al. (1989) conducted a study to explain variations in net
economic benefits per activity day in terms of site, location, and methodological
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variables. For this purpose, 287 benefit estimates were compared: 156 based on TCM,
129 based on CVMs, and 2 based on HPMs. Some main findings included that omitting
travel time in TCM studies reduced benefit estimates by 34% and that Individual TCM
estimates were about 46% greater than Zonal TCM estimates using the same functional
form. Another finding was that if TCM was accepted as the standard for benefit
estimation, then CV estimates needed to be adjusted upwards by 20‐30%.

12.2 Standards of benefit transfer studies
Different standards for benefit transfer may be applied in different contexts A higher
standard of accuracy may be required when the costs of making a poor decision are
higher. On the other hand, a lower standard of accuracy may be acceptable when costs
are lower, or when the information from the benefit transfer is only one of a number of
sources of information, or when it is used as a screening tool for the early stages of a
policy analysis.

The benefit transfer method is most reliable when the original site and the study site are
very similar in terms of quality, location, and population characteristics, when the
goods/services in both sites have similar characteristics, when the original valuation
study has been carefully conducted and used sound valuation techniques, and when
values in original study have not been valuated a long time ago since preferences change
over time.

Three tests have been suggested to determine the accuracy of benefit transfer:
− Comparing benefit transfer values with primary data values obtained from the policy
site
− Determining whether different populations have the same preferences for the same
non‐market good, after controlling for differences in socio‐economic characteristics
− Determining whether transfers are stable over time

When applying the benefit transfer methodology, the following steps should be
followed:

1. Identify existing studies or values that can be used for the transfer. There are a
number of valuation databases that can be useful.
2. Evaluate the existing values to determine whether they are appropriately
transferable. Consider whether the service being valued is comparable to the service
valued in the existing studies (site features, site qualities, availability of substitutes)
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and whether the characteristics of the relevant population are comparable in terms
of demographics and people’s preferences.
3. Evaluate the quality of studies to be transferred. The better the quality of the initial
study, the more accurate and useful the transferred value will be. This requires the
professional judgment of the researcher.
4. Adjust the existing values to better reflect the values for the site under
consideration, using available and relevant information. Supplemental data may
need to be collected through survey key informants, by talking to the investigators of
the original studies, getting the original data sets, or collecting some primary data at
the study site to use to make adjustments.
5. Estimate the total value by multiplying the transferred values by the number of
affected people.

Advantages of benefit transfer include:
− The BT method is less costly than conducting an original valuation study
− The economic benefits are estimated faster than when undertaking an original
valuation study
− The BT method can be used as a screening technique to determine if a more
detailed, original valuation study should be conducted
− The method can easily and quickly be applied for making gross estimates of
recreational values
− The more similar the sites and the recreational experiences, the fewer biases will
result

Issues and Limitations associated with benefit transfer:
− Lack of accuracy, except for making gross estimates of recreational values, unless the
sites share all of the site, location, and user specific characteristics
− Unavailability of good studies for the policy or issue in question
− Difficulty in finding appropriate studies, since many are not published
− Reporting of existing studies may be inadequate to make the needed adjustments
− Difficulty in assessing the adequacy of existing studies
− Extrapolation beyond the range of characteristics of the initial study is not
recommended
− Benefit transfers can only be as accurate as the initial value estimate
− Unit value estimates can quickly become dated

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12.4 Illustration
A park is being upgraded to provide additional recreational opportunities. A proposal is
to add a swimming beach to the lake in the park. The benefits of the new beach needs to
be explored, however, there is limited budget for the valuation study. For this purpose,
the Benefit Transfer Method is preferred because of the lack of a large budget for site‐
specific benefits studies and because values for recreational uses are relatively easy to
transfer.

The applied methodology is as follows:

Step 1
Identify existing studies or values that can be used for the transfer. Look for studies that
value beach use, specifically for lake beaches if possible. Assume that the researcher has
found two travel cost studies that estimated values for swimming at lake beaches.

Step 2
Decide whether the existing values are transferable by examining various criteria. The
existing values or studies would be evaluated based on several criteria, including:
− Is the service being valued comparable to the service valued in the existing
studies in terms of similar types of sites (lake beaches in a park), similar quality of
sites (water quality and facilities), similar availability of substitutes (the number
of other lake beaches nearby)
− Are characteristics of the relevant population comparable? Are demographics
similar? If not, are data available to make adjustments?

In the example, the first study is for a similar lake beach. The beach is also in a park, has
comparable water quality and facilities, and a similar number of substitute sites in the
area. It is located in an urban area, while the beach being valued is in a rural area. The
characteristics of visitors can be expected to be different for the two sites. The second
study is in a rural area with similar types of visitors, but the lake has many more
available substitutes.

Step 3
Evaluate the quality of studies to be transferred. In this example, the researcher has
decided that both studies are acceptable in terms of quality.

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Step 4
Adjust the existing values to better reflect the values for the site under consideration. In
this case, the sites valued in each of the existing studies differ from the site of interest.
The researcher might adjust the values from the first study by applying demographic
data to adjust for the differences in users. If the second study has a benefit function that
includes the number of substitute sites, the function could be adjusted to reflect the
different number of substitutes available at the site of interest. Because the beach will
be new, the researcher will need to estimate how many people will use the beach. They
may conduct a survey of park visitors, asking whether they would use a beach on the
lake, and how many times they would use it. Then, these visitation estimates can be
multiplied by the value per day for beach use (adjusted for differences in population and
site characteristics), to get an estimate of the economic benefits for the new beach.

12.5 Case‐application: Wetlands Restoration in Saginaw Bay, Michigan
The State of Michigan is considering plans to protect and restore coastal wetlands along
the southern shore of Saginaw Bay. The State must estimate the potential benefits from
protecting and restoring the wetlands. A survey asked people about their support for
restoring wetlands, but did not include a valuation question. The researchers used
benefit transfer methods to estimate the value of protecting and restoring wetlands
around the Bay.

A valuation study for proposed wetlands protection and restoration of Ohio’s Lake Erie
coastal wetlands was used for the benefit transfer. Researchers assumed that the values
estimated for Ohio were similar enough to be transferable to Michigan. The study
valued similar programs and quantities of wetlands to those proposed in Michigan.
However, coastal residents were not surveyed. The transfer of values from the Ohio
study to coastal residents in Michigan requires the assumption that coastal residents
have values similar to those of residents of other areas of the drainage basin.

Estimates of wetland values for Michigan, based on the Ohio study were $500 ‐ $9,000
per acre for residents of the drainage basin and $7,200 ‐ $61,000 per acre for residents
of the State of Michigan.

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100
Sessions 11 & 12
THE STATED PREFERENCE APPROACH:

GROUP EXERCISES
&
CASE‐STUDIES
SESSIONS 11 & 12

GROUP EXERCISES & CASE‐STUDIES

Wang, X.J.,Zhang, W., Li, Y., Yang, K. Z., and Bai, M. Air quality improvement estimation and
assessment using contingent valuation method: A case study in Beijing. Environmental
Monitoring and Assessment, 120, 153‐168, 2006.

Ecosystem services in Ejina China
Zhongmin, X. Guodong, C. Zhiqiang, Z., Zhiyong, S. and Loomis, J. Applying contingent valuation
in China to measure the total economic value of restoring ecosystem services in Ejina region.
Ecological Economics, 44, 345‐358, 2003

Environmental services in the Yaqui River Delta, Mexico
Ojedaa, M.I., Mayerb, A.S., and Solomon, B.D. Economic valuation of environmental services
sustained by water flows in the Yaqui River Delta. Ecological Economics, 2007. (In Press).

Sustainable development in Swedish coastal zone
Söderqvista, T., Eggertb, H., Olssonb, B., Soutukorvac, A., 2004. Economic valuation for
sustainable development in the Swedish coastal zone. SUCOZOMA research program.

Case‐studies
Doumani, F. 2007. Economic valuation of the coastal zone of the Mohafaza of North Lebanon:
Coastal zone municipal assessment, Coastal zone direct and indirect use value, Coastal zone
economic activity. Short and Medium Term Priority Action Program III. Integrated
Management of East Mediterranean Coastlines: Northern Lebanon, funded by The European
Commission. University of Balamand, Lebanon.

World Bank/ METAP, 2008. Climate Change Adaptation in the Water Sector in the Middle East &
North Africa Region: A Review of Main Issues. Presented at the Mediterranean Workshop on
Integrated Coastal Zone Management (ICZM) Policy, Alghero, Sardinia (Italy), May 19‐21,
2008.

World Bank/METAP, 2008. Carbon Finance Instrument to Improve Coastal Zone Solid Waste
Management. Presented at the Mediterranean Workshop on Integrated Coastal Zone
Management (ICZM) Policy, Alghero, Sardinia (Italy), May 19‐21, 2008.
101

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Session 13
COST‐BENEFIT ANALYSIS
SESSION 13

13 COST BENEFIT ANALYSIS

Cost benefit analysis (CBA) is one of the most widely used techniques for project
appraisal in the public sector. It represents a framework for policy decision‐making. Its
first formal application was in 1768, to evaluate the net benefits of the Forth‐Clyde
Canal in Scotland.

13.1 Measures of benefit
The demand curve, also referred to as the marginal benefit curve, indicates the cost of
consuming one extra unit of good and provides an idea of changes in ‘utility’ or level of
satisfaction. The price one is willing to pay for a good depends on the satisfaction one
derives from consuming it, which is taken as a measure of benefits. For environmental
goods, the benefit or WTP exceeds the market price, if it exists (Figure 28). Valuation
methods discussed earlier are used to obtain estimates of WTP.

Total benefits
= Total Revenue + Consumer Surplus
= Area of 0ECD + Area of ΔACE
Figure 28. Demand curve or marginal benefit curve

13.2 The concept of costs
The cost in a cost benefit analysis refers to the opportunity cost (OC) to carrying out the
investment. Under perfect competition, the OC of a good is the same as the market
price of that good. For environmental goods, there is no market‐price; alternative
methods are to be used to measure the OC.

13.3 The concept of Net Social Benefits
It is important to distinguish between a social CBA and a private CBA. A social cost
benefit analysis (SCBA) is conducted from a society’s perspective and is referred to as
economic analysis, while a private CBA is carried out from an individual investor’s view
point and is referred to as financial analysis. A project may be financially viable but
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socially undesirable. The objectives of a SCBA is to determine whether a project is
socially beneficial, whereby:
Net Social Benefit (NSB) = Benefits – Costs = WTP – OC > 0

If NSB > 0, then the state can use the surplus to compensate the losers.

13.4 Steps in Conducting an SCBA
The steps in conducting a SCBA are outlined in Figure 29. The following sections will
detail the steps of a cost benefit analysis process along with a case‐study illustrating its
step by step application.

1. Define objectives and scope of project
Ø
2. Identify and screen alternatives
Ø
3. Identify and value the costs and benefits for the
remaining alternatives
Ø
4. Calculate discounted cash flows and project performance
criteria for each alternative
Ø
5. Rank the alternatives in order of preference
Ø
6. Conduct a sensitivity analysis and/or risk analysis
for the preferred alternative(s)
Ø
7. Make a final recommendation
Figure 29. Steps in a social cost‐benefit analysis

The case‐study involves the Bintuli Wastewater Treatment Project. The city of Bintuli in
the Republic of Kabastan is a center of commerce and industry. Main industries include,
metal manufacturing, coal extraction, chemical manufacturing, construction, paper
making and food processing. The value of industrial output was estimated at 200 million
USD in 1990 as compared to 16 million USD for agriculture. Quantities of domestic and
industrial effluents in water bodies increased significantly, whereby the total industrial
effluent amounted to 163,700 m3/day, with the total effluent including 271,700 m3/day
of domestic wastewater. Only 30% of industrial effluent was treated by the existing
Bintuli Wastewater Treatment Plant (WWTP), while no domestic effluent was being
treated. River courses in the city turned black and emitted unpleasant odors. Thus, it
was proposed to build a wastewater treatment facility with pumping stations and
drainage networks to treat 28% of industrial waste and the remaining domestic waste.
The treated effluent discharged in river to be used by industries and agriculture.
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13.4.1 Defining objectives and project scope
The objectives are often specified by decision‐makers in the bureaucracy. Objectives
should be clear and unambiguous. In the case of the Bintuli WWT Project, the objectives
are to improve the health of the community and to increase economic activity by
improving wastewater treatment facilities in the city.

13.4.2 Identifying and screening alternatives
All possible options for reaching objectives need to be listed, including the ‘do nothing’
option. A preliminary screening of alternatives should be conducted. In the case of the
Bintuli Wastewater Treatment Project, possible alternatives include:
− Maintaining the status quo
− Expanding the existing WWT facilities. This alternative was ruled out because it
uses outdated technology and would be difficult to maintain
− Building a new WWT facility
− Various locations and site options. Only one potential site considered in this
application

13.4.3 Identifying and valuing benefits and costs
As mentioned earlier, costs and benefits differ for an SCBA as compared to private
investors. A benefit in an SCBA refers to an outcome resulting in an increase in an
individual’s utility and a cost in an SCBA refers to an outcome resulting in a decrease in
an individual’s utility. In identifying costs and benefits, it is important to note the
following:
− An incremental approach is adopted in assessing costs and benefits, which involves
first identifying and valuing costs and benefits of the project, and then compare
them with the situation to prevail without the project. The difference is the net
incremental benefit arising from the project. Only additional changes in costs and
benefits are considered, and not total costs and benefits.
− Sunk costs and benefits incurred before project commencement must be excluded.
Previous costs are not an opportunity cost as they do not represent a loss of future
income from an alternative use of resources.
− Transfer payments must be excluded. These include taxes, subsidies, loans, and debt
services, which do not result in an increase in net benefits. Taxes by foreign investors
should be included.
− Depreciation and interest are excluded from the cost in a SCBA. SCBA involves
discounting values of capital items at their opportunity costs. Thus, including
depreciation as a cost will result in double counting. The discount rate in an SCBA
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already takes into account the interest. Including interest as a cost will result in
double counting.

Costs and benefits are normally classified into primary costs and benefits related directly
to the project, and secondary costs and benefits. The latter arise from events and
activities triggered by the project and should be handled with care as they could
exaggerate estimates. The opportunity cost must be used as a guideline. Resources are
sometimes merely transferred from one part of the economy to another. Costs and
benefits may also be classified into market costs and benefits non‐market costs and
benefits. In the case of the Bintuli WWT Project, the identified costs and benefits are
presented in Table 25.

Table 25. Costs and benefits associated with the Bintuli WWT project
Costs Benefits
Primary Primary
Investment Economic
− Construction of a pumping station, User charges
office building, WWT facilities Reduction in health costs and mortality
− Purchase of equipment rates
Operation and maintenance (O&M) Reduction in costs of treating increasingly
− Wages and salaries polluted water supplies
− Fuel and chemical costs Increase in labor productivity due to
− Other costs (project management, reduction in absence from work due to
preparation, training and illness
commissioning Secondary
Benefits to industry and agriculture from
using recycled water
Additional revenues from re‐afforestation
Increase in reed harvesting for the paper
mill industry

Valuing benefits and costs allows comparison between alternatives. The valuation
should be done according to the opportunity cost principle, whereby prices of inputs
that do not reflect their true value to the society are adjusted (shadow pricing).
Comparison of costs and benefits should focus on the “with vs. without” the project,
rather than “before vs. after” the project.

Valuing the costs involves first finding the market prices for the inputs and outputs. All
costs must be in present day or constant prices, whereby costs incurred over the project
lifetime must be valued at prices prevailing at the time of the project appraisal and the
annual costs must be assumed to increase at the inflation rate. The residual value should
be considered for assets with an economic life that exceeds the planning horizon or
project life. The economic life is the estimate of the duration of the operation of an asset
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before it requires refurbishment. The residual or salvage value of the asset must be
included as a cash inflow at the end of the planning horizon. This is calculated using
either a linear method or a diminishing value method. The linear method assumes that
the asset value declines linearly over time:

Residual value at time t is (1‐t/n)P
Where t = time; n = economic life; P = initial price

For example, consider an asset purchased at $100,000 and has an economic life of 20
years. At the end of the planning period of 15 years, its residual value is (1‐
15/20)*100,000 = $25,000

As for the diminishing value method, it assumes that the asset value declines by a fixed
proportion of the beginning of year value per annum:

Residual value at time t is (1‐1/n)t P

Other costs that need to be considered include:
− Land and pre‐existing building and plant, property that is already owned by
operating authority must be valued at its opportunity costs. Opportunity costs
should be current variations based on the most profitable alternative uses.
− When a project is to be constructed in stages, only the portion of investment and
operating costs to satisfy demand in the current planning horizon must be attributed
to the project.
− Working capital, which often constitutes 2% of the total capital outlays, must be
considered as cash outflow at the time when capital expenditures are made and cash
inflow at the end of the project.
− Operating costs, which include labor, utilities, supplies, repairs and maintenance,
equipment hiring and leasing, insurance and administrative overheads, are to be
estimated on an annual basis.
− Implicit costs should also be considered. These include opportunity costs and social
costs, such as the use of land, buildings, plants, already purchased by the local
authority, and time spent on the project by agency staff.

The costs incurred in the case of the Bintuli WWT Project, are summarized in Table 26.

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Table 26. Costs of the Bintuli WWT Project
Item Cost (million USD)
Investment costs
Buildings and structures 3.42
Equipment and supplies 13.15
Total investment cost 16.57
O&M costs
Electricity 0.68
Salaries 0.09
Chemicals 0.06
Maintenance 0.58
Other 0.21
Total O&M costs 1.62

They are based on the following:
− All equipment and construction materials are imported and valued in US$
− Fuel and chemical supplies are adjusted by subtracting the government subsidies on
these items
− Because of high unemployment in the area, unskilled labor is shadow priced at 50%
of the wage rate
− Skilled labor valued based on annual salaries
− Construction is to take 3 years

Benefits of the Bintuli WWT project encompass revenues from user charges, and
economic benefits derived from the WWT plant, including, reduced mortality,
productivity gained from reduced morbidity, water treatment cost savings, sale of
recycled water, afforestation benefits, and reed harvesting.

User charges
User charges include both new charges and existing charges. New charges are based on
the principle of full cost recovery and estimated at 6.9 cents/m3. For a total of 54.75
million m3/year of effluent treated, the annual revenue is estimated at 3.78 million USD
per year. As for the existing charges, they are estimated at 0.61 million USD per year (for
a user charged of 6.9 cents/m3 and a total effluent of 11.4 million m3/year already being
treated). Thus, the net incremental sales revenue is estimated at 3.17 million USD by
year 6, when the new plant is at full capacity.

Recycled water
Regarding recycled water benefits, about 60% of the treated wastewater will be reused
for irrigation and industrial purposes. The opportunity cost of this recycled water is
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estimated at 10 cents/m3. The economic benefits from recycled water were therefore
estimated at 66,000 USD at year 4, rising to 3.29 million USD per year by year 8.

Afforestation
As for afforestation benefits, pine and hard wood species will be planted on 142.8 ha.
The net return per hectare was taken from estimates provided by Kabastani authorities
for experimental plots. These were reported at 689 USD/ha. Thus, the net benefits are
estimated at 10,000 USD in year 8 and a maximum of 100,000 USD by year 17.

Reed harvesting
Economic benefits are also expected from reed harvesting for the paper mill industry.
The Kabastani authorities have estimated the net returns to be 258.4 USD per ha.
Applying this figure to the projected area of 95.25 ha results in net annual benefits of
about 20,000 USD starting Year 6.

Reduced mortality benefits
Using World Bank estimates for Kabastan, mortality reduction from the project was
taken to be 0.005, 0.008, and 0.024 percent respectively, for the age categories of 15‐24
years, 25‐29 years, and over 60 years. On the basis of estimates for the number of
people in each category, the total number of deaths per year was calculated. Using the
estimated proportion of people employed in each age category and the mortality
reduction rates, an estimate of both employed and unemployed deaths was made.
Given the local annual wage of 620 USD (which includes housing subsidies and other
government payments) and assuming average working lives of between 5 and 45 years
for the three age categories, annual income losses avoided were estimated. For the
unemployed, a leisure value of half the annual wage was assumed. On the basis of this
estimate, the annual gains in leisure from saving deaths were estimated. Given that the
project will treat about half of Bintuli’s wastewater, only 50 percent of the potential
mortality and morbidity benefits were attributed to the project. The income benefits
from reduced mortality were therefore estimated at 10,000 USD in year 4, rising to
110,000 USD by the end of the project.

Productivity gains from reduced morbidity
A major social impact of the project is the reduction of the incidence of pollution‐related
illnesses and hence a reduction in worker absenteeism. These benefits were estimated
as follows. First, it was assumed that the current average number of days lost per
worker per year as a result of illness is 3 days. Next, using the employment statistics,
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potential productivity losses avoided per worker per annum were estimated to be about
180,000 USD in year 4, rising to about 1.8 million USD by the end of the project.

Water treatment cost savings
As indicated above, the benefits of the project include the avoided cost of treating
polluted water. An estimate of 0.002/m3 of water treatment cost savings estimated by
the World Bank was assumed. The estimated benefits of water treatment cost savings
was estimated to be 110,000 USD per year,

The incremental economic benefits derived from the project were estimated at 96,000
USD in year 4, rising to 5.38 million USD by the end of the project (Table 27).

Table 27. Incremental economic benefits of Bintuli WWT project (million USD)
Year Recycled Afforestation Reed Reduced Reduced Water Incremental
water harvesting mortality morbidity treatment economic
cost savings benefits
1
2
3
4 0.66 0.01 0.18 0.11 0.96
5 0.99 0.02 0.38 0.11 1.50
6 1.64 0.02 0.03 0.57 0.11 2.37
7 2.63 0.02 0.05 0.76 0.11 3.57
8 3.29 0.01 0.02 0.06 0.95 0.11 4.44
9 3.29 0.02 0.02 0.06 1.00 0.11 4.50
10 3.29 0.03 0.02 0.06 1.06 0.11 4.57
11 3.29 0.04 0.02 0.07 1.11 0.11 4.64
12 3.29 0.05 0.02 0.07 1.17 0.11 4.71
13 3.29 0.06 0.02 0.07 1.23 0.11 4.78
14 3.29 0.07 0.02 0.08 1.30 0.11 4.87
15 3.29 0.08 0.02 0.08 1.37 0.11 4.95
16 3.29 0.09 0.02 0.09 1.44 0.11 5.04
17 3.29 0.10 0.02 0.09 1.51 0.11 5.12
18 3.29 0.10 0.02 0.10 1.59 0.11 5.21
19 3.29 0.10 0.02 0.10 1.68 0.11 5.30
20 3.29 0.10 0.02 0.11 1.76 0.11 5.39

13.4.4 Calculating discounted cash flows and project performance criteria
Once the costs and benefits with and without the project have been identified and
valued in monetary terms, the analyst is now ready to make a decision as to which
alternative to accept or reject. This requires reducing future streams of benefits and
costs to their present values to enable comparisons to be made between alternatives.
Given a stream of benefits (B0, B1…Bn) and a stream of costs (C0, C1…Cn), the Net Present
Value (NPV) is calculated using the following equation:

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B −C B −C B −C n B −C
NPV = B − C + 1 1 + 2 2 + ... n n = ∑ n n
0 0 1+ r 2 n n
(1 + r ) (1 + r ) t = 0 (1 + r )
where r = discount rate

The discount rate in a SCBA reflects society’s preferences between present and future
consumption. A high discount rate implies that society has a stronger preference for
present consumption over future consumption, while a low discount rate implies that
society has a stronger preference for future consumption over present consumption.
The choice of a discount rate is often controversial. Environmentalists argue against high
discount rates, which they believe are associated with environmental degradation.
Economists tended to use long‐term interest rates on government bonds as a measure
of opportunity cost of capital. For example, in the US, a rate of 10 percent is used and in
Australia, a rate of 8 percent is used. The discount rate must be a real rate. That is, the
nominal interest rate minus the inflation rate.

Another critical factor in computing the discounted cash flows is the planning period or
horizon. The planning period varies with nature of project. It should be determined by a
period within which estimates are made with a certain degree of confidence and it
should correspond to the economic life of the project.

Project performance criteria include the following, NPV, benefit‐cost ratio (BCR), internal
rate of return (IRR), and payback period. The BCR is the ratio of the present value of
project benefits to the present value of the project costs. It is calculated as follows:

B B2 Bn n
B0 + 1 + + ... n ∑ Bn (1 + r )
n
1+ r (1 + r ) 2 (1 + r ) t = 0
BCR = = n
C1 C2 Cn n
C0 + + + ... n ∑ Cn (1 + r )
1 + r (1 + r ) 2 (1 + r ) t =0

The payback period is defined as the number of years required for a project to recover
its costs. In general, it discriminates against projects with high capital expenditures and
long‐term benefits. It is not recommended as a measure of project worth.

The IRR is the discount rate at which the present value of project benefits equals the
present value of project costs. It represents the maximum interest rate at which a
project could recover the investment and operating cost and still break even. It is
difficult to calculate and may not exist or may not be unique. A trial and error method
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must be used. The IRR can be found by finding the discount rate at which the following
equation holds:

B −C B −C B −C
B −C + 1 1 + 2 2 + ... n n =0
0 0 1+ i (1 + i ) 2 (1 + i ) n

The rule is to accept a project when NPV ≥ 0, BCR ≥ 1, and IRR > the social opportunity
cost of capital. The NPV is the most preferred criterion because it provides an estimate
of the size of the Pareto improvement. If two or more projects have NPVs > 0, then IRR
can be used to rank them.

A real rate of 12% was chosen as a discount rate to produce the discounted cash flows.
This rate is the average of the published World Bank discount rates for the past 10 years.
A planning period of 20 years was used based on advice received from engineers. Based
on the calculations shown in Table 28, the NPV at the 12% discount rate is estimated at
12.08 million USD and the IRR is 21 percent, which is above the opportunity cost of
capital of 12 percent. Therefore, it can be concluded that the Bintuli Wastewater
Treatment Project is economically viable.

Table 28. Incremental net benefits of Bintuli WWT project (million USD)
Incremental Incremental sales Incremental Incremental net
Year economic costs revenue economic benefits benefits
1 2.01 ‐2.01
2 8.45 ‐8.45
3 6.11 ‐6.11
4 2.42 1.91 0.96 0.45
5 1.62 1.91 1.5 1.79
6 1.62 3.17 2.37 3.92
7 1.62 3.17 3.57 5.12
8 1.62 3.17 4.44 5.99
9 1.62 3.17 4.50 6.05
10 1.62 3.17 4.57 6.12
11 1.62 3.17 4.64 6.19
12 1.62 3.17 4.71 6.26
13 1.62 3.17 4.78 6.33
14 1.62 3.17 4.87 6.42
15 1.62 3.17 4.95 6.50
16 1.62 4.43 5.04 7.85
17 1.62 4.43 5.12 7.93
18 1.62 4.43 5.21 8.02
19 1.62 4.43 5.30 8.11
20 ‐0.02 4.43 5.39 9.84

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13.4.5 Conduct a sensitivity analysis and/or risk analysis
In economics and business, a distinction is made between risk and uncertainty. Risk is
the potential outcome whose magnitude and probability of occurrence are known or
can be determined. Uncertainty refers to a situation where the magnitude of the
outcome may or may not be known and the probability of occurrence is unknown. In
practical situations, however, it is difficult to define precisely the probability of an
occurrence. Therefore, the distinction between the risk and uncertainty may not be
clear‐cut. Common methods for accounting for risk and uncertainty include, sensitivity
analysis, break‐even analysis, cross‐over values, and risk analysis.

Sensitivity analysis is used to assess the possible impact of uncertainty by posing ‘what
if’ questions. It highlights the critical factors affecting the project’s viability. Parameters
usually subjected to sensitivity analysis include discount rate, length of project planning
horizon, different timing of the project’s operation, changes in the capital outlays,
changes in the price of non‐market goods, and changes in social and environmental
benefits and costs. Sensitivity analysis is carried out by recalculating project
performance criteria using a range of values for the uncertain parameter. The project
performance criteria commonly used are NPV and IRR. Sensitivity analysis is conducted
by first determining a realistic range of values for the variables that are subject to
uncertainty. For example, capital cost ± 30 percent, O&M costs ± 30 percent, and
product prices ± 30 percent. Then, the effect of possible changes on the project
selection criteria are calculated while varying one variable and holding the others
constant. Finally, the economic viability of the project is reconsidered in light of the
performed calculations.

The break even value of a given project is the value of the discount rate at which the
NPV is zero or the value at which the entire costs will be recovered. On the benefit side,
if a variable appears to be higher than the break‐even level, this increases confidence in
the project’s viability. On the cost side, an estimate that is lower than the break‐even
level means that the project is likely to be economically viable.

The switching or cross‐over value of a project performance criterion (e.g. NPV) is the
discount rate at which the ranking of two projects changes. This method is
recommended when considering only one uncertain variable.

In the case of the Bintuli WWT project, a sensitivity analysis was conducted. For this
purpose, critical, uncertain variables were chosen for analysis, including changes in
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capital and O&M costs, and changes in the net incremental economic benefits (Table
29).

Table 29. Sensitivity analysis for the Bintuli WWT project
Change in net economic benefit
Changes in ‐30% ‐15% 0% +15% +30%
capital
costs ‐30% 23 25 27 29 31
‐15% 20 22 24 25 27
0% 17 19 21 23 24
+15% 15 17 19 21 22
+30% 14 16 17 19 20
Changes in ‐30% 19 21 23 25 26
O&M
costs ‐15% 18 20 22 24 25
0% 17 19 21 23 24
+15% 16 18 20 22 23
+30% 15 17 19 21 22

The sensitivity analysis indicated that IRR is robust whereby a 30% decline in economic
benefits reduced IRR to 17% assuming no change in capital and O&M costs. Similarly, a
30% increase in capital costs assuming no change in economic benefits reduced the IRR
to 17%. Furthermore, a 30% increase in operating costs reduced IRR to 19%. Thus, it can
be concluded that the estimate is insensitive to large changes in the projected economic
costs and benefits.

Risk analysis is suitable in the cases where the values of several parameters are
uncertain. Risk analysis involves the use of the probabilities of occurrence of the key
variables as weights to recompute the project performance criteria. This is carried out
using special purpose computer packages such as ‘@RISK’, which generates probability
distributions for NPV and IRR. A major difficulty in risk analysis is obtaining probability
estimates. Common probability distributions include uniform distributions, which
require minimum and maximum estimates, and triangular distributions, which require
most pessimistic (minimum), most likely (mode), and most optimistic (maximum)
estimates. Beta distributions may also be used.

Finally, based on the cost‐benefit analysis conducted for the proposed Bintuli WWT
project, it can be concluded that water pollution in Bintuli is a serious problem and that
project implementation is urgently required to protect the health of the community and
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reduce environmental degradation. The proposed project is expected to yield
substantial economic benefits. The IRR was estimated at 21% and sensitivity and risk
analysis indicated that the estimate is insensitive to costs and benefits. Therefore it is
recommended to implement the project with the institution of a good monitoring
program.

13.5 Cost Cost Effectiveness Analysis
Although CBA is a useful tool to assist decision‐making, it may not be a suitable
approach in all situations. When it is not possible to value a project's major benefits in
dollar terms, or when two projects have similar economic benefits, then a cost
effectiveness analysis (CEA) may be used. For example, if the decision problem is to
choose between building two hospitals, a CEA would be appropriate since the social
benefits in either case would be similar. Both CBA and CEA are based on the principle of
economic efficiency and therefore do not consider equity or distributional issues. That
is, a project is deemed to be socially desirable if the gainers can potentially compensate
the losers. They both do not deal with the issue of who the losers are or how they
should be compensated.
Cost effectiveness analysis looks only at financial costs. A CEA takes the objective as
given, and then works out the costs of the alternative ways of achieving that objective.
The decision on whether to use CEA instead of CBA will depend on a number of factors
including the following:
− The size and complexity of the project;
− The extent to which there are quantifiable benefits; and
− The extent to which the benefits can be valued in monetary terms.
For large‐scale projects CBA is the preferred approach because it enables the major
items of costs and benefits to be identified and valued and discounted cash flow
performance criteria to be computed. However, in cases where the major benefits
cannot be quantified in dollar terms, CEA is the preferred approach. CEA is also
appropriate in a case where the choice is between, say, two wastewater treatment
options with the same outputs or service levels but the difference is in, say, location.
Most of the foregoing discussion on CBA applies generally to CEA. Unlike CBA, CEA does
not have absolute criteria by which to judge the economic viability of projects. CEA is
therefore not recommended when a decision about the level of output or service to be
provided is at issue.
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13.5.1 Conducting a Cost‐Effectiveness Analysis
The steps involved in carrying out a CEA are similar to those for a CBA. They include:
1. Project definition
2. Choice of method of analysis
3. Identification and valuation of costs and benefits
4. Discounted cash flow analysis
5. Calculation of measures of effectiveness, and
6. Sensitivity analysis
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Session 14
THE VALUE OF LIFE AND HEALTH
SESSION 14

14 THE VALUE OF LIFE AND HEALTH

Environmental changes, particularly increased pollution, often result in adverse impacts
on human health, which can be translated into monetary values. In estimating monetary
values of changes in human health associated with environmental changes, two links
need to be established (Figure 30).

Figure 30. The process of health impact valuation

The first link is between environmental change and change in health status. This involves
measuring health impacts and establishing dose‐response relations and calculating the
burden of disease (BoD) through disability adjusted life years (DALYs). The second link is
between the change in health status and its monetary equivalent, which involves
establishing willingness to pay values.

14.1 Measuring health impacts
Health impacts of pollution may be well recognized. Air pollution affects human health
in a variety of ways, from itchy eyes and chest discomfort, to chronic bronchitis and
asthma attacks. Inadequate water supply and sanitation affects human health through
diarrhea, intestinal nematodes, and other diseases. Health impacts are measured
through various types of studies including, epidemiology and field studies, human
clinical studies, and laboratory and toxicology studies.

14.1.1 Epidemiology and field studies
Epidemiological and field studies involve estimating a statistical relationship between
the frequencies of specific health effects observed in a study population and measured
levels of pollutants. There are two main types of epidemiological studies: the cohort
studies and the population studies. Cohort studies analyze the incidence of health
effects in a sample of identified individuals usually selected specifically for the study.
They allow better control of risk factors since characteristics of individuals are well
known. Population studies rely on the data available for the population as a whole
rather than tracking the effects on specific individuals. These studies are readily
available and cost‐effective.
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Advantages of epidemiology and field studies include:
− Providing sufficient information to infer a concentration‐response function used to
predict a change in the number of cases of a given health effect and pollutant
concentration
− Defining, health effects in terms of factors that can be directly related to perceived
welfare, including risks of premature death and days with noticeable symptoms.

The main limitation associated with such a type of studies is the uncertainty about
whether the causal factors for the observed association with health effects has been
fully and accurately specified.

14.1.2 Human clinical studies
Human clinical studies examine the response of human subjects to pollutant exposure in
a controlled laboratory setting. Such studies can provide evidence of causation because
confounding variables are well controlled. They have the advantage of providing more
accurate dose‐response information. However, the application of human clinical studies
is limited to considerations of short‐term reversible health effects that can be induced
on purpose in human subjects and it requires assumptions to link human exposure in
real life to health effect observed in a laboratory setting.

14.1.3 Laboratory and toxicology studies
Laboratory and toxicology studies use animal subjects and human tissue or cells to study
biological responses to pollutants in a controlled laboratory setting. They provide
important information about specific biological pathways and mechanisms by which
pollutants cause harm to living organisms. Laboratory and toxicological studies has the
advantage of well‐controlled pollutant exposures and reduced variations in confounding
factors. In addition, they can consider both long term and short term exposures.
However, analysis and assumptions are required to link human exposure in real‐life to
laboratory exposure. Furthermore, these times of studies are associated with
uncertainty in extrapolating data from animal subjects to human populations. They
sometimes focus on health effects that are difficult to interpret in terms of specific
symptoms

The aim of these types of studies is to establish dose‐response relations (DRR) linking
environmental variables with observable health effects, particularly in the case of air
pollution. DRRs correlate mortality and morbidity outcomes for susceptible population
groups with ambient concentration of a given air pollutant. Most of the conducted
studies have focused on mortality effects. For instance, chronic exposure to PM results
118
in exacerbated respiratory illness, pulmonary disease and cardiovascular disease,
culminating in premature mortality. Similarly, acute exposure to PM affects individuals
in a weakened state or especially susceptible, resulting in premature mortality. An
example of estimated DRRs for air pollutants are presented in Table 30.

Table 30. Estimated increments in annual health effects associated with increments in air pollutants
(IDIEN, 1998)
Outcome PM10 SO2 Ozone Lead NO2
(10μg/m3 (10μg/m3) (pphm) (1 mg/m3) (pphm)
)
Premature mortality (% change) 0.96 0.48
Premature mortality/ 100,000 6.72
Respiratory hospital admissions/100,000 12 7.7
Emergency room visits/100,000 235.4
Restricted activity days/person 0.575
Lower respiratory illness/child 0.016
Asthma symptoms/asthmatic 0.326 0.68
Respiratory symptoms/person 1.83 0.55
Chronic bronchitis/100,000 61.2
Minor restricted activity days/person 0.34
Respiratory symptoms/1,000 children 0.18
Respiratory symptoms per adults 0.1 0.1
Eye irritations/person 0.266

14.2 Burden of Disease
A BoD study aims to quantify the burden of premature mortality and disability for major
diseases or disease groups. It uses a summary measure of population health (DALY) to
combine estimates of the years of life lost and years lived with disability. Data are
broken down by age, sex, and region. The Global Burden of Disease (GBD) constituted
the most comprehensive set of estimates of mortality and morbidity yet produced
(Murray and Lopez, 1996). The World Health Organization (WHO) now regularly
develops BoD estimates at regional and global level for a set of more than 135 causes of
disease and injury. National BoD studies involve obtaining country‐specific estimates for
input to national policy. The following section discusses the calculation of DALYs, the
unit measures of BoD.

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14.2.1 Disability Adjusted Life Years
The DALY measures health gaps as opposed to health expectancies, using time
measures. It estimates the difference between a current situation and an ideal situation
where everyone lives up to the age of standard life expectancy. DALY is based on two
key value choices:
− How long should people in good health expect to live?
− How should we compare years of life lost through deaths with years lived with poor
health or disability of various levels of severity?

DALY combines in one measure the time lived with disability and the time lost due to
premature mortality:

DALY = YLL + YLD
Where:
YLL = years of life lost due to premature mortality
YLD = years of life lost due to disability

YLL corresponds to the number of deaths multiplied by the standard life expectancy at
the age at which death occurs:

YLL = N × L
Where:
N = number of deaths
L = standard life expectancy at age of death in years

YLD is estimated by measuring the incidence of disability and the average duration of
each disability. The number of disabilities is multiplied by the average weight factor that
reflects the severity of the disease on a scale from 0 (perfect health) to 1(dead). Thus
the Years of Life with Disability (without applying social preferences):

YLD = I × DW × L

Where:
I = number of incident cases
DW = disability weight
L = average duration of disability (years)

120
Disability weights quantify societal preferences for different health states. It is important
to note that disability weights DO NOT represent the lived experience of any disability or
health state and they DO NOT imply any societal value for the person in the disability.
For example, a weight for paraplegia of 0.57 does NOT mean that the person in this
health state is half dead, or that the person experiences life as half way between life and
death, nor that society values them less as a person compared to healthy people. It
rather means that society judges a year with blindness (0.43) to be preferable than a
year with paraplegia. It also means that society would prefer living for 3 years followed
by death (1.7 lost healthy years) than have one year of good health followed by death (2
lost healthy years). Disability weights for various diseases calculated by Murray and
Lopez (1996) are presented in Table 31.

Table 31. Disability weights (Murray and Lopez, 1996)
Disease Mean disability Disease Mean disability
weight weight
AIDS 0.50 Asthma, cases 0.10
Infertility 0.18 Deafness 0.22
Diarrhea disease, episode 0.11 Brain injury, long term 0.41
Measles episode 0.15 Spinal cord injury 0.73
Tuberculosis 0.27 Sprains 0.06
Malaria episode 0.20 Burns (> 60%) long term 0.25
Cancer, terminal stages 0.81 Congestive heart failure 0.32
Parkinson disease cases 0.39 Benign prostatic hypertrophy 0.04
Alzheimer disease cases 0.64

Other social values that could be taken into account when calculating DALYs are age and
time. Age weights are sometimes used whereby a year of healthy life lived at younger
and older ages was weighted lower than for other ages. This was based on the fact that
various studies have shown a broad social preference to value a year lived by a young
adult more than a year lived by a young child or lived at older ages. However, age
weights in DALYs are controversial. Time discounting may also be used whereby the net
present value of lives lost is estimated using a 3% discount rate. This is based on studies
showing that people prefer a healthy year of life immediately, rather than in the future.
However, it is important to note that BoD studies may or may not include time
discounting and age weights depending on local preference

121
Calculating DALYs with a 3% discount rate:

N
YLL = (1 − e − rL )
r

Where:
L = standard life expectancy at age of death
r = discount rate (0.03)

I × DW × L
YLD = (1 − e − rL )
r

Where:
I = number of incident cases
DW = disability weight
L = duration of disability in years

Calculating DALYs with age weight and a 3% discount rate:

KCe ra − ( r + β )( L + a ) −( r + β )a 1− K
YLL = [ e [ − ( r + β )( L + a ) − 1] − e [ − ( r + β ) a − 1]] + (1 − e − rL )
(r + β ) 2 r

Where:
a = age of death (years)
β = age weighting constant (Ex: β = 0.04)
K = age weighting modulation constant (Ex: K =1)
C= adjustment constant for age‐weights (Ex: C = 0.1658)
L = standard life expectancy at age of death (years)

KCe ra 1− K
YLD = DW { [e − ( r + β )( L + a ) [ −( r + β )( L + a ) − 1] − e − ( r + β ) a [ −( r + β ) a − 1]] + (1 − e − rL )}
(r + β ) 2
r

Usually DALYs adjusted for age and time are calculated using MS Excel spreadsheets,
Examples of DALY spreadsheets are presented below.

122

Figure 31. Calculating YLL for diarrhea

123

Figure 32. Calculating YLD for Alzheimer

14.3 Valuating Health Impacts
After measuring the health impacts of pollution, the established DRRs and/or DALYs
need to be monetized. Several methods may be used to value health impacts using the
WTP approach (Figure 33). Many of these methods have been discussed in detail in
previous chapters and thus will only be mentioned briefly.

124

Figure 33. Methods for valuing health impacts

14.3.1 The Human Capital Approach (HCA)
The HCA considers individuals as units of human capital that produce goods and services
for society. It values human life and time spent ill or recovering using forgone earnings.
As such, it measures loss of productivity resulting from an individual’s death (Work Loss
Days‐WLD) and injury (Restricted Activity Days‐RAD)

HCA = (# of Life Years Lost due to premature death or due to illness) × (Average Wage Rate)

WLD and/or RAD are either estimated for specific individuals in a detailed study or for
average individuals. The latter is most commonly applied. HCA usually provides a lower‐
bound estimate, as it does not account for pain and discomfort accompanying a certain
illness.

HCA values calculated are dependent on income, skill level, and country of residence.
Accordingly, this method is considered as the most difficult and controversial aspect of
valuing health effects associated with environmental changes. Table 32 presents the
human capital and mortality costs by age in the US for the year 1992. Cost estimates are
based on life‐expectancy at the time of death and include labor‐force participation rates,
average earnings, the value of home‐making services, and a 6% discount rate.

125
Table 32. Human capital and mortality cost by age in the US
Age group (yrs) Life years lost Mortality cost (1992 US$)
< 5 75 502,421
5‐14 68 671,889
15‐24 57 873,096
25‐44 42 785,580
45‐64 25 278,350
65+ 10 22,977

The following steps need to be followed when applying the HCA
1. Specify the type of economy for the population of interest
2. Specify the characteristics of the economy for the population of interest
3. Specify the family and community structure
4. Specify the unit of analysis
5. Specify the desired measure of productivity changes
6. Estimate the maximum loss in productive time as a result of the health outcome.
This requires information as to the groups of patients that are working and requires
decisions about value of time of children and retired people

There are various problems associated with the HCA. This approach faces difficulty in
accurately estimating forgone earnings, since employee’s compensation includes
pension plans, health insurance, flexible hours, and not just wages. Furthermore, the
HCA does not provide information about the individual’s WTP to reduce probability of
loss of life. It also does not measure net contribution to society. It assumes full
employment and no substitutability of labor. It also assumes a dominant cash economy
where market prices exist, which is not the case in developing countries. HCA also
ignores non‐market activities important to individuals. It undervalues retired people,
children, and home‐makers, and it does not value pain and suffering, the individual’s
own well‐being and preferences, and the sentiments of the society. Finally, the
estimated value using the HCA highly depends on the discount rate used. The higher the
discount rate, the lower the economic value of children.

Several issues need to be considered when applying the HCA:
− Uncertainty about the number of days or years an individual actually takes off work
which requires an assumption about life‐expectancy
− Productivity estimations do not consider the declining economic value as people get
older
126
− WLD and RAD depend on the individual and how he/she responds to symptoms and
illness
− Lack of labor market data in many developing countries
− Data cannot be generalized between populations and countries as values are highly
dependent on local factors

14.3.2 Cost of Illness (COI) Approach
The cost of illness approach involves measuring two types of costs, (1) the direct costs or
the costs of medication, hospitalization, and doctors’ visits, and (2) the indirect costs or
the forgone labor earnings due to days spent in bed, days missed from work, and days
when activity was restricted due to illness. The latter are calculated following the HCA
approach mentioned earlier.

The COI approach is considered a useful economic tool as it indicates the direction and
magnitude of the economic flows resulting from health shocks to the economy. It is
easily understood and often readily available being based on available market and
expenditure data. However, COI provides an estimate of an individual welfare loss.
Direct expenditures do not correspond to a drop in income or consumption for the
economy as a whole, but constitute a redirection of economic activity, with some
sectors benefiting from increased activity. Furthermore, COI does not provide a direct
measure of disease severity. Direct medical expenditures are influenced by income
distribution, whereby increased income is accompanied with increased consumption of
health care. Thus direct medical expenditures reflect the ability of current medical
techniques to treat the disease under consideration. For example, treatment of malaria
is expected to generate less expenditure than treatment of cold because the former has
few remedies as compared to the latter. The COI not only measures disease severity but
also the population’s education, skill level, income, insurance coverage, types of medical
interventions currently available, etc.

There are various issues pertaining to its application, including:
− Difficulty to disaggregate hospital payments, including drugs administered on the
premise and salaries paid to health professionals and staff
− Inaccuracies in hospital diagnostic data and the fact that expenses might not be
attributed to the correct illness
− A number of illnesses may be grouped under one diagnostic code making it hard to
decipher individual expenses
− Large data sets assume the same charge for all types of physician services. For
example, a visit for a routine checkup does not cost the same as a visit for cancer
127
− Treatment of multiple conditions where all expenses are allocated to the patient’s
primary condition

The following steps are recommended when estimating the direct cost of medical care
(WASH, 1991):
− Estimate the proportion of those affected at each level of severity of the disease
− Estimate the proportion of those desiring treatment and who have access to
treatment
− Specify the process of treatment for each level of severity of the disease
o Resource use
o Number of inpatient days
o Outpatient visits
− Estimate the unit costs of resources used for treatment and the side effects for each
level of severity of the disease taking into account that many fixed costs are not
affected by reductions in the use of the health service
− Estimate total treatment costs for each level of severity of the disease without
intervention
− Determine the proportion of the costs that can be avoided in the short‐ and long‐run
− Determine the direct costs that would have been avoided

14.3.3 Hedonic Pricing
Hedonic pricing involves the valuation of incremental morbidity or mortality by
identifying wage differentials due to risk differences. It is based on the theory that
workers have to be paid a premium to undertake jobs that are inherently risky, which
can be used to estimate the implicit value individuals place on sickness or premature
death. It assumes that there is a fixed supply of jobs and a freely functioning job market
where individuals choose jobs based on perfect information and with no mobility
restrictions. The value of a statistical life in the US, estimated using the hedonic pricing
method ranges between 1.9‐10.7 million USD (1990 dollars).

In the HPM, calculation are based on the assumptions that
− The only difference between two jobs is the level of risk
− The attitudes to risk are identical between individuals
− Labor markets are competitive
− Individuals only take risky jobs because they pay more
− Individuals correctly perceive risk

128
The general hedonic wage equation is:

P = P(J,R,S)

Where:
P = payment rate for a given job
S = vector of skills required to do the job
J = vector of other job‐related attributes (working hours, holiday, sickness benefits)
R = risk of death

The partial differential of this function with respect to R gives an estimate of the
additional payment required by individuals to accept a marginal increase in the chance
of death.

Issues and limitations associated with HPM:
− Faces difficulty in assessing an objective measure of the risk of death
− Contains a high degree of uncertainty
− Requires considerable data sets for regression analysis, containing data on all
relevant and confounding variables
− Results are not transferable between countries due to differences in attitudes to risk
and incomes

14.3.4 The Contingent Valuation Method
The CVM has a great potential for eliciting WTP for environmental health interventions,
including developing countries. One main advantage of the CVM is that questions can be
structured so that respondents can value only the benefits of interest. As such, health,
amenity, and non‐use benefits can be separated for the same environmental health
intervention. Accordingly,

Total Benefit/Cost
= ∑WTP of all concerned members of the society
= Value of Statistical Life (VOSL)

Main steps in a CVM process include:
1. Define the sample of respondents
2. Give respondents a detailed description of the hypothetical market and the good
being evaluated
3. Ask respondents the price they are willing to pay to receive the amenity
129
4. Collect information on demographics and socio‐economic characteristics of
respondents
5. Estimate aggregate WTP

Advantages of a CVM
− Can take into account non‐use values
− Can be designed to include only the variables or characteristics of the market
relevant to the objective of the study
− Allows individuals to consider the true costs to themselves of a particular injury or
illness
− CVM results are repeatable in terms of similarity in results across different settings
and using a test‐retest methodology

Problems associated with CVM
− Does not require cash transactions
− Biases: Strategic, design, hypothetical, etc.
− Survey responses cannot be verified except through comparison with actual
behavior following survey
− WTP vs. WTA
− Short time given to respondents to think about the answer
− In developing countries, questionnaires need to be adapted carefully and trained
researchers are required to administer the surveys

Issues to consider when conducting a CVM study:
− WTP questions should be clear and unambiguous
− Respondents must be familiar with the valued commodity
− Health risk studies involving common, mild illnesses have a greater chance of being
understandable, meaningful, plausible, than severe, rare diseases
− Respondents should have prior valuation/ choice experience with respect to
consumption levels of the commodity in order to give it well‐formed values

14.3.5 Benefit transfer
Values may be adopted from the other countries by adjusting for per capita income as
follows:

130
P e r cap ita in com e o f
cou n try i = X i
⇒ In co me ra tio Xj/ X i
P e r cap ita in com e o f

cou n try j = Xj ⇓
V alu e o f mo rtality o r Valu e of mo rta lity o r

mo rbi dity o u tco me in ⇒ M ultip ly Y i b y Xj /X i ⇒ mo rb id ity o utco me in
cou n try i = Y i co un try j = Yj

14.3.6 Disability Adjusted Life Years
The VOSL obtained from wage differential and contingent valuation studies may be
linked with the corresponding number of DALYs lost in a specific study and so estimate
the implicit value per DALY.

The cost of a DALY lost may be valued by two approaches:

1. DALY (yrs) × GDP/capita (USD/year)

This is based on the rationale that the economic value of a year lost to illness or early
death is the productive value of that year, which is approximated by GDP per capita. It
usually represents the lower bound estimate and has nothing to do with the non‐
economic value of life in general

2. DALY (yrs) × WTP for mortality reduction

This is based on the WTP by an individual to reduce the risk of death. Valuations arrived
at, in studies in the United States and Europe that apply WTP, are substantially higher
than the GDP per capita approach (at least for adults).

Finally recommended methods of valuation for health related benefits are summarized
in Table 33.

131
Table 33. Recommended methods for valuation of health related benefits
Types of benefits Market value Avertive Hedonic Contingent
(COI, HCA) expenditure pricing valuation
Improved health‐related quality of life 9
Improved life expectancy 9
Medical cost avoided 9 (9)
Reduced time spent in care 9 (9)
Reduced travel expenses to care 9 (9)
Reduced avertive expenditure 9 (9) (9)
Increased productivity 9 (9)
Reduced sick leave 9 (9)

132
Session 15
CASE‐STUDIES
THE VALUE OF LIFE AND HEALTH:
SESSION 15

CASE STUDIES

These case‐studies will be distributed as handouts to the workshop participants.

Drinking water quality in Lebanon
El‐Fadel, M., Maroun, R., Semerjian, L., and Harajli, H. A health‐based socio‐economic
assessment of drinking water quality, Management of Environmental Quality, 14, 3, 353‐
368, 2003. (Literati Awards of Excellence 2004)

Emissions from the cement industry, Lebanon
El‐Fadel, M., Kobrossi, R., and Metni, M. Economic benefits of reducing SO2 emissions from the
cement industry, Journal of Environmental Assessment Policy and Management, 5, 1, 99‐
120, 2003.

Particulate matter in urban areas, Lebanon
El‐Fadel, M., Massoud, M. Particulate matter in urban areas: Health based economic
assessment, The Science of Total Environment, 257, (2‐3) pp. 133‐146, 2000.

Lead phase‐out in Lebanon
Hashisho, Z. and El‐Fadel, M. A case study in socio‐economic benefits of the phase‐out of leaded
gasoline, Environmental Management and Health, 12, 4, 389‐406, 2001.

133

134
Sessions 16 & 17
GROUP EXERCISES
THE VALUE OF LIFE AND HEALTH
SESSIONS 16 & 17

GROUP EXERCISES

Sarraf, M., Larsen, B., and Owaygen, M. 2004. Cost of environmental degradation: The case of
Lebanon and Tunisia. Environment Department Paper No. 97, The World Bank, Washington
D.C.
World Bank, 2002. Cost Assessment of Environmental Degradation in the Arab Republic of Egypt.
Sector Note. Report No. 25175 –EGT. Rural Development, Water and Environment
Department, Middle East and North Africa Region, The World Bank.
World Bank, 2003. Cost Assessment of Environmental Degradation in the Kingdom of Morocco.
Report No. 25992‐MOR. Water, Environment, Social and Rural Development Department,
Middle East and North Africa Region, The World Bank.
World Bank, 2004. Cost Assessment of Environmental Degradation in the Syrian Arab Republic.
World Bank. METAP.

Water, sanitation and hygiene in selected MENA countries
Sarraf, M., Larsen, B., and Owaygen, M. 2004. Cost of environmental degradation: The case of
Lebanon and Tunisia. Environment Department Paper No. 97, The World Bank, Washington
D.C.
World Bank, 2002. Cost Assessment of Environmental Degradation in the Arab Republic of Egypt.
Sector Note. Report No. 25175 –EGT. Rural Development, Water and Environment
Department, Middle East and North Africa Region, The World Bank.
World Bank, 2003. Cost Assessment of Environmental Degradation in the Kingdom of Morocco.
Report No. 25992‐MOR. Water, Environment, Social and Rural Development Department,
Middle East and North Africa Region, The World Bank.
World Bank, 2004. Cost Assessment of Environmental Degradation in the Syrian Arab Republic.
World Bank. METAP.
135

136
Session 18
WRAP‐UP CASE:
THE JULY 2006 WAR IN LEBANON

&
POLICY IMPLICATIONS AND
CONCLUSIONS
SESSION 18

15 POLICY IMPLICATIONS AND CONCLUSIONS

Environmental values are used in policy and project appraisal in a number of ways. They
are less routinely incorporated into policy and project appraisal in a systematic way.
Environmental changes tend to be assessed through Environmental Impact Assessment
(EIA) rather than through the estimation of changes in environmental values and cost‐
benefit analysis. There are many instances where the environmental impacts of projects
are only described or enumerated in physical terms with no monetary values attached to
them. This leaves the decision‐makers to make intuitive judgments on whether the
welfare gains from the project will outweigh the ensuing environmental degradation.

The environmental impact assessment study quantifies and describes the physical
impact of projects and policies and documents complexity of an environmental issue.
However, it fails to help the decision‐maker who has little knowledge of how
environmental changes affect the utility of the individual. As such, environmental
valuation gives the ‘true’ value of environmental resources to the society and tends to
remove ambiguity and vagueness in the decision‐making process. However, care should
be taken in order not to apply environmental valuation in order to maximize benefits in
order to justify a policy or in order to minimize the estimated externality values of a
project to ensure its approval.

Environmental impacts should be valued in monetary terms in order that they are given
due and proper weight in the decision‐making process. The non‐monetization of
environmental impacts may mean that either they are under‐valued or over‐valued in
the intuitive decision‐making process. Monetization will permit the comparison of
various environmental management proposals. Many studies revealed the inconsistency
of intuitive decision‐making compared with a more structured approach of
environmental valuation. The numerous cognitive psychological biases in intuitive
decisions render rational choice problematic.

Environmental values have been used limitedly in decision‐making due to many factors,
including:
− Skepticism towards environmental valuation methods
− Lack of environmental economists within government agencies
− Absence of a legal requirement to undertake a CBA of projects or policies
− Uncritical acceptance of other methods such as
137
− Effect on production
− Dose response
− Opportunity cost approaches
− Suspicion of non‐use values
− Distorted perceptions of the valuation methods by non‐economist
− Large variance associated with mean WTP and WTA values

Currently, environmental values are less routinely incorporated into policy and project
appraisal in a systematic way. Environmental changes tend to be assessed through EIAs
in the US and EU rather than through economic valuation and CBA. The World Bank and
the Asian Development Bank advocate the use of valuation methods to estimate the
welfare effects of environmental changes. Environmental valuation studies in different
European countries were undertaken spasmodically with varying degrees of influence on
decisions and with marked variations between countries. For instance, Switzerland has
produced a number of academic/ scientific employing TCMs, HPMs, CVMs, all being
applied, and researchers receiving funds from a variety of institutions. Studies in
Germany have been proportionately fewer and more policy oriented. In the UK, a shift
away from TCMs to HPMs and CVMs occurred in the 1990s, which was mostly attributed
to the nature of the goods being valued. In the Netherlands, while academic interest in
environmental economics is strong, demand for valuation studies by governments and
organizations is low. In Norway, benefit estimation studies provided support for
environmental decision‐making but had not played a crucial role in the process.

In some cases, the environmental valuation process is formalized and fairly explicit and
institutionally incorporated in the decision‐making process. For example, at the US
Forest Service, there is an explicit inclusion of environmental values in the application of
‘unit day values’ of recreational opportunities and resources. Environmental values are
also explicitly included in Type A assessment of natural resource damage from pollution
spills under CERCLA legislation. Economic damages are calculated from an economic
database in which injuries and losses to particular species of fish, water fowls, etc. are
measured as reductions in harvesting or in recreational use values. For major pollution
incidents, a Type B assessment under CERCLA requires a site specific investigation.
Furthermore, the US Department of Interior regulations authorized methods for
environmental valuation. Where a reasonably competitive market exists for a resource,
market price is used to estimate economic damage. If market prices are not appropriate,
appraisal can be based on Uniform Appraisal Standards for Federal Law Acquisition.
Where neither of these approaches is appropriate, environmental valuation methods
are adopted. Use values may be measured via TCM, HPM, unit values, CVM, and stated
138
preference techniques. Non‐use values may only be measured via CVM and stated
preference techniques.

The desire to establish formal benefit transfer methods by governments and agencies
and the advocacy for the use of benefit transfer by organizations will result in
environmental valuation methods that are more institutionalized and more routinely
included in CBAs. In the near future, environmental valuation will witness a search for
more accurate and robust semi‐ and non‐parametric estimators, improved
understanding of the psychology of making choices and decisions, the analysis of the
non‐stationarity of environmental values, and the application of other theories and
techniques from other branches of economics, such as the Bayesian Perspectives and
the Game Theory.

In the MENA region, effort should be direct to increase awareness on environmental
valuation, to build capacity on COED methodology, to institutionalize COED
methodology in decision‐making process, and to establish a database for environmental
valuation studies in the region. Various databases on environmental valuation could be
of help, as listed in Table 34. Other useful websites are listed in Table 35.

139
Table 34. Main features of selected valuation databases (McComb et al, 2006)
Name of database Web host Purpose of the database Number Regions Available
of studies covered languages
Environmental Valuation Environment Canada on behalf of the EVRI To help policy analysts using the benefits 1,500 International English,
Reference Inventory Club1 http://www.evri.ca transfer approach to estimate economic French
values for changes in environmental goods
and services or human health
Envalue New South Wales Environment Protection To help stakeholders value changes in 400 International English
Authority environmental quality
http://www.epa.nsw.gov.au/envalue
Ecosystem Services Gund Institute for Ecological Economics, To provide a data and analysis portal to 300 International English
Database University of Vermont assist in the informed estimation of the
http://esd.uvm.edu economic values of ecosystem services
Review of Externality European Commission To assist policy makers in capturing the 200 International English
Data http://www.red‐externalities.net effects of externalities from new policies
that have sustainable development as their
core concern
New Zealand Non‐market Lincoln University, Canterbury, New Zealand To help researchers identify nonmarket Searchable database with 100 primary
Valuation Database http://oldlearn.lincoln.ac.nz.markval valuation studies undertaken in New Zealand studies from New Zealand
ValuebaseSwe Beijer International Institute of Ecological To provide a survey of empirical economic Database with 200 primary studies from
Economics, and the Swedish Environmental. valuation studies on environmental change Sweden
Protection Agency in Sweden
http://www.beijer.kva.se/valuebase.htm
Beneficial Use Values Department of Agricultural and Resource A guide for decision makers, policy analysts, Database of economic values for beneficial
database Economics, University of California, Davis and others interested in valuation of water uses of water. Variety of sources
http://buvd.ucdavis.edu/ resources
Sportfishing Values Industrial Economics, Incorporated under To provide a detailed account of the One hundred non‐market valuation studies
database contract to the U.S. Fish and Wildlife Service contents of numerous recent non‐market of sports fishing activity
http://www.indecon.com/fish/default.asp valuation studies
140
Table 35. Useful web resources for environmental economists
Name Description Website
Association of Environmental AERE was established as a means of exchanging ideas, stimulating research, and www.aere.org
and Resource Economists promoting graduate training in resource and environmental economics. AERE provides
(AERE) many forums for exchanging ideas relevant to the allocation and management of
natural and environmental resources and has two journals, the Journal of
Environmental Economics and Management (JEEM), and the Review of Environmental
Economics and Policy (REEP), and a newsletter issued to members twice a year.
European Association of EAERE is an international scientific association which aims to contribute to the http://www.eaere.org
Environmental and Resource development and application of environmental and resource economics as a
Economics (EAERE) science in Europe, to improve communication and contacts between teachers,
researchers and students in environmental and resource economics in
different European countries, and to develop and encourage cooperation
between university level teaching institutions and research institutions in
Europe.
South Asian Network for SANDEE is a regional network that seeks to bring together analysts from different http://www.sandeeonline.org
Development and countries in South Asia to address its development‐environment problems. SANDEE's
Environmental Economics mission is to strengthen the capacity of individuals and institutions in South Asia to
(SANDEE) undertake research on the inter‐linkages among economic development, poverty, and
environmental change and to disseminate practical information that can be applied to
development policies.
The Economy and EEPSEA is similar to SANDEE and supports training and research in environmental & http://www.idrc.org/eepsea
Environment Program for resource economics in South East Asia. This web site offers downloadable Research
Southeast Asia (EEPSEA) reports on issues relevant to developing countries.
Latin American and LACEEP was launched with a grant from IDRC. The program will operate in http://www.laceep.org
Caribbean Environmental ways similar to EEPSEA and its South Asian counterpart SANDEE, offering
Economics Program (LACEEP) research awards, short courses, workshops and mentoring.
Middle East and North Africa MENANEE is a joint venture between the Beijer Institute of Resource Economics and the http://www.bibalex.com/MENANEE/Home/Ho
Network for Environmental Library of Alexandria. It is considered as a regional network that aims at strengthening me.aspx
Economists (MENANEE) the capacity of individuals and institutions in the region in the field of environmental
and resources economics. It also intends to highlight to policy and decisions‐makers the
linkages between economic development and environmental changes.
141
Name Description Website
Center for Environmental The mission of CEEPA is to enhance the capacity of African researchers to conduct http://www.ceepa.co.za/mo.html
Economics and Policy in environmental economics and policy inquiry of relevance to African problems and
Africa (CEEPA) increase the awareness of environmental and economic managers and policy makers of
the role of environmental economics in sustainable development.
Society for Environmental SEEPS is a scientific association which aims to contribute to the theoretical and http://wwwsoc.nii.ac.jp/seeps/eng/index.html
Economics and Policy Studies empirical research of environmental economics and policy studies; to improve
(SEEPS) communication and contacts between teachers, researchers and students in
environmental economics and policy studies; to promote international scientific
cooperation in environmental economics and policy studies.
Environmental Economics EEU is a research and teaching unit within the Göteborg University with graduate http://www.hgu.gu.se/item.aspx?id=2496
Unit at Göteborg University, students working on various projects related to natural resources and environmental
Sweden (EEU) economics. EEU specializes in environmental economics research and training. The
research is focused on natural resource management in developing countries, the
choice of policy instruments for transport, industrial environmental problems and
welfare related issues.
The UK Network of UKNEE aims to bring together environmental economists from academia, consultancy http://www.eftec.co.uk/UKNEE/index.htm
Environmental Economists and public and private sectors to foster closer relationships, follow recent
(UKNEE) developments and share experience. UKNEE organizes regular seminars on topical
subjects in environmental economics followed by social evenings.
Asociacion Hispano AERNA was founded in 2002 as a response to the motivation of a group of academics http://www.aerna.org/paginas.asp?id_pagina=1
Portuguesa de Economia de and researchers in the Iberian Peninsula, for exchanging ideas and knowledge,
los Recursos Naturales y stimulating research and supporting the government and other interested groups
Ambientales (AERNA) decisions on the field of the multiple relations between economics and environment.
International Society for ISEE facilitates understanding between economists and ecologist and the integration of http://www.ecoeco.org/
Ecological Economics (ISEE) their thinking into a trans‐discipline aimed at developing a sustainable world
142
REGIONAL WORKSHOP
ON
THE COST OF
ENVIRONMENTAL
DEGRADATION (COED)
METHODOLOGY
July 1-5, 2008
Crowne Plaza Hotel
Beirut, Lebanon
INTRODUCTION
• Environmental degradation one of the most
REGIONAL WORKSHOP ON prominent adverse phenomena in today’s world
THE COST OF ENVIRONMENTAL • The MENA region is suffering from serious

DEGRADATION (COED) environmental problems
METHODOLOGY – air pollution
– water pollution
July 1-5, 2008 – land degradation
Crowne Plaza Hotel – forest and biodiversity loss
Beirut, Lebanon
– waste pollution
– coastal zone degradation
Air pollution Land and coast degradation
Liquid Solid waste pollution

waste
pollution
Environmental Valuation Cost of Environmental Degradation
• According to the METAP/World Bank Country studies
– US$228 million per year in Jordan and US$4.2 billion per year in Egypt
Economic valuation of
environmental degradation 6
Water Soil Air Coastal Zone Waste
5
Percent GDP
4
3
2
Quantification of benefits of
Raising Progress 1
environmental projects/
awareness on policies towards 0
environmental sustainable Tunisia Jordan Lebanon Syria Algeria Morocco Egypt
issues development (1999) (2000) (2000) (2001) (1999) (2000) (1999)
• In comparison with other countries:

Incorporating and prioritizing – OECD countries: 1-2% of GDP
environmental issues in – India: average annual 4.5% of GDP in 1991
decision-making – Mexico: average annual 3.3% of GDP
– China: 8% of GDP
Cost of Environmental Degradation Capacity Building for COED

• The COED in the MENA region is an • Aims to enhance regional capacity in environmental
environmental economics tool economics
– developed by the METAP/World Bank • Funded by the World Bank/ METAP
– enables professionals to carry out assessments of the • Implemented by AUB
economic cost of environmental degradation • Main tasks:
– successfully used in the valuation of environmental
degradation on a macroeconomic and sector levels
Policy Papers on
Environmental Training course COED
A main obstacle to conducting research in environmental Economic Unit at in COED
economics is the shortage of human capacity at AUB methodology •Maghreb
•Mashreq
governmental ministries/organizations and local
universities
Day Session Time Topic Day Session Time Topic
COURSE COURSE
3 9 08:30‐10:00 The stated preference approach
1 1 08:30‐10:00 Participants registration a) The contingent valuation method
Official opening (Theory, application, advantages, limitations, case‐studies)
Introductions and purpose of the workshop
OUTLINE OUTLINE
10:00‐10:30 Coffee break 10 10:30‐12:00 The stated preference approach (cont’d)
b) The discrete choice method
2 10:30‐12:00 Brief overview of basic economic principles (Theory, application, advantages, limitations, case‐studies)
The benefit transfer method
Introduction to environmental valuation and policy implications
11 12:30‐14:00 Group exercise: Stated preference approach
3 12:30‐14:00 The revealed preference approach Ecosystem services in Ejina China
a) The productivity method Environmental services in the Yaqui River Delta, Mexico
(Theory, application, advantages, limitations, case‐studies) Sustainable development in Sweden coastal zone
Coastal ecosystems in Phang Nga Bay, Thailand
b) The market values approach including damage cost, replacement cost, and
14:00‐15:30 Lunch
substitution cost methods
(Theory, application, advantages, limitations, case‐studies) 15:30‐17:30 Presentation and discussion of group exercises
12
Case‐studies: Coastal zone in North Lebanon, Climate Change MENA region
14:00‐15:30 Lunch
4 13 08:30‐10:00 Cost‐benefit analysis
Case‐studies: wastewater and solid waste management
4 15:30‐17:30 Case‐studies on the productivity method and the market values approach
2 5 08:30‐10:00 The revealed preference approach (cont’d)
14 10:30‐12:00 The value of life and health
c) The travel cost method
Including the burden of disease (DALY), the human capital approach, the cost of
(Theory, application, advantages, limitations, case‐studies) illness approach, and the contingent valuation approach
Case studies: Drinking water quality, Emissions from the cement industry
10:00‐10:30 Coffee break Particulate matter in urban areas, Lead phase‐out
6 10:30‐12:00 The revealed preference approach (cont’d) 12:30‐13:00 Coffee break

d) The hedonic pricing method 5 15 08:30‐10:00 Case studies: Drinking water quality, Emissions from the cement industry
(Theory, application, advantages, limitations, case‐studies) Particulate matter in urban areas, Lead phase‐out
e) The aversive behavior method 10:00‐10:30 Coffee break

16 10:30‐12:00 Group exercise on the value of life and health:
12:00‐12:30 Coffee break Water, sanitation and hygiene in selected MENA countries
7 12:30‐14:00 Group Exercises: 12:00‐12:30 Coffee break

Ayubia National Park In Pakistan (Travel Cost) 17 12:30‐14:00 Presentation and discussion of group exercises
Non‐Priced Forest Recreation Areas In Malaysia (Travel Cost)
Valuing Landscape and Amenity Attributes In Central England (Hedonic Pricing) 14:00‐15:30 Lunch
18 15:30‐17:30 Wrap‐up case with various concepts: The July 2006 War in Lebanon

14:00‐15:30 Lunch
Policy implications and workshop conclusion
8 15:30‐17:30 Presentation and discussion of group exercises Workshop evaluation

OUTLINE
Basic Economic Revealed Preference
Principles Market Production
Travel Cost
Pricing Function
End of Session 1
Hedonic Averting
Valuation Pricing Behavior
Group
exercise
Methods
Stated Preference
Cost-Benefit Contingent Contingent Group

Valuation Choice exercise
Analysis
Thank You
Value of Life Case- Group
and Health studies exercise
Decision-making
and Policy July 2006
Benefit
Transfer War
Lebanon
REGIONAL WORKSHOP ON
THE COST OF
ENVIRONMENTAL
DEGRADATION
METHODOLOGY
Session 2
OVERVIEW OF BASIC ECONOMIC
PRINCIPLES
&
VALUATION AND POLICY IMPLICATIONS
OUTLINE
• The competitive market
REGIONAL WORKSHOP ON – Consumer behavior and demand
– Producer behavior and supply
THE COST OF ENVIRONMENTAL – Market equilibrium
DEGRADATION METHODOLOGY • Market failure
– Property rights
Session 2a
– Types of goods
OVERVIEW OF BASIC ECONOMIC PRINCIPLES – Externalities
& – Types of market structure
• Policy failure
VALUATION
• Pollution control approaches
• Introduction to environmental valuation
The Competitive Market The Competitive Market

• A market is defined as the coming • Classification of markets according to buyers
together of consumers and producers to and sellers
exchange goods and services for money – Monopoly: a single seller
• Ex: the utilities sector in many countries where the
– It exists for a single good or service government is the only provider of water or electricity
– It has many buyers and sellers (perfectly – Oligopoly: few sellers
competitive) • Ex: the domestic car manufacturing industry in Australia
– Monopsony: a single buyer
– Buyers and sellers do not have to be • Ex: a mine as a single major industry in a town and a sole
physically present to carry out operations buyer of labor and other goods and services
The Competitive Market Consumer Behavior and Demand
• Characteristics • Demand function

– Many sellers and buyers with none of them highly – A curve indicating how
influential to affect the price much of a good a A
consumer is willing to Consumer’s Demand
– Buyers and sellers are free to enter or leave the buy at various prices
market in response to price changes • Inverse relation between C
Price per unit
– Goods and services offered for sale are price and quantity
demanded
homogeneous
• The demand for a good
• i.e. choice of buyer is only affected by price is defined given that all
other goods and income 0 D B Quantity
– All market participants have perfect knowledge
remain constant
• i.e. consumers know product prices and producers know
• The demand curve is The points on the curve represent the maximum
input prices defined for a given period amount of money a consumer is willing to pay
of time (WTP) for different quantities of the good
Consumer Behavior and Demand Consumer Behavior and Demand
• Elasticity • Cross-price elasticity of demand
– The responsiveness of quantity demanded/ supplied
to changes in variables such as price and income – The responsiveness of the quantity of a
Own-price elasticity of demand: demanded good (q1) as a result of changes in
εD = % change in quantity of q1 demanded another good (q2)
% change in price of q1
Cross-price elasticity of demand:
– Own-price elasticity of demand can be: εD12 = % change in quantity of q1 demanded
Price
Price
% change in price of p2
D
Perfectly elastic (εD=∞) Relatively elastic (εD >1)
– If εD12 > 0, then q1 and q2 are substitutes
D
Quantity
Quantity
Price Price – If εD12 < 0, then q1 and q2 are complements

Perfectly inelastic (εD =0) D
Relatively inelastic (εD <1) D
Quantity Quantity
Consumer Behavior and Demand Producer Behavior and Supply

• Income elasticity of demand • The production function is
a function of various
– The responsiveness of the quantity of a
Price per unit

inputs
demanded good (q1) given a changes in – Labor, land, capital, etc.
income • The producer’s aim is to Market supply curve
(Marginal cost curve)
maximize profit C
Income elasticity of demand: – The producer will increase
ηϒ = % change in quantity of q1 demanded the production output if its
price rises
% change in income A
• Main observations
– The curve is positively 0 D Quantity
sloped
– If ηϒ > 0, then the good is a normal good • Producers supply more as The marginal cost curve indicates the cost of
price increases
– If ηϒ < 0, then the good is an inferior good – The supply curve refers to
producing each additional unit of the good. To
maximize profit, the producer increases
a given point in time production up to a point where marginal
revenue, the price per unit of output in a
competitive market, just equals marginal cost.
Market Equilibrium in the Market Equilibrium in the

Competitive Market Competitive Market
• The interaction of supply and demand forces in • If price ↑ to P’
– Producer will supply S’
the market determine – Consumers will demand only
D’
– Equilibrium price/ Market revenue (PE) – ÆDemand Deficit Price per unit
– Equilibrium quantity demanded (SE) • To clear deficit
– Producer will ↓ price Market supply
Price per unit – Consumers ↑ purchase P’ Market demand
– Producers ↓ supply PE E
Market supply
– ÆDemand = Supply
At price PE, market demand • If market price ↓ to PA
– Consumers demand ↑ to DA PA
is exactly equal to the PE E
quantity the market is willing – Producers not willing to supply
to supply (SE) – Æ Surplus demand 0 D’ SE S’ DA
Market demand
• Shortage of supply Quantity produced
– Upward pressure on price
0 SE P – Producer increases supply
Quantity produced – ÆDemand = Supply
Market Equilibrium in the Market Equilibrium in the
Competitive Market Competitive Market
Price per unit Price per unit
• Factors that can shift the • Factors that can shift the S2
Decrease in input price

S1
demand curve supply curve
Decrease in income
Market supply
P2
– Income P1 – Price of inputs, taxes, P1
• Income increase causes P2 subsidies
an upward (rightward shift) Market demand • Input price increase D1
• Income decrease causes causes an inward shift
a downward (leftward 0 S2 S1 P • Input price decrease 0 S2 S1 P
shift) Quantity produced causes an outward shift Quantity produced
– Prices of substitutes/ – Technology improvement
complements Price per unit
• Technology improvement Price per unit
S1
• Decrease in price of causes an outward shift
Increase in input price

S2
substitute causes a Market supply – More output produced at
Increase in income
downward shift P2 same input level P1
P2
• Decrease in price of P1 – Weather improvement
complement causes an Market demand • For weather dependent
upward shift D1
productions, weather
– Consumer tastes and 0
deterioration causes a 0
S1 S2 P S1 S2 P
preferences Quantity produced
leftward shift Quantity produced
Market Equilibrium in the Consumer and Producer Surplus

Competitive Market • Consumer surplus (Δabc) • Producer surplus (Δbcd)
– is the maximum amount of • the net benefit received by
• Notes money consumers are the producer
willing to pay for the good • the difference between the
– Equilibrium examples simplified or service MINUS the market price and marginal
market price cost
– Equilibrium does not tend to be static – is a measure of net
• Demand function shifts due to changes in taste benefits or welfare
Price per unit
and income Ö The sole reliance on the Market supply
market price could result in a
• Supply function shifts due to resource constraints an underestimation of Consumer
and technological advances benefits b
surplus
Producer c
– It is assumed that property rights are well surplus
defined Market demand

d
• The seller has the rights to the goods and to any
benefits from sale 0 SE P
Quantity produced
Application of the Competitive Model: Application of the Competitive Model:

The socially optimal level of forestry The socially optimal level of forestry
• Clear felling of timber causes • At current stumpage price
p Æ q logs are harvested
– Loss of forest cover
• An extra 5 USD Stumpage price ($) S’
– Increased soil erosion government charge per
log 5$ S
– Loss of soil nutrients p’
– Upward shift of supply
– Loss of biodiversity, etc. curve from S to S’
p
5$
– Assuming constant
• Effect of policy to include environmental demand,
cost to stumpage price • Equilibrium established at
q’ 0 q’ q
• the quantity of harvested Number of harvested logs
logs decline (q’ < q)

Lack of or Weak Property
MARKET FAILURE
Rights
• It occurs when some costs and/or benefits are When property rights are weak or lacking in an
not fully reflected in market prices environmental system, there is no incentive for
– Common for many kinds of environmental goods an individual to invest in an asset because he
which are not usually traded in markets cannot appropriate the full benefits
• Reasons for market failure
– property rights related to ecosystems and their • Characteristics of ownership/ property rights
services are often not clearly defined.
– Well-defined
– many ecosystems provide services that are public • Formal (certificate, receipt,…)
goods • Informal (institutionalized by social and cultural norms)
– many ecosystem services are affected by – Exclusive
externalities
– Transferable
– type of market structure
– Secure and enforceable
Lack or Weak Property Rights Taxonomy of Environmental Goods
Most environmental goods

Goods
and
Services
Pure public goods or open access/common
property goods
Private goods Congestion goods Public goods
Lack of well defined property rights results in
market failure
Open access
Inefficient allocation of resources and common

property goods
Semi-public goods Pure public goods
Open Access and Common

Private vs Pure Public Goods
Property Goods
• Private goods • Public goods • Open access goods • Common property goods
– Are exclusive – Are non-exclusive – Rival in consumption – Rival in consumption
– Have a positive • Goods available to – Non-exclusive – Exclusive for a group of
marginal cost everyone – Non-transferable people
• Positive cost for – Have zero marginal cost – Non-enforceable even – Rights of use may be
supplying additional • zero cost for supplying when ownership rights transferable by individual or
goods additional goods exist group
– Are rival in – Are non-rival in – May be enforceable
consumption consumption Ex: ocean fisheries and through social sanctions
• If one person consumes • Goods consumption does migratory wildlife Ex: common grazing land
it, another cannot not affect goods availability
– Consumers do not have
the option of not Under these regimes resources may be exploited (Hardin’s tragedy of the commons).
consuming However, under some form of common property systems, resource management is
likely to be more efficient because it is based on communal rules and customs
Semi-
Semi-public and Congestion Goods Externalities
• Semi-public goods • Congestion goods • An externality exists when some agent A
– Non-rival in consumption – Rival or non-rival (individual or firm) takes an action which has an
– Non-exclusive consumption
– Exclusive
impact on another agent B, that B has not
– Zero marginal cost
– Ownership rights exist – May exhibit characteristics chosen to accept
– Consumers can choose not of private or public goods – It is negative when the affected person suffers a loss
to consume at different levels of in utility that is uncompensated
consumption
• Ex: air, water, and noise pollution
– May be enforceable
Ex: TV broadcast and through social sanctions – It is positive when the effect is beneficial
lighthouse Ex: roads, boating sites, • This is very rare
historic sites • Ex: immunization
• Some features of externalities:
– Agent B cannot choose the level of the impact like in
a normal economic transaction
– The impact on B is not a result of a deliberate attempt
from A
Externalities Externalities
• Causes of externalities • Types of externalities
– Relevant externalities
– Interdependence between economic agents • When the affected person is made worse off by the activity and
• The market system fails to account for the interdependence, wants the offender to reduce it
resulting in an uncompensated affected party – Pareto-relevant externalities
– Lack of or weak property rights • When it is possible to take action such that the affected person is
made better off without making the offender worse off
• The affected party is unable to demand a reduction of the – Static vs dynamic externalities
externality or ask for compensation • When the externality has adverse impacts for the future, it becomes
– High transaction costs dynamic
• Cost of negotiating, implementing and enforcing an – Pecuniary externalities
• Transmitted through the price system and is not a result of market
agreement
failure
• Ex: increased rental prices in an area due to a new business
Once the affected party is compensated, the externality is ‘internalized’
internalized’ opening there
and the society is better of by the gainer compensating the loser
loser • Pollution is not pecuniary because even if penalties exist
Resource allocation in a perfectly

Types of Market Structure
competitive market
• The type of market structure can cause • Illustration:
– A gold mining company
market failure dumping mine tailings in a
nearby river without Price/Cost ($)
– Perfectly competitive market with external paying for cleanup or
c
MSC
costs waste treatment MCp

• D: Demand curve for p’ a
b
– Monopoly gold p0
• MCp: Marginal private
cost of producing gold
• MSC: Marginal social D
cost
– Assume: MSC > MCp 0 q’ q0 Quantity (q)
since MSC = MCp +
external cost of pollution
Resource allocation in a perfectly Resource allocation in a perfectly
competitive market competitive market
• Illustration (cont’d): • Illustration (cont’d):
– The socially optimal
– The company pollution level is NOT zero
maximizes producer Price/Cost ($) – When pollution is unpriced, Price/Cost ($)
MSC MSC
surplus by producing c • Production results in more c
MCp output than is socially MCp
q0 a desired a
p’ p’
b b
– For society, p0 • Excessive pollution results p0
• q0 is not an efficient – If pollution abatement is
allocation enforced
D • Company will raise price D
• q’ (less gold) will per unit of good
maximize society’s 0 q’ q0 Quantity (q) • Company will reduce 0 q’ q0 Quantity (q)
benefits output
– Δabc is a deadweight • The reduced quantity is
socially sufficient and
loss to society the price is efficient
Resource allocation in a monopoly Resource allocation in a monopoly
• Monopoly rights cause • In the case of a monopoly

– Demand curve above
market failure from marginal revenue curve
society’s point of view Price/Cost ($)
– Price ≠ MR Price/Cost ($)
a – Monopoly profit maximized a

– A single monopolistic MC MC
by setting MR = MC
curve pm b • Less output (qm) pm b
c c
• marginal cost curve MC P’ • Higher price (pm) P’
• Demand curve D d • Consumer surplus = d
Δ apmb instead of Δ ap’c
– Under perfect D
– Marginal benefit exceeds
D
MR MR
competition marginal cost
0 qm q’ Quantity (q) 0 qm q’ Quantity (q)
• Price = MR = MC – The level of output is
• q’ units will be supplied inefficient
– Deadweight loss to society
= Δbdc
POLLUTION CONTROL
POLICY FAILURE
APPROACHES
• Policy failure occurs when the government • Two main approaches
creates incentives for the prices of certain – Property rights or market (Coasian) solution
goods to be lower than the actual cost of • Allowing the market system to solve the problem
production per unit through bargaining between affected parties
• Based on assumptions that may not apply in the
– Ex: Government subsidy on pesticides real world
– Zero transaction costs
– Well defined property rights
• In general, subsidies in developing – Perfect competition
countries are declining due to the adoption – No free-rider effect
of structural adjustment programs – Government intervention
Government Policies Command and Control
• There is always a need for government Instruments
interventions to correct the externality problem • Oldest form of pollution control policies
• Require setting the standard and monitoring and
enforcing it
Command and
Control (CAC)
Market Based
Other Instruments • Advantages
(MBIs) Instruments – A widely understood form of policy
Instrument
— Voluntary – More pragmatic and socially acceptable than MBIs
Ambient
Standards Marketable
incentives
— Liability
• Disadvantages
Charges Subsidies Other MBIs
Permits legislation – Provides no incentive for pollution reduction beyond standards
— Education – Penalties tend to be too low and enforcement too weak
Emission — Emission charges — Deposit refund — Zoning
— User charges Schemes — Fines – Governments must know the marginal social cost and marginal
Standards
— Product charges — Ecolabelling — Bans social benefits curves to set an optimal penalty
— Administrative charges — Performance bonds – Penalties need to be revised frequently which is costly
— Traditional
property rights
– Financial costs for setting and enforcing standards are high
— Performance-based
– Political costs may arise if standards are stringent
standards – Standards are uniformly set to all firms and regions
— Technology-based
standards
Market-
Market-based Instruments Choosing the Right Instrument
• Use price or some other economic variables to • Criteria to consider
provide incentive for economic agents to abate – Economic efficiency
pollution
– Effectiveness in achieving the desired
• Advantages environmental objective
– Achieve the same objective as CACs at a lower cost
– Adaptability to changing circumstances
– Generate significant revenue for the government
– Equity in the distribution of costs and benefits
• Disadvantage
among different groups in the society
– Cannot be applied where the institutional framework
is weak – Political acceptability
INTRODUCTION TO The Elements of Total Economic

ENVIRONMENTAL VALUATION Value
USE VALUES NON-
NON-USE VALUES
Assigning zero/ low values to non-market (consumptive and non-
consumptive)
(inherent in the good)
environmental commodities
Direct Use Ecological Option Existence Bequest
Values Function Values Values Values
Values
Failure to account for the values of

environmental resources Marketed
Outputs
Unpriced
Benefits
Benefits Benefits Benefits Benefits
• Crops • Recreation • Flood control • Future drugs • Satisfaction • Passing

• Meat • Landscape • Carbon storage • Potential gene from benefits to
• Timber • Local culture • Water catchment pool knowledge of future
Decisions/ Policies with negative

• Renewable • Waste • Recreation existence generations
energy assimilation options
environmental and social implications

Non-
Non-use values Non-
Non-market Valuation Methods
• Revealed preference • Stated preference models
• Can constitute a significant component of models – Elicits environmental values
total economic value – Make use of individual directly from respondents
using survey techniques
behavior in real and
such as questionnaires
• Not traded Æ cannot be valued by market simulated markets to infer
the value of an – Flexible and applied to a
prices environmental good or
service
wide range of goods
– Measure use and non-use
– Measures use values only values
• Non-market valuation methods were – Choices made are real – Are subject to many biases
developed for this purpose rather than hypothetical
– Clear principle but
discussed later
complicated applications
– Example
• Wilderness valuated from
the cost incurred to travel
to the area for recreation
Non-
Non-Market Valuation Methods
Preferences
Revealed
preferences
Stated
Preferences
End of Session 2
Dose
Thank You
Response
Values Methods Markets Behavior Valuation Experiments
Functions
USE VALUES USE + NON-USE VALUES

Macroeconomics and the
Environment
REGIONAL WORKSHOP ON • Macroeconomic instability is not good for the
environment.
THE COST OF ENVIRONMENTAL • Macroeconomic reforms may exacerbate existing
policy and market failures; this is an argument for
DEGRADATION METHODOLOGY reforming the environmental sector, not
abandoning macroeconomic adjustment
Session 2b • Many macroeconomic reforms are positive for the
environment
Macroeconomics and Policy Implications – royalty collection, user fees, pricing reforms, subsidy
reductions, pollution taxes, trade liberalization and
consequent access to new technology
The Policy Matrix: What Lessons learned from

Instruments? successful financing initiatives:
Successful sustainable development and
environmental management initiatives
usually have the following characteristics:
• Financial sustainability
• Administrative sustainability
Lessons learned from

Financial sustainability
successful financing initiatives
• Governments often face strict fiscal regimes –
effective policies help generate resources
• Public/private consensus • The environment is usually a second (or third)
priority
• Policy integration
• Society is willing to pay for a better environment
– Defining property rights– who is responsible??
Financing sustainable development is not only – Economic instruments can help in internalizing
about having the financial resources but also external costs and raising revenues
about these other dimensions. Investing time • When the externality is global, resources can be
in ‘consensus’ building can reduce the captured internationally
financial needs of a project. – GEF; Carbon Funding
Building a public/private
Administrative sustainability
consensus
• The creation of markets and the imposition • Important to identify ‘winners’ and ‘losers’
of new taxes require environmental and clearly communicate this information
management bureaucracies/ institutions • Subsidy removal will be opposed by
• Countries can often use existing fiscal established interests (that benefit from the
systems subsidies)
• Need to invest in training and capacity • Need to promote a public demand for
building: building institutions is however change; governments very rarely lead in
slow environmental policy reform
Achieving policy integration Achieving policy integration

• Governments need to generate financial • A mix of financing mechanisms is needed to
resources, often via taxes • At the macroeconomic level, consider the
• Revenue raising environmental links between environmental management
instruments need to be compatible with and
existing fiscal regime and take into – Liberalization and privatization
account equity considerations – Fiscal and monetary instability / Exchange rate
instability
– Growth
– Poverty alleviation
Conclusion Conclusions
• Very little/ no new Official Development Aid for the • User fees – show large promise for recreational/ amenity
environment values
• Large present flows of private and public capital offer much • Both Command and Control and Economic-based
promise Instruments
• Financing tools exist that can be used to increase financing • Institutions and monitoring needed for both types of policies –
for the environment Command and Control and Economic-based Instruments
• Both “polluter pays” and “beneficiary pays” approaches can • Vested interests powerful (and clever!)
be used
• Political will needed for effective financing reform
• Subsidy reduction – politically hard to do/ often unpopular
• Public awareness and involvement essential to create political
• Polluter pays – especially for new developments will
End of Session 2b
Thank You
REGIONAL WORKSHOP
ON
THE COST OF
ENVIRONMENTAL
DEGRADATION
METHODOLOGY
Sessions 3 & 4
ENVIRONMENTAL VALUATION
USING
MARKET VALUE METHODS
Environmental Valuation Methods
WORKSHOP ON Preferences
COST OF ENVIRONMENTAL
DEGRADATION METHODOLOGY Revealed
preferences
Stated
Preferences
Sessions 3 & 4 Dose

Response Market Travel Cost Hedonic Averting Contingent Choice
Functions Values Methods Method Behavior Valuation Experiments
ENVIRONMENTAL VALUATION USING
MARKET VALUE METHODS
MARKET VALUES
• Production function method
Revealed Preference Approach
• Market price method
The Production Function
• Damage cost, Replacement cost, Method
and substitution cost methods
Production Function Method Production Function Method

• If a natural resource is a factor of production, then
• One of the most widely used valuation – changes in the quantity or quality of the resource will result in
techniques changes in production costs, and/or productivity of other inputs
– this may affect the price and/or quantity supplied of the final good
– it may also affect the economic returns to other inputs.
• Focuses on environmental resources as
an input to the production of goods and Production Function
services • Production is a function of Production
soil (S) and other inputs (x) Q1 = f(S1, X)
• As soil quality declines from S1 Due to soil erosion
to S2 the production function
• Used to estimate the economic value of shifts to Q2
Q1
Q2 = f(S2, X)
ecosystem products or services that • Options for farmer Q2
contribute to the production of • Produce at Q2
• Keep production at Q1 by
commercially marketed goods increasing other inputs
from X1 to X2 X1 X2 Other inputs
Two types of benefits (or costs) may be important • Selected applications
– Changes in the quality Price per unit
or price to consumers a
Market supply Pressure
Ö Environmental
Impact Ö Productivity Impact
Ö Change in Income
of the final good

Consumer
changes will result surplus
b
in changes in Producer c
Overgrazing
Ö Soil erosion
Ö Reduced capacity of
soil to sustain crops Ö Reduced farmers
income
consumer surplus surplus
Market demand
– Changes in productivity
or production cost
d
Wastewater
discharge Ö Polluted river
Ö Reduced capacity to
sustain fish stocks Ö Reduced income of
fishermen
changes will result in 0 SE P

changes in producer
surplus
Quantity produced Increased
vehicle use Ö Air pollution
Ö Increased respiratory
problems among Ö Lost workdays
workers
Thus, the economic benefits from improvements in the resource can

be estimated using changes in observable market data
Uncontrolled
irrigation Ö Salinity of
cropland Ö Declining yields
Ö Reduced farmers
income

• The method is most easily applied in two specific cases: Applying the Productivity Method
1. Cases where the resource in question is a perfect substitute for 1. Determine the physical impact solely arising from
other inputs
• Ex: increased water quality in a reservoir means that less chlorine
the driving force or behaviour under study
is needed for treating the water. • Sometimes difficult to differentiate impacts due to a series
– An increase in quantity or quality of the resource will result in of complex biological interrelationships
decreased costs for the other inputs.
– The benefits of increased water quality can be directly measured by
2. Collect data on how changes in the quantity/ quality
the decreased chlorination costs of the natural resource affect
2. Cases where only producers of the final good benefit from • costs of production for the final good
changes in quantity or quality of the resource and consumers • supply and demand for the final good
are not affected • supply and demand for other factors of production
• Ex: improved quality of irrigation water may lead to greater
agricultural productivity – Sources of data
– If the market price of the crops to consumers does not change, • Experimental using field trials
benefits can be estimated from changes in producer surplus resulting
from increased income from the other inputs. – Difficult to extrapolate
– The profits per acre will increase, and this increase can be used to • Statistical using cross-section or time-series data
estimate the benefits of improved irrigation water quality – Available for short time horizons
– Difficult to control for other factors

Applying the Productivity Method Illustration 1*
3. Link the impact of changes in the quantity/ – A municipal drinking water reservoir is
quality of the resource to changes in polluted by agricultural runoff
consumer surplus and/or producer surplus – The economic benefits of measures to
• Problems include eliminate the runoff need to be determined
– Distorted prices due to government interventions • Productivity Method selected because
– Change under study is not large enough to impact – Environmental quality directly affects the cost
market price
– Change in market price is too large
of producing municipal drinking water
– Change in production alters costs – Cleaner water is a direct substitute for other
4. Estimate the economic benefits production inputs, such as water purification
chemicals and filtration
*Adapted from www.ecosystemvaluation.org
• Step 1 • Step 3:
– Specify the production function for purified drinking water – Estimate the economic benefits of protecting the
• Inputs: reservoir from runoff, in terms of reduced purification
– water of a particular quality from the reservoir costs
– Chemicals • If all runoff is eliminated, the reservoir water will need very
– Filtration little treatment and the purification costs for drinking water
• Output: will be minimal
– pure drinking water • Compare this to the cost of purifying water where runoff is
• Step 2 not controlled
• The difference in purification costs is an estimate of the
– Estimate how the cost of purification changes when reservoir benefits of eliminating runoff.
water quality changes, using the production function estimated in
the first step – The benefits for different levels of runoff reduction can
– Calculate the quantities of purification chemicals and filters
also be estimated
needed for different levels of reservoir water quality • requires information about the projected success of actions
to reduce runoff, in terms of the decrease in runoff and the
– Multiply these quantities by their costs resulting changes in reservoir water quality.

• Illustration 2* • Illustration 2*
Values of Wetlands in the Peconic Values of Wetlands in the Peconic
Estuary, Long Island Estuary, Long Island
– The estuary includes productive wetlands of
different types
• eelgrass, salt marsh, and intertidal mudflats
Cornell university library
*Adapted from www.ecosystemvaluation.org *Adapted from www.ecosystemvaluation.org

• Illustration 2* • Analysis
Values of Wetlands in the Peconic Estuary, – Valuing marginal changes in acres of wetlands, in terms of their
Long Island contribution to the production of crabs, scallops, clams, birds,
and waterfowl
– The estuary includes productive wetlands of different
– It was assumed that wetlands provide both food chain and
types habitat support for these species
• eelgrass, salt marsh, and intertidal mudflats
– The productivity of different wetlands types in terms of food chain
– Development and resulting water quality degradation production was estimated and linked to production of the
have reduced the quantity of these wetlands different species of fish
– The expected yields of fish and birds per acre of habitat were
valued using
• Challenge • commercial values for fish
– Considering various management actions for the • viewing values for birds
Estuary and surrounding land areas • hunting values for waterfowl
– Assessing these management actions using a
productivity study for wetlands
• Results
– The study results estimated that
• Advantages
• An acre of eelgrass is worth $1,065 per year – Straightforward methodology
• An acre of salt marsh is worth $338 per year
• An acre of intertidal mudflat is worth $68 per year, in terms of
increased productivity of crabs, scallops, clams, birds, and
– Inexpensive to apply due to
waterfowl • Limited data requirements
– Based on the results the economic value for productivity services • Ready availability of relevant data
of preserving or restoring wetlands in the Estuary can be
calculated
– These values are an understatement of the total economic value

for the wetlands
• They only address values in production of commercially and
recreationally valuable species
• They overlook other services, such as erosion and storm protection
or aesthetics
The Production Function Method

Production Function Method Case-
Case-study 1: Degraded agricultural land
& rangeland in Morocco
• Issues and Limitations The situation

– Does not account for non-use values hence it • 93% of Morocco is arid
provides only the lower bound estimate • Fragile soils suffer from water and wind erosion
– Limited to valuing resources that can be used as • Overexploitation and unsustainable management
inputs in production of marketed goods
– Information is needed on the scientific relationships
between actions to improve quality or quantity of the
resource and the actual outcomes of those actions – arable land loss
– If the changes in the natural resource affect the – decrease in crop yield
market price of the final good, or the prices of any – silting of dams
other production inputs, the method becomes much – loss in biodiversity
more complicated and difficult to apply – loss in terms of attenuating emissions of
gases causing greenhouse effect
The Production Function Method The Production Function Method

Case-
Case-study 1: Degraded agricultural land Case-
& rangeland in Morocco & rangeland in Morocco
The situation The methodology

• 65 million ha of pastureland providing 30% of • Degradation of agricultural land
overall animal food requirements – value of lost agriculture production due to a
decrease in land productivity
• Erosion, drought, overgrazing, land clearing and – The majority of agricultural land is planted with
removal of woods cereals
Ö Cost of degraded agricultural land
corresponds to the value of lost cereal
production
• Degradation of rangeland
Degraded pastureland Ö Cost corresponds to the value of lost
forage production
Case-
The methodology (Agricultural Land) The methodology (Agricultural Land)

• Step 1: Estimation of degraded agricultural land • Step 2: Estimation of the decrease in agricultural yield
– FAO* classified the degradation of 8.7 million ha in – Young* estimated the decrease in cereal yield
Morocco as “severe”
– According to the FAO method 3 scenarios are • Slight degradation Ö 5% decrease in cereal yield
possible: • Moderate degradation Ö 20% decrease in cereal yield
• 10 – 25% of land is severely degraded
• 25 – 50% of land is moderately degraded – The mean yield for cereals in Morocco is 1 Ton/ha
• 50 – 100% of land is slightly degraded • 50 Kg/ha for slight degradation
– Surveys did not show any case of severe land • 200 Kg/ha for moderate degradation
degradation, only moderate and slight degradation
are used
* Young, A. Land degradation in South Asia: its severity, causes and effects upon the people, 1994
* Young, A., Land resources: now and for the future, Cambridge University Press, Cambridge, U.K.1998
* FAO, Land Resources Potential and Constraints at Regional and Country Level, World Soil Resources Report 90, Rome, 2000

Case-
The methodology (Agricultural Land) The methodology (Rangeland)

Lower limit Upper limit
• Step 3: Assessing the cost of Moderate erosion 25% 50% • Step 1: Estimation of degraded pastureland
degraded agricultural land Degraded agricultural 2,175=25% ×8,700 4,350=50% ×8,70 – Calculations considered only the areas with dominant
– The average of the lower bound land (000ha)
and the upper bound of moderate Level of decrease 20% 20%
steppe and forest covers (excluding the Saharian
and slight degradation were used Decrease in yield 200=20% ×1Ton/ha 200 region)
– Selling price: 2,580 dirham/Ton (Kg/ha) • Dominant steppe area: 12 million ha
Lost production (Kg) 435,000 870,000
=2,175×200 =4,350 ×200 • Dominant forest area: 5.1 million ha
Lost value (millions of 1,122 2,244 – REEM calculated the average percentage of degraded
The average cost of Dh) =435,000 ×2,580 =870,000 ×2,58
rangeland as:
agricultural land Slight erosion 50% 100%
• Dominant steppe 46% Î 5.52 million ha degraded
degradation: Degraded agricultural 4,350=50% ×8,700 8,700=100%
land (000ha) ×8,700 • Dominant forest 19% Î 0.969 million ha degraded
Dh 1,263 million Level of decrease 5% 5%
Decrease in yield 50=5% ×1Ton/ha 50
=(842+1,683)/2 (Kg/ha)
* REEM: Rapport sur l’Etat de l’Environnement du Maroc, Ministry of Land Use Planning, Environment, Urbanism and
Habitat, 2001.
0 36% f th GDP L t d ti (K ) 217 500 435 000

Case-
The methodology (Rangeland) The methodology (Rangeland)

• Step 2: Estimation of the loss of productivity Steppe Forest Total
• Step 3: Assessing the cost Pasture area (000ha) 12,000 5,100 17,100
– MAMVA* estimated land productivity as: of rangeland degradation Degraded area (%) 46% 19%
• Steppe: 79 FU / ha / year (FU: Forage Unit Ù 1Kg Barely) – Barley price: 2,270 Dh/Ton Degraded area (000ha) 5,520 969 6,489
– FU price: 2.27 Dh =46% =19% =5,520+
• Forest: 558 FU / ha / year ×12,000 ×5,100 969
– MAMVA adopted 2 levels of loss 6% and 10%: Land productivity (FU/ha/year) 79 558
The average cost of 10% loss
• Steppe loss: 6% Î 26.1 million FU / year
rangeland degradation: Loss in yield in degraded area 10%
10% Î 43.6 million FU / year Lost yield (000 FU/year) 43,608 54,070 97,678
• Forest loss: 6% Î 26.1 million FU / year
177.4 Dh million =5,520 =969
×79 ×558
10% Î 43.6 million FU / year 0.05% of the GDP ×10% ×10%
* MAMVA: Ministry of Agriculture and Agricultural Development, Plan National d’Aménagement des Bassins Versants, Lost value (million Dh) 99.0 122,7 221.7
Phase II, Volume 1, 1994. =43,608 =54,070
* MAMVA: Ministry of Agriculture and Agricultural Development, Plan National d’Aménagement des Bassins Versants ×2.27 ×2.27
Priorités régionales, Phase II Rapport de synthèse, 1995.
6% loss
Case-
Case-study 2: Beach degradation in Lebanon
& rangeland in Morocco
The situation
• The coastal zones of Lebanon represent unique
The Results economic and recreational assets
Cost of land
=
Cost of degradation
+
Cost of degradation • Coast line
degradation of agricultural land of rangeland
– > 240 km long
– Inhabited by > 50% of population
• Untreated municipal wastewater disposal, seafront
solid waste dumps, uncontrolled development of
resorts and vacation homes, etc.
Average estimate:
1,440 million
Coastal zone/Beach degradation
0.41% of the GDP (Reduced recreational and tourism value)

Case-
Case-
The methodology
The methodology • Step 1: Estimation of international beach-tourist nights
• Annual cost of coastal degradation lost
– Calculated based on a comparison with Tunisia and adjusting for
– Domestic recreational losses • Differences in Kms of beaches/tourist zones, and
• Domestic prices in Lebanon
– Losses of ecological and non-use value
– Fishery losses due to pollution Extrapolation of Western European (WE) and Northern American (NA)
beach tourism in Tunisia for 1999
– International tourism losses
Tunisia
• Lebanon would likely have attracted a number of beach tourists if
the coast was not degraded International beach- Coastline (km) 1,300
Beaches (km) 575
tourist nights per Tourist zones (km) 80
km tourist zones in International tourist nights from WE and NA (in 1999) 28,500,000
Value of international beach tourist-
tourist-nights
Tunisia: Beach tourism 90%
unrealized due to beach degradation International beach-tourist nights

International beach-tourist nights per km beaches
25,650,000
44,609
320,625 nights International beach-tourist nights per km tourist zones 320,625

Case-
Case-study 2: Beach degradation in Lebanon Case-
The methodology The methodology

• Step 1: Estimation of international beach-tourist nights • Step 1: Estimation of international beach-tourist nights lost
lost (cont’d) (cont’d)
– Adjustment for differences in kms of tourist zones between Lebanon and
Tunisia – Adjustment for domestic price differentials between Lebanon and Tunisia
Lebanon • Prices are generally higher in Lebanon
• The adjustment was conducted by applying a price elasticity of international
Low High tourism demand*
Coastline (km) 243 243 – Price elasticity of demand: -2 and -2.25
Beaches (km) 36 36
High potential beaches (if not degraded) (km) 5 10
International beach-tourist nights per km
320,625
tourist zones in Tunisia
Potential international beach-tourist nights lost in Lebanon:
1,603,125
Potential international beach-tourist nights lost
in Lebanon* =320,625 3,206,250 726,942 – 849,769 nights
×5
*Papatheodorou, A. 1999. The Demand for International Tourism in the Mediterranean Region. Applied Economics, 31, (5), 619-630.
* Unadjusted for domestic prices *Syriopoulos, T. and Sinclair, M.T. 1993. An Economic Study of Tourism Demand: The AIDS Model of US and European Tourism in
Mediterranean Countries. Applied Economics, 25, (12), 1541-1552.
The Production Function Method
Case-
The methodology
• Step 2: Assessing the value of international
beach-tourism loss
Revealed Preference Approach
– Average tourist expenditure in Tunisia was about 50 US$ in 1999
– A range of 75-100 US$ (average 87.5 US$) was used for Lebanon
Low High
Potential international beach-tourist nights lost in Lebanon 726,942 849,769
Expenditure per tourist per night (US$)
Average expenditure per tourist per night (US$)
75
87.5
100
The Market Price Method
63,607,388
Total international beach tourism revenue losses (US$/year) =726,942 74,354,794
×87.5
The average international beach-

beach-tourism revenue
losses:
69 US$ million, 0.42 % of the GDP
Market Price Method Market Price Method

• Makes use of observed market prices for environmental • Applying the Market Price Method
goods and services
– Market price represents the value of an additional unit
• Values changes in quantity and/or quality of a good or
of that good or service, assuming the good is sold
service
through a perfectly competitive market
• Uses standard economic techniques for measuring the
economic benefits from marketed goods – Applying the method requires data to estimate
• Applied for goods and services with established markets, consumer surplus and producer surplus.
and which have • To estimate consumer surplus, the demand function must be
– Direct uses estimated
• Ex: Plantation timber; commercial fisheries; tourism – time series data on the quantity demanded at different prices
– Some indirect uses – data on other factors that might affect demand, such as income
or other demographic data
• Ex: value of water from protected watersheds
– Some option values • To estimate producer surplus
• Ex: gene research; forest conservation – data on variable costs of production and revenues received

Step 1
Illustration 1
• Use market data to estimate the market demand function
– Water pollution causing the closure of a commercial fishing area
– The benefits of cleanup need to be evaluated
and consumer surplus for the fish before the closure.
– Assume a linear
• This method was used because demand function
Demand for fish before closure
– The primary resource affected is fish, for which market data are • the initial market price
available = $5/g Consumer Surplus
• Application of the Market Price Method • the maximum willingness
– The objective is to measure total economic surplus for the to pay = $10/g
increased fish harvest that would occur if the pollution is cleaned – At $5/g
up
• consumers purchased
– the difference between economic surplus before and after the 10,000 g fish/yr
closure must be estimated
• consumers spent $50,000 Consumer Surplus = ($10-$5)*10,000/2 = $25,000
– The results of the analysis can be used to compare the benefits on fish per year
of actions that would allow the area to be reopened, to the costs
of such actions – The shaded area on the graph represents the total consumer
surplus received from the fish before the closure = $25,000
Step 2
Step 4
• Estimate the market demand function and consumer
surplus for the fish after the closure • Estimate the losses to producers by first measuring the
– the market price of fish increased producer surplus before the closure
from $5/Kg to $7/Kg – Producer surplus is measured by the difference between the total
Demand for fish after closure
– the total quantity demanded 12 revenues earned from a good, and the total variable costs of
decreased to 6,000 Kg/yr 10 producing it
P rice ($/K g ) 8 Consumer Surplus after closure
– The new consumer surplus
6
is $9,000 4 – Before the closure
Step 3 2
• 10,000 Kg of fish were caught per year
0
– Estimate the loss in economic • Fishermen were paid $1/Kg
0 5,000 10,000 15,000 20,000 25,000
benefits to consumers Ö their total revenues = $10,000 per year
• Subtract benefits after the Quantity demanded (Kg)
• The variable cost to harvest the fish was $0.50/Kg
closure from benefits before Ö total variable cost = $5,000 per year
the closure Consumer Surplus = ($10-$7)*6,000/2 = $9,000
• The producer surplus before the closure was
– The loss in benefits to consumers is
$10,000 - $5,000 = $5,000
• 25,000 - 9,000 = $16,000.

Step 5: Steps 4, 5, and 6
• Measure the producer surplus after the closure Before closure After closure
Fish caught per year = 10,000 Kg Fish caught per year = 6,000 Kg
Step 6: Fishermen were paid $1/Kg Fishermen were paid $1/Kg
Total revenues = 1 × 10,000 = Total revenues = 1 × 6,000 =
• Calculate the loss in producer surplus due to the $10,000 per year $6,000 per year
closure Variable cost to harvest fish = Variable cost to harvest fish =
$0.50/Kg $0.60/Kg
Total variable cost = 0.5 × 10,000 Total variable cost = 0.6 × 6,000
$5,000 per year $3,600 per year
The producer surplus The producer surplus
= $10,000 - $5,000 = $6,000 - $3,600
= $5,000 = $2,400
Loss in producer surplus due to the closure
$5 000 - $2 400 = $2 600

Step 7: • Advantages
• Calculate the total economic losses due to the closure
– Relatively simple and straightforward
Lost consumer Lost producer Total economic
surplus + surplus = loss – Relies on actual market values
$16,000 $2,600 $18,600
– Price, quantity and cost data are easy to
ÖThe benefits of cleaning up pollution in order to reopen the obtain for established markets
area are equal to $18,600
– The method uses observed data of actual
• Notes consumer preferences
– This example is based on assumptions that greatly simplify the – The method uses standard, accepted
analysis
– Some factors might make the analysis complicated economic techniques
• Some fishermen might switch to another fishery after the closure,
and thus losses would be lower
Market Price Method
• Issues and limitations Revealed Preference Approach
– Market data may only be available for a limited number of goods
and services provided by a resource
– Available market data may not reflect the value of all productive
uses of a resource
Damage Cost Avoided
– The true economic value of goods or services may not be fully
reflected in market transactions, due to market imperfections
Replacement Cost
and/or policy failures
– Seasonal variations and other effects on price must be
Substitute Cost Methods
considered
– Cannot be easily used to measure the value of larger scale
changes that are likely to affect the supply of or demand for a
good or service
– Does not deduct the market value of other resources used to
bring ecosystem products to market, and thus may overstate
benefits
Damage Cost Avoided, Replacement Damage Cost Avoided, Replacement

Cost, and Substitute Cost Methods Cost, and Substitute Cost Methods
• Estimate values of ecosystem services based on • The damage cost avoided method
– the costs of avoiding damages due to lost services
– the cost of replacing ecosystem services, or – uses either the value of property protected or
– the cost of providing substitute services the cost of actions taken to avoid damages as
• Assume that a measure of the benefits provided
– the costs of avoiding damages or replacing ecosystems or their
services provide useful estimates of the value of these • Ex: if a wetland protects adjacent property from
ecosystems or services flooding, the flood protection benefits may be
– if people incur costs to avoid damages caused by lost ecosystem estimated by
services, or to replace the services of ecosystems, then those
services must be worth at least what people paid to replace – the damages avoided if the flooding does not occur
them. – or the expenditures property owners make to protect their
• Are most appropriately applied in cases where damage property from flooding
avoidance or replacement expenditures have actually
been, or will actually be, made

• The replacement cost method Applying the methods
– uses the cost of replacing an ecosystem or its • Step 1
services as an estimate of the value of the ecosystem
or its services
– Assessing the environmental service provided
• specifying the relevant services
– how they are provided, to whom they are provided, and
• The substitute cost method the levels provided.
– uses the cost of providing substitutes for an • Example: in the case of flood protection, this would
involve predictions of flooding occurrences and
ecosystem or its services as an estimate of the value
their levels, as well as the potential impacts on
of the ecosystem or its services. property
• Example, the flood protection services of a wetland might be
replaced by a retaining wall or levee
Damage Cost Avoided, Replacement Damage Cost Avoided, Replacement Cost,
Cost, and Substitute Cost Methods and Substitute Cost Methods
Applying the methods
• Steps 2 and 3 • Examples of applications
– Valuing improved water quality
– for the damage cost avoided method
• by measuring the cost of controlling effluent emissions.
• estimate the potential physical damage to property, either
– Valuing erosion protection services of a forest or wetland
annually or over some discrete time period
• by measuring the cost of removing eroded sediment from
• calculate either the dollar value of potential property damage, downstream areas.
or the amount that people spend to avoid such damage
– Valuing the water purification services of a wetland
– for the replacement or substitute cost method • by measuring the cost of filtering and chemically treating water
• identify the least costly alternative means of providing the – Valuing storm protection services of coastal wetlands
service • by measuring the cost of building retaining walls.
• calculate the cost of the substitute or replacement service – Valuing fish habitat and nursery services
• Establish public demand for this alternative • by measuring the cost of fish breeding and stocking programs
– This requires gathering evidence that the public would be
willing to accept the substitute or replacement service in place
of the ecosystem service

Step 1
Illustration 1* (damage and substitute cost methods) • Conduct an ecological assessment of the flood protection services provided
by the wetlands to determine
– An agency is considering restoring some degraded – the current level of flood protection
wetlands in order to improve their ability to protect the – the expected level of protection after full restoration of the wetlands
surrounding area from flooding
Step 2
• The Damage Cost Avoided applied using two different approaches
– use the information on flood protection obtained in the first step to estimate
– Cost-Based Methods are used because potential damages to property if flooding were to occur
• estimate, in dollars, the probable damages to property if the wetlands are not restored.
• Agency only interested in valuing the flood protection – determine whether nearby property owners have spent money to protect their
services of the wetlands property from the possibility of flood damage
• by purchasing additional insurance or by reinforcing their basements.
• Limited budget available for valuation study • These avoidance expenditures would be summed over all affected properties to provide
an estimate of the benefits from increased flood protection
• the easiest and least costly method to apply in this case – the two approaches are not expected to produce the same estimate

Illustration 2*: Soil Erosion in Korea (replacement cost method)
Step 2 (cont’d)
• The replacement cost method
• Background
– flood protection services cannot be directly replaced, so this cannot be
applied urban growth and industrial farming moved into
development hilly upland areas
• The substitute cost method
– a substitute for the affected services such as a retaining wall or a levee
might be built to protect nearby properties from flooding Inadequate soil management
• estimate the cost of building and maintaining such a wall or levee techniques and errors in field Heavy soil erosion on
• also determine whether people would be willing to accept the wall or levee in layout and construction upland areas
place of a restored wetland.
Step 3
– Compare the cost of the property damages avoided, or of providing • The challenge
substitute flood protection services to the restoration costs to determine – Evaluate the benefits of proposed new soil management techniques
whether it is worthwhile to restore the flood protection services of the
wetlands • retaining the soil and nutrients on the upland areas
• protecting downslope areas from damage by the eroded soil

• Analysis
– Researchers measured the cost of physically replacing lost soil, • Analysis (cont’d)
nutrients, and water in upland areas the cost of compensating for – calculate costs with the new management techniques
downstream losses • compensation payments
• calculate the annual soil loss per hectare, nutrient loss/hectare, and • soil replacement, nutrient replacement, and mulching
water runoff/hectare
– The net present value of the costs of new management
• calculate the expected losses, in terms of replacement costs, if the
new management practices were not implemented
techniques was estimated at W1,076,742
Measured parameter Cost (W/ha/yr)

Recovering and replacing eroded soil 80,000
• Results
Fertilizer and spreading to replace lost nutrients 31,200
– the cost of new management techniques (W1,076,742) is
about half the replacement cost (2,039,662)
Annual field maintenance and repair 35,000
Damage to downstream fields in lost production 30,000
Supplemental irrigation to replace lost water 92,000
– The proposed preventive steps are worth implementing
Total cost of soil erosion under existing management 268,200
Net present value using a 15 year time horizon 2,039,662

Illustration 3*: Oil spill damages in Puerto Rico (replacement cost method) • Advantages
• Background
– The Zoe Colocotroni was a ship that spilled oil off the coast of Puerto Rico
– The case was taken to court to determine the monetary damages resulting from the – May provide a rough indicator of economic value
spill’s effects on the local ecosystem • subject to data constraints and the degree of similarity or
substitutability between related goods.
• Analysis
– The replacement cost method was used to estimate monetary damages – They are less data and resource-intensive
• Calculating the number of lower trophic organisms killed by the spill • It is easier to measure the costs of producing benefits than
• Adding up the cost of purchasing these organisms from a scientific catalogue the benefits themselves, when goods, services, and benefits
are non-marketed
• Results – Data or resource limitations may rule out valuation
– The US Court of Appeals rejected the use of the replacement cost method in this
case methods that estimate willingness to pay
• It was not plannned to actually purchase the organisms and restore them to the ocean
• By the time such a plan could have been carried out, the organisms would have restored
– Provide surrogate measures of value that are as
themselves consistent as possible with the economic concept of
use value, for services which may be difficult to value
• The costs of purchasing the organisms did not accurately measure the by other means
actual ecosystem damages.

• Issues and Limitations • Issues and Limitations (cont’d)
– Do not provide a technically correct measure of
economic value, which is properly measured by the – May be inconsistent because few
maximum amount of money or other goods that a
person is willing to give up to have a particular good, environmental actions and regulations are
less the actual cost of the good based solely on benefit-cost comparisons,
particularly at the national level
– Assume that expenditures to repair damages or to
replace ecosystem services are valid measures of the • the cost of a protective action may exceed the
benefits provided benefits to society
• the cost of actions already taken to protect an
– Do not consider social preferences for ecosystem ecological resource will underestimate the benefits
services, or individuals’ behaviour in the absence of
those services of a new action to improve or protect the resource
• Issues and Limitations (cont’d) • Issues and Limitations (cont’d)
– The replacement cost method requires information on
the degree of substitution between the market good – The goods/services being replaced probably
and the natural resource represent only a portion of the full range of services
• Substitute goods are unlikely to provide the same types of provided by the natural resource
benefits as the natural resource • the benefits of an action to protect or restore the ecological
resource would be understated.
– Without evidence that the public would demand the

least cost alternative for the affected ecosystem, this
methodology is not an economically appropriate
estimator of ecosystem service value
End of Sessions 3 & 4

Thank You
REGIONAL WORKSHOP
ON
THE COST OF
ENVIRONMENTAL
DEGRADATION
METHODOLOGY
Session 5
THE TRAVEL COST METHOD
REGIONAL WORKSHOP ON Preferences
THE COST OF ENVIRONMENTAL

preferences
Stated
Preferences
Session 5 Dose
Response
Values Methods Method Behavior Valuation Experiments
THE TRAVEL COST METHOD Functions
TRAVEL COST METHOD TRAVEL COST METHOD

OUTLINE Introduction
• Introduction • Used to estimate use values associated with
• Theory ecosystems or sites that are used for recreation
• Forms of TCM
• Illustration • Assumes that the value of the site or its recreational
• Advantages services is reflected in how much people are willing to
pay to get there
• Issues and Limitations
• Case-applications • Useful in planning for the provision and management
– Environmental conservation of outdoor recreation, such as:
– Improvements in water quality – changes in access costs for a recreational site
• Case studies – elimination of an existing recreational site
– Beach degradation in Morocco – addition of a new recreational site
– The value of forestry in Britain – changes in environmental quality at a recreational site

Theory Theory
• Based on the premise that • A demand curve can be
– The cost an individual incurs in visiting a site reflects his generated for the site in
valuation to the site question
Travel cost per visit (USD)
– Individuals will react to an increase in entry fees the same – By collecting information
way as they would react to an increase in travel cost from people on C
• Where they had travelled
from
• The most controversial aspects of the travel cost Consumer
• The costs they have surplus
method include incurred A
– accounting for the opportunity cost of travel time – By deriving a trip generation
– handling multi-purpose and multi-destination trips function B D
– the fact that travel time might not be a cost to some Number of visits per year
– By deriving an aggregate
people, but might be part of the recreational experience demand curve for visits to Trip Generation Function
the site per year, and thus
for the recreational or
scenic services of the site
Interpreting Travel-
Travel-Cost Models Interpreting Travel-
Travel-Cost Models
Linear functional form: V = α + βC +γS Log-Linear functional form: lnV = α + βC +γS
Where: Where:
V = number of visits to a site V = number of visits to a site
α = constant α = constant
β = coefficient of C, usually negative β = coefficient of C, usually negative
C = cost of travel to gain access to site C = cost of travel to gain access to site
γ = coefficient of S, probably negative γ = coefficient of S, probably negative
S = cost of travel to gain access to the respondent’s preferred substitute site S = cost of travel to gain access to the respondent’s preferred substitute site
– The TCM is used to estimate α, β, and γ – The TCM is used to estimate α, β, and γ
• Estimated consumer surplus (CS) for an individual • Estimated consumer surplus (CS) for an individual
making q visits to the site making q visits to the site
CS = -q2 / 2β CS = -q / β
– This functional form implies finite visits at zero – This functional form has been widely used in
costs TCM models
– This functional form has a critical cost above • It implies a finite number of visits at zero cost
which negative visits will be demanded • It never predicts negative visits even at very high costs

Theory Forms of the TCM
• This demand curve
– shows how many visits people would
make at various travel cost prices
– is used to estimate the willingness to
Travel cost per visit (USD)
pay for people who visit the site Zonal TCM Individual TCM Random utility
– is downward sloping where travel cost approach
is inversely related to number of visits • Concentric zones defined • Uses the number of visits per
• people who live farther from a site will around each site
visit it less often, because it costs more year made by an individual • The most complicated and
in terms of actual travel costs and time • Cost of travel in each zone is
C
• Requires more data collection expensive
to reach the site. su ons
constant
rp um and slightly more complicated • Allows for much more
lu • Site visitors grouped by zone
s er analysis flexibility in calculating
of origin
• Other factors that may affect the • Gives more precise and benefits
• May rely on secondary data
number of visits to a site • Best suited to estimate
Number of visits per year • The simplest and least statistically efficient results
– Visitors’ income expensive approach benefits for specific
– The availability of alternative sites or • More flexible than ZTCM and
Demand curve for the travel cost method • Suited when visitors origins characteristics of sites, rather
substitutes applicable at a wider range of
are relatively evenly than for the site as a whole
– Factors like personal interest in the sites
distributed • Most appropriate when there
type of site, or level of recreational • Unsuitable for linear
experience are many substitute sites
recreational sites

Zonal TCM Zonal TCM
• Zonal TCM methodology • Zonal TCM methodology (cont’d)
1. Identify site and collect data from visitors on 6. Use data collected above to estimate the trip generation
• their points of origin function where:
• number of visits from each origin zone Vh = # of visits from zone h
• round-trip mileage from each zone Nh = population of zone h
• travel costs per mile Vh/Nh = f(Ch,Xh,Sh) Ch = travel cost from zone h
• demographic information about people from each zone Xh = a vector of socio-economic variables that
explain changes in V
2. Define zones of origin and allocate visitors to the appropriate zone Sh = a vector of substitute recreational site
• Zones commonly defined based on characteristics for residents of zone h
straight line distance from site
• GIS techniques allow redefining zones 3 6. Derive demand curve
2
based on road distances or travel times S 1 7. Obtain zonal household consumer surplus estimates through
3. Calculate zonal visits per household to the site integrating under the demand curve
• Estimate number of households per zone
• Divide number of household visits originating in zone h by the total number of 8. Calculate aggregate zonal consumer surplus
households in the zone • By multiplying consumer surplus per household by the
4. Calculate average travel cost from each zone to the site number of households in each zone
5. Use census data to derive variables relating to zonal socio-economic
characteristics 10. Aggregate zonal consumer surplus estimates to obtain an
estimate of total consumer surplus or the benefits of the site
Individual TCM Individual TCM
• Individual TCM methodology • More complicated, and thorough, applications may also collect
information about:
1. Identify site – exact distance that each individual travelled to the site
2. Use an on-site questionnaire survey to collect data from – exact travel expenses
visitors relating to – the length of the trip
• Cost of travel to the site – the amount of time spent at the site
• Number of visits to the sites – other locations visited during the same trip, and amount of time spent at
• Recreational preferences each
• Socio-economic characteristics – substitute sites that the person might visit instead of this site, and the
travel distance to each
3. Specify trip-generation function – other reasons for the trip (is the trip only to visit the site, or for several
purposes)
Vij = f(Cij,Tij,Qi,Sj, Yi) where: – quality of the recreational experience at the site, and at other similar
Vi = # of visits made by individual i to site j sites (e.g., fishing success)
Cij = travel cost incurred by individual i when visiting site j – perceptions of environmental quality at the site
Qj = a vector of perceived qualities of the recreation site j – characteristics of the site and other, substitute, sites
Sj = a vector of available substitute recreational site
characteristics
Yi = household income of individual i

Individual TCM Random utility approach
• Individual TCM methodology (cont’d) • Focuses attention on the choice among alternative
sites for any given recreational trip and assumes
4. Estimate travel cost model taking truncation the visitor is comparing utilities for available
into account destinations
• Truncation accounts for non-visitors behavior
5. Derive demand curve and obtain household • First models the individual’s decision on whether
or not to participate in recreational activity
consumer surplus estimates through
integrating under the demand curve • Then models the decision on the number of visits
6. Calculate aggregate consumer surplus for
the site • Models used include
– Probit, tobit, and logit

Illustration Illustration
• Background Application of the Zonal Travel Cost Approach
– A site used mainly for recreational fishing is threatened by development
in the surrounding area
• Pollution and other impacts from this development could destroy the fish Step 1
habitat at the site, resulting in a serious decline in, or total loss of, the site’s
ability to provide recreational fishing services • Define a set of zones surrounding the site by
• Resource agency staff want to determine the value of programs or actions to – concentric circles around the site, or
protect fish habitat at the site
– geographic divisions
• The Travel Cost Method was selected because • metropolitan areas or counties surrounding the site at different
– The site is primarily valuable to people as a recreational site distances
– There are no endangered species or other highly unique qualities that
would make non-use values for the site significant
– The expenditures for projects to protect the site are relatively low Step 2
• Alternative Approaches • Collect information on
– Contingent valuation or contingent choice methods – the number of visitors from each zone
• might produce more precise estimates of values for specific characteristics – the number of visits made in the last year
of the site
• could capture non-use values • For this example, assume that staff at the site keep records of
• are considerably more complicated and expensive to apply
the number of visitors and their zip code, which can be used to
calculate total visits per zone over the last year
Application of the Zonal Travel Cost Approach
Application of the Zonal Travel Cost Approach
Step 3 Step 4
• Calculate the average round-trip travel distance and travel time to
• Calculate the visitation rates per 1,000 population in each zone the site for each zone
• This is the total visits per year from the zone, divided by the zone’s • Using average cost per mile and per hour of travel time, calculate
population in thousands the travel cost per trip
– Assume that this cost per mile is USD 0.30.
• The cost of time calculated using the simplest approach involving
the average hourly wage
Zone Total Visits/Year Zone Visits/1000 – Assume that it is 9 USD/hour, $0.15 USD/minute for all zones,
Population although in practice it is likely to differ by zone
0 400 1,000 400
Zone Round Trip Round Trip Distance times Travel Time times Total Travel
1 400 2,000 200 Travel Distance Travel Time Cost/Mile ($.30) Cost/Minute ($.15) (Cost/Trip)
(miles) (mins) (cost a) (cost b)
2 400 4,000 100
0 0 0 0 0 0
3 400 8,000 50
1 20 30 $6 $4.50 $10.50
Beyond 3 0 2 40 60 $12 $9.00 $21.00
Total visits 1,600 3 80 120 $24 $18.00 $42.00

Application of the Zonal Travel Cost Approach Application of the Zonal Travel Cost Approach
Step 6
Step 5 • Construct the demand function for visits to the site
• Estimate the trip generation function using regression analysis – The first point on the demand curve is the total visitors to the site
– This allows the researcher to estimate the demand function for the at current access costs
average visitor • 1,600 visits per year
– The analysis might include demographic variables, such as age, – The other points are found by estimating the number of visitors
income, gender, and education levels, using the average values for with different hypothetical entrance fees
• Example: start by assuming a $10 entrance fee
each zone Plugging this into the estimated regression equation, V = 330 – 7.755C,
– To maintain the simplest possible model, calculating the equation gives the following:
with only the travel cost and visits/1000 Zone Travel Cost plus $10 Visits/1000 Population Total Visits
0 $10 252 1000 252

1 $20.50 171 2000 342
Visits/1000 = 330 – 7.755*(Travel Cost) 2 $31.00 90 4000 360
3 $52.00 0 8000 0
Total Visits 954

Application of the Zonal Travel Cost Approach Application of the Zonal Travel Cost Approach
Step 7
Step 6 (cont’d) • Estimate the total economic benefit of the site to visitors by
• This gives the second point on the Entry Fee Total Visits calculating the consumer surplus, or the area under the demand
demand curve—954 visits at an $20 409 curve.
entry fee of $10. In the same way, $30 129
the number of visits for increasing $40 20

• The total estimate of economic benefits from recreational uses of the
entry fees can be calculated $50 0 site is around $23,000 per year, or around $14.38 per visit
60
• If the actions to protect the site cost less than $23,000 per year, the
Added cost per trip
50
40 cost will be less than the benefits provided by the site
• These points give the 30
demand curve for trips 20

• If the costs are greater than this, the staff will have to decide
to the site. 10 whether other factors make them worthwhile.
0
0 400 800 1200 1600 2000
Total visits
Application of the Individual Travel Cost Approach Application of the Individual Travel Cost Approach (cont’d)
• Conduct a survey of visitors on • Estimate the relationship between number of visits and travel
– location of the visitor’s home – distance travelled to the site costs and other relevant variables using regression analysis
– how many times they visited the site in the past year or season – Use individual data rather than data for each zone
– the length of the trip
– The regression equation gives the demand function for the
– the amount of time spent at the site “average” visitor to the site
– travel expenses
– The area below this demand curve gives the average consumer
– the person’s income or other information on the value of their time surplus
– other socioeconomic characteristics of the visitor
– other locations visited during the same trip, and amount of time spent at
each • Multiply the average consumer surplus by the total relevant
– other reasons for the trip (is the trip only to visit the site, or for several population in the region where visitors come from
purposes)
– fishing success at the site (how many fish caught on each trip)
Ö to estimate the total consumer surplus for the site
– perceptions of environmental quality or quality of fishing at the site
– substitute sites that the person might visit instead of this site

Application of the Individual Travel Cost Approach Application of the Random Utility Approach
(cont’d)
• The agency might want to value the economic losses from a
decrease in fish populations, rather than from loss of the entire fish
• Value estimates can be improved by adding other stock
factors to the statistical model
– additional data about visitors, substitute sites, and quality • The random utility approach focuses on choices among alternative
of the site has been collected sites which have different quality characteristics.
– Including information about the quality of the site allows
the researcher to estimate the change in value of the site if • The random utility approach assumes that individuals will pick the
its quality changes site that they prefer, out of all possible fishing sites.
• two different demand curves would be estimated—one for each
level of quality • This model requires information on
• the area between these two curves is the estimate of the – all possible sites that a visitor might select
change in consumer surplus when quality changes – their quality characteristics
– the travel costs to each site

Illustration Advantages
Application of the Random Utility Approach (cont’d) • It is based on real data rather than stated
• Conduct a telephone survey of randomly selected residents of the state
willingness to pay and as such provides true
– Ask residents if they go fishing or not values
– If they do, it would then ask a series of questions
• how many fishing trips they took over the last year (or season)
• where they went • It is relatively inexpensive to apply
• the distance to each site
• and other information similar to the information collected in our individual travel cost survey
– Might also ask questions about fish species targeted on each trip, and how many fish
were caught.
• On-site surveys provide opportunities for large
sample sizes, as visitors tend to be interested in
• Estimate a statistical model that can predict participating
– the choice to go fishing or not,
– the factors that determine which site is selected
• The results are relatively easy to interpret and
• If quality characteristics of sites are included, the model can estimate values explain
for changes in site quality, for example the economic losses caused by a
decrease in catch rates at the site
Issues and limitations (1) Issues and limitations (2)
• The method assumes that people perceive and respond to changes • The assumption that travel costs reflect recreational value
in travel costs the same way that they would respond to changes in may not always be true
admission price – Those who value certain sites may choose to live nearby,
resulting in low travel costs, but high values for the site
• The most simple models assume that individuals take a trip for the
single purpose of visiting a specific recreational site
– if a trip has more than one purpose, the value of the site may be • Visits to certain sites could be seasonal and thus survey
overestimated results could be biased unless survey is conducted for a long
period
• Defining and measuring the opportunity cost of time, or the value of
time spent travelling, can be problematic • Interviewing visitors on site can introduce sampling biases to
– There is no consensus on how to account for time the analysis
– Travel time may be a benefit if people enjoy the travel itself leading
to an overestimation of the value of the site
• Measuring recreational quality and relating it to environmental
quality can be difficult
• The availability of substitute sites will affect values
– Ex: if two people travel the same distance, they are assumed to
have the same value. However, if one person has several • Standard travel cost approaches provides information about
substitutes available but travels to this site because it is preferred, current conditions, but not about gains or losses from
this person’s value is actually higher. Some of the more complicated anticipated changes in resource conditions
models account for the availability of substitutes.

Case application 1:
1: Environmental Conservation
Issues and limitations (3)
• The demand function requires enough difference between distances Background*
travelled to affect travel costs and for differences in travel costs to affect • Hell Canyon on the Snake River separating Oregon
and Idaho
the number of trips made – offers spectacular vistas and outdoor amenities to visitors
– it is not well suited for sites near major population centers where many – supports important fish and wildlife habitat
visitations may be from "origin zones" that are close to one another
• It also has economic potential as a site to develop
hydropower.
• The travel cost method is limited in its scope of application because it – Generating hydropower there would require building a dam www.colonelkern.com
requires user participation – Dam and the resulting lake would significantly and
– It cannot be used to assign values to on-site environmental features and permanently alter the ecological and aesthetic characteristics
of Hell Canyon
functions that users of the site do not find valuable
– It cannot be used to value off-site values supported by the site
– It cannot be used to measure non-use values Challenge
– It excludes non-users who may have significant values for the site • Controversies regarding the future of Hell Canyon
during the 1970’s
• Certain statistical problems can affect the results, including • Environmental economists were asked to develop
– Choice of the functional form used to estimate the demand curve an economic analysis justifying the preservation of
– Choice of the estimating method Hell Canyon in its natural state
www.bigfootoutfitters.com
– Choice of variables included in the model
* www.ecosystemvaluation.org

Case application 2:
2: Improvements in Water
Case application 1:
1: Environmental Conservation
Quality
Background*
Methodology
• The costs to farmers and taxpayers of implementing
• the net economic value (cost savings) of producing on-farm best management practices to reduce
hydropower at Hell Canyon was $80,000 higher than at sediment and nutrient runoff to the Chesapeake
the "next best" site which was not environmentally Bay are well known
sensitive
• Controversies arose over the benefits of
• The recreational value of Hell Canyon was estimated via resulting improvements in water quality
a low-cost/low precision travel-cost survey at about
$900,000
• Even if the "true value" of recreation at Hell Canyon was www.chesapeakebaysampler.com/
ten times less than their estimate, it would still be greater Challenge
than the $80,000 economic payoff from generating power • To assess the economic benefits of water quality improvements to beach
there as opposed to the other site users in the Chesapeake Bay area
www.windingwatersrafting.com/hell_rates.php
• To establish linkages between differences in water quality and
Results differences in willingness to pay for beach use- reflected in the travel
• Based largely on the results of this non-market valuation costs to visitors to particular beaches
study, Congress voted to prohibit further development of • The hypothesis to be tested
Hell Canyon – average willingness to pay was positively correlated with water quality
• If the hypothesis was correct the results would allow the estimation of the
increase in willingness to pay of improving water quality at all beaches
* www.ecosystemvaluation.org
TRAVEL COST METHOD The Travel Cost Method
Case application 2:
2: Improvements in Water Case-
Case-study 1: Beach degradation in Morocco
Quality
Methodology The situation*
• The concentration of nitrogen and phosphorous in the water at the
monitoring station nearest to the beach was selected as an index of water
quality at the beach • The coastline of Morocco
– reflect s the level of objectionable visual and other characteristics that affect the value of
beach use. – 3,500 km long, 13 coastal zones, 174 beaches
• A cross-sectional analysis of travel cost data was used
– collected from 484 people at 11 public beaches
– a 20% increase in water quality was assumed to be associated with a 20% reduction in total
nitrogen and phosphorus •Domestic and industrial
wastewater discharge, industrial
Results accidents Coastal zone/
• The average annual benefits to all Maryland beach users of the
improvements in water quality were estimated to be $35 million in 1984
•Offshore pollution from ships and Beach
dollars boat harbors
• These were thought to be conservative for several reasons, including: •Haphazard construction along the degradation
– The value of improvements in water quality was only shown to increase the value of current
beach use
coast, etc.
– Improved water quality can also be expected to increase overall beach use
– Estimates ignore visitors from outside the Baltimore-Washington statistical metropolitan
sampling area In 2002, “Monitoring Bathing Beach Waters in Morocco”
– The population and incomes in origin zones near the Chesapeake Bay beach areas are
increasing, which is likely to increase visitor-days and thus total willingness to pay campaign showed that 28% of beaches were unfit for swimming
* World Bank, 2003
The Travel Cost Method The Travel Cost Method

Case-
Case-study 1: Beach degradation in Morocco Case-
The methodology
The situation
• Annual cost of coastal degradation • Additional travel cost incurred
– Longer distances traveled by car, bus or taxi to visit
– Willingness to Pay (WTP) of foreign tourists and Moroccan “less degraded” beaches
• For citizens using cars, additional travel costs per beach visit
nationals living abroad to improve the coast include:
– Fuel costs
– Loss of local fishing (sardines) – Vehicle operating costs, and
– Lost recreational value for Moroccan residents – Journey time lost
– Estimation conducted for cities of
• Value of additional travel costs (including time) incurred by • Rabat
Moroccan residents to find beaches of “better” environmental • Tangiers
quality • Casablanca
The Travel Cost Method The Travel Cost Method

Case-
The methodology
The methodology
• Step 1: Estimation of additional travel cost for beach visits by car
– Number of visits to beach by car per household = 10-20 • Step 2: Estimation of additional travel cost for beach visits by bus/taxi
– Assumption that 50% of households with cars visit more distant beaches for environmental – 20% of population visit beach by bus or taxi
reasons – 50% of population without cars visit more distant beaches for environmental reasons
– Additional travel cost by car per visit – Number of visits to beach by bus or taxi per person = 10-20
• vehicle functioning = Dh 4.6/km
• additional distance of 30 km (round trip) – Average additional travel cost by bus or taxi is 10 Dh
• additional time of 2 hrs estimated at Dh 15/hr
• = (Dh 4.6/km x 30 km) + (Dh 15/hr x 2 hrs) = 168 Dh
Parameter Value
Parameter Value
Urban population of Rabat-Tangiers-Casablanca 5,248,000
Urban households in Rabat-Tangiers-Casablanca 937,143
Persons from Rabat-Tangiers-Casablanca visiting beaches by bus/taxi 1,049,600
Households with cars (20%) 187,400
Persons visiting, by bus or taxi, more distant beaches 524,800
Households with cars that visit more distant beaches 93,700
Number of yearly visits to beach per person 10 - 20
Number of yearly visits to beach by car per household 10 - 20
Total number of yearly visits to beach by bus or taxi 5,248,000 - 10,496,000
Total number of yearly visits to beach by car 937,000 - 1,874,000
Average additional travel cost by bus or taxi per visit (Dh/visit) 10
Average additional travel cost by car per visit (Dh/visit)* 168
Total additional yearly travel cost for beach visits by bus or taxi (Dh) 50,248,000 - 100,496,000
Total additional yearly travel cost for beach visits by car (Dh) 157,416,000 - 314,832,000
The Travel Cost Method TRAVEL COST METHOD
Case-
Case-study 2: The value of forestry in
The methodology Britain
• Step 3: Assessing the total additional travel cost due Situation*
to beach degradation • Estimate the total recreational
value of Forestry Commission
Lower Higher
bound bound woodland in Great Britain
Additional travel cost for beach visits by cars (million Dh) 157.4 314.8
Additional travel cost for beach visits by bus/taxi (million Dh) 50.2 100.5
Methodology
Total additional travel cost (million Dh) 207.6 415.3 www.ecastles.co.uk/thetford.html

– Define representative forest types
• Cluster analysis used
• 14 similar groups of forests identified
• Sample forests selected from each group
The average total additional travel cost due to – Conduct interviews with visitors of 15 forests
beach degradation in Morocco – Allocate visitors into 20 concentric distance zones at 5-
Dh 311.5 million, 0.09 % of the GDP mile intervals
• Those further than this were allocated together in a single zone
* Hodge, I. 1995

Case-
Case-study 2: The value of forestry in Case-
Britain
Britain
Methodology (cont’d)
– Develop the Trip generation functions Consumer surplus estimates for
by estimating the relationship between non-priced recreation for forest districts
the visit rate from each zone and the
transport cost www.avich-kilchrenan.co.uk/ Consumer Consumer Annual number Total consumer
surplus per surplus per of visitors to the surplus
• taking into account the socio-economic characteristics of the zones
recreational hectare of forest cluster of forests (£million)
– Use trip generation functions to estimate the visitor (£) (£/ha) (1000s)
consumer surplus or the total value of each visit New Forest 1.43 425 8,000 11,440
• Represented by the maximum willingness to pay minus the Loch Awe 3.31 <1 34 0.114
cost of each trip Brecon 2.26 27 2,117 4.784
– Estimate the total value for each site by summing up South Lakes 1.34 31 1,968 2.637
across all visitors to each site produced Thetford 2.66 14 4,742 10.718
TRAVEL COST METHOD

Case-
Britain
Results
• By summing up all estimates of
consumer surplus
– The value of non-priced recreation
for Forestry Commission forests as
a whole = £ 53 million End of Session 5
– This compares with £ 71 million income to Forestry
Enterprise, the timber production arm of Forestry
Commission from the sale of timber in 1988
– In this year, there was an annual net subsidy of £ 8.5 million Thank You
paid on forestry recreation and amenity in terms of visitors
centers, forest walks, wildlife, conservation, etc.
– Provision for non-priced recreation represents good

value
REGIONAL WORKSHOP
ON
THE COST OF
ENVIRONMENTAL
DEGRADATION
METHODOLOGY
Session 6
THE HEDONIC PRICING METHOD
THE AVERTING BEHAVIOR
METHOD
Environmental Valuation
Methods
WORKSHOP ON Preferences
COST OF ENVIRONMENTAL
preferences
Stated
Preferences
Session 6 Dose
Response
Values Methods Method Behavior Valuation Experiments
Functions
HEDONIC PRICING METHOD
AVERTING BEHAVIOR METHOD
HEDONIC PRICING METHOD HEDONIC PRICING METHOD

OUTLINE Theory
• Theory
• Used to estimate the value or price of an
• Methodology
• Illustration environmental feature by looking at actual
• Advantages markets where the attributes are traded
• Issues and limitations
• Case-study 1 • Most commonly applied in relation to the
Values of environmental amenities in Southold, Long Island
public’s willingness to pay for housing/
• Case-study 2
Values of Environmental Amenities in Marickville and Rockdale, Sydney property
• Case-study 3
Effect of landfill sites on housing value, Minnesota • Also applied in labour markets for health
• Case-study 4
Impact of Solid Waste Dumping on Land Prices in Tunisia
economic valuation
• Case-study 5
Quarries in Mount Lebanon

Theory Theory
Hedonism is the philosophy that pleasure is of ultimate • Assumes that
importance, the most important pursuit. The name – The price of a product is a function of its characteristics
derives from the Greek word for delight. – The range of product choices is continuous
– The choice is based on perfect information and with no mobility
Based on the assumption that people value the restrictions
characteristics of a good, or the services it provides, – The amount of a particular characteristic can be varied
rather than the good itself. Thus, prices will reflect the independently
value of a set of characteristics, including environmental
characteristics, that people consider important when • Relatively straightforward and uncontroversial to apply,
purchasing the good because it is based on actual market prices and fairly
– Ex: the price of a car reflects the characteristics of that car— easily measured data
transportation, comfort, style, luxury, fuel economy, etc.
– If data are readily available, it can be relatively inexpensive to
• We can value the individual characteristics of a car or other good by
looking at how the price people are willing to pay for it changes apply
when the characteristics change – If data must be gathered and compiled, cost can increase
substantially
Theory Methodology
• Usually applied ex post, to examine the effects of developments and • Applying the Hedonic Pricing Method using housing
policies after implementation prices
– The price of a house is related to
• Can be used to estimate economic benefits or costs associated with • Structural characteristics of the house
– Environmental risk – Plot size, number of rooms, garage space, structural integrity, etc.
• Ex: effect of information of different levels of earthquake damage on • Local socio-economic and public sector characteristics
property values
– Unemployment rate, social conditions, quality of schools, etc.
– Environmental quality • Local amenity
• Water pollution – Environmental quality, access to services, communications, etc.
– Ex: Impact on waterfront property
• Air pollution – Upon controlling for non-environmental factors, any
• Noise remaining differences in price can be attributed to
– Ex: Impact of highway noise and aircraft noise differences in environmental quality
• Soil quality and erosion
If all characteristics of houses and neighbourhoods in a given area
– Environmental amenities were the same, except for the level of air pollution, then houses with
• Aesthetic views, proximity to recreational sites, hazardous sites, waste better air quality would cost more. This higher price reflects the value
management sites, etc. of cleaner air to people who purchase houses in the area.

Methodology Methodology
• Applying the Hedonic Pricing Method using housing
prices • Applying the Hedonic Pricing Method using
– Collect the needed information housing prices (cont’d)
• Data requirements fall into 2 broad categories
– Specific: Cross-section and/or time-series data on property values and – Analyze the data using regression analysis, relating
property and household characteristics for a well-defined market area the price of the property to its characteristics and the
» Structural and locational information
» Details of purchase or tenancy (price, date, personal and financial environmental characteristics of interest
particulars of the purchasers)
– Local: area where transaction occurred Output is a function linking property value to
» Neighbourhood, amenity, environmental, and socio-economic characteristics:
factors
» A measure or index of the environmental amenity of interest property value=a0+a1size+a2rooms+a3environmental quality+…
• Data sources depend on country/ state involved where property value is the dependent variable
– Government agencies, estate agents and realtors, mortgage granting size, rooms, environmental quality are independent
institutions, etc.
– GIS, postcode classification of neighbourhood types, etc. variables

• Applying the Hedonic Pricing Method using
• Applying the Hedonic Pricing Method
housing prices (cont’d) using housing prices (cont’d)
• The analysis will indicate how much property values will – Different functional forms and model
change for a small change in each characteristic, holding all
other characteristics constant
specifications for the analysis must be
property value=a0+a1size+a2rooms+a3environmental quality considered
• The analysis may be complicated by a number of factors property value=a0+a1size+a2rooms+a3environmental quality+a4size2
– The relationship between price and characteristics of the log(property value)=a0+a1size+a2rooms+a3environmental quality
property may not be linear – prices may increase at an
increasing or decreasing rate when characteristics change
– Multicollinearity:
» many of the variables are likely to be correlated, so that
their values change in similar ways
» this can lead to understating the significance of some
variables in the analysis
Methodology Illustration*
• Agency staff want to measure the benefits of an open
• Applying Hedonic Wage Models space preservation program in a region where open land
– Hedonic technique applied to wage rates is rapidly being developed
• An individual choice of job may be influenced by • The Hedonic Pricing Method is used because
the job location if it improves access to desirable – Housing prices in the area appear to be related to proximity to
services open space
– Data on real estate transactions and open space parcels are
Hourly earnings=b0+b1location+b2firm size+b3education+b4experience readily available
– Problems with this technique
• Alternative Approaches
• High unemployment – The travel cost method, if the open space of concern is used
– Individuals cannot satisfy their demand for environmental mainly for recreation
improvement due to unavailability of suitable jobs in – Survey-based methods, like contingent valuation or contingent
areas of higher environmental quality choice, but are more difficult and expensive to apply
Adapted from www.ecosystemvaluation.org

• Step 1 • Step 2
– Collect and compile data on residential property sales – Statistically estimate a function that relates property values to the
in the region for a specific time period including property characteristics, including the distance to open space
dependent variable: – The resulting function measures the portion of the property price
• Selling prices and locations of residential properties that is attributable to each characteristic
independent variables: – Estimate the value of preserving open space by looking at how
• Structural characteristics (lot size, number and size of rooms, the value of the average home changes when the amount of
number of bathrooms) open space nearby changes
• Local socio-economic characteristics
• Local amenity including the environmental characteristic of
concern- the proximity to open space • Step 3
– Evaluate agency investments in open space preservation
– Collect data on the amount and type of open space – Determine the benefits of preserving each parcel, which can
within a given radius of each property, noting the then be compared to the cost
direct proximity of a property to open space
• data may be obtained from computer-based GIS maps

Advantages Issues and Limitations
• Can be used to estimate values based on actual • The scope of environmental benefits that can be
behaviour and choices measured is limited to things that are related to property
values
• Property markets are relatively efficient in responding to
information, so can be good indications of value • It will only capture people’s willingness to pay for
perceived differences in environmental attributes, and
• Property records are typically very reliable their direct consequences
– if people aren’t aware of the linkages between the
• Data on property sales and characteristics are readily environmental attribute and benefits to them or their
available through many sources, and can be related to property, the value will not be reflected in home prices
other secondary data sources to obtain descriptive
variables for the analysis • It assumes that people are free to select the combination
of characteristics satisfying their preferences, given their
• Versatile method that can be adapted to consider income
several possible interactions between market goods and – However, the housing market may be affected by outside
environmental quality influences, like taxes, interest rates, or other factors
Case Study 1: Values of Environmental
Issues and Limitations Amenities in Southold, Long Island*
• It is relatively complex to implement and interpret, requiring
statistical expertise • Background
– The town of Southold, Long Island, New York has coastlines on
• The results depend heavily on model specifications both the Peconic Bay and Long Island Sound
– Southold is a relatively rural area, with a large amount of
• It is susceptible to multicollinearity i.e. a high degree of correlation farmland
among the variables under study which makes it difficult to estimate
their individual effect – Population and housing density are rapidly increasing in the
– Ex: Air pollution measures where the levels of one form of town, resulting in development pressures on farmland and other
pollution (PM) is closely related to levels of another (NO2) types of open space
• All relevant variables must be included for the results to be valid

• The Challenge
• Large amounts of data must be gathered and manipulated – The Peconic Estuary Program is considering various
management actions for the Estuary and surrounding land areas
• The time and expense to carry out an application depends on the – A hedonic valuation study was conducted to assess some of the
availability and accessibility of data values that may result from these management actions, using
1996 housing transactions.
*Adapted from ecosystemvaluation.org

Case Study 1: Values of Environmental Case Study 1: Values of Environmental
Amenities in Southold, Long Island Amenities in Southold, Long Island
• Analysis
– Variables relevant for local environmental management with • Results
significant impact on property values in Southold
– Calculate the value of preserving a parcel of
Location of properties % change in value as compared
open space, by calculating the effects on
to similar properties elsewhere property values adjacent to the parcel
Adjacent to open space 12.8% higher per-acre value • Ex: the value of preserving a 10 acre parcel of
Adjacent to farmland 13.3% lower per-acre value open space, surrounded by 15 “average”
Within 20 meters of a major road 16.2% lower per-acre value properties, was calculated as 410,907 USD
Within an area with two- or three- 16.7% higher per-acre value
acre zoning
For every percentage point increase in the percent of a parcel classified as
a wetland, the average per-acre value increased by 0.3%

Case Study 2: Values of Environmental Amenities Case Study 2: Values of Environmental Amenities
in Marickville and Rockdale, Sydney* in Marickville and Rockdale, Sydney
• Data collected from house sales in 1973-1974 (1,414 • Results
– Various types of statistical relationships between house prices
observations) and characteristics were tested
– Major determinants of prices were house quality and size and
• Information collected on 20 characteristics of each plot size
property and the local environment – Aircraft noise significant determinant of price in Marickville
– Size, age, and construction of the house • $1,250 - 3,250 difference depending on house price
– Size of the plot of land – Price of noisy road was $1,400 (5.6% of the house price)
– Type and amount of traffic on the road outside the house – $440 difference between poor and average view and $440
difference between poor and good view
– Access to public transport and shops
– Aircraft noise
– Zoning and plans for road widening • Limitations
– Difficulties in measuring several house attributes
– Prices estimated may not have been based on buyers’ informed
• Some variable were measured directly (number of judgement
rooms) and others on a subjective scale (road traffic
levels-noisy/normal/quiet)
*Adapted from Hodge (1995)
Case Study 3: Effect of landfill sites on Case-
Case-study 4: Impact of Solid Waste Dumping on
housing value, Minnesota* Land Prices in Tunisia
• A sample of 708 single-family homes located The situation
within close proximity of a landfill site
• House values rose by about 0.2 percent per mile •Lack of municipal
from the landfill (when a linear specification is waste collection • Public health risks
used) • Deterioration of
•Accumulation of waste
• The effect on house value varied with distance quality of life
• 12% for houses located at landfill boundary • Risks on natural
•Presence of
• 6% for houses located one mile from landfill boundary resources through
unauthorized
• 0% for houses located more than 2 miles from landfill the contamination
boundary dumpsites
of soil and water
(when a non linear specification is used) resources
•Lack of hazardous
waste treatment
Adapted from Hussen (1999); study by Nelson et al. (1992)

Case-
Case-study 4: Impact of Solid Waste Dumping on Case-
Case-study 4: Impact of Solid Waste Dumping on
Land Prices in Tunisia Land Prices in Tunisia
The methodology
• Step 1 • Step 4
Identify and characterize Estimate the annual value of Application- Agricultural region
dumpsites neighborhood land
Parameter Grombalia Korba Beni Khaled Other Total
• Step 2 – 10% in this case
Dumpsites total area (ha) 5 8 10 48 71
Determine the area of land Estimate the annual devaluation of
affected by each dumpsite land prices Total area of 1st affected zone (ha) 2.7 3.3 3.6 20 29.6
Ex: Agricultural Region Ex: Agricultural Region Total area of 2nd affected zone (ha) 8.4 9.9 10.7 60.5 89.5
– 1st affected zone: 30m radius – 1st affected zone : 15% Value of land not affected by devaluation
7,500 11,000 10,000 9,500
– 2nd affected zone : 100m radius – 2nd affected zone : 10% (DT/ha)
• Step 3 • Step 5 Annual value land not affected by devaluation
750 1,100 1,000 950
Conduct a survey to collect Calculate the total annual loss in (DT/ha) --10% of value of land
information on land prices 543
Annual loss of land prices in the 1st affected 303
– the value of land not affected by =3.3×1,100 547 2,853 4,236
zone =2.7×750×15% ×15%
the dumpsite in the neighborhood
– The rate of land devaluation due Annual loss of land prices in the 2nd affected 630
1,086 1,070 5,746 8,538
to proximity to dumpsite zone =8.4×750×10%
Total annual loss (DT/year) 12,774

Case-
Case-study 4: Impact of Solid Waste Dumping on Case-
Case-study 5: Quarries in Mount Lebanon
Land Prices in Tunisia
The situation
Application- Peri-urban & Urban region • More than 700 quarries in Lebanon, of which > 50%
are in Mount Lebanon
Parameter Peri-urban Urban
Dumpsites total area (ha) 143 118

• Constructed with little consideration for the
Total affected area (ha) 543 47.2 environment and surrounding human settlements
Average value of land not affected by devaluation (000
700 1,700 • Many of them are abandoned with minimal or no
DT/ha)
Annual value of land not affected by devaluation (DT/ha) 70,000 170,000
rehabilitation
Percent annual loss of land prices (DT/year) 30% 35%
Total annual loss (DT/year) 11,403,000 2,808,000
Destruction of natural vegetation and habitats

Air pollution from dust
Total land price losses due to solid waste dumping is
Reduction in aesthetic value in and around sites
14,224,000 DT/Year
HEDONIC PRICING METHOD HEDONIC PRICE METHOD
Case-
Case-study 5: Quarries in Mount Lebanon Case-
• Annual cost of environmental degradation due to • A survey of impacts on surrounding areas around 4
quarries in Mount Lebanon was conducted
quarries
• Additional impacts recorded to occur during quarries
– Loss in residential land value around quarries operation:
– Loss in apartment values around quarries – Structural damage to buildings and infrastructures from
explosives used
– Dust pollution
Land/apartments in areas visually affected by quarries – Traffic congestion due to quarry transport activities
experience a decline in value
• Additional impacts during operation are fraction of the
Cost of degradation associated with loss of losses in land and apartment values and not included
aesthetic value in this assessment
HEDONIC PRICE METHOD HEDONIC PRICE METHOD

Case-
• Step 1: Estimation of loss in land value around surveyed • Step 2: Estimation of loss in apartment values around
quarries surveyed quarries
– Area of land affected ranged between 100,000 and 600,000 m2 – Area of apartments affected ranged between 8,000 and 36,000 m2
– Decline in land price ranged between 7.5 and 125 US$/m2 – Decline in apartment price ranged between 100 and 225 US$/m2
Areas affected Land area Decline in land Loss in land value
Quarry Areas affected Apartments Decline in Loss in apartment
affected (m2) price (US $/m2) (US $ million)
Quarry affected (m2) apartment value (US $ million)
Shnanaayer Shnanaayer municipality 600,000 125 75.0 price (US $/m2)
=600,000×125 Shnanaayer Shnanaayer municipality 36,000 225 8.1
Abou-Mizan Shirine, Bteghrine, and other villages 175,000 7.5 1.3 Antelias Raboueh and Qornet Chehouane municipality 8,000 100 0.8
Antelias Raboueh and Qornet Chehouane municipality 100,000 50 5.0 Total 44,000 202 8.9
Total 875,000 93 81.3 Annualized loss (“low”)* 0.9
Annualized loss (“low”)* 8.1 Annualized loss (“High”)* 1.0
* Annualized
Total losses in land value were annualized loss (“High”)*
at a discount rate f 10% over 20 to 100 years (high and low9.6
estimates) * Total losses in land value were annualized at a discount rate f 10% over 20 to 100 years (high and low estimates)
Average annual loss in land value: Average annual loss in apartment value:
8.85 US $ million 0.95 US $ million
HEDONIC PRICE METHOD HEDONIC PRICE METHOD

Case-
The methodology
• Step 3: Estimation of land value occupied by other quarries (not The methodology
surveyed) • Step 3: Assessing the total cost of degradation
– The total cost of degradation for >700 quarries is estimated based on the
value of land occupied by quarries due to quarries
– Estimated land value ranges between 3 and 5 US$/m2
– Average size of quarry ranges between 15,000 and 20,000 m2
Lower bound Higher bound
Lower Higher Loss in land value around surveyed quarries (US $ million) 8.1 9.6
bound bound Loss in apartment value around surveyed quarries (US $ million) 0.9 1.0
Number of quarries 710 Annual land value occupied by all quarries (US $ million) 5.0 5.9
Average area of quarry (m2) 15,000 20,000 Total loss (US $ million) 14.0 16.5
Average land value (US $/m2) 3 5 Percent of GDP (%) 0.08 0.10
Total land value (US $ million) 207.6 415.3
Annualized loss (US $ million/year)* 5.0 5.9
*
Percent of GDP (%) 0.03
Total losses in land value were annualized at a discount rate f 10%
0.04
The average total annual degradation cost due to
over 20 to 100 years (high and low estimates) quarries in Lebanon:
Average annual value of land occupied by quarries: 15.25 US $ million, 0.10 % of the GDP
5.45 US $ million, 0.035 % of the GDP
AVERTING BEHAVIOR AVERTING BEHAVIOR
OUTLINE Theory
• Theory • Actions are taken to reduce or avoid the
consequences/ cost of environmental damage
• Methodology – Water pollution
• Drinking bottled water
• Issues to consider • Purchasing water filters
– Air pollution
• Case-study 1 • Frequent painting of dwellings due to smoke emissions from
– Cost of pesticide contamination of drinking water a nearby factory
• Moving away from a polluted location
• Case-study 2 • Installing air purifiers
– Consumption of Bottled Water in Lebanon • Staying indoors
– Noise
• Installing soundproof walling to reduce noise

Theory Methodology
Application
People’s value for
≈
Cost of averting – Step 1: Identification of the environmental hazard and the
environmental affected population
actions undertaken • Monitoring equipment used to measure variables indicative of the
improvement
environmental hazard
• Common sense to be adopted in defining the population at risk
• In many cases, several types of aversive – Step 2: Observation of the responses of individuals
• Survey design should avoid biased sample, strategic bias, and self-
expenditures are undertaken simultaneously selection
– Ex: Possible action in response to a noisy road • Identify public expenditures
• Install double glazing

– Step 3: Measurement of the cost of taking action
• Move to another area
• Understand why the individual is taking a certain action
– Total benefits estimated by summing up all • Understand if the chosen course is enough to avoid the hazard
expenditures

Case Study 1: The cost of solvent contamination
Issues to consider of drinking water*
• Some actions are difficult to monetize
– Moving house and leaving a familiar neighborhood • Background
Ö The cost of the action is a minimum estimate
– Water supplies in Perkasie, Pennsylvania
• Some impacts have consequences with no possible averting actions contaminated with Trichloroethylene (TCE)
– Air pollution on reduced visibility
– Air pollution on lake acidification • Detected TCE levels = 35 ppb
Ö The cost of the action is not accurate or complete
• EPA TCE limit = 5 ppb
• Some goods provide additional non-environmental benefits
– Bottled water tastes better – No means of reducing contamination
– Air conditioning ameliorates room temperature
Ö The should be accounted for to avoid overestimation of benefits
Ö Water consumers were notified of the
contamination
• Some are only partial substitutes for the environment
– Double glazing partially reduces noise
– Discomfort may still occur
Ö The should be included in the analysis
Adapted from Hodge, 1995
Case Study 1: The cost of solvent contamination Case Study 1: The cost of solvent contamination
of drinking water of drinking water
• Methodology • Results
– In the absence of a clear logic for choosing the value to attach to
– Postal survey the time spent on averting behavior, two approaches were
considered
• A sample 1733 households
Actions undertaken Low estimatea High estimateb
• A response rate of 45% (USD) (USD)
• Questionnaire inquired about actions to avoid Increased purchase of bottled water 11,135 11,135
exposure to TCE New purchases of bottled water 17,342 17,342
– Increased purchase of bottled water Home water treatment systemsc 4,691 4,691
– Installation of home water treatment systems Hauling water 12,513 34,013
– Bringing in water from other sources Boiling water 15,633 64,135
– Boiling water Total cost 61,313 133,334
– Estimation of the cost of actions a Time valued at minimum wage rate (3.35 USD/hr)
b Time valued at estimated hourly wage
c Because such a system would last for longer than the contamination period,
a proportion of the cost was included

Case Study 1: The cost of solvent contamination Case-
Case-study 2: Consumption of Bottled Water in
of drinking water Lebanon
Background
• Results Substandard quality and inadequate quantity of potable water
– Represent a minimum estimate of the costs of Inadequate sanitation facilities and sanitation practices
chemical contamination Inadequate personal, food and domestic hygiene
• Only 43% of respondents were aware of the contamination
• Averting behavior did not remove all contamination
• No allowance made for possible ecological impacts
– Analysis suggests that if contamination could be
avoided for an expenditure of 60,000 USD, then it Impact on human health and quality of life
should be undertaken
Cost to society
Adapted from Hodge, 1995

Case-
ase-study 2: Consumption of Bottled Water in Case-
ase-study 2: Consumption of Bottled Water in
Lebanon Lebanon
Background
Methodology
Individuals and communities at risk from waterborne
•Cost of municipal water of inferior quality could be
illnesses and mortality resort to
estimated based on bottled water consumption
•Cost is equivalent to the difference between
– actual bottled water consumption
– estimated consumption associated with taste and lifestyle
Aversive expenditures such as purchase preference
of bottled water
Lebanon’s population consumes a large quantity of bottled water mostly due Cost of Environmental degradation
to the perception that municipal water is of a low quality. According to the =
State of the Environment Report (ECODIT, 2000), bottled water consumption is
about 115 liters per capita per year Actual bottled water consumption – Expected consumption
associated with preference
Case-
Case-study 2: Consumption of Bottled Water in Case-
Lebanon Lebanon
Results Results
• Actual bottled water consumption Expected bottled water consumption associated with
preference
– According to the State of the Environment Report • Bottled water consumption associated with preference
(SOER): – taste, lifestyle, etc…
• Bottled water expenditure represent 0.60% of total per capita
expenditure
• The average price of one liter of bottled water is 0.23 US$ • Estimation based on bottled water consumption in Europe
and the United States in the 1970’s
– 1970 figures used because of the large increase in consumption in
Unit Value 1980’s and 1990’s due to perception of inferior municipal water
Per capita expenditures in Lebanon US$/capita/yr 4,465 quality
Per capita bottled water expenditures in Lebanon % 0.60
Bottled water expenditure in Lebanon US$/capita/yr 26.8 • Expected consumption adjusted for GDP per capita
Average price of bottled water in Lebanon US$/liter 0.23 differentials and price differentials between several
Actual bottled water consumption in Lebanon Liter/capita/yr 115 European countries (in the 1970) and Lebanon

Case-
Case-study 2: Consumption of Bottled Water in Case-
Lebanon Lebanon
Results Results
Expected bottled water consumption associated with preference • Estimation of bottled water consumption to protect against risk
– Equivalent to “actual” less “expected” (if perceived risk of illness from municipal water were zero)
– Estimate of expected bottled water consumption in Lebanon if consumers
perceived no health risk of potable municipal water Unit Value
Low High
Unit Value
Actual bottled water consumption in Lebanon Liter/capita/yr 115 115
Low High
Expected bottled water consumption in Lebanon “Low” Liter/capita/yr 30 24
GDP per capita 2000 (Western Europe and USA) US$/capita 27,750
Expected bottled water consumption in Lebanon “High” Liter/capita/yr 34 27
GDP per capita 2000 (Western Europe and USA) US$/capita 17,253
Average expected bottled water consumption in Lebanon Liter/capita/yr 32 26
GDP per capita 2000 in Lebanon US$/capita 3,875 Bottled water consumption to protect against risk Liter/capita/yr 83 89
Bottled water consumption in several European countries in 1970’s Liter/capita/yr 30 30 Lebanese population in 2000 Million capita 4.2
Income elasticity of bottled water demand 0.25 0.4 Total bottled water consumption to protect against risk Million liter/yr 356 383
Price elasticity of bottled water demand (“low”) -1.5 -1.5 Total cost of bottled water consumption to protect against risk Million US$/yr 82 88
=356×0.23 =383×0.23
Price elasticity of bottled water demand (“High”) -2 -2
Average price of bottled water in European countries US$/liter 0.3 0.3 % GDP 0.49 0.53
Average price of bottled water in Lebanon US$/liter 0.23 0.23 Average annual cost of bottled water
Expected bottled water consumption in Lebanon “Low” Liter/capita/yr 30 24
consumption = 85 million US$
Expected bottled water consumption in Lebanon “High” Liter/capita/yr 34 27
= 0.51% of GDP
End of Session 6
Thank You
REGIONAL WORKSHOP
ON
THE COST OF
ENVIRONMENTAL
DEGRADATION
METHODOLOGY
Sessions 7 & 8
The Revealed Preference
Approach
GROUP EXERCISES
Regional Training Workshop on the Cost of
Environmental Degradation Methodology

July 1‐5, 2008
Crowne Plaza Hotel, Beirut, Lebanon
SESSIONS 7-8
GROUP EXERCISE 1
Economic Valuation of the Environment and the Travel Cost Approach: The
Case of Ayubia National Park
(Himayatullah, 2003)
Case description
The Government of Pakistan is seeking to revitalize its nature-based tourism sector to an expanding
system of national parks and reserves. The Government of Pakistan has, in recent years, felt a serious
concern over the deforestation and has shown significant interest in the growth of a renowned national
park system. Despite limited number of national parks and reserves their management is far from
satisfactory. This may partly be because of insufficient governmental funds and open access of
visitors to these places. There is a need for a thorough investigation of how these parks can be well
managed and how these environmental resources can be valued. The present case aims at obtaining
economic information about benefits that flow from recreational use of a national park, Ayubia
National Park (ANP), Pakistan.
Ayubia National Park is a small national park in the Murree hills, Pakistan. It is located North of
Murree in the Himalayan Range Mountains. Ayubia consisting of four hill stations, namely, Khaira
Gali, Changla Gali, Khanspur and Gora Dhaka is spread over an area of 26 kilometers. These hill
stations have been developed into a hill resort known as Ayubia. The chairlifts provided at this place
are a matter of great attraction. It is an important place from the viewpoint of wildlife, nature,
ecotourism, and education. This park provides refuge to the elusive leopard and the black bear. Bird
watching is excellent here. There are steep precipices and cliffs on one side and on the other are tall
pine trees. The scenery is superb with huge pine forests covering the hills and providing shelter to the
larger and smaller mammals. Wild animals are also found in the thick forests around. Mammals in the
park include Asiatic leopard, Black bear, Yellow throated marten, Kashmir hill fox, Red Flying
squirrel, Himalayan palm civet, Masked civet and Rhesus Macaque. Birds in the park are Golden
eagle, Griffin vulture, Honey buzzard, Peregrine falcon, Kestrel, Indian sparrow hawk, Hill pigeon,
Spotted dove and Collared dove. Note that the access to ANP is free of charge
One of the objectives of this study is to estimate the consumer surplus and recreational value
(benefits) of the ANP.
1. Why is the TCM selected in this case? Which values will it capture?
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
2. What alternative method could have been used and why?

___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
1 of 11

July 1‐5, 2008
3. What are the three forms of a TCM?

a. _________________________________
b. _________________________________
c. _________________________________
4. For this case-study, the Individual Travel Cost Method was used.
5. What are the three most controversial aspects of the travel cost method?
a. _________________________________
b. _________________________________
c. _________________________________
6. Steps of the TCM process

A. Identify site
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
B. Use an on-site questionnaire survey to collect data from visitors relating to:
a. _________________________________
b. _________________________________
c. _________________________________
d. _________________________________
The data used in this study were collected from 300 visitors by following systematic random sampling.
The results showed the following:
− the sample respondents visited nature-based recreation about 7 times per year
− The respondents’ mean yearly spending on recreation was Rs 5300
− The respondents’ mean monthly income is Rs 12,500
− About 61 percent of the respondents are male
− 60 percent of the respondents were married
− The average age of the respondents was 43 years
− The average household size was about 6
− More than 76 percent were literate
− Half of the respondents (50 percent) considered quality of the park as good
− 60 percent of the visitors were from urban areas
− more than 62 percent of the respondents wanted improvement in the quality of services of the
park
− On the question about how more resources should be allocated for the park management, 38
percent of the respondents preferred an increase in entrance fee, 40 percent chose
reallocation of government budget, 22 percent advocated voluntary donations towards parks’
2 of 11

July 1‐5, 2008
management funds.
− The visitors visited the ANP for different reasons. More than two-third (80 percent) of visitors
came to Galliat for recreation purposes. Some 20 percent of visitors reported travelling as the
reason for coming to Galliat.
− Regarding income distribution as many as 45 percent of sample households fall in income
group of Rs 10,000–20,000 per month. More than one-fifth (22 percent) households have
monthly income in the range of Rs 5,000-10,000. Some 19 percent households have income of
Rs 20,000-50,000. Taken together 64 percent households fall in income range of Rs 5,000-
20,000.
C. Specify trip-generation function: V = f( , , , ,…)

Factors that influence the demand for visits include:
a. _________________________________
b. _________________________________
c. _________________________________
d. _________________________________
Would you expect the variables below to increase or decrease frequency of visitation?
(Tick the appropriate box)
− Increased travel cost: Increases visitation Decreases visitation

− Increased travel time: Increases visitation Decreases visitation
− Advanced age: Increases visitation Decreases visitation
− Gender: Males more less likely to visit
− Increased education level: Increases visitation Decreases visitation
− Increased household income: Increases visitation Decreases visitation
− Improved quality of the site: Increases visitation Decreases visitation
D. Estimate travel cost model:

The basic model used in this study depicts:
vi = α0 + α1 TC + α2 Yi+ α3 STi+ α4 Ai+ α5 Ei+ α5+k ΣDk+ ei … …
where:
vi = the number of visits by the ith individual to the Park per period of time
TC = round trip total cost (Rs) to the site including travel time
M = household income (Rs/month)
ST = travel cost to and from a substitute site
A = age of the visitor
E = highest level of education gained by visitor
FS = family size,
D1 = 1 if male and 0 otherwise,
D2 = 1 if urban dweller and 0 otherwise
D3= 1 if the visitor’s perception about the site’s recreational facilities is good and 0 if bad.
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July 1‐5, 2008
Econometric model used:
Specification of the functional form is crucial to the benefit estimates obtained. In practice the
choice of the functional form needs to be determined empirically. There is some consensus that a
semi-log gives the best results namely regressing the logarithm of visitation rates against travel
cost, etc. However, we will also use double log functional form of the above model to estimate
(own- and cross) price and income elasticity of demand for visitation of the Ayubia National
Park.
The table below reports the results of the travel cost regression models in a linear fashion. In
these models, most coefficients have the expected algebraic signs. The coefficient on travel costs
is negative and statistically significant. As expected high travel costs incurred by individuals are
inversely related to park visitation rate.
Estimated Results of Linear Regression Equations

Variable Coefficients (t-stats)
Dependent variable # of visits, v
Intercept 2.41 (2.32)
Travel costs -0.06 (-2.58)***
Household income 0.0057 (2.23)**
Price of substitute 0.00025 (1.75)
Age -0.024 (-1.69)
Education 0.0059 (1.17)
Family size 0.0029 (0.35)
Dummy 1 0.332 (1.54)
Dummy 2 0.018 (1.40)
Dummy 3 0.045 (2.33)**
R2 0.47
F-statistics 13.5
** indicate significance at 5 percent level
*** indicate significance at 1 percent level
E. Derive demand curve and obtain household consumer surplus estimates through
integrating under the demand curve.
Two linear demand curves for ANP visitation were estimated from the survey data. The figure
below shows the actual user demand for the Park and a hypothetical demand for the Park in
case of improvement in the quality of park services. It implies that improvement in the quality
of the services at the park would shift the demand curve upward to the right. In addition, the
log-linear (semi-log) demand curve was also estimated. The semi-log demand curve is
curvilinear and convex to the origin, which is relatively flat at low prices and steep at higher
prices.
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July 1‐5, 2008
Visits with improvement: ln vi = 4.56 e-0.0079tc (R2= 0.7878)

vi = 35.14 – 0.013 tc (R2=0.6313)
Visits without improvement:

vi = 44.32 –0.018 tc (R2=0.5666)
a. Linear demand curve b. Log-linear demand curve
7. Calculate aggregate consumer surplus for the site

The total recreational value equals the consumer surplus plus total cost of visit.
Recreational Value of the ANP

Consumer Surplus Recreational Value
Per Visitor (Rs) 240 1996
Total (Rs million) 24.0 200.6
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July 1‐5, 2008
SESSIONS 7-8
GROUP EXERCISE 2
Forest Recreation Areas in Malaysia (FRAs)

(Garrod and Willis, 2001)
Case description
There are 74 Forest Recreation Areas in spread throughout the States of Peninsular Malaysia. FRAs
are relatively small areas of natural virgin forest containing a variety of attractive landscape, fauna
and flora, rivers and unique geological features, making them attractive as sites for outdoor recreation.
They provide open access to non-priced recreation. Activities pursued in FRAs range from hiking,
camping, swimming, etc. to more passive pursuits such as picnics, walks, observing the ecology, and
enjoying the scenic attractions of the forests. The state government incurs costs for visitors facilities
in terms of maintaining footpaths and toilets, collecting litter, providing information, and patrolling
the site with park rangers.
The objective of this study is to assess the value of the benefits of open access, non-priced
recreation at FRAs.
1. Why is the TCM selected in this case? Which values will it capture?
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
3. What are the three forms of a TCM?

a. _________________________________
b. _________________________________
c. _________________________________
4. For this case-study, the __________________form was used.
5. What are the three most controversial aspects of the travel cost method?
a. _________________________________
b. _________________________________
c. _________________________________
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July 1‐5, 2008
6. Steps of the TCM process
A. Identify site
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
B. Use an on-site questionnaire survey to collect data from visitors relating to:
a. _________________________________
b. _________________________________
c. _________________________________
d. _________________________________
A random sample of visitors was interviewed on a next to sample basis. A sample size of 385
interviews was set at the Jeram Linang FRA.
C. Specify trip-generation function: V = f( , , , ,…)

Factors that influence the demand for visits include:
a. _________________________________
b. _________________________________
c. _________________________________
d. _________________________________
Would you expect the variables below to increase or decrease frequency of visitation?
(Tick the appropriate box)
− Increased travel cost: Increases visitation Decreases visitation

− Increased travel time: Increases visitation Decreases visitation
− Advanced age: Increases visitation Decreases visitation
− Gender: Males more less likely to visit
− Increased education level: Increases visitation Decreases visitation
− Increased household income: Increases visitation Decreases visitation
− Improved quality of the site: Increases visitation Decreases visitation
The dependent variable is: ________________________________
D. Derive demand curve and obtain household consumer surplus estimates through
integrating under the demand curve
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July 1‐5, 2008
Vij = f(Cij, Eij, Si, Yi, Ai, Hi, Ni, Mi)
where:
Vij = number of visits made by individual i to site j
Cij = individual i's total cost of visiting site j
Eij = individual i's estimate of the proportion of the day’s enjoyment which is attributable to the
FRA
Yi = income of individual i's household
Ai = age of individual i
Hi = size of individual i's household
Ni = size of individual i's party
Mi = dummy variable: whether individual i is a member of an outdoor organization
The functional form used was the linear truncated Maximum Likelihood model, which
took account of the truncated nature of the data which excluded individuals who chose
not to visit the site over that time period. The model reported variables significant at the
0.15 statistical significance level. The variables made sense intuitively, whereby visits to
FRA were:
− negatively related to time and travel cost
− positively related to being single and living with parents, being educated only to
primary and secondary levels, engaging in fishing at the site
The ML model for Jeram Linang FRA

Variable Coefficient Std. deviation T-ratio Prob:t:>x Mean of x
ONE -4.00525 1.25289 -3.197 0.00139 1.00000
Time and travel cost -0.64479 0.24658 -2.615 0.00893 2.34940
First visit -11.07460 1.64099 -6.749 0.00000 0.26216
Single- living with parents 5.78721 1.09867 5.267 0.00000 0.18919
Educated to primary level 6.04067 2.31138 2.613 0.00896 0.04594
Educated to secondary level 3.20342 1.17677 2.722 0.00648 0.13784
Other FRAs visited in last 6 months 0.48544 0.25220 1.925 0.05426 0.97297
Fished at the site 8.02514 3.22890 2.485 0.01294 0.00540
Engaged in nature walking -1.97990 1.10616 -1.790 0.07347 0.25135
E. Calculate aggregate consumer surplus for the site

Consumer surplus estimates for individual visits to the sites are calculated by substituting
values from the linear equation and integrating over the demand function.
The average economic benefit of the marginal visit for each visitor to FRA
FRA Consumer surplus per visit per adult
Jeram Linang (Kelantan) 0.78
Telok Bahang (Penang) 2.38
Gunung Pulai (Johor) 3.74
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July 1‐5, 2008
SESSIONS 7-8
GROUP EXERCISE 3
Valuing Landscape and Amenity Attributes in Central England

(Garrod and Willis, 2001)
Case description
The study area consists of around 4,800 km2 in Central England offering a variety of
landscape form and feature. The focus is on the County of Gloucestershire in addition to large
areas of Hereford and Worcester and small areas of Gwent, Wiltshire, Oxfordshire, and
Avon.
The aim is to study the impact of individual landscape and amenity features on house
prices.
Questions
1. Why is the HPM selected in this case? Which values will it capture?
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
3. What data need to be collected? Specific and local

___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
4. How can proximity to landscape and amenity features be defined?

___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
5. What are the possible data sources?

___________________________________________________________________________
___________________________________________________________________________
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July 1‐5, 2008
___________________________________________________________________________
6. What type of analysis may be used for the collected data? What is the dependent
variable? What are the independent variables?
Dependent variable: __________________________________________________________
Independent variables: ________________________________________________________
___________________________________________________________________________
7. What important factor needs to be accounted for?

___________________________________________________________________________
8. What types of functional forms may be used?

___________________________________________________________________________
9. For what should the variables measuring proximity to landscape and amenity attributes be
measured?
− Statistical significance
− Freedom from the effects of multicollinearity
− Freedom from the effects of omitted variable bias
− Variables measuring structural attributes of the model and socio-economic characteristics of the
study were permitted to enter the model even if they displayed some degree of collinearity
10. Empirical Results

The following variables were statistically significant and robust in terms of estimation
Variable Definition
FOR20 0-1 variable: over 20% woodland in same 1-km2 as property
RIVER 0-1 variable: river or canal in same 1-km2 as property
SETTLEMENT 0-1 variable: rural settlement in same 1-km2 as property
WETLAND 0-1 variable: area of wetland in same 1-km2 as property
WOODVIEW 0-1 variable: probable woodland view in same 1-km2 as property
URBANVIEW 0-1 variable: probable urban view in same 1-km2 as property
SLOPE Predominant gradient of slope in same 1-km2 as property
ROAD Kilometers of road in same 1-km2 as property
RAIL Kilometers of rail track in same 1-km2 as property
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July 1‐5, 2008
Coefficient values of the amenity variables and the marginal implicit price
Variable Coefficient (t-value) Marginal Implicit Price
(Percent of sample average house value)
FOR20 0.0710 (2.53) 7.10
RIVER 0.0490 (2.74) 4.90
SETTLEMENT 0.0834 (5.34) 8.34
WETLAND -0.1800 (-1.75) 18.00
WOODVIEW -0.0735 (-3.10) 7.35
URBANVIEW -0.0580 (-3.55) 5.80
SLOPE -0.0030 (-2.50) 0.30
ROAD 0.0279 (3.66) 2.79
RAIL -0.0543 (-2.77) 5.43
Marginal implicit price was inferred directly from the coefficient values of the semi-log
model. It was found that the factors inflating house prices were proximity to rivers and
waterways, proximity to land with high woodland cover, and good reach of local amenities
and communications. The factors that depressed house prices were proximity to wetlands,
proximity to rail lines, and view on urban areas.
11 of 11
OUTLINE
Case study 1
THE COST OF ENVIRONMENTAL Economic valuation of the Environment in Ayubia
National Park, Pakistan
DEGRADATION METHODOLOGY Case study 2
Non-priced Forest Recreation Areas in Malaysia
Sessions 7 & 8 Case study 3
The Revealed Preference Approach Valuing Landscape and Amenity Attributes in Central
GROUP EXERCISES England
Case Description
Study area
• Ayubia National Park (ANP),
Pakistan
Case study 1 • 26-km2 park in the Murree Hills in
Economic valuation of the Environment in the Himalayan Range Mountains
• Important place from the viewpoint
Ayubia National Park, Pakistan of wildlife, nature, ecotourism, and
education
– Refuge for the elusive leopard & black
bear and other mammals such as
Kashmir hill fox, Red flying squirrel, etc.
– Bird watching: Golden eagle, Griffin
vulture, Hill pigeon, Indian sparrow
hawk, etc.
– Superb scenery
– Chairlifts
Case Description Applied Method

Ecosystem threats Travel cost approach (1)
• Unsatisfactory management • The consumer maximizes utility subject to a budget constrained by his income,
• The park is threatened by various activities
⊕
represented by the product of hours of work to wage rate. The algebraic form is:
– Forest fires – Insufficient governmental
funds Max: U(x,v)
– Soil erosion
– Open access Subject to: wL = pxx + p0v
– Human settlements inside park Where U= utility, x= the market good, v= visits to the park, w= hourly wage rate, L= work hours, px= price of market good x, p0= out-of-
– Pollution caused by villagers or visitors pocket expenses for a visit to the park
– Encroachment by local villagers
• In addition to out-of-pocket expenses, the consumers take time to travel. Time has an
opportunity cost. The time constraint has the following form:
T = L + Hv
Where T= total household time available, H= time associated with a single round trip to the park including time spent on site, L= hours of
wage labour
Need for a thorough investigation of the value of the environmental
• The maximization problem then takes the following form:
resources and services provided by the park to prove the necessity Max: Max: U(x,v)
of its revitalization & better management Subject to: wT = pxx + [p0 + wH]v
• The Lagrange expression is:

L = U(x,v) + λ(wT-pxx+pvv)
What are the factors affecting visitor’s WTP for recreational Where pv is the price for visiting the park
services of the park? What are the benefits of the park? Would
• Solving these problems will yield the following demand function for visit to the park:
the improvement in recreational benefits of the park lead to a V = f(pv, px, Y, Z)
higher demand for park visitation? Where the consumer demand for a visit to the park depends on the price for a visit, the price for other goods (substitute sites), the
income and other socio-economic variables
Applied Method Applied Method
Travel cost approach (2) Survey design
• When the demand function is derived, next step • In-person questionnaire with 300 random
is to derive a demand curve (number of trips to visitors of the park
park at different travel costs)
• Two parts:
– by holding income & prices of substitutes constant
1. General information: gender, education, marital
– and varying the price of the travel cost of a single
round-trip to the park status, age, income, place of living, etc.
• Based on demand curve, total value of park can 2. Visitor’s recreational behaviour:
• If they wanted improvement?
be computed, and is referred to as consumer
• What is the method of resource allocation they prefer
surplus (increase in entrance fee, reallocation of government
• Total recreational value of park = consumer budget, voluntary donations, etc.)?
surplus + travel cost • Why they’re visiting the park?
Results Results
Travel cost econometric model Conclusions from econometric model
• Regression analysis • High travel costs are inversely related to park visitation
Variable Coefficients (t-stats)
yielded a model of the Dependent variable # of visits, v
rate
form: Intercept 2.41 (2.32) • Household income has positive impact on recreational
Travel costs -0.06 (-2.58)*** demand
vi = α0 + α1TC + α2Mi + α3STi +
α4Ai + α5Ei + α6FSi + α6+kDk + ei
Household income 0.0057 (2.23)** • No significant relationship between cost of substitute &
Price of substitute 0.00025 (1.75)
the demand for the park
Age -0.024 (-1.69)
Where vi= the # of visits of the ith
Education 0.0059 (1.17)
• Education & age had positive & negative impact on
individual to the park per period of time,
TC= round trip total cost, M= monthly Family size 0.0029 (0.35) demand, respectively; however their impact is
household income, ST= travel cost to Dummy 1 0.332 (1.54) insignificant
and from a substitute site, A= age of the
visitor, E= level of education, FS= family
Dummy 2 0.018 (1.40) • Dummy variables had all a positive impact, with dummy
size, D1= 1 if male & 0 otherwise, D2= 1 Dummy 3 0.045 (2.33)** 3 having a statistically significant influence → if quality
if urban dweller, D3= 1 if visitor’s R2 0.47
of park services are improved, visitors would pay
perception about site’s recreational F-statistics 13.5
facilities is good more visits to the park
**, and *** indicate significance at 5% & 1% levels, respectively
Results Results
Demand curves Recreational value
Improvement in the quality • Total recreational value of park = consumer surplus
of the park services would + travel cost
shift the demand curve
upward to the right • The annual monetary value of the park is 200 million
Indian rupee (Rs), projected to become 209 million in
case of improvement
• ⇒ The park constitutes a valuable environmental
resource (in terms use & non-use values) and can be a
significant source of benefits with proper conservation &
The semi-log demand curve management
is curvilinear & convex to
the origin, which is Consumer Surplus Recreational Value
relatively flat at low prices & Actual New scenario Actual New scenario
steep at higher prices Per visitor (Rs) 240.0 320.0 1996.0 2082.4
Total (Rs million) 24.2 35.01 200.6 209.2
Total (USD million) 0.6 0.9 4.9 5.1
End of Case-Study
Case study 2
Non-
Non-priced Forest Recreation Areas in
Malaysia
Thank You
www.cumbavac.org/Earth_Day.htm
Case Description
Forest Recreation Areas in Malaysia Applied Method
Individual Travel Cost Model
• What are FRAs?
– Small areas of natural virgin forest containing a variety of
• Attractive landscape
• Fauna and flora
• Rivers and unique geological features
– Activities pursued in FRAs
• Hiking, camping, swimming, …
• Picnics, walks, observing the ecology, enjoying the scenic
attractions, …
– Government incurs costs for visitors facilities
• Maintaining footpaths and toilets
• Collecting litter
• Providing information www.mymalaysiabooks.com TCM can be used to estimate consumer surplus by observing the number
• Patrolling the site with park rangers of visits in relation to price and estimating the recreation demand curve
• Throughout the State of Peninsular Malaysia
Individual TCM
– 74 FRAs
Defines the dependent variable as the number of visits to an FRA made by
– Provide open access, non-priced recreation each visitor over a specified period

Individual Travel Cost Model Individual Travel Cost Model
• Questionnaire survey collected info on
Integrating over – Visits to the FRA
this equation
permits the
calculation of
– Preferences and activities of visitors
consumer surplus
– Demographic details of visitors
• Questionnaire structured to allow
visitors to think about wanzee.fotopages.com/?&page=20
– Their use of the FRAs

– The availability and use of substitute sites and
activities
• Random sample of visitors on a next-to-pass basis
– Sample size = 385 interviews
– Respondents at the Jeram Linang FRA
Individual Travel Cost Model Individual Travel Cost Model
Cost element Financial cost Economic cost

Fuel cost 0.110 0.060
Total annual number of trips to FRAs
Lubricant oil 0.009 0.009 Total annual number of trips to forests, countryside, mountains, and other sites
Tyre cost 0.009 0.008
Maintenance 0.053 0.045
Depreciation 0.062 0.051
TOTAL 0.243 0.173

Individual Travel Cost Model Results
• The ML model for Jeram Linang FRA
• Consumer surplus estimates for
Variable Coefficient Std. deviation T-ratio Prob:t:>x Mean of x individual visits to the sites are
ONE -4.00525 1.25289 -3.197 0.00139 1.00000 calculated by substituting values from
Time and travel cost -0.64479 0.24658 -2.615 0.00893 2.34940 the linear equation and integrating over
First visit -11.07460 1.64099 -6.749 0.00000 0.26216 the demand function
Single- living with parents 5.78721 1.09867 5.267 0.00000 0.18919
Educated to primary level 6.04067 2.31138 2.613 0.00896 0.04594
www.rrcap.unep.org/.../malaysia/results.html
Educated to secondary level 3.20342 1.17677 2.722 0.00648 0.13784
Other FRAs visited in last 6 months 0.48544 0.25220 1.925 0.05426 0.97297 The average economic benefit of the marginal visit
Fished at the site 8.02514 3.22890 2.485 0.01294 0.00540 for each visitor to FRA
Engaged in nature walking -1.97990 1.10616 -1.790 0.07347 0.25135
FRA Consumer surplus per visit per adult
– Model reported variables significant at the 0.15 statistical significance Jeram Linang (Kelantan) 0.78
level
– Variables make sense intuitively whereby visits to FRA Telok Bahang (Penang) 2.38
• negatively related to time and travel cost Gunung Pulai (Johor) 3.74
• positively related to being single and living with parents, being educated only to
primary and secondary levels, engaging in fishing at the site,
End of Case-Study
Case study 3
Valuing Landscape and Amenity
Attributes in Central England
Thank You
www.cotswolds.info/gloucestershire/index.shtml
Case Description Application Method
Study Area Hedonic Price Model
• Around 4,800 km2 in Central England offering a • Choice of study region
variety of landscape form and feature • Identification of house sale
– Focus on County of Gloucestershire transactions
• with large areas of Hereford and Worcester
• Small areas of Gwent, Wiltshire,
– Data set of a large mortgage
Oxfordshire, and Avon lender
– Post-code data to identify and
remove transactions within
• Aim to study the impact of individual urban areas
landscape and amenity features on – Local knowledge
http://commons.wikimedia.org/wiki/Image:Middleyard
_Gloucestershire_With_Branches.JPG
house prices
Nearly 2,000 mortgages processed by the
lender between 1985 and 1989 to
http://www.gloucestershire-hotels.co.uk/tudorhousehotelgl205bh.html
purchase properties within the non-urban

Hedonic Price Model part of the study region
Application Method Application Method

Hedonic Price Model Hedonic Price Model
• Socio-economic data obtained from 1981 census and other • Particular problems encountered
sources – Defining the proximity of a property to forestry
• Data on landscape features • Wooded areas may change in size over a short period of time
– Ordnance survey (OS) 1:50,000 map sheets – The relationship between the selected variables and
• Over 50 variables influencing house prices were obtained through a incorporated houses was ill-defined
tedious process
• GIS not feasible due to copyright restrictions • Data provided by OS maps give only an approximation of a given
property’s proximity to a landscape feature
– Concentration on simple 0-1 variables
• Such an approximation was considered sufficient
• Whether the 1 km OS map square containing the property of interest
contained a particular feature of interest
– Rivers, wetlands, overhead cables
– Post offices, public houses, country parks • Accounting for market fluctuations and inflations over the
– Some variables were continuous 5-year period
• Approximate land cover from forestry, buildings, open water, in the 1-Km2 – The use of dummy variables reflecting the year and quarter
• Approximate distance in kms to the nearest urban center, settlement, of sale
school, etc.
• Length of roads and rail tracks – The use of socio-economic dummies and dummies reflecting
• The predominant aspect of the 1-Km2 with its average height above sea local authority areas
level and degree of slope

Empirical Results Empirical Results
• A semi-log functional form to model the • The following variables were statistically
data significant and robust in terms of estimation
– Variables measuring proximity to landscape and Variable Definition
amenity attributes subjected to rigorous FOR20 0-1 variable: over 20% woodland in same 1-km2 as property
examination with respect to RIVER 0-1 variable: river or canal in same 1-km2 as property
• Statistical significance SETTLEMENT 0-1 variable: rural settlement in same 1-km2 as property
• Freedom from the effects of multicollinearity WETLAND 0-1 variable: area of wetland in same 1-km2 as property
• Freedom from the effects of omitted variable bias WOODVIEW 0-1 variable: probable woodland view in same 1-km2 as property
– Variables measuring structural attributes of the URBANVIEW 0-1 variable: probable urban view in same 1-km2 as property
model and socio-economic characteristics of the SLOPE Predominant gradient of slope in same 1-km2 as property
study were permitted to enter the model even if ROAD Kilometers of road in same 1-km2 as property
they displayed some degree of collinearity RAIL Kilometers of rail track in same 1-km2 as property
Empirical Results Empirical Results
Variable Coefficient (t-value) Marginal Implicit Price

(Percent of sample average house value) INFLATED
FOR20 0.0710 (2.53) 7.10 HOUSE
RIVER 0.0490 (2.74) 4.90 PRICES
SETTLEMENT 0.0834 (5.34) 8.34
WETLAND -0.1800 (-1.75) 18.00
WOODVIEW -0.0735 (-3.10) 7.35
URBANVIEW -0.0580 (-3.55) 5.80
SLOPE -0.0030 (-2.50) 0.30
ROAD 0.0279 (3.66) 2.79
RAIL -0.0543 (-2.77) 5.43
DEPRESSED
HOUSE
PRICES
Application Method
Discussion
• Study failed to produce comprehensive estimate of
the marginal value of landscape and other amenity
attributes
• Limitations
– Data used End of Sessions 7 & 8
– Inaccuracies in linking properties to amenities
• Better linkage may be provided by using GIS
• Lack of amenity value does not mean lack of non-
market value Thank You
– Ex: Proximity to wetlands depressed market prices of
houses
• Dampness, flooding, increased insurance and maintenance
costs
• However wetlands offer a valuable habitat for a number of
important species
REGIONAL WORKSHOP
ON
THE COST OF
ENVIRONMENTAL
DEGRADATION
METHODOLOGY
Session 9
THE CONTINGENT VALUATION
METHOD

preferences
Stated
Preferences
Session 9 Dose
Response
THE CONTINGENT VALUATION METHOD
Contingent Valuation Method Contingent Valuation Method

OUTLINE Overview
• Overview • The CVM is the most widely used method for estimating non-
use values
• Steps in a CVM procedure
• The CVM uses interview techniques to ask individuals to
• Application place values on environmental goods and services
• Associated biases • It is called “contingent” valuation, because it is contingent on
• Illustration simulating a hypothetical market for the good in question
• Advantages • It involves directly asking individuals
– how much they would be willing to pay (WTP) to preserve or
• Issues and limitations use a given good or service OR
• Sample applications – the amount of compensation they would be willing to accept
(WTA) to forgo specific environmental services
• Case-studies
• It is used to
– Exxon-Valdez oil spill – estimate economic values for all kinds of ecosystem and
– Wilderness designation in Colorado environmental services
– Beach degradation in Lebanon – estimate both use and non use values
– Beach degradation in Morocco

Overview Steps in a CVM Procedure
• It is the most controversial of the non-market valuation methods
– many economists, psychologists and sociologists, for many different
reasons, do not believe the dollar estimates that result from CV are valid
– Many jurists and policy-makers will not accept the results of CV.
• A carefully composed and tested study, where the circumstances

are not too distant from the experience of the respondent and the
issue is not too emotive, can produce answers of value
• Applications included estimates of the value of
– Landscape
– Recreation
– Beaches
– Water quality
– Nature conservation
– Endangered species
– Visibility and air quality, etc
Steps in a CVM Procedure Steps in a CVM Procedure
1. Setting up the hypothetical market 2. Obtaining bids (cont’d)
• Devise a convincing CV scenario to demonstrate that
respondents are actually stating their values for these • Not all bid vehicles are viable options in a
services when they answer the valuation questions given situation
• Establish a reason for a good or service
• Pictorial aids could be of use • Chosen bid vehicle should
– Have a plausible connection with the valued
2. Obtaining bids amenity
• Possible bid vehicles include income taxes, property – Be perceived as fair and equitable
taxes, value added or sales tax, utility bills, entry fees,
payments into a trust fund • People have different views on the
• Bids obtained through a questionnaire survey acceptability of different types of taxes

2. Obtaining bids (cont’d) 2. Obtaining bids (cont’d)
• Focus groups • Concerns with focus groups
– Precede CV surveys – Responses may be influenced by the person conducting the
focus group
– Provide insight on the respondents’ likely understanding of – Focus group participants have a longer time to think about the
and attitude towards the issue being investigated issue than in a typical CV survey
– Provide valuable information in framing and designing a – Focus group participants have more information to base their
CV study and questionnaire survey judgment on
– Drawn from a cross-section of the population, stratified by – Individuals behave differently in group situations compared to
social class situations when they are alone
– Meeting lasts between one to two hours • Eliciting WTP/ WTA bids
– Around 8-10 participants in a focus group discuss – Bids obtained through questionnaire survey and elicitation format
• Their understanding of the context of the good where respondents are asked to state their
• Maximum WTP to increase quantity/ prevent quantity decrease of an
• The good itself, its value, who should provide it environmental good
• How it should be paid for, whether they should contribute • Minimum WTA compensation to forgo an increase in the quantity/
• How much they are willing to pay accept less of the good
– Various elicitation methods may be used

2. Obtaining bids (cont’d) 2. Obtaining bids (cont’d)
• Questionnaire surveys
– Three sets of information obtained from respondents
• Attitudes to • WTP and/or WTA bids for • Socio-economic

environmental goods in the goods using one or information on the
general and reference for more of the elicitation respondent and his/her
the particular good under methods household
investigation • Questions exploring
• Awareness of substitute reasons for the bids -Data gathered to assess:
goods which can be used to - Representativeness of the
sample
• Use of the good, in eliminate illegitimate - The theoretical validity of the
relation to other goods responses bids using regression models
• Perceived non-use • Questions to gauge the
benefits of the good respondent's ambivalence
– Data on use, preferences and substitutes should be collected at the beginning of the
questionnaire
– Respondents must be reminded of their budget constraints when eliciting their bids
2. Obtaining bids (cont’d)
Questionnaire administered in a number of ways 2. Obtaining bids (cont’d)
• Sample size
– Determines the precision of the sample statistics used
(mean WTP/ WTA)
– The larger the sample the smaller the variation in mean WTP
measured by
• Standard error
• Confidence intervals
– Mitchell and Carson (1989) devised a system to determine

sample size based on choice of acceptable deviation between
the ‘true’ and estimated WTPs
• For a deviation of 5%, 95% of the time, a sample of 6,000 is needed
• For a deviation of 20%, 90% of the time, a sample of 286 is needed
– Mitchell and Carson argue that a sample > 600 is needed for
applications seeking to evaluate policy
• This ensures a deviation of 15%, 95% of the time

3. Estimating mean and median WTP/WTA 3. Estimating mean and median WTP/WTA
• WTP means, medians, modes, trimmed and modified
estimators, standards of deviation can be found from • Probit, logit and random utility models can be
individual bids used for close-ended referendum bids
– Mean WTP, or trimmed or modified estimators based on mean • Bid curves can also be estimated
WTP are the most appropriate
• Represent cardinal measures of the utility individuals derive from the – By regressing WTP against socio-economic
good
variables
– Median WTP
• is recommended because unaffected by large bids WTPi = f(Yi, Vi, Pi, Si, Ei)
• is lower than mean WTP and may underestimate the value
– Trimmed estimator involves trimming the top and bottom 5% or
Y = income level; V = visitis; P = preferences = S =
10% of the distribution of WTP observations substitutes; E = socio-economic variables (age,
• Some true estimates of WTP may be omitted education, etc.)
– Modified estimator provides the truest value • Differentiating bid curves (dWTP/dV) provides demand curve
• Identifies and excludes biased and illegitimate responses by a series of for the good
questions included in the questionnaire • Area under the curve = consumer surplus

4. Aggregating WTP or WTA amounts 5. Assessing the Validity of CV studies

• Content validity
• Mean WTP/ WTA from the sample survey – The appropriate framing of the study and questions asked
are aggregated across the total population in relation to the good being valued
• Criterion validity
– TOTAL VALUE of the good/ service = – The comparison of CV estimates with actual market or
(mean WTP) × (# of population units) simulated market experience
• Construct validity
– The convergence between a CV measure and other such
• While mean WTP/ WTA may be modest as travel cost and hedonic price measures of the value of
the same good
for non-use benefits, the populations over – The extent to which the findings of the CV study are
which they are aggregated can be large consistent with theoretical expectations
Application Application

Application Associated Biases (1)
• A good CV study will consider the following
– Thoroughly pre-test the valuation questionnaire
for potential biases
– Include validation questions in the survey
• to verify comprehension and acceptance of the
scenario
• to elicit socioeconomic and attitudinal characteristics of
respondents
• Make sure that survey results are analyzed and
interpreted by professionals before making any claims
about the resulting dollar values

Associated Biases (2) Examples of Minimizing Biases (1)
Show card to elicit legitimate and illegitimate reason for NOT
being WTP towards low flow alleviation in rivers
Question Bias
a. I cannot afford to pay more water charges at present
b. I have no interest in having different flow levels in rivers
c. I would not pay anymore in water charges but I would be Payment vehicle
prepared to pay by some other means of payment
d. Someone else should pay rather than me Strategic
e. The water company should pay not customers Bid vehicle
f. Low levels in rivers are not a problem
g. I require more information to answer this question
h. Other reasons. Please specify
i. Don’t know
j. Refused to answer
Examples of Minimizing Biases (2) Illustration
Show card to elicit legitimate and illegitimate reason for being WTP towards low water quality
Question Bias Hypothetical Scenario*
a. It was the most I could afford to pay • A remote site on public land provides important habitat
b. Rivers and beaches are important for recreation and I am happy to pay to ensure that they for several species of wildlife
are well looked after
• The management agency in charge of the area must
c. I would pay this much each year to ensure that rivers and beaches are protected for future
generations decide whether to issue a lease for mining at the site
d. Rivers and beaches are important for wildlife and ecology and I am happy to pay to – they must weigh the value of the mining lease against the
ensure that they are well looked after. wildlife habitat benefits that may be lost if the site is
e. I wanted to show my support for environmental improvement in general Strategic developed
f. It’s an important issue and by saying I’d pay such a large sum each year I hope to get Strategic – non-use values are the largest component of the value for
something done about it preserving the site because few people actually visit it, or
g. I’m very concerned about this issue and although I’m not sure I could afford to pay this Hypothetical view the animals that rely on it for habitat
much each year I wish I could
h. Rivers and beaches are important for a number of reasons and I am happy to pay to
ensure that they are well looked after
i. Other reason. Please specify;
j. Don’t know
k. Refuse to answer *www.ecosystemvaluation.org

Application of the Contingent Valuation Method Step 2 (cont’d)
Step 1 • The researchers decided to conduct a mail survey
• Define the valuation problem – they want to survey a large sample, over a large geographical area
– Determine what services are being valued – They are asking questions about a specific site and its benefits, which
• the resource to be valued is a specific site and the services it provides are should be relatively easy to describe in writing in a relatively short
primarily wildlife habitat survey
– Determine who the relevant population is
• Because it is federally owned public land, the relevant population would be all Step 3
citizens of the U.S.
Step 2 • The actual survey design may take six months or more to complete
• Make preliminary decisions about the survey itself • It is accomplished in several steps
– whether it will be conducted by mail, phone or in person – Starts with initial interviews and/or focus groups with the types of people
who will be receiving the final survey, in this case the general public
– how large the sample size will be • the researchers would ask general questions
– who will be surveyed, etc. – about peoples’ understanding of the issues related to the site
– The answers will depend, among other things, on – whether they are familiar with the site and its wildlife
– whether and how they value this site and the habitat services it provides
• the importance of the valuation issue
• the complexity of the question being asked
• the size of the budget

Step 3 (cont’d) Step 3 (cont’d)
• In later focus groups, the questions would get more detailed and • After a number of focus groups, pretesting of the survey is
specific started
– to help develop specific questions for the survey – The survey should be pretested with as little interaction with the
– to decide what kind of background information is needed and how to researchers as possible
present it
• People might need information on the location and characteristics of the site, the – Pre-testing will continue until a survey is developed that people
uniqueness of species that have important habitat there, and whether there are seem to understand and answer in a way that makes sense and
any substitute sites that provide similar habitat. reveals their values for the services of the site
• The researchers would also want to learn about peoples’ knowledge of mining
and its impacts, and whether mining is a controversial use of the site. If people
are opposed to mining, they may answer the valuation questions with this in mind,
rather than expressing their value for the services of the site Step 4
– At this stage, different approaches to the valuation question and • Actual survey implementation.
different payment mechanisms would be tested – Select the survey sample
– Questions that can identify any “protest” bids or other answers that do • the sample should be a randomly selected sample of the relevant
not reveal peoples’ values for the services of interest would also be population, using standard statistical sampling methods
developed and tested at this stage. – obtain a mailing list of randomly sampled U.S. Citizens
– use a standard repeat-mailing and reminder method to get the greatest possible
response rate for the survey
Step 5 • The most widely accepted method for estimating total economic
• Compile, analyze and report the results value including use values and all types of non-use values
– data must be entered and analyzed using statistical techniques • Straightforward and highly flexible
appropriate for the type of question – can used to estimate the economic value of virtually anything
– The researchers also attempt to identify any responses that may not – best suited to estimate values for goods and services that are easily
express the respondent’s value for the services of the site identified and understood by users and that are consumed in discrete
– they can deal with possible non-response bias in a number of ways units
• The most conservative way is to assume that those who did not respond have • Requires few theoretical assumptions
zero value
• The nature and results of CV studies are easy to analyze and
describe
Results – Dollar values can be presented in terms of a mean or median value per
• Estimate the average value for an individual or household in the capita or per household, or as an aggregate value for the affected
sample, and extrapolate this to the relevant population in order to population.
calculate the total benefits from the site • A great deal of research is being conducted to
– If the mean willingness to pay is $.10 per capita, the total benefits to all – improve the methodology
citizens would be $26 million. – make results more valid and reliable
– better understand its strengths and limitations

Issues and Limitations (1) Issues and Limitations (2)
• Considerable controversy over whether CVM adequately • WTA very significantly exceeds WTP
measures people's willingness to pay for environmental
– this result may invalidate the CVM approach, showing responses to be
quality expressions of what individuals would like to have happen rather than
– CV assumes that people understand the good in question and true valuations
will reveal their preferences in the contingent market just as they
would in a real market • The “ordering problem”
– Most people are unfamiliar with placing dollar values on – In some cases, people’s expressed willingness to pay for something has
environmental goods and services and may not have an been found to depend on where it is placed on a list of things being
adequate basis for stating their true value valued
• Expressed answers to a willingness to pay question may be • Difficulty to validate externally the estimates of non-use values
biased
• When conducted appropriately, contingent valuation methods can
be very expensive and time-consuming, because of the extensive
• Respondents may make associations among environmental pre-testing and survey work
goods that the researcher had not intended
– For example, if asked for willingness to pay for improved visibility
(through reduced pollution), the respondent may actually answer • Many people, including jurists policy-makers, economists, and
based on the health risks that he or she associates with dirty air others, do not believe the results of CV

Sample application 1-
1- Mono Lake* Sample application 1-
1- Mono Lake
Background Initial Work

• Initial mail survey where residents of California
– Were told that, according to biologists, the higher flows to the
lake were needed to maintain food supplies for nesting and
migratory birds
– Were asked whether they would pay more on their water bill for
higher cost replacement water supplies, so that natural flows
could once again go into Mono Lake
Results
• Average WTP per household =
$13 per month = $156 per year
• The total benefits exceeded the
$26 million cost of replacing the
water supply by a factor of 50. http://www.ram.org/pictures/sights/cctrip/mono_lake.gif
*www.ecosystemvaluation.org
1- Mono Lake Sample application 2-
2- Water Over the Falls*
Follow-up Work Background
• The State of California hired a consulting firm to perform a more • The Federal Energy Regulatory Commission faced a licensing
detailed CV survey decision regarding how much water the utility company should allow
• New survey to flow over the falls at a recreation area
– Involved the use of photo-simulations showing what the lake would look
like at alternative water levels • Increasing the flow over the falls would result in less hydropower
– Gave detailed information about effects of changing lake levels on generated, but more water for recreation
different bird species
– Was conducted over the telephone, with people who had been mailed
information booklets with maps and photo-simulations • The previous license required only a minimum in stream flow of 50
– Survey respondents were asked how they would vote in a hypothetical
cubic feet per second, which reduced the flow over the falls to a
referendum regarding Mono Lake. trickle
• This study showed that the benefits of a moderately high (but not
the highest) lake level were greater than the costs • A contingent valuation survey was developed to determine how
• The California Water Resources Control Board reduced Los much visitors to the falls would be willing to pay for increased
Angeles’ water rights by half, from 100,000 acre feet to about overflow levels
50,000 acre feet, to allow more flows into Mono Lake

3- Glen Canyon Dam*
2- Water Over the Falls
Application Background
• The survey • In the early 1980’s it became clear that continued operation of the
– included pictures of the falls at four different flow levels Glen Canyon dam to provide peak-load power
– was mailed to a sample of previous visitors to the site – adversely affecting the downstream ecosystem in the Grand Canyon
• The key survey questions asked – significantly reducing the quality of recreational rafting
– how much individuals would pay to visit the falls with each of the • The valuation question of concern was how much recreational
four flow levels depicted in the photos, and how many times they rafting was worth compared to
would visit each year at the four different flow levels the market value of the peak-load
power supply
Results
• A statistical analysis of the survey results used to estimate a total
recreation benefit function
– the economic value of additional flows in each month was calculated, Application
and compared to the economic value of the foregone hydropower
required to allow the additional flows • The study attempted to quantify
how the value of rafting in the
• The resulting optimum flow level during the summer months, Grand Canyon would change with http://www.hdprint.co.uk/ftp/CanyonLands/212%20-%20Glen%20Canyon%20Dam%20from%20plane.jpg
when visitation was high, was calculated as 500 cubic feet per more even base flows, as
second, which was ten times larger then the existing minimum compared to reduced flows during peak-power periods
in stream flow *www.ecosystemvaluation.org

3- Glen Canyon Dam Sample application 4-
4- Non-
Non-commercial Fish*
Results
• Substantial economic values for rafting with increased water flows = Background
$2 million per year • Rivers in the Four Corners Region provide 2,465 river
• CVM helped change perspectives about how economic tradeoffs should be
discussed miles of critical habitat for nine species of fish that
– the challenge was now to find a release pattern that increased the economic value of are listed as threatened or endangered
all uses of the river water
• More even flows were put into place while the final environmental impact
studies were being prepared • Continued protection required habitat improvements to
• The study represented one of the first federally-funded projects to estimate imitate natural water flows needed by fish
non-use values
– fish passageways
Additional Research – bypass releases of water from dams
• It became more obvious that citizens throughout the U.S., not just rafters,
cared about how dam operations affected the natural resources of the
Grand Canyon
• The Bureau of Reclamation funded a major contingent valuation study of
• A CV survey was used to estimate the economic value
households throughout the U.S. to estimate their willingness to pay for flow for preserving the critical habitat
regimes that would protect the natural resources in the Grand Canyon.
• Results showed strong support for a more natural flow regime
4- Non-
Non-commercial Fish Sample application 4-
4- Non-
Non-commercial Fish
Application Application (cont’d)

• Respondents were told that
• Sample • within the next 15 years, three fish species would increase in population to the point that
– Random sample of 800 households in the Four Corners states of they would no longer be listed as threatened species
Arizona, Colorado, New Mexico, and Utah (with the proportions based • if a majority of households in the U.S. voted not to approve the fund, the critical habitats
on the states’ relative populations). shown on the map would be eliminated, causing the extinction of four of the nine fish
species in 15 years
– An additional 800 households from the rest of the U.S.
• The exact wording on the questionnaire was:
• Survey respondents
– provided detailed maps that highlighted the areas designated as critical
habitat units for the fish Suppose a proposal to establish a Four Corners Region
Threatened and Endangered Fish Trust Fund was on the
– told that some State and Federal officials thought the combined costs of ballot in the next nationwide election. How would you
the habitat improvements and the restrictions on hydropower were too vote on this proposal? Remember, by law, the funds
costly and had put forward a proposal to eliminate the critical habitat could only be used to improve habitat for fish. If the
unit designation Four Corners Region Threatened and Endangered Fish
Trust Fund was the only issue on the next ballot and it
– asked if they would contribute to the Four Corners Region Threatened would cost your household $______ every year, would
and Endangered Fish Trust Fund you vote in favor of it?
– told that efforts to raise funds would involve contributions from all U.S. (Please circle one.) YES / NO
Taxpayers
The dollar amount, blank in the above illustration, was filled in with one of 14 amounts ranging from $1-$3 to
• If a majority of households voted in favor of the fund, the fish species would $350, which were randomly assigned to survey respondents.
be protected from extinction
– through water releases from Federal dams timed to benefit fish
– through the purchase of water rights to maintain in stream flows

4- Non-
Non-commercial Fish Sample application 5-5- Salmon Restoration*
Results Background
• The removal of dams blocking salmon migration
• The average WTP = $195 per household routes has been proposed
– the Elwha and Glines dams on the Elwha River on the
• When extrapolated to the general Olympic Peninsula in Washington
population, the value of preserving the • 200-foot dams
• very old
habitat areas was determined to be far in • have no fish ladders
• block migration of fish to 70 miles of pristine
excess of the costs. spawning grounds in Olympic National Park
– Dam removal would more than triple seattletimes.nwsource.com/html/
salmon populations on the Elwha River localnews/2001
– Cost to remove the dams and the 50 years of

sediment build-up behind them was estimated =
$100-$125 million

5- Salmon Restoration Case-
Case-study 1-
1- Exxon Valdez Oil Spill*
Application Background
• CVM survey developed to estimate the economic values associated • In March 1989, the oil
with the removal of the dams
– Households in Washington and elsewhere were surveyed tanker Exxon Valdez
– Asked if they would vote in favour of removing the dams and restoring went aground on Bligh
the river, in order to triple salmon populations at an annual cost that Reef Prince William
varied across households. Sound, Alaska
Results • Around 11 million http://menlocampus.wr.usgs.gov/50years/accomplishments/oil.html
• The estimated economic values per household ranged from $73 for gallons of crude oil were
Washington households to $68 for the rest of the U.S. spilled
Households
• The economic value to Washington residents alone would nearly be
• In 5 months,
enough to justify removing the dams and restoring the river – Oil has moved across
– National willingness to pay was in excess of $1 billion nearly 10,000 square
miles of water
– About 1,600 mile of the
Sound’s shoreline was http://menlocampus.wr.usgs.gov/50years/accomplishments/oil.html
* Hodge, I, 1995.
heavily oiled
Case-
Case-study 1-
1- Exxon Valdez Oil Spill Case-
Case-study 1-
1- Exxon Valdez Oil Spill
Spill Impact Spill Impact
• On wildlife
– Over 20,000 dead birds • On commercial and recreational fishing
recovered including 100
bald eagles and tourism
– Over 2,650 dead sea
otters
http://www.alaska-in-pictures.com/data/media/4/exxon-victim_2901.jpg
– These impacts could be valued easily
– Seals and other species • Non-use values: existence, options, and
were also damaged or
killed including plants and
microorganisms
bequest values
– None of the losses – CVM study in connection with legal action by
threatened species
extinction State of Alaska against Exxon corporation
– Birds and mammal
populations expected to www.channel6.dk/native/uk/page104.html
recover within 3-5 years

Case-
Case-study 1-
Case-study 1-
• Survey of residents across the US
• Alaska excluded to focus on non-use values
• Survey
• In principle, survey should ask about the WTA compensation for the – Investigated respondents prior knowledge on the
damage arising from the spill issue
• WTP approach adopted due to difficulty in survey design – Provided respondents with info on the spill and its
• Hypothetical market: impacts
– Proposal for a scheme to prevent future oil spills of the sort that had
been experienced – Basic valuation question
• Escort ships to accompany oil tankers through the Sound • Whether or not he/she would vote for a proposal to
• Escort ships carry special booms to be used immediately in the case of an oil spill implement the scheme given a specified level of a single
to contain the damage one-time tax
• Spilled oil then skimmed off and taken for safe disposal – Tax values set at $10, $30, $60, and $120
– Without the scheme, oil spill to occur within the next 10 years
• If responded answered ‘yes’, the amount was raised and the
– Scheme financed from a special tax on oil company profits and from a question asked just once more
single tax on all households
– Collected information on
• Interest in environmental issues, household composition,
education and incomes

Case-
Case-study 1-
Case-study 1-
Excerpts of the administered questionnaire: Excerpts of the administered questionnaire:
“The only mammals killed by the spill were sea otters and harbour seals. This “#3. What if the final cost estimate showed that the program would cost
card shows information about what happened to Prince William Sound. your household a total of $_______. Would you vote for or against
According to scientific studies, about 580 otters and 100 seals in the Sound the program?
were killed by the spill. Scientists expect the population size of these two
species to return to normal within a couple of years after the spill.
#4. What is it about the program that made you willing to pay
Many species of fish live in these waters. Because most of the oil floated on the something for it?
surface of the water, the spill harmed few fish. Scientific studies indicate
there will be no long-term harm to any of the fish populations.
#5. Before the survey, did you think the damage caused by the Valdez
#2. Of course, whether people would vote for or against the escort ship oil spill was more serious than was described to you, less serious, or
program depends on how much it will cost their household about the same as described?
At present, government officials estimate the program will cost your
household a total of $______. You would pay this in a special one-time #6. Is anyone in your household an angler, birdwatcher, backpacker, or
charge in addition to your regular federal taxes. This money would only be
used for the program to prevent damage from another oil spill in Prince environmentalist?
William Sound.
If the program cost your household a total of $______, would you vote for or #7. This card shows amounts of yearly incomes. Which category best
against it?” describes the total income from all members of your family before.”
Case-
Case-study 1-
Case-study 1-
Results Results
• 1,043 interviews completed successfully • Median = 31 USD (adopted)
• Response rate = 75 percent • Mean = 94 USD (dismissed)
• Proportion of respondents voting for the scheme – Considered unreliable due to the nature of the questions
– Proportion decreases as cost of scheme increases asked
– There is little difference between the $30 and $60 • One third were not willing to pay at either of the
questions
offered prices
Positive response to alternative tax levels – They believed that oil companies should pay
Questionnaire Initial tax level per Percent of
version household (USD) respondents willing
to pay taxes
A 10 67
• Total value for non-use values lost in the US:
B 30 52
31 USD × 91 million households = 2.8 billion USD (CI: 2.4-
2.4-3.2)
C 60 51
D 120 34

Case-
Case-study 2-
2- Wilderness designation in Colorado* Case-
Case-study 2-
2- Wilderness designation in Colorado
Methodology
Case • Mail survey
• Evaluating increments of wilderness • Sample size = 218 Colorado households
• Participants shown 4 maps of the State of Colorado
designations in Colorado in Summer 1980 – Map 1:
• 1.2 million acres of land currently designated as wilderness
• Represent 2 percent of the state land
– Map 2:
• 2.6 million acres of land hypothetically designated as wilderness
– Map 3:
• 5 million acres of land hypothetically designated as wilderness
http://images.google.com/imgres?imgurl=http://lh3.google.com/_t
– Map 4:
45xPwpSIdI/RihTxMzwEeI/AAAAAAAAAhw/n7pXikvzgB0/s800/P
ano%2B-%2BIMGP3464%2B-%2B3952x3754%2B-%2BPLIN%2B
-%2BBlended%2BLayer.jpg&imgrefurl=http://picasaweb.google.com/
• 10 million acres of land hypothetically designated as wilderness
lh/photo/S4znX1uzeyI6XzqK2vmmZQ&h=760&w=800&sz=109&hl=en&start
=1&tbnid=gVAC_Q6WZm7qRM:&tbnh=136&tbnw=143&prev=/images%3F
q%3Dwilderness%2BColorado%26gbv%3D2%26hl%3Den • Participants provided with realistic and credible information
about the hypothetical market
http://ridethegreatdivide.blogspot.com/2007/07/south-san-juan-wilderness.html
* Hussen, AM, 1999

Case-
Case-study 2-
2- Wilderness designation in Colorado Case-
Case-study 2-
2- Wilderness designation in Colorado
Results: Total annual consumer surplus (US$) from recreation use and preservation value
Methodology Value categories Map A Map B Map C Map D
(1.2 M acres) (2.6 M acres) (5 M acres) (10 M acres)
• Respondents asked to write their maximum annual Recreation use value
WTP four the preservation of the 4 maps Per visitor day
Total, million
14.00
13.2
14.00
21.0
14.00
33.1
14.00
58.2
• Respondents then asked to allocate their WTP Option value
Per household 4.04 5.44 7.34 9.23
among four categories of value Total, million 4.4 6.0 8.1 10.2
– Recreational use Existence value
Per household 4.87 6.56 8.86 11.14
– Option demand Total, million 5.4 7.2 9.7 12.3
Preservation value Bequest value
– Existence demand of wilderness Per household 5.01 6.75 9.10 11.46
Total, million 5.5 7.4 10.0 12.5
– Bequest demand
Preservation value to Colorado
• Data was gathered, processed, and a statistical residents
Per household 13.92 18.75 25.30 31.83
demand analysis was employed to estimate Total, million 15.3 20.6 27.8 35.0
preservation values Total annual recreation use value and preservation value to Colorado households (million)
28.5 41.6 60.9 93.2
Contingent Valuation Method
Contingent Valuation Method Case-
Case-study 3: Coastal Degradation of Jounieh
Case-
Case-study 2-
2- Wilderness designation in Colorado Beach, Lebanon
Background
Discussion: •The coastal zones of Lebanon represent unique economic
and recreational assets
• Increasing the area of wilderness from 1.2 to 2.6
• Coast line > 240 km
acres increase total value by 46 percent (28.5 to
• > 50% of population concentrated along the coast
41.6 million USD)
•Untreated municipal wastewater disposal, seafront solid
• For all wilderness designations, non-use values waste dumps, uncontrolled development of resorts and
represented a significant portion of the total value vacation homes, etc.
Coastal zone/Beach degradation

(Loss in ecological and non-
non-use values of the beach)

Case-
Case-study 3: Coastal Degradation of Jounieh Case-
Beach, Lebanon Beach, Lebanon
Results
• WTP per household for restoration of Jounieh beach
Methodology – Survey respondents were asked about their WTP for Jounieh
A survey was conducted to estimate the WTP for beach restoration with payments each year for 10 years
– The average WTP per year of survey respondents was adjusted
restoration of Jounieh beach as an ecological to reflect average income of Lebanese households
protected area – A regression analysis (with low and high coefficients) was
undertaken to estimate WTP in relation to income
Survey Lebanon
Low High
Number of survey responses 94
WTP in relation to income WTP per 500US$ monthly income 15.3 10
Cost of degradation associated with ecological Average WTP/yr for 10 years US$/household 80.05 57 66
WTP/household over 10 years US$
and non-
non-use value of coastal areas of Lebanon 10% discount rate 385.3 446.1
5% discount rate 462.1 535.1

Case-
Case-study 3: Coastal Degradation of Jounieh Case-
Beach, Lebanon Beach, Lebanon
Results Results
• WTP per household for restoration of Jounieh beach • Total WTP for restoration of Lebanese coast
– Household WTP annualized over 30 years – Number of Lebanese households: 935,000
– Two discount rates applied:
• 5%, reflecting a combination of social rate of intertemporal Lebanon
substitution and opportunity cost of capital Low High
• 10%, reflecting opportunity cost of capital Annualized WTP/household US$
Survey Lebanon 10% discount rate over 30 years 37.2 43.0
Low High 5% discount rate over 30 years 28.6 33.2

WTP/household over 10 years US$ Lebanese households 935,000 935,000
10% discount rate 385.3 446.1 Total annualized WTP US$ million (all Lebanon) 27 40
5% discount rate 462.1 535.1
% GDP 0.16 0.24
Annualized WTP/household US$
10% discount rate over 30 years 37.2 43.0
Average annual WTP = 33.5 million US$
5% discount rate over 30 years 28.6 33.2
= 0.2% of GDP
Case-
Case-
Background
• The coastline of Morocco: 3,500 km, 13 coastal Methodology
zones, and 174 beaches • Annual cost of coastal degradation
• Domestic and industrial wastewater discharge,
industrial accidents, offshore pollution from ships – Willingness to Pay (WTP) of foreign tourists and Moroccan
and boat harbors, haphazard construction along the nationals living abroad to improve the coast
coast, etc. Tourists are willing to pay an additional value for
“unspoiled destinations”
destinations” as opposed to “slightly
Coastal zone/Beach degradation spoiled”
spoiled” or “very spoiled”
spoiled” destinations
In 2002, “Monitoring Bathing Beach Waters in – Lost recreational value for Moroccan residents
Morocco” campaign showed that 28% of beaches – Loss of local fishing (sardines)
were unfit for swimming

Case-
Moroccan touristic statistics Methodology
(Department of Tourism, Statistics, 2000, 2001, 2002) • Step 1: Estimation of WTP by foreign tourists to conserve the coast
– Based on a study conducted by Huybers and Bernnett (2000)*, British tourists
are willing to pay US$ 70 per day (or 35% of their daily tourist expenses) for
“unspoiled destinations” as opposed to “slightly spoiled” or “very spoiled”
Total tourists (foreigners and Moroccans living abroad) 4,113,037 destinations
Total foreign nationalities 2,462,894 – This same proportion was applied to European and North American tourists
North Americans 155,388 visiting the Moroccan coast
North and West Europeans 1,127,211 Low High
Total North American and European tourists 1,282,599 Average stay of North American and European tourists on the coast, days
2 4
Moroccan nationals living abroad 1,650,143 (1/3 and 2/3 of average stay, 5.5 days)
Number of nights occupied by foreign tourists in classed hotels 13,539,586 Number of North American and European tourists 1,282,599
Average length of stay of foreign tourists (days) 5.5 Total number of North American and European tourist stay days, days 2,565,198 5,130,396
WTP to improve the coast, Dh/per/day
Total tourism expenses (million Dh) 21,644 338
(35% of the average daily tourism expenses in Morocco, 957)
Average daily tourism expenses (Dh/per/day) 957 Total WTP by North American and European tourists to improve the
867 1,735
coast (Million Dh)
* Huybers, T and Bernnett, Impact of the Environment on Holiday Destination Choices

for Tropical North Queensland, Tourism Economics, 6(1), pp. 21-46, 2000.

Case-
Methodology
• Step 2: Estimation of WTP by Moroccan nationals living Methodology
abroad to conserve the coast • Step 3: Assessing the total WTP to improve the
– The same approach applied to foreign tourists was applied to Moroccan
nationals living abroad, except: coast, due to beach degradation
• WTP was applied to the household, since Moroccans normally visit their Low High
country with the entire family (rather than individually, like foreign tourists)
WTP by foreign tourists, million Dh 867 1,735
• Stays of Moroccan nationals are longer, averaging between 7 and 14 days
WTP by Moroccan nationals living abroad, million Dh 139.4 278.9
Low High
Total WTP to improve the coast, million Dh 1,007 2,014
Moroccan nationals living abroad visiting country 1,650,143
Average persons per household in Morocco 5.6
Total number of Moroccan households living abroad visiting country 294,668
of which, households having similar economic conditions as North
American and European tourists (20% of total)
58,934
The average WTP to improve the coast, due to
Average stay of Moroccan nationals on the coast, days 7 14 beach degradation in Morocco:
Total number of stay days of Moroccan households living abroad, days 412,538 825,076
WTP to improve the coast, Dh/household/day
Dh 1,510 million, 0.2 % of the GDP
338
(35% of the average daily tourism expenses in Morocco, 957)
Total WTP by Moroccan nationals living abroad to improve the coast
139.4 278.9
(Million Dh)
End of Session 9
Thank You
REGIONAL WORKSHOP
ON
THE COST OF
ENVIRONMENTAL
DEGRADATION
METHODOLOGY
Session 10a

preferences
Stated
Preferences
Session 10a Dose

Response
Discrete Choice Method Discrete Choice Method

OUTLINE Overview
• Contingent choice, also referred to as conjoint analysis, was developed in
• Overview the fields of marketing and psychology to measure preferences for different
characteristics or attributes of a multi-attribute choice
• Types of formats • The contingent choice method is similar to contingent valuation
• Choice modelling – asks people to make choices based on a hypothetical scenario
– can be used to estimate economic values for any ecosystem or environmental service
– can be used to estimate non-use as well as use values
• Illustration
• Differs from contingent valuation because
• Summary – it requires people to evaluate several alternatives separately
– it does not directly ask people to state their values in dollars
• values are inferred from the hypothetical choices or tradeoffs that people make
• Advantages
• Asks the respondent to state a preference between one group of
• Issues and limitations environmental services or characteristics, at a given price or cost to the
individual, and another group of environmental characteristics at a different
price or cost
• Case-studies

Overview Types of Formats
• Is especially suited to policy decisions where a set
of possible actions might result in different impacts
– For example, improved water quality in a lake will
improve the quality of several services provided by
the lake, such as drinking water supply, fishing,
swimming, and biodiversity
• While contingent choice can be used to estimate

dollar values, the results may also be used to
simply rank options, without focusing on dollar
values
• There are a variety of formats for applying

contingent choice methods
Choice Modeling Choice Modeling
• Choice experiments are used to examine the
response of the individual to changes in the
attributes of the scenario as well as the scenario
as a whole
– Allows breaking down the relevant attributes of the
situation and determining preferences over attributes
– Allows for more flexibility than CVM
• Choice experiments attempt to identify the utility
the individuals have for the attributes of the goods
and services by examining the tradeoffs that they
make between them when making choice
decisions

Choice Modeling Choice Modeling
• Initial screening of the attributes
– Crucial stage in study design
– Attributes should be familiar and relevant to
respondents
– Attribute levels should be measureable using
quantitative or qualitative scales
– Ways for portraying attributes
• Verbal, pictorial, etc.
– It is important to define an appropriate number of
attributes
• Too many attributes burden the respondents
• Too few cause problems with estimation and reliability
– Pre-testing and focus groups helpful in defining
attributes and determining their numbers
Discrete Choice Method Discrete Valuation Method

Choice Modeling Choice Modelling
Survey design
• Experimental design Questionnaire administered in a number of ways
– The specification of a factorial or fractional

factorial experimental design to estimate the
utility for the good in question
• Use an orthogonal main-effects plan sampled from
the complete factorial design to select the profiles
to be used in the choice experiment
– Procedures in computer packages such as SAS and
SPSS may be used to create an orthogonal matrix based
on the attribute levels specified by the researcher
Choice Modeling Illustration
• Analysis of the choices Background
• A remote site on public land that provides important habitat for
– Random utility theory used to model the choices several species of wildlife
as a function of attribute levels • The management agency in charge must decide whether to issue a
lease for mining at the site
• Based on the hypothesis that individuals make choices • Suppose that there are several possible options for preserving
based on the attributes of the alternatives along with and/or using the site
some degree of randomness – allowing no mining and preserving the site as a wilderness habitat area
– various levels and locations for the mining operation, each of which
– Based on repeated observations of choice, one would have different impacts on the site
can examine how the levels of various attributes • The contingent choice method selected because
affect the probability of choice – the outcomes of several policy options needs to be valued
– Non-use values are the largest component of the value for preserving
• An assumption of normality leads to the binary probit the site
model • The TCM will underestimate the benefits of preserving the site
• An assumption of a Gumbel distribution means that the • The CVM might also be used but the survey questions might
multinomial or Mother Logit can be employed become very complicated

Application Step 2
• Contingent choice and contingent valuation have very similar
application • Make preliminary decisions about the survey
– The main differences are in the design of the valuation – whether it will be conducted by mail, phone or in
question(s), and the data analysis. person,
– how large the sample size will be, who will be
Step 1
surveyed, and other related questions
• Define the valuation problem
– Determine exactly what services are being valued, and who the – In this case, the researchers decided to conduct a
relevant population is mail survey
• the resource to be valued is a specific site and the services it provides • Administered to a large sample
i.e. wildlife habitat
• because it is federally owned public land, the relevant population would • Over a large geographical area
be all citizens of the U.S. • Questions about a specific site and its benefits should
be relatively easy to describe in writing

Step 3 Step 4
• Survey design is accomplished in several steps • Survey implementation
– starts with initial interviews and/or focus groups with the types of people who will be
receiving the final survey – Select the survey sample
– In the initial focus groups, the researchers would ask general questions • Randomly selected sample from a mailing list of randomly sampled U.S.
• about peoples’ understanding of the issues related to the site citizens
• whether they are familiar with the site and its wildlife
• whether and how they value this site and the habitat services it provides – Use a standard repeat-mailing and reminder method, in order to
– In later focus groups, the questions would get more detailed and specific get the greatest possible response rate for the survey
• different approaches to the choice question are tested
– each choice might be described in terms of the site’s ability to support each of the important wildlife
species.
– people will be making tradeoffs among the different species that might be affected in different ways by Step 5
each possible choice of scenario
– Pre-testing the survey • Compile, analyze and report the results
• People would be asked to assume that they’ve received the survey in the mail and to fill it out. – The statistical analysis for contingent choice is often more
• Then the researchers would ask respondents about how they filled it out, and let them ask
questions about anything they found confusing.
complicated than that for contingent valuation
– A mail pretest might be conducted. • requiring the use of discrete choice analysis methods to infer
– This process is continued until a survey is developed that people seem to understand willingness to pay from the tradeoffs made by respondents.
and answer in a way that makes sense and reveals their values for the services of the
site
Illustration Summary
Step 5 (cont’d)
• Estimate the average value for each of the services of the site, for
• Whatever format is selected,
an individual or household – choices that respondents make are
• Extrapolate to the relevant population in order to calculate the total
benefits from the site under different policy scenarios statistically analyzed using discrete choice
• The average value for a specific action and its outcomes can also be statistical techniques, to determine the
estimated, or the different policy options can be ranked in terms of
peoples’ preferences relative values for the different characteristics
or attributes
• The results of the survey might show that
– the economic benefits of preserving the site by not allowing mining are
– If one of the characteristics is a monetary
greater than the benefits received from allowing mining price, then it is possible to compute the
• the mining lease might not be issued, unless other factors override these results
– the results might indicate that some mining scenarios are acceptable, in respondent’s willingness to pay for the other
terms of economic costs and benefits
• rank different options and select the most preferred option
characteristics.

Summary Summary
• A good contingent choice study will consider the following: • A good contingent choice study will consider the following:
– Before designing the survey, learn as much as possible about – The nature of the good and the changes to be valued must be specified
how people think about the good or service in question in detail, and it is important to make sure that respondents do not
inadvertently assume that one or more related improvements are
• Consider people’s familiarity with the good or service, as well as the included
importance of such factors as quality, quantity, accessibility, the
availability of substitutes, and the reversibility of the change. – The respondent must believe that if the money was paid, whoever was
collecting it could effect the specified environmental change
– Determine the extent of the affected populations or markets for
the good or service in question, and choose the survey sample – Respondents should be reminded to consider their budget constraints
based on the appropriate population. – Specify whether comparable services are available from other sources,
when the good is going to be provided, and whether the losses or gains
– The choice scenario must provide an accurate and clear are temporary or permanent
description of the change in environmental services associated – Respondents should understand
with the event, program, investment, or policy choice under • the frequency of payments required, for example monthly or annually,
consideration • whether or not the payments will be required over a long period of time in order to
• iI possible, convey this information using photographs, videos, or other maintain the quantity or quality change
multi-media techniques, as well as written and verbal descriptions • who would have access to the good and who else will pay for it, if it is provided

Summary Advantages (1)
• A good contingent choice study will consider the following • Can be used to value the outcomes of an action as a whole,
– In the case of collectively held goods, respondents should as well as the various attributes or effects of the action
understand that they are currently paying for a given level of
supply. The scenario should clearly indicate whether the levels
being valued are improvements over the status quo, or potential • it does not ask the respondent to make a tradeoff directly
declines in the absence of sufficient payments. between environmental quality and money
– If the household is the unit of analysis, the reference income – the tradeoff process may encourage respondent introspection
should be the household’s, rather than the respondent’s, income and make it easier to check for consistency of responses.
– Thoroughly pre-test the questionnaire for potential biases – respondents may be able to give more meaningful answers to
• test different ways of asking the same question questions about their behavior (i.e. they prefer one alternative
• test whether the question is sensitive to changes in the description of
over another), than to questions that ask them directly about the
the good or resource being valued dollar value of a good or service or the value of changes in
environmental quality
– Conduct post-survey interviews to determine whether
respondents are stating their values as expected.
– Include validation questions in the survey • Respondents are generally more comfortable providing
• to verify comprehension and acceptance of the scenario qualitative rankings or ratings of attribute bundles that include
• to elicit socioeconomic and attitudinal characteristics of respondents prices, rather than dollar valuation of the same bundles
without prices
Advantages (2) Issues and Limitations
• Even if the absolute dollar values estimated are not precise, • Respondents may find some tradeoffs difficult to evaluate, because they are
the relative values or priorities elicited by a contingent choice unfamiliar
survey are likely to be valid and useful for policy decisions • The respondents’ behavior underlying the results of a contingent choice
study is not well understood.
– Respondents may resort to simplified decision rules if the choices are too complicated,
which can bias the results of the statistical analysis.
• Minimizes many of the biases that can arise in open-ended
• If the number of attributes or levels of attributes is increased, the sample
contingent valuation studies where respondents are size and/or number of comparisons each respondent makes must be
presented with the unfamiliar and often unrealistic task of increased
putting prices on non-market amenities • When presented with a large number of tradeoff questions, respondents
may lose interest or become frustrated
• Has the potential to reduce problems such as expressions of • Contingent choice may extract preferences in the form of attitudes instead
of behavior intentions
symbolic values, protest bids, and some of the other sources • By only providing a limited number of options, it may force respondents to
of potential bias associated with contingent valuation make choices that they would not voluntarily make
• Contingent ranking requires more sophisticated statistical techniques to
estimate willingness to pay.
• Translating the answers into dollar values, may lead to greater uncertainty
in the actual value that is placed on the good or service of interest.
• Validity and reliability for valuing non-market commodities is largely
untested.

Case- Case-
Case-study 1*-
1*- Landfill Siting in Rhode Island
Case-Studies
Background
• With its primary landfill nearing capacity, the State of Rhode Island
was faced with the need to choose locations for new landfills
• Besides technical considerations, the State wanted to address the
social and economic tradeoffs and values related to the location of a
landfill to avoid some of the controversy associated with landfill
siting
Analysis
• A contingent choice, paired comparison, survey was conducted
– The survey asked Rhode Island residents to choose between pairs of
hypothetical sites and locations for a new landfill, described in terms of
their characteristics
– The site comparisons described
• the natural resources that would be lost on a hypothetical 500 acre landfill site
• area surrounding the landfill
– Each comparison gave the cost per household for locating a landfill at
each hypothetical site or location

Case-
Case-study 1-
1- Landfill Siting in Rhode Island Case-
Case-study 2*-
2*- Management of the Peconic Estuary
System
Results Background
• Used by the State to predict how residents would • The environmental and natural resources of the Peconic
Estuary System provide many services to the public
vote in a referendum on different possible landfill – the bay waters, beaches, wetlands, ecosystems, habitats, and
locations parks and watershed lands
– First, 59 possible sites were selected, based on
geological and public health criteria. • The Peconic Estuary Program
• sites were ranked using the contingent choice survey results, – established under the National Estuary Program
in order to come up with a short list of potential sites – Responsible for creating a conservation and
management plan for the environment and natural
resources of the Estuary
• The final decision, based on geological, public
health, public preferences, and political • Information was needed about the value that the public holds
considerations, was to expand the existing for the ecosystem services of the Estuary.
landfill site
Case-
Case-study 2-
2- Management of the Peconic Estuary Case-
Case-study 2-
2- Management of the Peconic Estuary
System System
Results
Analysis • The public has a strong attachment to environmental and amenity resources
of the Peconic Estuary, even if they do not use these resources directly
• Contingent choice survey to estimate the relative • 97 percent of the respondents supported at least one hypothetical action to
protect resources, and indicated they would financially support such actions
preferences and economic values that residents
and second homeowners have for preserving and Relative priorities for protecting Per acre dollar values
natural resources
restoring key natural and environmental resources Farmland $70 thousand
– Open space Eelgrass $66 thousand
– Farmland Wetlands $54 thousand
– Unpolluted shellfish grounds Shellfish $30 thousand
Undeveloped land $13 thousand
– Eelgrass beds
– Intertidal salt marsh. • The survey results indicated that the resource priorities, or relative values of
resources, are more reliable than are the dollar estimates of values,
– researchers recommended that relative values, rather than dollar values, be used in
the process of selecting management actions.

Case-
Case-study 3*: Environmental Cost of Low River
Case-
Case-study 3: Environmental Cost of Low River Flows
Flows
Background Background
• South-west of England • Benefits of increased river flows comprise both use values
and non-use values
encompasses
ÖExpressed preference approach most appropriate to elicit WTP
– 176 beaches • Survey of general public will comprise a large proportion of
– 4,000 miles of rivers non-users
http://www.cornerwaysresidentialhome.co.uk/tavistock16.jpg Ö Lack of familiarity makes it difficult to answer open-ended
questions
• Abstraction for hydro-electric • Choice experiment approach with the aim of estimating
power stations the marginal WTP of the general public for
Low water – unit improvements in low flow alleviation in rivers in south west
• Water imponded by reservoirs of England
flow – unit improvements in the numbers of clean beaches in the area
• Abstraction by water companies – unit improvements in the miles of unpolluted rivers in the area
from river or underlying aquifer
* Garrod and Willis, 2001

Case-
Case-study 3: Environmental Cost of Low River Flows Case-
Questionnaire design
Definitions • Series of focus groups undertaken
• Non-use value arises from the knowledge – Suggested that the public considered coastal and river pollution
to be most pressing problems in the south west
that the river remains healthy and viable – When shown photographs, agreed that low flow was also
important but not as pressing
and will persist
• To obtain conservative welfare estimates that can be
• Non-users were identified as those interpreted as lower-bound figures
respondents who did not visit any of the – A series of questions and statements reminded respondents of
other environmental issues that they might wish to support
flow rivers in the south west specified in
• To introduce the notion of a multigood environment
the project – Respondents asked about their donations to good causes and
their willingness to contribute more to these causes
– Tested and refined over two separate pilot surveys
Case-
Questionnaire design Questionnaire design

• Respondents presented with a brochure • Survey used both
– Describing the Environmental Agency’s (EA) activities – Stated preference choice experiment
• Reducing river pollution – Dichotomous choice contingent valuation question
• Monitoring marine pollution in coastal waters
• Improving flows in low flow rivers • Valuation scenario used
– Text kept to a minimum and illustrations used – Whether or not respondents were willing to pay a specified amount to
increase the overall levels of environmental quality along rivers and
– Information limited to bullet points describing beaches in the south west
• The problems being tackled • Environmental quality expressed as the level of three attributes
• The causes and consequences
• How EA was tackling the problem including the amount spent on a per • In choice experiments, cards chosen randomly from an orthogonal
household set of 64 choice cards
• How much improvement has been achieved till now – Respondents given a card and asked to choose one of three choices
– Then given three cards and asked to choose their preferred choice from
each
• Survey sample limited to the south west where respondents
relate better to familiar local issues • Low flow embedded within a more holistic set of EA water quality
objectives

Case-
Questionnaire design Empirical results

• Example of a choice experiment card: • River usage by the general public
– Distance from rivers
CARD 06
• Half the interviewed households live one mile or less from a
Please choose one column river
CHOICE 1 CHOICE 2 CHOICE 3 • More than two-thirds lived within 2 miles of a river
(current situation)
Increase in water charges needed to No increase £5 increase £10 increase – Recreational activities
achieve targets
• 77 % of household regularly undertook recreational activities
Beaches in the South West NOT 9 beaches 5 beaches 3 beaches along rivers
MEETING European standards on • 88 % of the households had visited more than one river over the
cleanliness past 12 months
Rivers in the South West WITHOUT 990 miles 350 miles 350 miles • Frequency of visits to beaches had the same frequency as visits
good quality water to rivers during the summer season
Rivers in the South West WITHOUT 130 miles 80 miles 60 miles
acceptable flow levels

Case-
Empirical results Empirical results

• Public perception • Responses from choice experiments used to
– ¾ of respondents thought that rivers were an estimate discrete choice model of the probability
important source of water Pr(i) of choosing a given alternative I
– ½ thought too much water is being abstracted Pr(i) = exp (sVi)/Σexp(sVj)
from rivers
• Models were estimated using
– linear functional form
• Public WTP for good causes • Used mainly for benefit estimation
– 80% prefer to see additional public expenditure – quadratic functional form
on the nature environment • Some attribute coefficients were not statistically significant
– 40% were willing to contribute more towards – Coefficient values and t-statistics for various variables
‘good causes’ were estimated
Case-
Results Results
• Median welfare estimates for CVM scenarios
Reduction Basic specification Extended Model Annual welfare measure
specification
Basic specifications £12.80
1 polluted beach £1.307 £1.431
Extended specifications £15.36
1 mile of polluted river £0.017 £0.019
1 mile of low flow river £0.052 £0.058
• Estimated using same models
• Estimation involves
– an examination of how utility levels change as a result
of a specified improvement
– calculating the magnitude of the associated increase
in water charges that would be required to make the
utility the same before and after the improvements

Case-
Results Results
User and non-user populations for low-flow rivers from the south west Approximate aggregate annual benefits for improving low flows across
River User Households Non-user Miles affected by
the entire length of all low flow rivers in the south west
households low flows
734,161 low-flow river users × length of river affected by low flow × £0.076 per mile
Allen 85,897 1,562,533 20
Upper Avon 230,717 1,417,713 35 River Aggregate benefits Aggregate benefits Aggregate benefits
Meavy 166,760 1,481,670 7 for user Households for visitor for non-user
households households
Otter 157,982 1,490,448 5
Allen £1,115,925 £130,563 £795,414
Piddle 157,854 1,490,576 16
Upper Avon £1,952,868 £613,707 £1,391,975
Tavvy 240,155 1,408,275 16
Wylye 162,481 1,485,949 30 Meavy £390,574 £88,716 £278,395
Otter £278,981 £60,033 £198,854

• The population of users: Piddle £892,740 £191,950 £636,331
– all households who had visited a given low flow river in the two-year
period immediately preceding the survey Tavvy £892,740 £292,028 £636,331
• Nearly 45% of households in the south west are users Wylye £1,673,887 £370,457 £1,193,121
– Rivers are linear features
– All rivers located in areas with scenic attractions

Case-
Results Results
• The costs of the cheapest available options for low flow Net present value of aggregate benefits for improving low flows across
alleviation estimated by ERM for each river the entire length of all low flow rivers in the south west
River Present value of Present value of Net present value Benefit-cost ratio
• Present value of the benefits of low flow alleviation estimated costs aggregate user
for the user sub-sample benefits
– Calculated by assuming a constant flow of benefits for the period Allen 11,867,000 13,915,000 2,048,000 1.17
1997 to 2017 and discounting at 6% Upper Avon 763,000 24,252,000 23,589,000 31.92
• Benefits exceeded costs by a wide margin
– Avon, Meavy, Wylye Meavy 80,000 4,870,000 4,790,000 60.88
• Costs prohibitive on Otter Otter 34,430,000 3,480,000 -30,950,000 0.10
• Benefits and costs similar for Allen
Piddle 5,471,000 11,132,000 5,661,000 2.03
• Benefits based only on user samples and ignore benefits to Tavvy Unknown 11,132,000 - -
non-users but include non-use benefits for low flow river Wylye 224,000 20,873,000 20,649,000 93.18
visitors who do not visit the river in question
Annual stream of costs and benefits discounted at 6% between 1997 and 2017
Case-
Case-study 4*: Recreational Choice and Water
Case-
Case-study 4: Recreational Choice and Water Quality
Quality
• Case study by Alberta • Water-based recreation described

Environment using various attributes
– Travel distance to reach the site
– Water quality
• A combination of • Presented as either good or bad
– Terrain
– Stated preference choice – Camping facilities
experiment – Presence of beach
http://www.hickerphoto.com/data/media/11/travel_alberta_T3258.jpg
– Revealed preference – Various attributes related to fishing

approach and other recreational activities
• Attributes of standing and running

• Choice experiment water alternatives
– Three options related to choice of – Treated as a collective factorial
recreational activities – An orthogonal main effects design
• Recreation at standing water site chosen which would vary all attribute
• Recreation at running water site levels simultaneously http://www3.nationalgeographic.com/places/images/photos/photo_
lg_
• Recreation at non-water site alberta.jpg
* Garrod and Willis, 2001

Case-
Case-study 4: Recreational Choice and Water Quality Case-
Recreational attributes offered in stated preference choice cards
Attribute Description Attribute Description • Data collected using a telephone survey
Fish size Large
Small
Fish
species
Still: Pike & Perch
Pickerel, Pike & Perch
conducted by Alberta Environment
Fish catch
rate
1 fish per 4 hrs
1 fish per 80 mins
Running: Mountain whitefish
Rainbow trout & Mountain whitefish – Respondents asked to participate in choice
1 fish per 45 mins
1 fish per 35 mins
Rainbow trout, Mountain whitefish & Brown trout
Cutthroat trout, Mountain whitefish & Bull trout experiment
Terrain Flat prairie Distance 25 km – Respondents asked to provide information to
Rolling Prairie to site 50 km
Foothills
Mountains
100 km
150 km
be used in revealed preference model
Facilities None Boating Still: None • 730 separate recreational trips in August 1991
Day-use only Small crafts
Limited facilities Power boats (limited) • Destinations characterized by the attributes under
campsite Unrestricted
Fully serviced campsite Running: None study
Swimming Yes Water Still: Natural lake
No feature Reservoir
Running: River
Stream

Case-
• Selected attribute coefficient values from choice experiment • Empirical results (Choice Experiment)
model
– Multinomial logit discrete choice model
Attribute Standing water Running water • All parameters except distance estimated as interaction terms associated with
standing or running water
Distance -0.007 0.007 – Model fit the observed data
(km) (0.0004) (0.0004) – Model has parameters with coefficients consistent with authors’
Catch rate 0.062 0.105 expectations
(fish per unit time) (0.028) (0.026) – Factors with positive influence on utility
• Larger fish
Fish size 0.058 0.090 • Good water quality
(large=1 vs. small=-1) (0.028) (0.0250 • Increased catch rates
Water quality 0.394 0.321 • Availability of swimming
(good=1 vs. bad=-1) (0.027) (0.025) • Presence of beaches
– Respondents preferred upland topography to prairie
Swimming 0.274 0.158
– Respondents preferred higher diversity to fewer species of fish
(yes=1 vs. no=-1) (0.026) (0.025)
• Most popular package: rainbow trout, mountain whitefish, and brown trout
Beach 0.198 0.123 – Respondents preferred fully-serviced campsites
(yes=1 vs. no=-1) (0.026) (0.024) – Differences noted between estimated coefficient values for parameters
Boating N/A N/A between running water and standing water sites
• Increased fish sites and catch rates preferred more in running water
Case-
• Selected attribute coefficient values from revealed preference
model • Empirical results (Revealed preference model)
– Multinomial discrete choice model estimated for the site
Attribute Standing water Running water choice decision
Distance -0.0282 -0.0282 • Travel cost and site attributes used to explain site choices
(km) (0.001) (0.001) – Significant factors in explaining site choice include
Catch rate 2.0338 2.0338 • Distance to be travelled
(fish per unit time) (0.237) (0.237) • Water quality
Fish size N/A N/A • Catch rates
Water quality -0.8197 -3.129 • Availability of swimming, fishing, and boating
(poor=1 vs. good=0) (0.494) (0.3749) • A joint version of the choice experiment and revealed
Swimming 2.7477 0.9148 preference was conducted
(yes=1 vs. no=0) (0.290) (0.251)
– Data used from both models
Beach 0.9918 -1.955
(yes=1 vs. no=0) (0.302) (0.369) – Allows to improve quality of the estimates based on
revealed preference
Boating 6.6620 1.7335
(unrestricted=1 vs. none=0 (1.024) (0.289)
• Reduces collinearity
End of Session 10a

Thank You
REGIONAL WORKSHOP
ON
THE COST OF
ENVIRONMENTAL
DEGRADATION
METHODOLOGY
Session 10b
THE BENEFIT TRANSFER
METHOD
Benefit Transfer Method
OUTLINE
REGIONAL WORKSHOP ON • Overview
• Methodology
THE COST OF ENVIRONMENTAL • Application
DEGRADATION METHODOLOGY
• Illustration
• Advantages
Session 10b
THE BENEFIT TRANSFER METHOD • Issues and limitations
• Case-applications
• Case-study
Benefit Transfer Benefit Transfer

Overview Overview
• Represents another alternative for obtaining non-market values • The simplest type of benefit transfer is the unit day approach
• Involves transferring values that have been estimated for a similar – existing values for activity days are used to value the same activity at
good or service from another location/context to the current other sites
location/context – estimates are based on expert judgment in combining and averaging
– Estimating benefits for one context by adapting an estimate of benefits benefit estimates from a number of existing studies
from some other context – “unit day values” may be adjusted for characteristics of the study site
• Represents a useful method under when they are applied.
– Budget constraints
– Time constraints • A more rigorous approach involves transferring a benefit function
• Has been applied to value the impact of improved water quality on from another study
– Recreation values – The benefit function statistically relates peoples’ willingness to pay to
characteristics of the ecosystem and the people whose values were
– Public health elicited
• Has been the normal procedure adopted in regulatory command and – adjustments can be made for differences in these characteristics, thus
control mechanisms in which common standards are applied allowing for more precision in transferring benefit estimates between
– EU assumes that benefits of environmental improvement are of equal contexts
value in different areas of the EU
• Benefit transfers can only be as accurate as the initial study

• Approaches for applying benefit transfer and assessing the validity of
the attempts
– The ‘unit day value’ applied by the US Forest Service in the 70s and
• Approaches for applying benefit transfer
80s
• Federal guidelines in 1982 recommended
and assessing the validity of the attempts
– $6.10-$17.90 per day for specialized recreation
» Wilderness use, trout fishing, big-game hunting, white water boating – Real-estate agents’ judgments
– $1.50-$4.50 per day for general recreation
» Picnicking, swimming, small game hunting, camping, boating • To estimate utility loss associated with noise from
• When applied to a new site, unit day values are adjusted on the basis of the demand
functions of site-visitors the proposed airport site
• Demand depends on site attributes such as
– Congestion • Some research suggested close correlation
– Accessibility and parking conditions
– Environmental quality; scenery, pests, water, air, climate between estate agents’ estimates of total house
– Socio-economic characteristics of recreationalists
– Preferences price and estimates derived from an hedonic price
–
–
Price
Availability of substitute sites
model
• None of these factors will be identical across different sites
• Expert judgment is required to assess what the benefits of a new site might be from a
• Other research revealed discrepancies
range of possible values
• Unit day values can be updated to account for
– Inflation
– Observed changes in price and income elasticities for recreation over time
• Approaches for applying benefit transfer and • Approaches for applying benefit transfer and
assessing the validity of the attempts assessing the validity of the attempts
– Via TCM – Via TCM (cont’d)
• By transferring demand functions from existing facilities, • The lack of homogeneity in product mix may be
resembling closely the prospective facility in the type of remedied by valuing the different recreational activities
recreation provided separately and then aggregating, rather than
• If the catchment areas of the two sites are mutually exclusive developing a demand curve for the site as a whole
– Existing site coefficients × values for independent variables of the • Errors in BT via TCM
new site = estimates of number of visits and benefits attributable to – Choosing the wrong functional form
the new site – Selecting an incomplete or inappropriate set of arguments
– This approach expected to yield more accurate results than simply – Measuring arguments incorrectly
applying an average value of benefit per visitor day to the site
» Value of time, income, cost of access
• If proposed facility situated within the catchment area of an – Measuring the dependent variable with error
existing facility – The presence of substitute sites
– Apply existing demand function to the new site as if unique » Could be cancelled out if sites are randomly distributed
– If new consumer surplus exceeds the existing one, the net gain via a simulation models
from having the new facility is the difference between the two

• Approaches for applying benefit transfer and • Approaches for applying benefit transfer and
assessing the validity of the attempts assessing the validity of the attempts
– Via CVM – Meta-analysis
• Application can be affected by • Uses data-based aids to explain variations in estimated benefits
– Ex ante- Ex post valuation perspective across different studies with the aim of applying past results to
» Some estimates elicited after the uncertainty about the good is future resource policy decisions
removed are employed in an ex ante project appraisal • Attempts to assess environmental values by investigating the
– Scale or quantity value relationship between
» If the new good or policy is identical to the old and lies within the – benefit estimates (WTP)
same market area, then it represents an additional quantity of the
good and should be valued less than the existing good at the site – the features of the goods
– Sequential position of the supply of the good – the assumptions of the models
» Where goods are complements or substitutes, the sequence in • Entails the systematic application of statistical methods to
which a particular good is provided in relation to others determines assess common features and variations across a wide range of
its value prior studies
– Differences in attributes • Undertaken using a variety of techniques encompassing
– Compositional effects qualitative and quantitative econometric methods
» When respondents have difficulty in disentangling the structure of • Relatively underdeveloped in the field of benefit transfer
the substitution and complementary interrelationships among
attributes within the same holistic set • Important as a means of investigating the factors and issues
involved in the derivation and construction of values

• Meta-analysis (illustration) • Different standards for benefit transfer may be applied in different
contexts
– Study by Walsh et al. (1989) to explain variations in – a higher standard of accuracy may be required when the costs of
net economic benefits per activity day in terms of site, making a poor decision are higher
– a lower standard of accuracy may be acceptable when costs are lower
location, and methodological variables • when the information from the benefit transfer is only one of a number of sources
of information, or when it is used as a screening tool for the early stages of a
– 287 benefit estimates compared policy analysis.
• 156 based on TCM
• 129 based on CVMs • The benefit transfer method is most reliable
• 2 based on HPMs – when the original site and the study site are very similar in terms of
• quality, location, and population characteristics
– Some main findings – when the goods/services in both sites have similar characteristics
• Omitting travel time in TCM studies reduced benefit – when the original valuation study has been carefully conducted and
estimates by 34% used sound valuation techniques
– when values in original study have not been valuated a long time ago
• ITCM estimates were about 46% greater than ZTCM since preferences change over time
estimates using the same functional form
• If TCM accepted as the standard for benefit estimation, then
CV estimates needed to be adjusted upwards by 20-30%
Methodology Application
• Three tests have been suggested to
determine the accuracy of benefit transfer 1. Identify existing studies or values that can be used for
the transfer
– There are a number of valuation databases that can be
– Comparing benefit transfer values with primary useful
data values obtained from the policy site 2. Evaluate the existing values to determine whether they
are appropriately transferable
– Determining whether different populations have – Consider whether:
the same preferences for the same non-market • the service being valued is comparable to the service valued in
good, after controlling for differences in socio- the existing studies
– Site features
economic characteristics – Site qualities
– Availability of substitutes.
• the characteristics of the relevant population are comparable
– Determining whether transfers are stable over – Demographics
time – Peoples’ preferences

Application Illustration*
Background
3. Evaluate the quality of studies to be transferred • A park being upgraded to provide
– The better the quality of the initial study, the more accurate and additional recreational opportunities
useful the transferred value will be
– A proposal is to add a swimming beach
– Requires professional judgment of the researcher to the lake
4. Adjust the existing values to better reflect the values for the – The benefits of the new beach needs to
site under consideration, using available and relevant be explored
information – Limited budget for valuation study
– Supplemental data may need to be collected
• survey key informants
• talk to the investigators of the original studies • Benefit Transfer Method preferred
• get the original data sets because http://www.inetours.com/England/London/images/
Parks/Hyde/Hyde_Park_9466.jpg
• collect some primary data at the study site to use to make – No large budget available for site-
adjustments specific benefits studies
5. Estimate the total value by multiplying the transferred values – Values for recreational uses are
by the number of affected people relatively easy to transfer

Methodology Methodology (cont’d)
• Step 1 • Step 2 (cont’d)
– Identify existing studies or values that can be used for the transfer – In the example, the first study is for a similar lake beach
– Look for studies that value beach use, specifically for lake beaches if • The beach is also in a park, has comparable water quality and facilities,
possible and a similar number of substitute sites in the area
• Assume that the researcher has found two travel cost studies that estimated • It is located in an urban area, while the beach being valued is in a rural
values for swimming at lake beaches
area
– The characteristics of visitors can be expected to be different for the two sites
• Step 2 – The second study is in a rural area with similar types of visitors,
– Decide whether the existing values are transferable by examining but the lake has many more available substitutes.
various criteria
– The existing values or studies would be evaluated based on several
criteria, including: • Step 3:
• Is the service being valued comparable to the service valued in the existing – Evaluate the quality of studies to be transferred
studies? • In this example, the researcher has decided that both studies are
– similar types of sites (e.g., lake beaches in a park)
– similar quality of sites (e.g., water quality and facilities)
acceptable in terms of quality
– similar availability of substitutes (e.g., the number of other lake beaches nearby)
• Are characteristics of the relevant population comparable?
– are demographics similar
– if not, are data available to make adjustments
Methodology (cont’d) • Less costly than conducting an original valuation
• Step 4
• Adjust the existing values to better reflect the values for the site
study
under consideration • Economic benefits estimated faster than when
– In this case, the sites valued in each of the existing studies differ from
the site of interest undertaking an original valuation study
• The researcher might adjust the values from the first study by applying
demographic data to adjust for the differences in users • Can be used as a screening technique to
• If the second study has a benefit function that includes the number of substitute
sites, the function could be adjusted to reflect the different number of substitutes determine if a more detailed, original valuation
available at the site of interest
• Because the beach will be new, the researcher will need to estimate
study should be conducted
how many people will use the beach • The method can easily and quickly be applied for
– Survey of park visitors, asking whether they would use a beach on the
lake, and how many times they would use it making gross estimates of recreational values
– Then multiply these visitation estimates by the value per day for beach – The more similar the sites and the recreational
use (adjusted for differences in population and site characteristics), to
get an estimate of the economic benefits for the new beach experiences, the fewer biases will result.

Case-
Case-application 1*: Wetlands
Issues and Limitations
Restoration in Saginaw Bay, Michigan
• Lack of accuracy, except for making gross estimates of recreational
values, unless the sites share all of the site, location, and user
specific characteristics Background
• Unavailability of good studies for the policy or issue in question • The State of Michigan is considering plans
• Difficulty in finding appropriate studies, since many are not to protect and restore coastal wetlands
published along the southern shore of Saginaw Bay
• Reporting of existing studies may be inadequate to make the
needed adjustments • The State must estimate the potential
• Difficulty in assessing the adequacy of existing studies benefits from protecting and restoring the
• Extrapolation beyond the range of characteristics of the initial study wetlands www.fws.gov/midwest/alpena/images/sagbay.jpg
is not recommended • A survey asked people about their support

• Benefit transfers can only be as accurate as the initial value for restoring wetlands, but did not include a
estimate valuation question
• Unit value estimates can quickly become dated
• The researchers used benefit transfer
methods to estimate the value of protecting
and restoring wetlands around the Bay
http://www.duckboats.net/images/poison13.jpg

Case-
Case-application 1: Wetlands Restoration Case-
Case-application 2*: Benefits of Water
in Saginaw Bay, Michigan Pollution Controls on Pulp and Paper Mills
Methodology
Background
• A valuation study for proposed wetlands protection and restoration
of Ohio’s Lake Erie coastal wetlands was used for the benefit • The Clean Water Act provides standards for water quality that
transfer affect the pulp and paper industry
• Researchers assumed that the values estimated for Ohio were
similar enough to be transferable to Michigan • The industry must implement technological improvements to
– The study valued similar programs and quantities of wetlands to those bring water quality up to standards
proposed in Michigan
– However, coastal residents were not surveyed
• the transfer of values from the Ohio study to coastal residents in Michigan • Researchers attempted to assess the benefits of water quality
requires the assumption that coastal residents have values similar to those of improvements in a particular set of stream segments where
residents of other areas of the drainage basin
pulp and paper mills discharge effluent
Results
• Estimates of wetland values for Michigan, based on the Ohio study • This determines downstream water quality, which in turn
– $500 - $9,000 per acre for residents of the drainage basin affects benefits to recreational users of the streams, as well
– $7,200 - $61,000 per acre for residents of the State of Michigan as non-use benefits from improved water quality.
Benefit Transfer
Case-
Case-application 2: Benefits of Water BENEFIT TRANSFER METHOD
Pollution Controls on Pulp and Paper Mills
Methodology
• Researchers used benefit transfer to estimate the economic benefits of
Case study
improved water quality Transferability of WTP estimates
– streams affected by 68 mills were selected for the study
– data on existing water quality and pollution control costs for the streams was collected
– feasible uses assigned for each stream, based on existing water quality Valuation of water quality improvements
• The benefits transfer was based on three studies of other rivers that valued
changes in water in Jaco and Puntarenas along the Pacific
– the Charles River in Boston
– the Monongahela River in western Pennsylvania quality Coast of Costa Rica
– Two were contingent valuation studies, and one was a travel cost study.
• Both recreational and non-use benefits were considered.
Results
• Even using the upper bound estimate of benefits ($66 million), total
benefits for the 68 mills were only two-thirds of the costs to these mills
($95.5 million)
• The total costs to the entire pulp and paper industry were estimated at $310
million
Case Description Case Description

Study area Ecosystem deterioration
• The study tests the transferability of • Puntarenas:
WTP estimates of improvements in – Deteriorating water quality drove visitors to other beaches such as Jaco
coastal water quality:
– In Baranca, a wastewater treatment plant was constructed in 1992
– Between two urban areas: Jaco and (6000 households) → saturation of available treatment capacity
Puntarenas
– Rest of City: septic tanks & direct outfalls
– Within Puntarenas between 3 city
districts: Centre, Chacarita and • Jaco:
Baranca – Septic tanks & direct outfalls are used
• Jaco: • General problems:
– Small town in rural area (3000 – Surface and groundwater pollution
inhabitants, 840 households) – High water tables
– Dedicated to sun and sea tourism – Frequent flooding of septic tanks in rainy season
• Puntarenas: – Deterioration of local sanitary conditions
– Second largest airport (65500
inhabitants, 14770 households) What is people’s WTP for improvements
– National tourist attraction in coatsal water quality???
Are the estimates transferable between different areas?

Description of water quality situation
Contingent Valuation
& scenarios
• In-person survey: 380 households in Jaco & 1049 in
Puntarenas Classification Coastal water resources
level used in
• Presentation of maps showing showcards
Seawater
(A-C)
River &
estuarine
Well &
groundwater
– Current quality of sea water, river and estuarine water, and well and water (1-3) (I-III)
groundwater Class A/1/I Fit for Fit for Potable well
swimming human water: no faecal
– Water quality deterioration at the ‘without treatment’ scenario after 5 all year contact all pollution in
years X year groundwater
Class B/2/II Fit for Fit for Potable well
– Water quality deterioration at the ‘with treatment’ scenario after 5 years swimming human water:
(new wastewater treatment plant + connection of all households to dry season contact dry contamination
season risk from faecal
network) pollution in
X
surrounding
• WTP question X X groundwater X
– Respondents were asked whether they would vote ‘for’ or ‘against’ a Class C/3/III Not fit for Not fit for Well water not
wastewater treatment plan swimming
all year
human
contact all
potable: faecal
pollution in
– If voting ‘for’, were asked if they would be WTP a monthly sewage fee to Puntarenas sample was divided to year X groundwater
the local water authority 2 subsamples: Current classification X: Jaco X: Puntarenas
– If voting again ‘for’, a double-bounded WTP question was asked 1.Full improvement scenario: to highest improvement level
2.Partial improvement scenario: river & estuarine water level 2, the rest to highest
levels (inefficiency in wastewater treatment in the proposed plant
Applied Method Results
Benefit transfer reliability WTP responses
Jaco Puntarenas
• Benefit transfer = the application of primary non-market valuation Population (hh) 840 14770 The least conservative WTP estimates are
estimates to a secondary setting for which the original study was not sample frame 65% (Jaco) & 193% (Puntarenas) higher
expressly designed Sample size 380 1049 than the most conservative estimates
Sample non- 83 (21%) 273 (26%)
• Estimates from the original ‘study site’ are applied to a target ‘policy response
site’ at a different time and/or place Water quality Full Full Partial
scenario improveme improveme improveme Valuation approach Estimated WTP
• Four hypotheses were tested -nt -nt -nt
Bid Distribution Data Jaco sample Puntarenas
Freq % Freq % Freq % format* assumption treatment pooled
H1.1 Unadjusted transfer: Benefits transferred are robust to differences in site = sample sample
297 100 398 100 378 100
characteristics response Mean Median Mean Median
- protest bids 13 4 6 2 3 1 DC-DB Truncated All zeros

H1.2 Simple adjusted transfer: Values generated at the study site are identical to those normal included
3085 2598 2347 1966
at the policy site after adjustment for changes in consumer prices & average - Incomplete/
3 1 16 4 13 3
DC-DB Truncated Only true
do not know
differences in income normal zeros 3080 2764 2382 2096
= valid WTP included
281 95 376 94 362 96
H2 Benefit function adjusted transfer: The values generated with the coefficients of reponses
DC-DB Truncated No zeros
the WTP regression function estimated at the study site, & the policy site - Zero WTP 18 6 25 6 22 6 normal
3089 2963 2404 2268
characteristics, are identical to the values that would be obtained from a primary = item
DC-DB Lognormal No zeros 3168 2557 2467 1918
study at the policy site responses 263 89 351 88 340 90
(WTP>0) DC-SB Lognormal No zeros 4789 3247 6617 3093
H3 Slope coefficients of benefit function: Estimated benefit functions at the policy site *DC: dichotomous DB: double bounded SB: single bounded
and study site are drawn from the same population
Sample sizes and response rates Sensitivity of WTP to responses treatment
Results Results
Benefit transfer – Rural-
Rural-urban tests Benefit transfer – Intra-
Intra-urban tests
• There are significant differences between the two sites • Unexpectedly! Absolute transfer errors have not been
• Full models indicated that socio-demographics mainly reduced by geographical proximity relative to the urban-
rural transfer
explained WTP in Puntarenas, while sanitation, resource
use & environmental attitudes were important in Jaco • The simple income-adjusted method outperformed the
more sophisticated methods
Model Transfer error factor at policy site Note Model Transfer error factor at policy site Note
Jaco Greater Puntarenas Absolute average transfer error % Transfer error % Jaco Greater Puntarenas Absolute average transfer error % Transfer error %
= 100 (wp/s –ws/s) = 100 (wp/s –ws/s)
No covariates -22.5% 29.0% No covariates -22.8% 29.5%
25.8 / W s/s 26.2 / W s/s
H1.1 rejected H1.1 rejected H1.1 rejected H1.1 rejected
Where W is the Where W is the
Income adjusted -10.4% 11.7% WTP estimate, p Income adjusted -16.3% 19.5% WTP estimate, p
11.1 17.9
H1.2 not rejected H1.2 rejected is the policy site, H1.2 rejected H1.2 rejected is the policy site,
& s is the source & s is the source
Socio-demographic -20.7% 28.1% Socio-demographic -20.9% 29.1%
site site
covariates H2 rejected H2 rejected 24.4 covariates H2 rejected H2 rejected 25.0
H3 not rejected H3 not rejected Transfers are H3 not rejected H3 not rejected Transfers are
rejected when rejected when
Full model -20.3% -1.6% Full model -22.6% 28.4%
errors are in the errors are in the
covariates H2 rejected H2 not rejected 11.0 covariates H2 rejected H2 not rejected 25.5
range 11-26% range 11-26%
H3 rejected H3 rejected H3 rejected H3 rejected
Results
Benefit transfer – General remarks
• Populations who have similar socio-demographic
characteristics may be different while sanitation &
End of Session 10b

recreation practices, environmental & institutional
attitudes are considered
• Having information on socio-economic differences
across sites e.g. census data may be a necessary but
not sufficient condition for successful benefit transfer
• There are significant & differences in variables
explaining WTP between different districts of the same Thank You
area → very localised phenomena can play large role
in determining WTP
REGIONAL WORKSHOP
ON
THE COST OF
ENVIRONMENTAL
DEGRADATION
METHODOLOGY
Session 11
Stated Preference Approach
GROUP EXERCISES

July 1‐5, 2008
SESSION 11
GROUP EXERCISE 1
Air Quality Improvement Estimation and Assessment using Contingent

Valuation Method: A Case Study in Beijing
(Wang et al., 2006)
Case description
Beijing has been experiencing a rapid economic development, with a GDP growth rate of more than
9% per year since 1995, and a maximum of 10.2% in 1999. However, as a negative result of the rapid
economic growth, Beijing’s environmental quality has deteriorated significantly, especially for air
quality in the urban area. Because air pollution may impact many aspects of society, including human
health, agriculture yield and industrial production, it is a difficult task to measure the benefit of air
quality improvement. According to the Beijing Statistical Bureau, there are around 2,351,000
households in Beijing.
The aim of the study is to estimate and assess residents’ willingness to pay to improve air
quality in the urban area of Beijing using the Contingent Valuation Method (CVM).
1. Why is the CVM selected in this case?

___________________________________________________________________________
___________________________________________________________________________
2. What alternative method (s) could have been used and why?
___________________________________________________________________________
___________________________________________________________________________
3. Work through the steps of the CVM process to estimate the WTP to improve air quality in
Beijing.
A. Set up the hypothetical market (a convincing scenario, aids, …)

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
B. Obtain the bids

a. Select a method for obtaining a bid (income taxes, property taxes, value added or
sales tax, utility bills, entry fees, payments into a trust fund)
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
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July 1‐5, 2008
b. Select the type of questionnaire survey to be adopted (In-person survey, mail

survey, phone survey, etc.):
________________________________________________________________________
c. Types of information obtained

i. What are the various types of information to be obtained via the questionnaire?
− _____________________________________________________________
− _____________________________________________________________
− _____________________________________________________________
ii. How can you help the interviewee understand the question, and reduce the tension
during the interview
− _____________________________________________________________
iii. Would you use an open or close-ended question to elicit the WTP, and why?
− _____________________________________________________________
− _____________________________________________________________
iv. What wording would you use to elicit the WTP?

− What would your household be willing to pay annually during the next 5 years in
order to fulfill the goal of air quality improvement in Beijing (reducing the
concentration of air pollutants by 50% in urban areas)?
v. How would you convince the interviewee that his answer will influence the decision-
making process
− _____________________________________________________________
d. Sample size:
Total sample size was 1,500 in 8 sampling districts. The number of households targeted in
each of the eight districts was proportional to the household density of that district (the total
number of households divided by the total area). Each district was divided into a number of
communities according to the number of targeted households in it.
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July 1‐5, 2008
Figure 1. Eight sampling districts in Beijing City
e. What is an important step in questionnaire development and administration?

_____________________________________________________________
f. How long in your opinion should the duration of the questionnaire be?
_____________________________________________________________________
C. Estimate the mean WTP/WTA

Willingness to pay for improving air quality in Beijing
WTP in RMB (in USD) /year # of interviewees Percentage (%)
0 460 33.6
≤ 10 (1.4) 65 4.7
11-50 (1.5-7.0) 161 11.7
51-100 (7.2-14.1) 302 22.0
101-500 (14.2-70.3) 331 24.1
501-1000 (70.4-140.5) 42 3.1
≥ 1001 (140.7) 10 0.7
Total 1371 100
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July 1‐5, 2008
Statistical description of the willingness to pay
WTP/year Mean in RMB SD Median Maximum
Sample (in USD) (RMB) (RMB) (RMB)
N=1371 (whole) 143 (20.1) 346 50 7000
N=911 (positive) 215 (30.2) 406 100 7000
D. Aggregate WTP/WTA amount

____________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
_________________________________________________________
4 of 13

July 1‐5, 2008
SESSION 11
GROUP EXERCISE 2
Applying contingent valuation in China to measure the total economic value of

restoring ecosystem services in Ejina region
(Zhongmin et al., 2003)
Case description
Ejina lies in the lower reaches of Hei River, one of the two largest inland river basins in
China, and is situated south of Monogolia and western Inner Mongolia. The Ejina oasis
covers an overall area of 3115.88 km2, which is a detached island oasis encompassed by
peripheral desert. With a current population of near 16 thousand, Ejina is one of the world’s
most sparsely populated district in the world’s most populated country. The Ejina region also
has an extreme and harsh natural environment. The climate of the area is characterized by
frequent and severe droughts and large differences in temperature. Mean annual temperature
at Ejina is 8.2 °C, with a maximum of 41 °C (July) and a minimum of -36.4 °C (January).
Mean annual precipitation is only 36.6 mm. The Hei River’s water resources are the basis of
the Ejina environment, economic development and people lives. Water use has grown rapidly
over the past 40 years due to economic growth and population increasing in the middle of the
Hei River. The flow of the Hei River into the lower reaches in the Zhengyi Xia has decreased
by 44.4%, from 11.90 × 108 m3 year-1 in the 1950s to 6.9 × 108 m3 year-1 or so in 1995. The
drying up of runoff directly threatens the existence of Ejina ecosystem. About 3.07 × 104 ha
of cultivated land in 1960 has now been reduced to only 0.3 × 104 ha and the rest of the
cultivated oasis has turned into desert. The area of degraded forest and harsh desert grassland
has increased by 35.09 × 104 ha since 1960. The shape of the Ejina oasis has been reduced to
three riverine areas: West River, East River and Gurinai. Due to the desert area increasing
and oasis area decreasing in Ejina, sandstorms have increased recently in the middle of the
Hei River. This deterioration of the Ejina ecosystem has a huge influence on much of
northern China. In the spring of 2000, an unprecedented heavy sandstorm event took place in
Beijing, Tianjin and their neighboring areas. This storm had adverse effects on the
environment, as well as other aspects of people’s daily life and work. The Ejina oasis is the
first barrier to sandstorms in the middle of the Hei River valley and north-western China. As
a result, the government and the Hei River management bureau decided to adopt conservation
measures to restore Ejina’s ecosystem. These measures include restoring the natural
vegetation to establish an effective ecological protective shield in Ejina and to reduce the
magnitude of this problem. Restoring Ejina ecosystem could allow for controlling soil
erosion and reducing sandstorms, provide habitat for wildlife, natural purification of water,
dilution of wastewater, and curbing land salinization. It is estimated that this restoration effort
will cost approximately 600 million RMB in total over 5 years. The five key ecosystem
services that restoring Ejina ecosystem could provide, which are (1) control soil erosion
and reducing sandstorms, (2) provide habitat for wildlife, (3) natural purification of
water, (4) dilution of wastewater, and (5) curb land salinization.
5 of 13

July 1‐5, 2008
Fig. 2. Sketch of restoring Ejina ecosystem
The aim of the study is to assess whether these costs are worth the benefits to Chinese people
living in this area.

___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
3. Work through the steps of the CVM process to estimate the WTP to improve ecosystem
services in Ejina.

________________________________________________________________________
________________________________________________________________________
6 of 13

July 1‐5, 2008
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
B. Obtain the bids

a. Select a method for obtaining a bid (income taxes, property taxes, value added or sales
tax, utility bills, entry fees, payments into a trust fund)
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
b. Select the type of questionnaire survey to be adopted (in-person, mail, phone, etc.):
_____________________________________________________________________

vi. What are the various types of information to be obtained via the questionnaire?
− _____________________________________________________________
− _____________________________________________________________
− _____________________________________________________________
vii. The people living in the upland rural western area of China are still not familiar with
the market prices. Accordingly, how would you elicit their WTP?
− _____________________________________________________________
viii. What wording would you use to elicit the WTP?

− If the majority of households vote in favor of restoring Ejina ecosystem, the Ejina’s
ecosystem will be restored to the level of the early age of 1980s.
− If a majority vote against, the Ejina ecosystem will remain the conditions and
deteriorated as is the current tendency, at last, it has the likelihood to disappear in
the world like the historic country ’LouLan’.
− If the project of restoring Ejina ecosystem is at the stage of raising capital, if you
vote in favor of it, please draw a circle around the maximum amount your
household would vote for and draw a line under the lowest amount your household
will switch (i.e. to a no) each year in the following 20 years.
− 0 2 5 10 20 35 50 75 100 200 300
− If current raising capital is a lump-sum payment, would your household be in favor
of cost _____ (yuan) to restoring the Ejina’s ecosystem. (Please fill in the blank).
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July 1‐5, 2008
ix. How would you convince the interviewee that his answer will influence the decision-
making process
− _____________________________________________________________
_____________________________________________________________
d. Sample size:
Total sample size was 700 households in Hei valley. To save travel time, randomized cluster
sampling was adopted. 24 villages and towns were chosen randomly by region as the
sampling site. The relative sample amount in each region is determined by population density.
Response rates were beyond 99% among main valley and surrounding district.
e. How can you detect and account for protests against the suggested bid vehicle?
_____________________________________________________________________
_____________________________________________________________________
A series of follow-up check questions were asked after the WTP question to determine if those
refusing to pay represent a valid representation of their value or reflect a protest about some
feature of the simulated referendum.
Table 1. Distribution of survey willingness to pay responses (vote for)

Response Percent of respondents
Main Valley Surrounding district
% (n) % (n)
Willing to pay some amount 92.37 (448) 92.09 (198)
‘Restoring ecosystem service is not worth this money to me’ 0.00 (0) 0.00 (0)
‘I can’t afford to pay this amount’ 1.03 (5) 0.93 (2)
‘It is unfair to expect me to pay for increasing ecosystem services’ 2.06 (10) 3.26 (7)
‘Restoring Ejina ecosystem services cannot get expected effect’ 1.65 (8) 0.00 (0)
‘I am opposed to paying for this government program’ 2.27 (11) 2.79 (6)
Other reasons (protest response) 0.62 (3) 0.93 (2)
Total 100.00 (485) 100.00 (215)
Deleted as protest 6.60 6.98
f. What is an important step in questionnaire development and administration?

_____________________________________________________________
g. How long in your opinion should the duration of the questionnaire be?
_____________________________________________________________________
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July 1‐5, 2008
C. Estimate the mean WTP/WTA. Time discounting was used by researchers in this case.
Frequency distribution of respondents by bid amount they would vote in favor
WTP amount (RMB) 0 2 5 10 20 35 50 75 100 200
Frequency distribution (%) 7.3 8.5 10.4 22.4 17.2 8.2 11.8 2.3 8.5 3.4
Median WTP per household is 19.37 RMB/year (2.72 USD/year) in Hei Valley; ranging between
20.78 RMB (2.92 USD) in Main Valley and 16.41 RMB (2.31 USD) in the Surrounding District.
Accordingly, it can be inferred that people living in different areas view differently the services
provided by an ecosystem.
D. Aggregate WTP/WTA amount by completing the table below (fill in the highlighted
cells)
Total benefits of households in Hei valley

Regions Household Number of Number of Annual Discount Time Present value
annual households households aggregate rate (%) scale aggregate
median which have WTP (year) benefits (million
WTP WTP (millions) RMB)a
Main valley 20.78 223,895 222,187 15 20 28.90
Surrounding 16.41 259,328 257,277 15 20 26.43
district
Total 55.33
Note that the WTP was aggregated on time scale by adopting the mean environment discount rate
(15%) based on compounding interest. The aggregate present value of benefits (55.33 millions over a
5-year period) is less than the present value of restoration cost (400 millions), calculated from 600
millions, at the 15% discount rate, over 5 years.
E. Assess the validity of the CV study

Three full statistical models including all survey demographic and attitude variables were estimated
by maximum likelihood regression.
− Respondent’s education & income level were positively correlated with WTP and were significant
− Suburban and urban residents have higher willingness to pay than rural/farm residents
− On the average, WTP amounts of 20 and 100 represent 1 and 5% of per capita yearly income,
respectively.
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July 1‐5, 2008
GROUP EXERCISE 3
Economic valuation of environmental services sustained by water flows in the

Yaqui River Delta
(Ojeda et al., 2007)
Case description
The Yaqui River is located in a trans-boundary 72,540 km2 basin, largely situated in the Mexican
State of Sonora and a small part in Chihuahua, as well as small portions of Arizona and New Mexico
in the United States. The Yaqui River Basin is within one of the driest hydrologic regions in Mexico.
The predominant climate is arid and semi-arid throughout the Basin, except in the eastern portion
where the high mountains are located. The average annual rainfall in the area is 527 mm. The majority
of the precipitation falls in the months of July to September and is dominated by the North American
Monsoon. The runoff from precipitation is captured by several reservoirs on the Yaqui River and its
tributaries, and is used mainly for irrigation purposes. The Yaqui River Delta occurs where the River
meets the Gulf of California, also called the Sea of Cortez. The Delta is the location of two of the
more important ecosystems in the lower part of the Yaqui River Basin: the riparian ecosystem, and the
coastal wetlands and estuaries. The Yaqui Valley farming region, which is encompassed within the
Delta, is the most important agricultural area (more than 250,000 ha) in Sonora State. Agriculture is
the largest user of water, representing more than 96% of the total water withdrawal in the Delta.
Water demand from cities and towns of more than 800,000 inhabitants in the entire Basin is
increasing due to the accelerated migration of rural inhabitants to nearby cities. Other significant
economic activities that exert a water demand in the Delta include manufacturing, animal husbandry,
aquaculture and fisheries. The environmental concerns associated with water management in the
Yaqui River Delta are clearly linked to a decrease in water flows and deterioration of water quality.
These concerns can be summarized by five major problems: salinity intrusion, agrochemical
pollution, deterioration of wetlands and estuaries, habitat destruction, and loss of biodiversity. After
completion of Oviachic Dam in 1952, the majority of the flow in Yaqui River has been used for
irrigation. As a result, the Yaqui River has not reached the Gulf of California for several decades. This
situation has deteriorated the quality of the environmental services provided by the ecosystems that
depend on the water flows in the Yaqui River Delta.
Until the Oviachic Dam began its operations, the Delta consisted of lush, riparian forests of mezquite,
alamo, willows and coastal scrubs. This vegetation, however, has effectively disappeared over the last
few decades. The loss of riparian vegetation, coupled with the loss of wetlands and estuaries because
of desiccation and the expansion of aquaculture farms, has reduced the habitat for resident and
migratory birds and other animals, including several protected species. The lack of water in the rivers
has also greatly reduced the deposition of silt that formerly replenished the wetlands and estuaries
with nutrients. The reduction in freshwater flow in the Yaqui River Delta has also reduced the influx
of nutrients to the Gulf of California, one of the world's most productive marine ecosystems, and has
reduced critical nursery habitat for fisheries that thrive in the upper portion of the Gulf. The lack of
flow in the River downstream of the Oviachic Dam has also reduced recharge of the aquifers in the
Delta. The reduction of recharge, combined with the groundwater extraction for irrigation could
generate the saline intrusion problems that have occurred in several neighboring aquifers. Water rights
have been allocated in the Rio Yaqui basin to municipal, industrial and agricultural users, with the
majority of the water rights being allocated to agriculture (95%). In Mexico, water rights law has been
historically based on the principle that water resources are the property of the state and thus should be
a free, constitutional right for every citizen. Recent reforms, however, have been designed to promote
private water rights and to allow for water rights to be traded and leased by users.
10 of 13

July 1‐5, 2008
The objective of this study is to estimate non-market values for water in the Yaqui River Delta,
Sonora, Mexico, based on residents' willingness-to-pay for existing or potential environmental
services sustained by water flows in the Yaqui River.

___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
3. Work through the steps of the CVM process to estimate the WTP to improve air quality in
Beijing.

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
B. Obtain the bids

a. Select a method for obtaining a bid (income taxes, property taxes, value added or sales
tax, utility bills, entry fees, payments into a trust fund). Given that all farmers in the
Yaqui Valley are organized into irrigation districts which hold water rights for almost
3,000 million m3/year. All water diverted for irrigation purposes is controlled by the
irrigation districts.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
b. Select the type of questionnaire survey to be adopted (In-person survey, mail survey,
phone survey, etc.):
________________________________________________________________________
11 of 13

July 1‐5, 2008
x. What are the various types of information to be obtained via the questionnaire?
− _____________________________________________________________
− _____________________________________________________________
− _____________________________________________________________
xi. Would you use an open or close-ended question to elicit the WTP, and why?
− The WTP elicitation format consisted of a single-bound dichotomous choice (DC)
bid followed by an open-ended question eliciting maximum WTP.
− The bid amount X was assigned randomly to the respondents and came from a set
of 15 possible values in the range of 10 to 150 pesos per month, in increments of 10
pesos. The maximum bid amount was estimated based on data on the distribution of
typical household expenditures, the purchase of agriculture water rights in Sonora,
and average water bills in Ciudad Obregon.
xii. What wording would you use to elicit the WTP?

− The respondents faced a single DC question of the form “Are you willing to pay X
monthly for the next five years?
xiii. What is the main type of bias that could be associated with this form of WTP
elicitation?
− _____________________________________________________________
xiv. How would you convince the interviewee that his answer will influence the decision-
making process
− _____________________________________________________________
− _____________________________________________________________
d. Sample size:
197 households
g. What is an important step in questionnaire development and administration?

_____________________________________________________________
e. How long in your opinion should the duration of the questionnaire be?
_____________________________________________________________________
C. Estimate the mean WTP/WTA
Bid level in # of respondents # of respondents # of respondents not

pesos per given bid level agreeing to bid level agreeing to bid level
10 8 8 0
20 8 7 1
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July 1‐5, 2008
30 10 9 1
40 9 8 1
50 9 5 4
60 10 5 5
70 11 10 1
80 10 6 4
90 7 7 0
100 6 5 1
110 7 5 2
120 8 4 4
130 8 6 2
140 7 4 3
150 7 3 4
Total 125 92 33
− 23 responses were excluded: 3 because of lack of confidence by the interviewer, 2

unrealistically large WTP, 18 ‘protest zeros’
− 125 respondents: 5% non protest zero WTP, 95% non-zero
1
DC question: MeanWTP = X i yi = ___________________________________
N
∑
N i =1
Where N is the total number of responses, Xi the bid level, and yi the number of yes responses to that
bid level
Open ended question mean WTP = 73 pesos/month (6.8 USD/month)
D. Assess validity of the CV exercise

Multivariate statistical analyses were performed to understand households’ determinants of WTP
responses:
Significant determinants were:
− initial bid amount (- correlation)
− # of years of formal education (+ correlation)
− # of children in household younger than 15 yrs (+ correlation)
− Household monthly income (+ correlation)
Results from linear and logit models were relatively similar ⇒ robust WTP-determinant relationships
13 of 13
CASE-
CASE-STUDIES
REGIONAL WORKSHOP ON 1. Coastal Ecosystems in Phang Nga Bay,
Thailand
2. Air quality in Beijing
3. Ecosystem services in Ejina, China
Session 11 4. Environmental Services in the Yaqui River

Stated Preference Approach Delta, Mexico
GROUP EXERCISES 5. Sustainable development in Swedish
coastal zone
Case Description
Study area
• Phang Nga Bay, Thailand: large
bay in Andaman Sea, covering
costs of Phuket, Phang Nga and
Case study 1 Krabi provinces
Economic Valuation of Coastal Ecosystems • Habitat for
– 60228 ha mangrove area
in Phang Nga Bay, Thailand – Coral reefs
– Sea-grass beds
• Intensive aquaculture activities:
shrimps, cockles, oysters,
bivalves
• Distinctive & attractive tourism
assets: beaches, islands, parks,
etc.

Ecosystem deterioration Ecosystem deterioration & threats
• Reduction of mangrove forests in • The Bay was designated as an area for the
all Thailand:
– From 367000 ha to less than 168676 Southern Seaboard Development Project which
ha in the period 1961-1993 – Is intended to capitalize on natural resources to
– Converted to other uses: attract foreign development
aquaculture, mining, settlement sites,
ports & roads, salt ponds, marine – Consists of: 2 deep-sea ports, industrial estates,
shrimp aquaculture urban centres & highways
• Damages to coral reefs:
– Natural forces • Some people are arguing that net benefits of
– Increased tourism activities such as planned developments exceeded those of
snorkeling mangrove forests
• Dangers on fauna: mangroves and
coral reefs provide habitat for fish &
migratory birds as well as rare & What is the economic value of changes to the
endangered plant & animal species Major mangroves and reefs quality of the mangroves & coral reefs
in Thailand ecosystems in the Bay???
Conjoint analysis The WTP experiment
• Face-to-face interviews with randomly selected 300 • Intended to estimate the value resource users
thais from 2 areas: Phang Nga Bay & other major
provinces place on ecosystem quality changes from its
• Surveyors received a training present average level (status quo) to good
• Four ecosystem attributes were valuated: living coral (plan A) & excellent (plan B) for the 4 selected
cover, income from fishery, flood occurrence, area
protected attributes
• Payment method: increase in income tax • Cost values
• The survey (pre-tested with 60 individuals) included 4 – Were determined based on pre-tests: a payment card
parts:
– General attitudes towards the environment (ranking exercise) where respondents were asked to tick the amount
– Background information on current use of mangroves & reefs they were sure they would pay & to cross the amount
(illustrated with maps & graphics) they were sure they would not pay
– The WTP question in the form of a choice experiment
– Socio-economic characteristics – Varied between 200 & 1500 Baht (5 & 37.5 USD)

The WTP experiment – Alternative choices Attitudes on use of the Bay
Set 1 2 3 4 Cost Set 1 2 3 4 Cost
(Baht) (Baht) Problems Rank
21 Exc Exc Exc Ave 200 1 Good Good Good Ave 200
Respondents were asked to Protecting natural habitats and wildlife 35% (1)
chose among the following
22 Exc Exc Ave Good 1000 2 Good Good Exc Ave 200
Reducing water pollution 23% (2) We have a duty to 1
3% 3%
alternative choices 23 Exc Ave Good Exc 200 3 Good Good Ave Good 1000 protect the environment 2 0 % 2
Improving quality of education 16% (3) 48%
24 Exc Ave Exc Exc 200 4 Good Good Ave Exc 1000 from development 3
25 Exc Ave Ave Good 700 5 Good Exc Good Exc 1500 Increasing agricultural productivity 12% (4) regardless of the cost 4
26%
26 Exc Ave Ave Ave 1500 6 Good Exc Good Exc 700 Inflation 9% (5) 5
27 Ave Good Good Good 1500 7 Good Exc Exc Good 1500 Other social and environmental problems 6% (6)
28 Ave Good Good Good 200 8 Good Exc Exc Ave 700
Attributes Level 29 Ave Good Exc Good 200 9 Good Ave Good Good 1000 Ranking of social & environmental problems
1- Increased Average (no change), 30 Ave Good Exc Ave 700 10 Good Ave Exc Good 1500
living coral Good (25%), Excellent Problems Rank
31 Ave Good Ave Exc 700 11 Good Ave Ave Exc 700 4% 2% 1
cover (65%) We should minimize 14%
2
2- Increased Average (no change), 32 Ave Exc Good Exc 1500 12 Good Ave Ave Ave 200 Degraded mangroves and coral reefs 44% (1) environmental damage
income from Good (35 %), Excellent ( 50% 3
fishery 60%)
33 Ave Exc Exc Ave 1000 13 Exc Good Good Good 700 Deforestation 22% (2) for the benefit of our 30% 4
3- Flood Average (every year),
34 Ave Exc Ave Good 200 14 Exc Good Good Ave 1500
Floods 11% (3) grandchildren 5
occurrence Good (every 2 years), 35 Ave Exc Ave Exc 200 15 Exc Good Exc Exc 1500
Excellent (every 4 years) Other environmental problems 11% (3)
36 Ave Exc Ave Ave 1500 16 Exc Good Exc Exc 1000
4- Increased Average (no change), Water pollution 10% (5)
area protected Good (20 %), Excellent 37 Ave Ave Good Ave 1000 17 Exc Good Ave Ave 1500
(50 %)
38 Ave Ave Good Ave 700 18 Exc Exc Good Good 200 Air pollution 2% (6) 1= Strongly agree 2=Agree
Increased 0, 200, 700, 1000, 1500
39 Ave Ave Exc Good 1500 19 Exc Exc Good Ave 1000 3=No opinion 4=Disagree
income tax in Ranking of environmental problems 5=Strongly disagree
2002 (Baht) 40 Ave Ave Exc Exc 1000 20 Exc Exc Exc Good 700
Results Results
Attitudes on use of the Bay WTP estimation
14% 1 7% 7% 24% 1 5% 3% 1 • Diversity of flora & Attributes (Baht/person/year)
19%
fauna is the most
44% 15% 2 2 39% 2 Average Good Excellent
3 3 3
30% Flora and fauna -699 265 434
13%
14%
4
5
32%
4
5 34%
4
5
important attribute Local livelihood -257 257 -
Ecological function -252 - 252
Rare and endangered species 46 -204 158
Thailand needs to develop her forests, sea, and I should pay for the protection of parks and It is worth spending money to protect
land to increase jobs and incomes, regardless of
the environmental damage
nature reserves even if I do not visit them mangroves because they help to protect
agricultural productivity in the area
• Aggregate WTP is
5784 million Baht Attributes WTP Baht
(USD)/person/yr
Percent
(%)
1 6% 4% 1 1
(144.6 million USD) Flora and fauna 434 – (-699)= 50
8% 2% 2% 27% 9% (from average to excellent) 1,133 (28)
18% 2
3
27%
2
3
39%
14% 2
3
per year (computed by Local livelihood 257 – (-257)= 22
70%
4
36%
4
20%
18% 4 multiplying by number (from average to good) 514 (13)
5 5 5 Ecological function 252 – (-252)= 22
of beneficiary people (from average to excellent) 504 (13)
Rare and endangered species 158 – 46 = 6
Mangroves and coral reefs should be protected Even if I do not use the mangroves and coral reefs now, (from average to excellent) 112 (3)
because rare birds and marine lives depend on I am prepared to pay now to protect them in case I want We have more important things to think about than
them to use them in the future the loss of the mangroves and coral reefs Total 2,263 (57) 100
1= Strongly agree 2=Agree 3=No opinion 4=Disagree 5=Strongly disagree

End of Case Study Case study 2
Economic valuation of air quality
improvement in Beijing, China

Study area Ecosystem deterioration
• 8 districts of Beijing, China: • Beijing has been experiencing a rapid economic
– 4 urban (Dongcheng, Xicheng, Chongwen and development:
Xuanwu) – GDP growth rate of more than 9% per year since 1995
– 4 suburban (Chaoyang, Fengtai, Shijingshan and – Maximum of 10.2% in 1999
Haidian)
• Significant deterioration of environmental quality,
especially air quality
• Impacts on:
1. Human health 2. Agricultural yield 3. Industrial production
What is Beijing’s residents WTP to improve air

quality in its urban areas???

Contingent Valuation Questionnaire design
• In-person 15-20 min interviews on WTP to improve air quality, with a • Three parts (revised through pre-tests):
sample of 1500 households distributed among districts proportionally 1. The general attitudes of interviewees toward the
to their household density
environmental quality in Beijing (willing or unwilling to
• Steps taken to reduce common biases in the contingent valuation
pay, and why?)
method:
– Part-whole bias: interviewee was asked about the payment his household would
2. The WTP of residents to improve air quality in Beijing:
do annually, to eliminate biases related to individual/household payments and designed question
time horizon ‘What would your household be willing to pay annually during
– To get a conservative estimate: open-ended question about WTP estimate was
the next 5 years in order to fulfil the goal of air quality
used (generally leads to lower mean WTP than other types of questions)
improvement in Beijing (50% reduction in air pollution levels)?’
• Interviewees were told that their WTP answers would contribute to air
quality improvement where they live and work and influence the Note: before responding, the interviewee was shown some
decision-making process pictures of ‘deteriorated air’ and some of ‘improved air’
• A follow-up question was used at the end of the interview regarding 3. The social and economic features of interviewees: age,
degree of understanding of the survey: 70.3% fully understood, 15.9% gender, employment, income, household population, etc.
partially understood, 13.8% didn’t understand
Results Results
WTP responses (1) WTP responses (2)
• 1371 out of 1500 questionnaires were recovered
• Aggregate annual WTP (by multiplying the mean
WTP in RMB (in
USD) /year
# of
interviewees
Percentage (%) Proposed area for expenditure Ratio
(%)
WTP per household per year by total # of
0
≤ 10 (1.4)
460
65
33.6
4.7
Scientific research on air quality
improvement
28.9
households in survey area):
11-50 (1.5-7.0) 161 11.7 Air quality improvement project (e.g.
improve energy consumption)
53.2
– Conservative: 3.36 billion RMB (0.5 billion USD) per
51-100 (7.2-14.1) 302 22.0
101-500 (14.2-70.3) 331 24.1
Compensation to the unemployed 16.8 year
workers due to the closure of
501-1000 (70.4-140.5) 42 3.1 enterprises which cause air pollution
≥ 1001 (140.7) 10 0.7 Pay for the environmental 15.9
– Upper limit: 4.98 billion RMB (0.7 billion USD) per
Total 1371 100 management expenditure (e.g. air
quality monitoring system
year
development)
WTP/year Mean in RMB SD Median Maximum Improvement of gas exhaust 18.3 • Beijing residents prefer better air quality and
Sample (in USD) (RMB) (RMB) (RMB) equipment of vehicles
N=1371 (whole) 143 (20.1) 346 50 7000 Assisting the air pollution enterprises 24.0 have a clear idea about the trade-off between
renovation/relocation
N=911 (positive) 215 (30.2) 406 100 7000
economic growth and environmental protection
Includes true zero and protest zero WTP ⇒ conservative estimation
Less than 1% of household income
Results
Statistical analysis
• 4 variables were
found to have
significant influence
on WTP: End of Case Study
– Household income
(+ correlation)
– Education
(+ correlation)
– Household population
(- correlation)
– Age
(- correlation)
Case Description
Study area
• Ejina region, China
• 3116 km2 oasis, surrounded by
desert in Hei River Basin
• Sparsely populated (16000)
Case study 3 • Temperature extremes: average
8.3°C (range: -36.4 to 41°C)
Restoration of ecosystem services
• Hei River’s water resources
in Ejina region, China are the basis of the
environment, economic
development and people lives
• Ejina oasis is the first barrier to
sandstorms originating in the
middle of Hei River Valley andn
orth Western China
Case Description
Case Description
Impacts of ecosystem
Ecosystem deterioration
deterioration
• Increase of desert area and decrease of oasis area in Ejian
• Decrease in water flow over past 40
years as a result of:
resulted in the increase of sandstorms in the middle of the Hei
– Low mean annual precipitation (36.6 River, which reached sometimes Northern China (Beijing,
mm) Tianjin and neighboring areas). These storms:
– Increase in water use as a result of – Generated thick dust and created traffic problems
economic growth and increase in
population – Resulted in economic losses: reduced sunlight to cultivated land
– Stop in water flow from May to July as caused a decrease in production
a result of agriculture production peak – Reduced the visibility: increased traffic hazard
– Drying up of runoff after November
– Adversely affected mental health of the population
• Cost of restoration of Ejina’s ecosystem to prevent
¾ Cultivated land has been reduced from 3.07x104 0.3x104
ha in 1960 to ha in sandstorms was estimated at 600 million RMB (Renminbi, ~85
2000, the rest turned down into desert
¾ Area of degraded forest and harsh desert grassland has increased by 35.09x104 million USD) over 5 years
ha since 1960 • Is this cost worth the benefits to people living in the
¾ Ejina oasis has been reduced to 3 riverine areas: West River, East River and
Gurina (figure) area???

Contingent Valuation Questionnaire design
• In-person 30-min interviews on WTP estimation for ecosystem • Four major parts:
restoration, with a sample of randomly chosen 700 households 1. Background on Ejina region: maps showing location and condition of
in Hei Valley the ecosystem; history of the area
2. Card listing the 5 services that restoring Ejina ecosystem could provide:
• Steps taken to reduce common biases in the contingent
• Control soil erosion & reducing sandstorms
valuation method: • Provide habitat for wildlife
– Providing a 2 RMB (~0.3 USD) currency bill as appreciation • Natural purification of water
– Printing questionnaire on good quality paper bound in booklet form • Dilution of wastewater
– Providing background information on Ejina ecosystem • Curb land salinization
3. Valuation portion:
– Deciding the bid range (range of WTP amounts) by pretest and adopting
• Portrayal of ecosystem to be valued
the ‘payment card’ (PC) method
• Choice of payment vehicle: donation, ecological protection tax, water bill, a
– Keeping responses anonymous fourth option left as blank to fill by a method preferred by respondent
• Respondents were told that feedback from survey will be used • Payment Card: used to elicit respondent’s RMB amount of WTP
as input by the government in its study of restoring Ejina 4. Series of questions on respondent’s personal & socio-economic
ecosystem information

Exact wording of Payment Card WTP responses (1)
Response Percent of respondents (%)
If the majority of households vote in favor of restoring Ejina ecosystem, the
Main Valley Surrounding district
Ejina’s ecosystem will be restored to the level of the early age of 1980s.
If a majority vote against, the Ejina ecosystem will remain the conditions Willing to pay some amount 92.37 (448) 92.09 (198)
and deteriorated as current tendency, at last, it has the likelihood to ‘Restoring ecosystem service is not worth this money to me’ 0.00 (0) 0.00 (0)
disappear in the world like the historic country ‘LouLan’. ‘I can’t afford to pay this amount’ 1.03 (5) 0.93 (2)
‘It is unfair to expect me to pay for increasing ecosystem services’ 2.06 (10) 3.26 (7)
If the project of restoring Ejina ecosystem is at the stage of raising capital, if ‘Restoring Ejina ecosystem services cannot get expected effect’ 1.65 (8) 0.00 (0)
you vote in favor of it, please draw a circle around the maximum amount
‘I am opposed to paying for this government program’ 2.27 (11) 2.79 (6)
your household would vote for and draw a line under the lowest amount
Other reasons (protest response) 0.62 (3) 0.93 (2)
your household will switch (i.e. to a no) each year in the following 20 years.
Total 100.00 (485) 100.00 (215)
0 2 5 10 20 35 50 75 100 200 300 Deleted as protest 6.60 6.98
1% of per capita 5% of per capita

yearly income yearly income
If current raising capital is a lump-sum payment, would your household be
in favor of cost …………. (RMB) to restoring the Ejina’s ecosystem. (Please WTP amount (RMB) 0 2 5 10 20 35 50 75 100 200
fill in the blank) Frequency distribution (%) 7.3 8.5 10.4 22.4 17.2 8.2 11.8 2.3 8.5 3.4
Results Results
WTP responses (2) Time Discount for WTP
• Economic theory requires that the utility of a lump sum be equal to that of a series of
• Median WTP per household is 19.37 RMB/year (2.72
annual payments as a result of a discount rate:
USD/year) in Hei Valley; ranging between 20.78 RMB A(PVIFAei,n) = FVn1(PVIFr,n1)
(2.92 USD) in Main Valley and 16.41 RMB (2.31 USD) in Where A is the annual payment (32.18 RMB as per survey results); PVIFAei,n is the
present value interest factor for ei and n (n=20); ei is the interest rate of environment
the Surrounding District ⇒ People living in # areas view goods (?); FVn1 is the future value lump sum investment at the beginning or end of n1
differently the services provided by an ecosystem years; PVIFr,n1 is the present value interest factor for r and n, r is the risk-free interest
rate (2.25%) and n1 is the time lump sum investment provided (20 years).
• If lump sum is provided at the end of the 20th year:
• Respondent’s education & income level were positively
32.18x(PVIFAei,20) = FV20(PVIF2.25%,20)
correlated with WTP and were significant ⇒ ei = 19.8%
• If lump sum is provided at the beginning of 1st year ⇒ ei = 11.5%
• Suburban and urban residents have higher willingness to • ei = 11.5-19.8% ⇒ High discount rate for environmental goods!!
pay than rural/farm residents – Encourages public to underestimate the importance of future benefit
– Demonstrates that humans should take action on environmental restoration & protection
Results
Expansion from sample to population
• The following steps were taken:
– Providing a conservative estimate of WTP: non-respondents and protests
have a zero WTP
– Using the median annual WTP per household of Main Valley and
surrounding district
– Multiplying the median by the number of households in the respective
End of Case Study
regions
– Aggregating WTP on time scale by adopting the mean environment
discount rate (15%)
• Aggregate present value of benefits: 55.33 millions over a 5-year
period
• Less than present value of restoration cost: 400 millions
(calculated from 600 millions, at the 15% discount rate, over 5
years)
• Implications:
– Limitations of using WTP approach in less developed countries
– Need to determine if there are additional benefits in other regions
Case Description
Study area
• Yaqui River basin, largely in Sonora,
Mexico, small part in Chihuahua,
Mexico, and small portions in Arizona
and New Mexico in US
Case study 4 • 72540 km2 basin, in driest hydrologic
regions of Mexico
Economic valuation of environmental • 800000 inhabitants
services of water flows in the • The delta occurs where River meets
the gulf of California: location of 2
Yaqui River Delta, Mexico important ecosystems, the riparian
ecosystem, and the coastal wetlands
and estuaries
• Home of most important agricultural
area in Sonora State: > 250000 ha of
wheat, soybeans, cotton, maize,
sorghum, and alfalfa; withdraws 96% of
delta water
Case Description Applied Method
Ecosystem deterioration Contingent Valuation
• Face-to-face interviews on WTP estimation for water flows
• Decrease in water flow and ¾ Disappearance of riparian restoration, with a sample of 197 households
deterioration of water quality: vegetation, loss of wetlands and
– Low annual precipitation (527 estuaries – habitat for resident • Steps taken to reduce common biases in the contingent
and migratory birds and several valuation method:
mm) protected species –
– Increase in water demand in ¾ Reduction of the influx of – Sample selection bias: next available house was approached
urban centres of the basin: nutrients to the Gulf of California immediately after end of each interview
migration of rural inhabitants to ¾ Reduction of critical nursery – Sampling frame bias: a full range of survey sites were used
nearby cities habitat for fisheries
– Starting point bias: was assessed by determining the dependence of the
– Economic activities exerting ¾ Reduction of the recharge of the
aquifers in the Delta, coupled to WTP on bid starting point (yes-saying bias)
water demand: manufacturing,
animal husbandry, aquaculture groundwater extraction for – Potential sponsor bias: respondents were told the research was
and fisheries agriculture ⇒ saline intrusion sponsored by a university – a neutral body –
problems
– Interviewer and misspecification biases: interviewers were trained on
CVM surveys
What is the WTP for restoring in-stream flows in the Yaqui River
delta???

Survey design WTP elicitation format
• Major parts (revised through pre-tests):
– Presentation of background on the Yaqui River Delta: geographic 1. Single dichotomous choice (DC) format
information, agricultural activity, environmentally sensitive issues (+
visual aids)
question (yes/no):
– Presentation of information on environmental services sustained ‘Are you willing to pay X monthly for the next
by Delta if in-stream flows are restored:
• Preservation of habitat for birds and other fauna five years?’
• Maintenance of local fisheries
• Dilution of pollutants X randomly lying between 10 and 150 pesos
• Recreation (~1 and 14 USD) in increments of 10 pesos
• Non-use values: existence & cultural values, use value for future
generations 2. Open-ended question eliciting maximum
– Scenario description: explaining how ecosystem functions under
current conditions versus with increased ecosystem services WTP
– Payment vehicle description: water bill increase to purchase water
from farmers (N.B: a main rule was the avoidance of
– WTP elicitation repeated questioning and iteration)
– Collection of demographic information (gender, age, income, etc)
Results Results
DC question responses Open-
Open-ended question responses
• 148 out of 197 households
(75%) responded:
Bid level
in pesos
# of
respondents
# of
respondents
# of
respondents
• Mean WTP = 73
– 23 responses were excluded: 3
per given bid
level
agreeing to
bid level
not agreeing to
bid level pesos/month (6.8
because of lack of confidence by 10 8 8 0
USD/month) Normal distribution
the interviewer, 2 unrealistically 20 8 7 1
large WTP, 18 ‘protest zeros’ • Higher than that obtained
Frequency
30 10 9 1
– 125 respondents: 5% non protest 40 9 8 1
zero WTP, 95% non-zero 50 9 5 4 with DC question because:

60 10 5 5
1 N 70 11 10 1
– respondents accepting the initial
• MeanWTP = ∑ Xi yi
N i =1 80 10 6 4 bid added a maximum WTP
90 7 7 0
estimate significantly higher
= 52 pesos/month (4.9 100 6 5 1
USD/month) 110 7 5 2 than the initial bid WTP (pesos/month)
Where N is the total number of 120 8 4 4

– respondents rejecting the initial Distribution of WTP responses
responses, Xi the bid level, and yi the 130 8 6 2
number of yes responses to that bid 140 7 4 3 bid chose a slightly lower WTP
level 150 7 3 4
Total 125 92 33
Results
Statistical analysis
• Multivariate statistical analyses were performed
to understand households’ determinants of WTP
responses: End of Case Study
– Significant determinants were:
• initial bid amount (- correlation)
• # of years of formal education (+ correlation)
• # of children in household younger than 15 yrs (+ correlation)
• Household monthly income (+ correlation)
– Results from linear and logit models were relatively
similar ⇒ robust WTP-determinant relationships
Workshop on Case Description

the Cost of Environmental Degradation Study area
• The Swedish coastal zone
• Open-access conditions &
public nature of provided
Case study 5 services ⇒ conflicting interests
Economic valuation for sustainable – Between people of remote coastal
development in the Swedish Coastal Zone areas interested in coastal
ecosystem goods & services, &
the urban population interested in
high quality recreation facilities
– Between those who demand
coastal ecosystem goods &
services (e.g. swimmers) and
those influencing their supply (e.g.
emitters of nutrients)
Case Description Case Study 1

Reduced eutrophication of the
Ecosystem deterioration Stockholm Archipelago
• Emission of nutrients • Nutrient emissions in catchment area → Increased N
– Agriculture and forestry in catchment Increase in nitrogen load to concentration in coastal water → eutrophication
areas seawater → decrease in
– Municipal wastewater treatment plants water transparency → • Do the benefits of reduced eutrophication outweigh the costs
– Atmospheric deposition (e.g. from Eutrophication of reduced eutrophication effects?
traffic)
• Cost of mitigation:
• Open access to fishing grounds – 1-m increase in the average water transparency → 40% reduction in N
– Increased harvest
load (annual reduction of 2725 tonnes of nutrients) → increased sewage
Decreased fish stocks, e.g. water treatment & reduced fertilizer use ⇒ 57 million SEK (~9.5
– High fishing pressure in commercial cods & blue skates
catches in the North Sea million USD) per year
– By-catches from bottom trawling • Benefits:
Frequent violation of water quality – Recreational benefits were estimated by travel cost method
• Deterioration of marine water quality standard; Medium biological – Other benefits were captured by contingent valuation method (5500
diversity; Low average cod catch per random mail questionanires in Stockholm & Uppsala)
trawling hour
– ⇒ 60 million SEK per year (travel cost)
+ 500 million SEK per year (CV)
What is people’s WTP for environmental improvements or for = 560 million SEK (~93 million USD) per year
avoiding environmental damage???
Case Study 2 Case Study 3
Improved water quality at the Swedish
Improved coastal fisheries in Sweden Westcoast
• Open access to fishing grounds → decreased fish stocks • Deterioration of sea water Attribute Description Levels*
• Do the benefits of increased fish stock outweigh the cost of quality → decrease in Bathing Frequency of west-coast 12, 10, 5
biodiversity and fish stock water sites violating the quality
underlying support to fish reproduction? quality (%) standard
and violation of water quality Biodiversity Biological diversity or Low,
• Study is on-going standards ecosystem balance Medium,
High
• Benefits: • What are people’s
Cod stock Catch per trawling hour 2, 25, 100
– Travel cost method: 2500 random questionnaires in Stockholm & preferences for improved (kg) with a research vessel
Uppsala counties to collect info on sites visited by respondents, the water quality? Cost (SEK) The total cost for an 0, 120, 240,
individual for each 600, 960,
distance travelled, travel time, travel costs, catch rates, etc. • A choice experiment alternative 1800
– Average response rate was 55% framework was used: *present level is in bold format
– Preliminary results: – Water quality was represented WTP (SEK) for a change from
by 3 attributes current level to highest level
• Positive relationship between probability that a fishing is chosen & the catch
of fish – People were asked about their Attribute
• Negative relationship between probability that a site is chosen & travel cost
WTP for a change in the
attributes from current level to Water Cod High biod
• Based on these results, economic benefits of improved fishing in the the highest level 600 1200 600
MWTP*
archipelago; they will be compared to mitigation costs to assess actual
*marginal willingness to pay
profitability
End of Session 11
Thank You
REGIONAL WORKSHOP
ON
THE COST OF
ENVIRONMENTAL
DEGRADATION
METHODOLOGY
Session 12
Miscellaneous Case-studies
Outline
REGIONAL WORKSHOP ON • Background
• Study Objective
THE COST OF ENVIRONMENTAL • Study Scope and Methodology
• Main Drivers and Pressures
Session 12a • Municipal Capacity
Political Economy of the Coastal Zone • Economic Activity
in Northern Lebanon
• Willingness to Preserve & CZ Intention
• Conclusion and Discussion
Background Background
• The Mediterranean coast experienced drastic
Unplanned
changes over the last decades: development
• based on the increased pressures from drivers disrupted the
such as population and economic growth, coastal “striped”
globalization and trade, urbanization, slopes and altered
industrialization, tourism, fisheries, extraction
and agriculture the land-use hence
• with impacts on environmental health, putting more
sustainable development (air, water, soil and pressures on most
biota), land-use, encroachment on natural coastal zones
habitat, ecosystems, agricultural areas,
watersheds and pristine areas; climate change
Source: Plan Bleu (2006).
Background Objective
Gauge the political economy of improving the
• due to poor CZ regulatory framework/instruments
across most East/South Med countries since the management of the northern coastal zone by:
1960s (Plan Bleu)
• With a regional response led by the EC (Plan
Bleu, MAP, PAP/RAC, etc.) in conjunction with In a First Phase (EC-SMAP III and University
UNEP, World Bank-METAP and other Donors to of Balamand):
reduce the land-based pollution of the coast,
improve the integrated management of the coastal - Determining drivers and coastal pressures in
zones, etc. (1995 Barcelona Convention and its conjunction with fiscal and human resource
Protocols including Land-based and ICZM) municipal capacity, and economic activity
- Assessing the willingness to preserve the
coast (DD for change)
Objective Objective
The objective of the First Phase will be
achieved through:
In a Second Phase (EC-SMAP III and
METAP): 1. Analyzing the human resource and financial
- Assessing the legal/institutional framework capacity of the coastal municipalities
- Valuing the coastal environmental 2. Determining the coastline (including the
degradation and remedial actions municipalities) Gross Domestic Product
- Suggesting policy (ways to achieve change) (GDP)
and institutional (instruments to achieve
change) reforms 3. Calculating the direct & indirect value of the
northern coast and dweller ICZM intentions
(Survey)
Scope Methodology
• Coastal municipalities: fiscal analysis

based on surveys and budgets
• Coastal GDP: VAT, rapid surveys, etc.
used to generate the value added based
on National Account Input/Ouput ratios
Each coastal zone definition • Coastal direct/indirect (UN Millennium
is meant to answer a specific
purpose
Ecosystem Assessment) and dweller
The cadastre boundaries of
the coastal municipalities were
ICZM intention based on surveys (CVM
retained for this exercise and Behavior Theory of Collective Action)
Drivers and Pressures Municipalities

Three typologies of municipalities are available:
Coastal Population: 413,000 to 567,000 • Four Cities/Towns (population: 312,000):
Density: 390-1,000 population/km2 Minieh, Tripoli, El Mina and Batroun
Northern Population 1997-2030: +41%
GDP net growth: +6% (04) +2% (05-11) • 17 Villages (population: 98,000):
Qlayaat, Qobet Shamra, Bebnin, El Mhamra, Bhanine, Deir
Urbanization: 74%; air, solid/liquid waste Ammar, Bedawi, Ras Maska, Kalamoun, Kelhat, Anfeh,
Industrialization: cement and fertilizers Chekka, El Herri, Hamat, Selaata, Koubba and Kfar Abida
Trade: Tripoli port serving the hinterland
• Two Federations of Municipalities (population: 338,000)
Tourism: 42 beaches, resorts and hotels
Minieh Federation (Minieh, Deir Ammar, Bhanine)
Fisheries: unsustainable practices Fayha’a Federation (Tripoli, El Mina and Beddawi)
Extraction: salt marshes: a dying activity
Agriculture: land erosion, water quality Villages w/o municipalities (Mohafaza Jurisdiction)
Watersheds: municipal effluents; runoff • Three orphaned Villages (population: 3,000):
Mountain: deforestation; terrace collapse Arida, Cheikh Zennad and Rmoul
Municipalities Aggregate Municipal Budgets
Mohaf. City/Village Number of Municipal Actual Number Number of Staff
/Casa (north to south) Council members of Staff Authorized by Law
Arida Under Mohafaza Jurisdiction
Cheikh Zennad Under Mohafaza Jurisdiction
Rmoul Under Mohafaza Jurisdiction
Akkar
Qleiat 12 3 6
Qoubbet Chamra 9 0 3
Bebnin 18 2 13
Al Mehamra 10 2 5
Minieh Federation 3 NA NA
Bhanine 15 2 6
Minieh-
Minieh 21 11 12
Dennieh
Deir Ammar 15 3 7
Beddawi 15 30 42
Fayha’a (Tripoli) Federation 3 35 240
Tripoli Tripoli 24 640 1,000
El Mina 21 63 132
Koura Ras Maska 9 4 5
Tripoli Qalamoun 15 8 9
Kelhat 9 2 2
Koura
Anfeh 15 5 5
Chekka 15 8 8
El Herry 9 2 7
Hamat 12 2 8
Batroun Selaata 8 4 7
Koubba 9 2 3
Batroun 15 15 20
Kfar Abida 9 1 3
Total 291 844 1,543
Source: Municipal Budget Statements (2004-06); and study’s compilation.
Aggregate Municipal Revenues Aggregate Municipal Expenses

Municipal Extra Budgetary
Municipal
Revenues Investments (CDR)
Expenses
??
Administrative Maintenance
Direct Revenues Indirect Revenues Expenses and Investments
City: 39% City: 42% City: 70% City: 17%
Village: 25% Village: 52%
Village: 19% Village: 67%
Taxes e.g. Government transfers Utility transfers are Maintenance Investments

wastewater network are decreasing/ decreasing/ City: 8% City: 9%
and sidewalk backlogged backlogged
maintenance tax City: 36% City: 6% Village: 45% Village: 22%
($2/capita/year) Village: 43% Village: 9%
Municipal Services Municipal Services

Waste Water Treatment:
Solid Waste: With few exceptions, effluents are unloaded
Solid waste is being mishandled across the board without any treatment into the sea or river beds.
except in: 1. A small wastewater treatment plant is
1. Tripoli has a sanitary landfill under CDR operational in Batroun (old city)
implementation with possible carbon funding 2. Waiting to be connected to the sewer
2. Minieh (sorting and composting) under CDR network in Chekka
implementation 3. Being built in Greater Tripoli
3. Beddawi (sorting and composting) under CDR 4. Being planned in Bebnin and Batroun
implementation
4. Hamat (sorting but unsanitary landfill) Air Pollution:
No serious efforts at curbing air pollution from
point and non-point sources, except in Chekka
Municipal Qualitative Assessment Municipal Assessment Summary
• Promising & Growing in Bebnin, Minieh & Ras Although there is a municipal will to preserve the
Maska - try to improve their urban environmental commons, create healthy environments and
health with their meager means ensure livelihoods:
• Well established in Tripoli & El Mina – TEDO • Decentralization and Land use Strategy are on
funded under SMAP II to collect environmental
indicators on air pollution to help decision-makers the back burner; poor governance; financial
make informed choices dependability (unclear policy to borrow, backlog,
• Opportunistic in Batroun- first coastal treatment no powers to change taxes and fees);
plant funded by SMAP I and World Bank uncoordinated investments; etc.
• Controversial in Chekka & Selaata an industrial • Narrow financial base: Limited revenues/funds
cluster –may greatly impact the environment & (especially small municipalities)
other stakeholders of the coastal zone • Limited municipal environmental services
• Frustrated Anfeh cannot capitalize on its cultural • Limited environment-related human resource
heritage (salt marshes), because of bureaucratic
complexity capacity except for Al Fayha’a (TEDO)
Selected Coastline Economic

Coastline Economic Activity Activity
The partial GDP of the northern coast was estimated at $292.5 million Activity Characteristics Output Household Employment
in 2005: Impact(2005) Income(2005) (2005)
Beaches/Marinas On of the main contributors to US$ 39.9

- Industrial sector 57.5 % /Resorts the coastal economic activity million/year
Not obtained Not obtained
- Energy & Water Supply 14.5 %
4 major fishing ports: Abdeh
- Market Services mainly tourism 12.1 % (Bebnin), El Mina,
US$ 27.7
US$ 14.4 million/year 3,347 fishermen
Fishing Activity million/year
- Agriculture (fishing & extraction) 7.5 % Qualamoun, & Batroun
- Government mainly municipalities 6.8 % 7,000 tons/year
-Transportation & Communications 1.7 % Traditional Salt US$ 0.14
bought at about US$ 20/ ton & US$ 0.12 million/year 60 workers
Extraction million/year
-Construction N.A. except for Tripoli Port sold at US$ 50/ ton
-Trade N.A.
seasonal activity in El Mina
mainly between May and Nov.
US$ 0.12
Boating Trip costs US$ 100/day, 30 US$ 0.09 million/year 90 sailors
boats, passenger capacity 30,
million/year
3 crew members
performed on the El Mina

Boat US$ 0.33
Source: MoET (2007); and Author. quayside and consists of US$ 0.13 million/year 30 craftsmen
Construction wooden and fiberglass boats
million/year
Selected Coastline Economic

Activity Economic Activity Summary
Industry in 2005:
A. Cement industry in Chekka: 2 major players • Coastal Area hosts a variety of economic activities:
supplying Lebanon, Cyprus, Syria, Iraq, etc. industries, tourism (boating, marinas), agriculture,
• $100 million in value-added resource extraction, etc.
• 4,500 million tons
• 918 employees • National GDP main contributor is tourism;
coastline GDP main contributor is industries, which
B. Fertilizer Industry in Selaata: The Lebanon give them some leverage (free loader)
Chemicals Company (LCC) operates in a free
zone and exports exclusively to Europe.
• The fishing sector is the single largest employer on
• $68 million in value-added the coast second to the tourism sector (unavailable
• 664,000 ton/year of sulfuric acid, labor statistics)
180,000 ton/year of phosphoric acid &
85,000 tons/year of phosphatic fertilizers • Trade-offs between stakeholders are distorted:
• N.A. employees Industry vs. Tourism vs. Extraction; Community vs.
Municipality; Community vs. Industry/Tourism, etc.
Direct-
Direct-Indirect Resource Use Direct-
Direct-Indirect Resource Use
The survey targeted several issues: But first let us define the total economic value of a
resource:
1. Relative importance of the CZ
1. Direct-use consumptive (goods and services
2. CZ risk perception consumed by users in terms of resource extraction
such fish, oil, gas, sand, salt, pearls, etc.)
3. The entity most suited to managing the CZ 2. Direct-use non-consumptive (services such as
recreational, educational, etc.)
4. Trust among community members for
collaboration on a hypothetical ICZM program 3. Indirect use (services provided by ecological
systems)
5. Willingness to pay to preserve the CZ Î yearly 4. Passive use (option and bequest to endow the
value on the CZ in general and the marine resource to future generations)
resource in particular
5. Intrinsic value (all organism valuable regardless of
And performed regressions the monetary value placed by society)
Direct-
• Sample: 382 Dwellings: 95% confidence level;
±5% confidence interval • ICZM knowledge: 23% knew about it
• Male (67%); Female (33%); HHH (73%) • Relative CZ importance: DCU (74%); DNCU
• Education > secondary (60%); < secondary (80%); IU (83%); EH (93%)
(40%)
• Combined risk perception of the CZ is very high
• Income > relative poverty (42% -close to IMF (96%) with minimal variation across
2005); < relative poverty (58% -close to 2002 determinants
USJ)
• Liquid/solid waste fee = $7 per capita from the
• Village Dweller (26%); City Dweller (74%) survey whereas it is only $2 per capita from
actual municipal budgets
Direct-
WTP Acceptability rate is 64%; WTP represents 0.5% of
4 ICZM Choices income and 0.4% (truncate WTP at 88%)
were suggested WTP Mean: $41/year/HH; $12/year/per capita
WTP Median: $12.9/year/HH; $2.4/year/per capita
Non-Gov Mgt
Income ε of mean WTP: 0.62 with 0.51 (Non-Gov)
PS: 37%
NGO: 6%
Other: 3%
Distrust in
Community: 39%
Direct & Indirect Res. Use
Direct-
Direct-Indirect Resource Use Summary
Regression results: • Although people are aware of the CZ risks:
• 9 predictors determined ¼ of the WTP results Median WTP per capita ≈ Waste Fee per capita
• Risk perception significantly predicted non-Gov WTP
• This warrants an awareness campaign to
• Risk perception suggestively predicted other 3 choices sensitize the population on CZ risks and
• In a distrust intention, odds are the highest for WTP management responsibilities
choices against non-WTP, i.e., the more distrust, the
highest the odds of having a choice with WTP: • There is a distrust across the board: municipality
– Odds of 4.4 selecting choice GovWTP over GovnonWTP in themselves to manage the commons
(financial/HR constraints); the community in the
– Odds of 2 selecting choice nonGovWTP over GovnonWTP government to manage the CZ (governance);
– Odds of 2.4 selecting choice WTP over nonWTP the community in other members and
stakeholders among themselves (vested
interest).
Conclusion Conclusion
• There is a clear demand for change from the • How do we resolve the policy (ways to achieve
population, however, there is a distrust: in the change) and institutional (instruments to achieve
government to deliver (devolve resp.); and other change) and market failures that are leading to the
members to participate in an ICZM program CZ problems in this context?
• There is land-use competition between • Is the introducing a tax for CZ conservation
urbanization, tourism, industry & agriculture along appropriate given the circumstances?
the coast • Does building trust in an informal forum and
• The trade-off between economic starting discussing trade-offs among various
development/growth, social equity and the stakeholders a solution?
protection of the commons is poorly considered • What are the appropriate ways and instruments of
reform?
• The government (at the central and municipal
level) is constrained financially and does not have
a federative approach: CDR is an executing
agency
Discussion!
Paper available on:

www.balamand.edu.lb/english/IMAC.asp?ID=
End of Session 12a
8763
Thank You
Content
REGIONAL WORKSHOP ON • What is Climate Change (CC)?

• What is the MENA Water Sector State
DEGRADATION METHODOLOGY (WS)?
Session 12b
Climate Change Adaptation in the Water • How Will CC Affect the MENA WS State?
Sector in the Middle East & North Africa
Region: A Review of Main Issues • What are the Suggested Responses?
What is Climate Change? What is Climate Change?

• CC is any long-term significant change in • Six scenarios with different assumptions
the average temperature of the Earth's
near-surface air and oceans that a given were developed to simulate GHG
region experiences projections and their effects on CC until
2100
• CC is human-made: science established a
causal effect between the acceleration of
Green House Gas (GHG) emissions and
CC effects in the IPCC 4
• GHG (CO2, CH4 and N2O) emissions

shot past a safe level of 350 ppm by the
end of the 80s and stand at 385 ppm per
volume in the Earth’s atmosphere
Source: IPCC 4 (2007).
What is Climate Change? What is Climate Change?

• Main GHG emission effects on CC are:
• Increases in the amount of precipitation are
-Average global surface temperature will
likely rise between 0.6° to 4° Celsius by 2100 very likely in high-latitudes, while decreases
are likely in most subtropical land and semi-
arid regions (by as much as about 20% in
the A1B scenario in 2100
• In semi-arid areas, droughts will increase
and runoffs will decrease
• The ice cap will shrink and sea level will rise
by a likely range between 0.18 and 0.59
meter by 2100
What is the MENA Water Sector What is the MENA Water Sector
State? State?
RW Availability. MENA region:
• 3 aspects of the water sector are covered: • Most water stressed region in the world (1,100 m3)
-Renewable Water (RW) Availability in 2004 • 3 water groups: arid, hyper-arid and transboundary
-Water Use in 2004
-Water Services in 2004
R
• But first, a definition of RW availability: W
RW PC PA
-Water security: ≥ 1,700 m3 pc pa of RW P
-Water stress: ≥ 1,000 and < 1,700 m3 pc pa of RW C
-Water scarcity: ≥ 500 and < 1,000 m3 pc pa of RW P

A
-Water absolute scarcity: < 500 m3 pc pa of RW
Source: FAO-AQUASTAT (2002) compiled in World Bank (2007a).
State? State?
RW Availability. MENA region is characterized by • low precipitation, high evaporation, and
• Aridity, desertification and coastal density; and increased droughts, flooding and weather
by extreme
People Affected by Floods, Droughts and Extreme Weather

MENA Region1988-07 (000') Flood
Drought
1,000 Extreme Weather
Peop le Affected
(log scale)
10
0
1 9 90
1 9 99
2 0 02
2 0 04
2 0 05
2 0 07
19 8 8
1 98 9
19 9 1
1 99 2
19 9 3
1 99 4
1 99 5
1 9 96
1 99 7
1 9 98
2 00 0
2 0 01
2 0 03
20 0 6
20 0 8
Year
Source: FAO-AQUASTAT (2002) compiled in World Bank (2007a); and Author.
State? State?
Water Use. MENA region is characterized by: • An important share allocated to the
agriculture sector (±85%) with low value-
• Highest RW withdrawal region (75%); and by added GDP per km3 (US$ 701) and low yield
Water Use Share Total Water Withdrawal to Total Renewable • An increased reliance on desalination to
augment water supply
Sector Water Use
Source: FAO-AQUASTAT (2002) compiled in World Bank

(2007a).
What is the MENA Water Sector How Will CC Affect the MENA WS
State? State?
Impact on 5
Water Services are characterized by: categories
• Inadequate governance (accountability, planning, but we will
financing, organizational capacity, etc.) affecting focus on
both access (87%) and water-related diseases (22 water
death per 100,000 from diarrhea mainly in rural) and health
• Poor utility performance (water losses between 30
and 60% and operating cost coverage ratio less
than 1; and
• Low agricultural water requirement ratio that
measures the agricultural efficiency and ranges
between 0.3 and 0.5.
How Will CC Affect the MENA WS How Will CC Affect the MENA WS
State? State?
• The CC effects in the MENA region by 2050 • Demographic growth (+2% in 2000s) will put more
are (figures should be used with care): pressure on RW with an urban population increasing
– Higher temperatures by +2.5 degree C by 93% between 1995-2050
– Lower precipitation by >-10.5% • RW pc pa will decrease by more than half to less
– Lower runoffs between -20 and -30% than 550 m3 putting the region in water absolute
scarcity state
– Sea level rise by 0.39 meter.
– Accelerating drought cycle especially in NAfrica • Water Use: Domestic share will exceed 20% putting
– Burden of disease marginal increase (water- additional stress on the agriculture sector
related, cardio-respiratory and vector-borne • Water Services: all governance, access, efficiency
diseases, malnutrition and injuries) and water-related disease indicators will deteriorate
How Will CC Affect the MENA WS How Will CC Affect the MENA WS
State? State?
Runoff Reduction by 2100
3
2004 MENA RFW: M Per Capita
3,000
2,500
2004 RW PC
Drought Severity by 2100
M per capita
2,000
1,500
1,000
3
500
-
n
Ba a n
q
uti
oro n
Alg ia
ain
Dji a
iA a
Ku E
Tu o
& an
Jo n
r ia
t
bia
it
Ye a
ata
yp
Ira
Ira
eri
no
wa
cc
UA
nis
az
rd
bo
Sa Lib
Sy
W Om
hr
Eg
ra
ba
Q
G
Without CC With CC
Le
ud
B
Arid Hyper-Arid Transboundary
2050 MENA RW: M 3 Per Capita 2050 MENA RFW with -20% CC Effects: M 3 Per Capita
3,000 2050 RW PC 3,000 2050 RW PC

2,500 2,500
M per capita
M per capita
2,000 2,000
1,500 1,500
1,000 1,000
3
500 500
- -
n
B a an
Ba an
q
uti
oro n
Alg ia
ain
uti
Dji a
iA a
M on
Alg ia
ain
Ku E
Tu o
an
Jo n
r ia
Dji a
iA a
t
Ku E
Tu o
an
Jo n
r ia
it
it
bia
bia
Ye a
ata
ata
yp
Ye a
yp
Ira
Ira
Ira
Ira
eri
eri
no
wa
cc
wa
cc
UA
UA
nis
nis
az
az
rd
bo
Sa Lib
Sy
rd
Sa Lib
bo
Sy
n
m
m
hr
hr
Eg
Eg
ra
ra
ba
ba
oro
Q
Q
O
G
Le
Le
&
&
M
ud
ud
B
B
W
Arid Hyper-Arid Transboundary Arid Hyper-Arid Transboundary
Source: FAO-AQUASTAT (2002); United Nations (2007); and

Author
What are the Suggested What are the Suggested
Responses? Responses?
• The MENA region public and private • Better knowledge response

human, social, capital, natural and cultural -Transparent awareness campaign (proactive
assets at stake from future CC effects media and universities) could help ensure an
inclusive and participatory CC mitigation/
adaptation planning and implementation process
• Three responses are suggested: -Mainstream CC in school and university curriculum
– Knowledge response -Adapt/set up knowledge-based CC infrastructure
– Mitigation response (GIS, meteorological indicators, hydrological
– Adaptation response cycle, etc.)

• Better adaptation response • Better mitigation response requires
– MENA region contributes between 3.5 and climate-proof sector-wide water reforms
5% to the global GHG emissions but the by:
emissions growth has outpaced all the other – Balancing water demand (water allocated to
regions (1995-2004) its highest use value) and supply (e.g., drip
irrigation, water reuse, desalination) and
– Opportunity to improve energy efficiency build-in system responsive to variations
(electricity and energy) by tapping carbon
funding mechanism and switching to
abundant renewable energies (solar and wind
in some regions)

-Improving governance (e.g., integrated planning, • Water sector reforms could already help
organization, decision-making, management and contain, delay and mitigate CC effects
resource mobilization), equity, justice and (Morocco has embarked on a long term
preservation of the commons programmatic reform with the World Bank)
-Increasing efficiency (agriculture, domestic) • Looking at reducing the distortions of drivers

could also help increase the effectiveness of
water sector reforms (coherent growth
-Enhancing natural disaster and health service strategy that encompasses population,
preparedness poverty, urbanization, tourism and agriculture
drivers) and increase the climate-proofing
efforts
Introduction of the Carbon Funding of
Waste Emission Presentation
Global GHG emissions (in Giga tons or billion of tons) are illustrated by
compound and sector over the 1970-2004 period.
End of Session 12b

Thank You
Source: IPCC 4
(2007).
Waste and ICZM
REGIONAL WORKSHOP ON • Situation for solid waste?
– Collection of municipal solid waste;
THE COST OF ENVIRONMENTAL – Waste separation/recycling;
DEGRADATION METHODOLOGY – Controlled sanitary landfills & composting
Session 12c
Carbon Finance Instrument to Improve
Coastal Zone Solid Waste Management
Collection of MSW Waste separation / recycling
Controlled sanitary landfills The real world is different

Challenges How can CF solve some of
• Need to design and enact adequate financial these problems?
and economic incentives to encourage
behavioral changes in human activities in the • Promoting environmental protection and
coastal areas
sustainable economic activities
• Self-standing ICZM capacity building • By providing revenues for:
interventions often do not accomplish much
– Improvements in solid waste management;
• Support for institutional strengthening,
restructuring, and policy reform works best in the – Improvements in sewage systems.
context of a holistic, longer-term programmatic
operation that links policy interventions with • By channeling revenues at the local level
tangible benefits on the ground (Municipalities)
• Catalyzing and sustaining ownership at the
national, local, and community levels
The Kyoto Protocol Carbon Finance is NOT about …

• Kyoto commitments
– In 1997, 38 Industrialized Countries committed to • CF is NOT about carbon only, but 6 Greenhouse Gases (GHGs):
– Carbon dioxide (CO2),
reduce GHG emissions by 5% below 1990’ – Methane (CH4) = 21x more potent than CO2,
levels (entered into force in 2005) – Nitrous oxide (N2O) = 310x,
• Kyoto targets are basically achieved by –
–
Sulphurhexafluoride (SF6)
Hydrofluorocarbons (HFCs)
= 23,900x,
HFC23 = 1,300x,
– Domestic reduction of GHG emissions – Perfluorocarbons (PFCs) CF = 46,500x, C2F = 69,200x
– To promote understanding and facilitate calculations, all GHGs are
– Trading emission permits (“allowances”) among measured in tons of CO2 equivalents (CO2-e): 1 ton CO2-e = 1 “carbon
companies (EU-ETS) and Assigned Amounts credit”
Units (“AAUs”) among governments • CF is NOT about Finance:
– No loan, no grant, no line of credit, but PURCHASE
– Purchase GHG emission reductions from • CF is NOT about Financing (i.e., promoting) Carbon, but:
projects – Purchase of GHGs REDUCTION, mainly through long-term agreements
(ERPAs)
» In developing countries (Clean Development • GHGs can be avoided (e.g., CH4 avoidance in composting projects),
Mechanism – CDM) • GHGs can be mitigated (e.g., CO2 mitigation in RE/EE projects) or
» In economies in transition (Joint • GHGs can be sequestered (e.g., CO2 sequestration in LULUCF activities)
Implementation)
Carbon Credits How does Carbon Finance work

for a landfill?
Developing Industrialized country
country/economy in with an emissions cap
transition with no
emissions cap Domestic action • Baseline Scenario = generation of CH4
• Capture of CH4:
– Avoided emissions = emission reductions (ER)
Purchase of ERs • ER will be generated during the lifetime of the
landfill
Baseline emissions
Emission
Reductions (ERs)
ER
$ Emissions
• ER can be sold: additional revenues to
$ target improve IRR and cash flow
Project emissions
Developing • Works also with composting, wastewater

country/economy in
transition benefits treatment, etc.
from technology
and financial flows • Incentive to collect and operate the landfill
adequately, otherwise no ER will be generated
Baseline Scenario Project Scenario
BORG EL ARAB & EL HAMMAM Landfills
LANDFILLS, ALEXANDRIA EGYPT
• Before
• After
© Veolia Propreté/Onyx
Description of the Project Environmental Benefits of

controlled landfills
• 18 districts within the city covering a 7,200km2 area
• Flaring of the collected LFG does not only
• The services provided under the contract include:
destroy methane, but also destroys compounds
– Street Cleaning Program: daily manual and in the LFG, such as volatile organic compounds
mechanical sweeping covering over 12,000 km of
and ammonia.
city streets and roadways
– Household waste collection: collection of 1 million • Prevention of risks associated with landfill gas at
tons of waste per year uncontrolled landfills:
– Risk of explosion
– Waste Transfer: 3 transfer stations were put in
service to limit the vehicle number transporting – Risk of fire
waste from the city to treatment centers – Unpleasant odor nuisances
– Landfills : 2 modern landfills were constructed – Potential atmospheric pollution
– Composting : 3 composting centers are operated – Damage to vegetation by asphyxia
and produce over 120,000 tons of compost pa
Benefits of the Project CF: What is next ?

• Project by
• Environmental Benefits: project: higher
– Preservation of water resources – Uncontrolled transaction costs,
dumps have been replaced by engineered modern lower predictability
for project owners,
landfills with fully lined disposal areas for leachate and non-
(wastewater produced by the landfill) containment transformational
– Fight against desertification and depleted soil – The impact on
local production of compost provides much needed emissions
organic soil amendments
• Programmatic:
• Social benefits: larger scale, better
– Improvement of environmental health planning
environment for
– Employee training project owners, and
transformational
• Economical benefits: impact on
– Creation of 4,500 job opportunities emissions
– Retrocession of a percentage of the value of the
generated credits to the Governorate of Alexandria
Future of Carbon Finance
• New methodologies, including small scale
End of Session 12c

• Post 2012 regime?
• Carbon Partnership Facility: sustaining the
market under transitional phase and
increase investments by ensuring long-
term C-revenues. Open to consider future
Thank You
assets and regimes
REGIONAL WORKSHOP
ON
THE COST OF
ENVIRONMENTAL
DEGRADATION
METHODOLOGY
Session 13
COST BENEFIT ANALYSIS
Introduction
REGIONAL WORKSHOP ON • One of the most widely used techniques for project appraisal in the
public sector
• Represents a framework for policy decision-making
DEGRADATION METHODOLOGY • A technique to evaluate the
worth of an idea or project
• A comparison of alternatives
Session 13 • An aid to decision making
• A means of looking back to
COST BENEFIT ANALYSIS evaluate choices that have
been made
“Measure a hundred times but

cut only once” Proverb
COST BENEFIT ANALYSIS COST BENEFIT ANALYSIS

Introduction Theory
• Origins of Cost Benefit Analysis: US Flood
• Measures of benefit
Control Act of 1936 – Demand curve also
– The Federal government should improve or referred to as marginal A
participate in the improvement of navigable waters benefit curve Demand Curve
and their tributaries, including watersheds thereof, for • Indicates the benefit of C E
Price per unit

flood control purposes if benefits to whomsoever they consuming one extra
may accrue are in excess of the estimated costs, and unit of a good
if the lives and social security of people are otherwise • Provides an idea of
adversely affected. changes in ‘utility’ or 0 D B Quantity
level of satisfaction
The price one is willing to pay for a good depends on the

satisfaction one derives from consuming it, which is taken
as a MEASURE OF BENEFITS

Theory Theory
The concept of costs
• Measures of benefit
– For environmental goods – Opportunity cost (OC) to carrying out the
the benefit or WTP A investment
exceeds the market price Demand curve
(if it exists)
C E
– Under perfect competition, the OC of a good
Price per unit
– Valuation methods is the same as the market price of that good

discussed earlier are
used to obtain estimates
of WTP
0 D B Quantity – For environmental goods, there is no market-
price
Total benefits = Total Revenue + Consumer Surplus • Alternative methods to be used to measure OC
= Area of 0CED + Area of ΔACE
Theory Steps in Conducting an SCBA
The concept of Net Social Benefits
– It is important to distinguish between a social CBA and a Case
private CBA description
• Social CBA
– conducted from a society’s perspective
– Referred to as economic analysis
• Private CBA
– Carried out from an individual investor’s view point
– Referred to as financial analysis
• A project may be financially viable but socially undesirable
– The objectives of a social CBA is to determine whether a

project is socially beneficial
• Net Social Benefit (NSB) = WTP – OC > 0
– If NSB > 0, then the state can use the surplus to

compensate the losers
COST BENEFIT ANALYSIS Case-

Case-Study
Steps in Conducting an SCBA Bintuli Wastewater Treatment Project
• City of Bintuli in the Republic of Kabastan
– Center of commerce and industry
– Main industries include
• Metal manufacturing
• Coal extraction
• Chemical manufacturing
• Construction
• Paper making
• Food processing
– Value of industrial output estimated at 200 million
USD in 1990 as compared to 16 million USD for
agriculture
CEA Vs. CBA
Case-
Case-Study COST BENEFIT ANALYSIS
Bintuli Wastewater Treatment (WWT) Project 1. Defining objectives and project scope
• Quantities of domestic and industrial effluents in water bodies
increased • Objective often specified by decision-
– Total industrial effluent = 163,700 m3/day
– Total effluent including domestic WW = 271,700 m3/day
makers in the bureaucracy
– 30% of industrial effluent treated • Objective should be clear and
– 0% of domestic effluent treated
• River courses in the city turned black and emit unpleasant unambiguous
odors
• Proposal to build a WWT facility with pumping stations and • Bintuli WWT Project
drainage networks
– To treat 28% of industrial waste and the remaining domestic – Objectives:
waste • To improve the health of the community
– Treated effluent discharged in river to be used by industries and
agriculture • To increase economic activity by improving
wastewater treatment facilities in the city
2. Identifying and screening alternatives 3a. Identifying benefits and costs
• List all possible options for reaching objectives • Costs and benefits differ for an SCBA as compared to private
investors
• The ‘do nothing’ option should be considered – Benefit in an SCBA
• Preliminary screening of alternatives • An outcome resulting in an increase in an individual’s utility
– Cost in an SCBA
• An outcome resulting in a decrease in an individual’s utility
• Bintuli Wastewater Treatment Project

• Important notes
– Alternatives: – An incremental approach adopted in assessing costs and
• Maintaining the status quo benefits
• Expanding the existing WWT facilities • Identify and value costs and benefits of the project
– Ruled out because it uses outdated technology and would be • Compare with the situation to prevail without the project
difficult to maintain • The difference is the net incremental benefit arising from the project
• Only additional changes in costs and benefits are considered, and not
• Building a new WWT facility total costs and benefits
• Various locations and site options
– Only one potential site considered in this application

3a. Identifying benefits and costs 3a. Identifying benefits and costs
• Important notes (cont’d) • Costs and benefits are normally classified into
– Sunk costs and benefits incurred before project commencement – Primary costs and benefits
must be excluded
• Previous costs are not an opportunity cost as they do not represent a • Related directly to the project
loss of future income from an alternative use of resources – Secondary costs and benefits
• Arise from events and activities triggered by the project
– Transfer payments must be excluded • Should be handled with care as they could exaggerate
• Taxes, subsidies, loans, and debt services do not result in an increase estimates
in net benefits
– Opportunity cost must be used as a guideline
• Taxes by foreign investors should be included
– Resources are sometimes merely transferred from one part of the
economy to another
– Depreciation and interest are excluded from the cost in a SCBA
• SCBA involves discounting values of capital items at their opportunity
costs
– Including depreciation as a cost will result in double counting
• Costs and benefits may also be classified into
• The discount rate in an SCBA already takes into account the interest – Market costs and benefits
– Including interest as a cost will result in double counting
– Non-market costs and benefits

3a. Identifying benefits and costs
3b. Valuing benefits and costs
Bintuli WWT Project
Costs Benefits • Allows comparison between alternatives
• Primary • Primary • Valuation should be done according to the opportunity cost
– Economic principle
– Investment • User charges – Prices of inputs that do not reflect their true value to the society
• Construction of a pumping – Reduction in health costs and are adjusted- shadow pricing
mortality rates
station, office building, • Comparison of costs and benefits should focus on the with vs
– Reduction in costs of treating
WWT facilities increasingly polluted water without the project, rather than before vs. after the project
• Purchase of equipment supplies
– Increase in labor productivity
– Operation and due to reduction in absence Valuing the costs
maintenance from work due to illness • Find market prices for the inputs and outputs
• Wages and salaries • Secondary
– Benefits to industry and
• All costs may be in present day or constant prices
• Fuel and chemical costs agriculture from using recycled – Costs incurred over the project lifetime must be valued at prices
• Other costs (project water prevailing at the time of the project appraisal
management, preparation, – Additional revenues from re- – Assumes that annual costs increase at the inflation rate
afforestation
training and – Increase in reed harvesting for
commissioning the paper mill industry
3b. Valuing benefits and costs 3b. Valuing benefits and costs
Valuing the costs Valuing the costs
• Residual values • The linear method
– For assets with an economic life that exceeds the planning
horizon or project life – Assumes that the asset value declines linearly over
• Economic life is the estimate of the duration of the operation of time
an asset before it requires refurbishment
Residual value at time t is (1-t/n)P
– The residual or salvage value of the asset must be Ex: an asset purchased at $100,000 and has an economic life
included as a cash inflow at the end of the planning of 20 years, at the end of the planning period of 15 years, its
horizon residual value is (1-15/20)*100,000 = $25,000
– Calculated using
• The diminishing value method
• Linear method – Assumes that the asset value declines by a fixed
• Diminishing value method proportion of the beginning of year value per annum
Residual value at time t is (1-1/n)t P

Valuing the costs Bintuli WWT Project
• Land and pre-existing building and plant
– Property already owned by operating authority must be valued at opportunity costs
– Opportunity costs should be current variations based on the most profitable alternative Item Cost
uses (million USD)
• Staged construction Investment costs
– When a project is to be constructed in stages
Buildings and structures 3.42
• Only the portion of investment and operating costs to satisfy demand in the current planning
horizon must be attributed to the project Equipment and supplies 13.15
• Working capital Total investment cost 16.57
– Often constitutes 2% of the total capital outlays
– Must be considered as cash outflow at the time when capital expenditures are made
and cash inflow at the end of the project O&M costs
• Operating costs Electricity 0.68
– Include labor, utilities, supplies, repairs and maintenance, equipment hiring and Salaries 0.09
leasing, insurance and administrative overheads
– To be estimated on an annual basis Chemicals 0.06
• Implicit costs Maintenance 0.58
– Opportunity costs and social costs Other 0.21
• Use of land, buildings, plants, already purchased by the local authority
• Time spent on project by agency staff Total O&M costs 1.62

Valuing the benefits Valuing the benefits
• User charges
• Benefits of the Bintuli WWT project include – New charges
– Revenues from user charges • Based on the principle of full cost recovery
– Estimated at 6.9 cents/m3
– Economic benefits derived from WWT – 54.75 million m3/year of effluent treated
• Reduced mortality – Annual revenue = 3.78 million USD per year
• Existing charges
• Productivity gained from reduced morbidity – 11.4 million m3/year already being treated
• Water treatment cost savings – User charged set at 6.9 cents/m3
– Annual revenue = 0.61 million USD per year
• Sale of recycled waster
• Afforestation benefits Net incremental sales revenue 3.17 million USD
• Reed harvesting by year 6 when the new plant is at full
capacity
Valuing the benefits
Valuing the benefits • Reduced mortality benefits
• Recycled water benefits
– 60% of treated wastewater will be reused for irrigation and industrial
purposes
– Opportunity cost estimated at 10 cents/m3
– Economic benefits = 66,000 USD at year 4
– Economic benefits = 3.29 million USD per year by year 8
• Afforestation benefits
– Pine and hard wood species planted on 142.8 ha
– Net return for experimental plots =689 USD
– Net benefit = 10,000 USD in year 8
– Net benefit = 100,000 USD by year 17
• Reed harvesting • Total income benefits

– Reed harvesting for the paper mill industry over an area of 95.25 ha – 10,000 USD in Year 4
– Net returns = 258.4 USD per ha – 110,000 USD by the end of the project
– Note that only half of the morbidities and mortalities were considered since the
– Net benefit = 20,000 USD starting Year 6 project is planned to serve 50% of the Bintuli population

Incremental economic benefits of Bintuli WWT project (million USD)
USD)
Water
treatment Incremental
Recycled Reed Reduced Reduced cost economic
Year water Afforestation harvesting mortality morbidity savings benefits
1
2
3
4 0.66 0.01 0.18 0.11 0.96
5 0.99 0.02 0.38 0.11 1.50
6 1.64 0.02 0.03 0.57 0.11 2.37
7 2.63 0.02 0.05 0.76 0.11 3.57
8 3.29 0.01 0.02 0.06 0.95 0.11 4.44
9 3.29 0.02 0.02 0.06 1.00 0.11 4.50
10 3.29 0.03 0.02 0.06 1.06 0.11 4.57
11 3.29 0.04 0.02 0.07 1.11 0.11 4.64
12 3.29 0.05 0.02 0.07 1.17 0.11 4.71
13 3.29 0.06 0.02 0.07 1.23 0.11 4.78
14 3.29 0.07 0.02 0.08 1.30 0.11 4.87
15 3.29 0.08 0.02 0.08 1.37 0.11 4.95
16 3.29 0.09 0.02 0.09 1.44 0.11 5.04
17 3.29 0.10 0.02 0.09 1.51 0.11 5.12
18 3.29 0.10 0.02 0.10 1.59 0.11 5.21
19 3.29 0.10 0.02 0.10 1.68 0.11 5.30
20 3.29 0.10 0.02 0.11 1.76 0.11 5.39

4. Calculating discounted cash flows and 4. Calculating discounted cash flows and
project performance criteria project performance criteria
• Involves reducing future streams of benefits Choice of discount rate
and costs to their present values to enable • Discount rate in SCBA reflects society’s preferences between
present and future consumption
comparisons to be made between – High discount rate
alternatives • implies that society has a stronger preference for present consumption
over future consumption
– Low discount rate
• Given a stream of benefits (B0, B1…Bn) and a • implies that society has a stronger preference for future consumption
over present consumption
stream of costs (C0, C1…Cn), – Choice of discount rate controversial
– Environmentalists argue against high discount rates
– Economists tended to use long-term interest rates on
Net Present Value government bonds as a measure of opportunity cost of capital
• Rate of 10 percent in US
B −C B − C2 B − Cn n B − Cn • Rate of 8 percent in Australia
NPV = B0 − C0 + 1 1 + 2 + ... n = ∑ n
1+ r (1 + r ) 2 (1 + r ) n t = 0 (1 + r ) n • Discount rate must be real rate
– Interest rate minus inflation rate
where r = discount rate
Period of analysis Choice of project performance criteria
• BCR
• Planning period varies with nature of project – the ratio of the present value of project benefits to the present
– Should be determined by a period within which value of the project costs
estimates are made with a certain degree of
confidence B B B
B0 + 1 + 2 +... n n ∑ B (1+ r)n
n
– Should correspond to the economic life of the project 1+ r (1+ r)2 (1+ r) =
n
BCR= t
= n0
C1 C2 Cn n
Choice of project performance criteria C0 + + +... ∑ Cn (1+ r)
1+ r (1+ r)2 (1+ r)n t=0
• These include
– Net present value (NPV)
• Payback period
– Benefit-cost ratio (BCR)
– The number of years required for a project to recover its costs
– Internal rate of return (IRR) • Discriminates against projects with high capital expenditures and long-
term benefits
– Payback period • Not recommended as a measure of project worth

Choice of project performance criteria Choice of project performance criteria
• IRR is the discount rate at which the present value of
project benefits equals the present value of project • The rule is to accept a project when
costs – NPV ≥ 0
– It represents the maximum interest rate at which a project
could recover the investment and operating cost and still – BCR ≥ 1
break even
– May not exist or may not be unique
– IRR > the social OC of capital
– Difficult to calculate • NPV most preferred criterion because it
– Trial and error method must be used
provides an estimate of the size of the
B −C B −C B −C Pareto improvement
B −C + 1 1 + 2 2 + ... n n =0
0 0 1+ i
• If two or more projects have NPVs > 0,
(1 + i ) 2 (1 + i ) n then IRR can be used to rank them

4. Calculating discounted cash flows and 5. Conduct a sensitivity analysis and/or
project performance criteria risk analysis
Incremental economic benefits of Bintuli WWT project (million USD
USD
Bintuli WWT project Incremental • Risk
• Discount rate Incremental Incremental economic Incremental
– Real rate of 12% Year economic costs sales revenue benefits net benefits – Potential outcome whose magnitude and probability of
1 2.01 -2.01 occurrence are known or can be determined
2 8.45 -8.45
• Planning period 3 6.11 -6.11 • Uncertainty
– 20 years 4 2.42 1.91 0.96 0.45 – Situation where the magnitude of the outcome may or may
5
6
1.62
1.62
1.91
3.17
1.5
2.37
1.79
3.92
not be known and the probability of occurrence is unknown
• NPV at the 12% 7 1.62 3.17 3.57 5.12 • Distinction between the two may not be clear-cut
discount rate = 8 1.62 3.17 4.44 5.99
12.08 million USD 9 1.62 3.17 4.50 6.05 • Common methods for accounting for risk and
10 1.62 3.17 4.57 6.12 uncertainty
11 1.62 3.17 4.64 6.19
• IRR = 21% which 12 1.62 3.17 4.71 6.26 – Sensitivity analysis
is above the 13 1.62 3.17 4.78 6.33 – Break-even analysis
opportunity cost of 14 1.62 3.17 4.87 6.42
capital of 12 % 15 1.62 3.17 4.95 6.50 – Cross-over values
16 1.62 4.43 5.04 7.85 – Risk analysis
17 1.62 4.43 5.12 7.93
• The project is 18 1.62 4.43 5.21 8.02
economically 19 1.62 4.43 5.30 8.11
viable 20 -0.02 4.43 5.39 9.84
5. Conduct a sensitivity analysis and/or 5. Conduct a sensitivity analysis and/or
risk analysis risk analysis
Sensitivity analysis Sensitivity analysis
• Used to assess the possible impact of uncertainty by posing
‘what if’ questions • Methodology
• Highlights the critical factors affecting the project’s viability – Determine a realistic range of values for the variables
• Parameters subjected to sensitivity analysis include that are subject to uncertainty.
– Discount rate • Example
– Length of project planning horizon – Capital cost ± 30 percent
– O&M costs ± 30 percent
– Different timing of the project’s operation – Product prices ± 30 percent
– Changes in the capital outlays
– Calculate the effect of possible changes on the
– Changes in the price of non-market goods
project selection criteria, while varying one variable
– Changes in social and environmental benefits and costs and holding the others constant
• Carried out by recalculating project performance criteria using
a range of values for the uncertain parameter – Reconsider the economic viability of the project in
light of the performed calculations
• Project performance criteria commonly used are NPV and
IRR

Break-even analysis Bintuli WWT project
• Break even value is the value of the discount rate at which the NPV • Conducting sensitivity analysis
is zero or the value at which the entire costs will be recovered
• On the benefit side – Critical uncertain variables chosen for analysis
– If a variable appears to be higher than the break-even level, that • Changes in capital and O&M costs
increases confidence in the project’s viability • Changes in the net incremental economic benefits
• On the cost side – Results indicate that
– An estimate lower than the break-even level means that the project is
likely to be economically viable • IRR is robust
– 30% decline in economic benefits reduce IRR to 17% assuming no
change in capital and O&M costs
Switching (cross-over) values – 30% increase in capital costs assuming no change in economic
• Is the discount rate at which the ranking of two projects changes benefits reduces the IRR to 17%
• Recommended when considering only one uncertain variable – 30% increase in operating costs reduces IRR to 19%
– The estimate is insensitive to large changes in the
projected economic costs and benefits

Bintuli WWT project Risk analysis
Change in net economic benefit • Suitable in the cases where the values of several parameters are
uncertain
-30% -15% 0% +15% +30%
• Involves the use of the probabilities of occurrence of the key
-30% 23 25 27 29 31 variables as weights to recompute the project performance criteria
Changes
-15% 20 22 24 25 27 • Carried out using special purpose computer packages (@RISK)
in
– Generates probability distributions for NPV and IRR
Capital 0% 17 19 21 23 24
costs
• A major difficulty is obtaining probability estimates
+15% 15 17 19 21 22 • Common probability distributions include
+30% 14 16 17 19 20 – Uniform
• Requires minimum and maximum estimates
-30% 19 21 23 25 26
– Triangular
Changes -15% 18 20 22 24 25 • Requires most pessimistic (minimum), most likely (mode), and most optimistic
in O&M (maximum)
costs 0% 17 19 21 23 24 – Beta
+15% 16 18 20 22 23
+30% 15 17 19 21 22
COST BENEFIT ANALYSIS COST EFFECTIVENESS
6. Recommendations ANALYSIS (CEA)
• CEA may be used when
• Water pollution in Bintuli is a serious problem – It is impossible to value a project's major benefits in
– 70% of untreated effluent dumped in rivers dollar terms
– Project implementation urgently required to – two projects have similar economic benefits,
• Protect health of the community
• Reduce environmental degradation
– For example, if the decision problem is to choose
between building two hospitals, a CEA would be
appropriate since the social benefits in either case
• Project would yield substantial economic benefits would be similar .
– IRR estimated at 21%
– Sensitivity and risk analysis indicate that estimate
insensitive to costs and benefits • Both CBA and CEA are based on the principle of
economic efficiency and therefore do not consider
equity or distributional issues.
• Recommended to implement the project
– With the institution of a good monitoring program
COST EFFECTIVENESS COST EFFECTIVENESS

ANALYSIS (CEA) ANALYSIS (CEA)
• CEA looks only at financial costs • Examples of situations in which CEA could be used:
– A CEA takes the objective as given, and then works out the – Given a desirable pollution abatement standard, what will
costs of the alternative ways of achieving that objective be the least cost, out of various alternatives, of achieving
the standard?
• The decision on whether to use CEA instead of CBA will
depend on a number of factors including the following: – Can buying up all the property rights in a flood plain and
– The size and complexity of the project; moving people out by constructing dykes save the same
– The extent to which there are quantifiable benefits; and number of lives more cheaply?
– The extent to which the benefits can be valued in monetary
terms.
– Given two parks with similar recreation benefits, which
should be developed? Park A requires extensive filling and
• Unlike CBA, CEA does not have absolute criteria by which to flood control and Park B involves buying warehouse sites.
judge the economic viability of projects
– CEA not recommended when a decision about the level of – Choosing between alternative ways of constructing a
output or service to be provided is at issue town's water supply system.
COST EFFECTIVENESS COST BENEFIT ANALYSIS

ANALYSIS (CEA) CASE-
CASE-STUDY
The steps involved in a CEA similar to CBA: The Effect of Food Waste Disposers on
Municipal Waste and Wastewater
Management
OUTLINE Introduction
Introduction Rapid urbanization + associated industry &

services growth Æ key feature of economic &
demographic development in many developing
countries
GBA Existing
Conditions
Cities are absorbing 2/3 of total population Æ
amount of solid waste generated surpasses the
Study Objectives & capacity of municipalities to handle it
Methodology
Limited areas for landfilling + social acceptance +
political conflict Æ need to consider other waste
Results minimization alternative, Food Waste Disposers
Food Waste Disposers / Garbage

Food Waste Disposers (FWD)
Grinders
MSW stream Other
Food waste
waste
Grinding by
mechanical Sewage
means + tap stream
water
Literature Review-
Review- FWD Literature Review-
Review- FWD
Extra water use amount to 4.3 L/c/d ~ 2.2% Optimal usage for 15 yrs did not exhibit
of total household water use operational problems within plumbing system
21-month pilot project in NY: Theoretical calculations showed a 57% increase in

FWD are used 2-3 times/d for a total of 0.6 min. sludge at WWTP, affecting bio-stage & sludge
Using industry upper limit of 2 min/d, the most treatment
common ½ HP FWD consumes <75 Watt light
bulb uses in 10 min
Galil & Yaacov (2001): increase sludge by 60-62%
Increased loadings by: Vs. 18.1% for WMR (1994)
50% for BOD and SS (Sweden)
12% for TN and neg. for P (100% MP)
Advantages of FWD Advantages of FWD (cont’
(cont’d)
Leave mostly better

Dispose of almost all quality recyclables Æ
stored nuisance and
types of risk-free
biodegradable food
waste
Reduce volume of
garbage to be disposed
Eliminate nuisance of in Landfills
from waste handling &
storage, smell and risk Reduce acidic leachate
produced in the landfill
of exposure to & greenhouse gases
disease-spreading emitted (CH4)
vectors
Advantages of FWD (cont’

(cont’d) Questions raised
???
Ground food waste is
quickly and cleanly Installation cost of
transported through the grinders?? Change of raw
sewer system to sewage sewage quality in
treatment plants terms of Suspended
Amount of additional solids & Organic
Gases produced at the water required for the substances??
plants can be collected and transfer of the
used as an energy source particles??
Influence of
FWDs are among the safest additional loads on
household appliances the treatment plants??
Greater Beirut Area (GBA) Emergency Plan for the SWM in

under study the GBA
Implemented since Solid Waste Generation
1997
Collection and Transport
Transfer/Processing(1) Transfer/Processing(2)
(Amroussieh) (Karantina)
Recyclables Organic Bulky Rejects
Warehouse Composting Landfill (1)

storage (Coral) (Bsalim)
Industries Farmers
Landfill (2)
(Naameh)
System Performance Evaluation Costs of the SWM system
Activity Cost
ISMW Actual Achievements
targets (USD/tonne)
LACECO LACECO
(tonnes/d) (1999) (2002) Collection/Transport 59
(tonnes/d) (tonnes/d) Sorting 18
Total wastes received at 1,700 1,922 2,085
transfer/processing plants
Baling 12
Waste handling means Wrapping 9
Composting 850 216 300 Hauling to Coral composting plant 4
Recycling 160 99 143 Composting 18-40
Landfilling 690 1,607 1,640 Landfill disposal 25-35
Majority of the waste generated > 119 USD/tonne

is disposed of at the landfill !!!
… GBA MSW Characteristics

Low market demand on 2,000 tonnes/d
compost & recyclables
3 2 1 70%
+ 6
water
Difficulty in locating new landfills 10
for municipal waste disposal along

Lebanese coast
63
(High Cost + Limited Suitable Land +High 15
Social & Political Oppositions) Food waste Paper and cardboard
⇓ Plastic Glass/china
the need for OTHER ALTERNATIVES Metal Fabric
Other
GBA WW Characteristics Objectives of this Study

Parameter 2005
Population projections (×1,000 persons) 1,782 Examine the feasibility of introducing food
Wastewater generation rates (m3/d) 257,609 disposers as a waste management option in
BOD (kg/d) (1) 114,378 GBA
COD (Kg/d) (2) 162,294
Assess FWD operational impacts on
SS (Kg/d) (3) 146,837
(1) Based on an average of 444 mg/L Solid waste stream
(2) Based on an average of 630 mg/L
(3) Based on an average of 570 mg/L Wastewater stream quality and treatment
options
No wastewater treatment plants exist. Many are planned to
comply with the GoL signed protocol for the protection of the
Assess FWD economic impacts
Mediterranean.
Methodology Methodology (cont’
(cont’d)
OPERATIONAL IMPACTS S1 S2 S3
25% market 50% market 75% market
penetration penetration penetration
Solid waste composition & distribution

Domestic water consumption
95% 75% 95% 75% 95%
Wastewater loadings & flow 75%
% of food ground
Laboratory Investigation Methodology (cont’

(cont’d)
ECONOMIC IMPACTS
Costs (conventional + environmental)

Savings (conventional + environmental)
Collected from 3 households
over weekend
Mixed thoroughly Benefits
Breakeven Points
3 batches of Economy of Scale
blended food
Conventional
Costs
Environmental
Costs
Conventional
Savings
Environmental
Savings
CONVENTIONAL COSTS
Capital & Operating cost of FWD
Capital & Cost of sludge Cost forgone of Cost foregone of Annual cost of 43 US$/unit/yr assuming average cost/unit of
Operating cost of treatment management of leachate US$ 400 with expected life span of 12 yrs & 5 % opportunity cost/household
FWD (min-max) food wastes remediation
diverted from Wastewater secondary treatment cost of added wastewater volume
+
Wastewater Cost of electricity solid waste Min Max
secondary Æ negligible stream + 0.03 US$/kg of added BOD 0.22 US$/kg of added BOD
treatment cost of 0.25 US$/kg of added SS 0.48 US$/kg of added SS
added wastewater Foregone
Cost forgone of
volume (min-max) earnings from
abating pollutant Sludge treatment cost of added wastewater volume for most common used
potential energy
+ discharge from technologies *
Sludge treatment recovery from
management of
cost of added food waste Æ Min Max
food wastes
wastewater volume insignificant 39 US$/dry tonne 292 US$/dry tonne
for most common particularly in
anaerobic * Examined technologies: centrifuge thickening & dewatering; belt filter press;
used technologies composting; recessed-plate filter; aerobic digestion; anaerobic digestion; alkaline
(min-max) digestion stabilization; thermal aerobic pre-treatment & anaerobic digestion; pre-
pasteurization & anaerobic digestion; reactor composting; anaerobic digestion &
+ thermal drying; & incineration.
Cost of increased
Cost of increased domestic water consumption
domestic waste
consumption Domestic water charging rate of 150 US$/m3-d/yr
ENVIRONMENTAL COSTS CONVENTIONAL SAVINGS
Cost forgone of management of food wastes diverted from solid
waste stream
119 $/tonne of municipal waste
Cost of sludge treatment
Min
45 US$/dry tonne
Max
336 US$/dry tonne
ENVIRONMENTAL SAVINGS
Cost foregone of leachate remediation
Equivalent to 15% of conventional cost Equivalent to 46.46 $/tonne
Cost foregone of abating pollutant discharge from management of

food waste
Equivalent to 7.5% of conventional management cost of solid waste
Min-
Min-Max CONVENTIONAL COSTS
+ Min-
Min-Max ENVIRONMENTAL COSTS CONVENTIONAL SAVINGS + ENVIRONMENTAL
= Min-
Min-Max TOTAL COSTS SAVINGS = TOTAL SAVINGS
Results Impacts of introducing food disposers on SWM and

WWM schemes (2005 values)
Food Waste Composition after Installation of FWDs
(2005 values) Scenario % % % % %
Reduction in Increase in Increase in Increase Increase
solid waste domestic wastewater in BOD in SS
1,215 to be water flow loading loading
1,250 100
Food ground managed consumption
1,000 Percent composition of food waste 25% MP + 75%
11.8 0.7 1.1 16.9 1.9
865 75 food ground
63
tonnes/day
% weight
750 58 56 25% MP + 95%

52 577 683 14.7 0.8 1.4 21.3 2.4
47 food ground
43 50
455 33 50% MP + 75%
500 23.0 1.3 2.3 33.4 3.8
food ground
288 25 50% MP + 95%
250 228 29.1 1.6 2.9 42.0 4.8
food ground
75% MP + 75%
0 0 34.3 1.9 3.4 49.5 5.6
food ground
Food waste S1a S1b S2a S2b S3a S3b
75% MP + 95%
generation 43.4 2.4 4.4 62.2 7.1
25% MP 50% MP 75% MP food ground
in 2005
Impacts of introducing food disposers on SWM and Costs, Savings & Benefits achieved under
WWM schemes (2005 values) S1a (25% MP+ 75% food ground)
Net Benefits based on Conv. & Env. 8.7
Costs/Savings 6
Scenario % % % % % Net Benefts based on Conv. Benefits
Benefits
4.2
Reduction in Increase in Increase in Increase Increase Costs/Savings 1.6
solid waste domestic wastewater in BOD in SS
to be water flow loading loading Env. solid waste savings
managed consumption 4.6
Savings
25% MP + 75% Conv. solid waste savings
11.8 0.7 1.1 16.9 1.9 9.9
food ground
25% MP + 95% Env. cost of sludge mangt 0.15
14.7 0.8 1.4 21.3 2.4
food ground 0.02
50% MP + 75% Conv. cost of sludge mangt 1
food ground
23.0 1.3 2.3 33.4 3.8 0.1 Costs
50% MP + 95% Cost of wastewater treatment 2.4
29.1 1.6 2.9 42.0 4.8 0.6
food ground
75% MP + 75% Cost of added volume of domestic water 0.4
34.3 1.9 3.4 49.5 5.6
food ground
75% MP + 95% Cost of food disposer units 4.6
43.4 2.4 4.4 62.2 7.1
food ground
Million US$/yr 0 2 4 6 8 10 12
Costs, Savings & Benefits achieved under Benefits achieved under S1a (25% MP+ 75% food
S3b (75% MP+ 95% food ground) ground) & S3b (75% MP + 95% food ground)
Net Benefits based on Conv. & Env.
as % of existing SWM cost
36.8
Costs/Savings 26.4
49.4
Net Benefts based on Conv. 19.5 Benefits
Benefits 50
Costs/Savings 9.6 44.0 2020
2005
37.0
Env. solid waste savings 17.4 Savings
40
31.6
Conv. solid waste savings 28.8
37.6 30
23.3
Env. cost of sludge mangt 0.6 16.9
%
0.1 20
Conv. cost of sludge mangt 3.8 11.5 12.2
0.5 10.4 7.2 6.8 9.0
Costs 10
Cost of wastewater treatment 9.0 5.0 1.9 3.7
2.3
0
Cost of added volume of domestic water 1.5 S1a S3b S1a S3b
1
based on min conventional cost
Cost of food disposer units 13.7 based on max conventional cost
based on min conventional and environmental cost
Million US$/yr 0 10 20 30 40 based on max conventional and environmental cost
Breakeven points for S1a (25% MP + 75% food Breakeven points for S1a (25% MP + 75% food
ground) & S3b (75% MP + 95% food ground) ground) & S3b (75% MP + 95% food ground)
taking into consideration the lower & upper range of taking into consideration the lower & upper range of
costs (2005 values) costs (2005 values)
30 30
S1a S3b
Ben efits(MUS$/yr)
S1a S3b
B e ne fits(MUS$/yr)
20 20
57.1 68.7
10 2.4 13.9
10
0
0
0 40 80 120
0 40 80 120
-10
US$/tonne -10
US$/tonne
(a) Based on MIN. CONVENTIONAL costs (b) Based on MIN. CONV. + ENV. costs
Breakeven points for S1a (25% MP + 75% food Breakeven points for S1a (25% MP + 75% food
ground) & S3b (75% MP + 95% food ground) ground) & S3b (75% MP + 95% food ground)
taking into consideration the lower & upper range of taking into consideration the lower & upper range of
costs (2005 values) costs (2005 values)
30 30
Benefits(MUS$/yr)
S1a S3b S1a S3b

Benefits(MUS$/yr)
20
20
88.5 100.1
10 35.3 46.9
10
0
0 40 80 120 0
-10 0 40 80 120
50 US$/tonne -10
US$/tonne
(c) Based on MAX. CONV. costs (d) Based on MAX. CONV. + ENV. costs
Dynamics of Economy of Scale Dynamics of Economy of Scale
ARGUMENT
Cost of managing the remaining solid waste would ½
if total quantity waste to be managed ¾
Excluding environmental externalities, FWD
remain profitable until cost/tonne of managing
remaining solid waste reaches
US$ 223/tonne = 1.8 × current charging rate
Total savings achieved from the SWM scheme as a result of integrating FWD
Including environmental externalities, FWD will
still be profitable up to a management cost of
US$ 315/tonne = 2.6 × current charging rate
To define the cost of managing the remaining
solid waste generated ‘X’ (US$/tonne) after integration
of FWD at which the proposed system would Certainly, it is not expected that the cost of
breakeven Savings = Costs OR Benefits = 0 SWM would reach such levels in study area in
worst case scenario [100% MP + 100% food ground] near future, which justifies the adoption of
was assessed FWD
End of Session 13
Thank You
Waste Manage Res 2005: 23: 20–31 Copyright © ISWA 2005
Printed in UK – all right reserved
Waste Management & Research
ISSN 0734–242X
The effect of food waste disposers on municipal

waste and wastewater management
This paper examines the feasibility of introducing food waste Natasha Marashlian
disposers as a waste minimization option within urban waste Mutasem El-Fadel
management schemes, taking the Greater Beirut Area Department of Civil and Environmental Engineering, American
(GBA) as a case study. For this purpose, the operational and University of Beirut, Lebanon.
economic impacts of food disposers on the solid waste and

Keywords: Food waste disposers, solid waste/wastewater
wastewater streams are assessed. The integration of food management: wmr 708-1
waste disposers can reduce the total solid waste to be man-
aged by 12 to 43% under market penetration ranging
between 25 and 75%, respectively. While the increase in
domestic water consumption (for food grinding) and corre-
sponding increase in wastewater flow rates are relatively
insignificant, wastewater loadings increased by 17 to 62%
(BOD) and 1.9 to 7.1% (SS). The net economic benefit of
introducing food disposers into the waste and wastewater Corresponding author: M. El-Fadel, American University of
management systems constitutes 7.2 to 44.0% of the existing Beirut, Faculty of Engineering and Architecture, Bliss Street, PO
Box 11-0236, Beirut, Lebanon
solid waste management cost under the various scenarios
examined. Concerns about increased sludge generation per- Tel: 961 3 228 338; fax: +961 1 744 462;
sist and its potential environmental and economic implica- e-mail: mfadel@aub.edu.lb
tions may differ with location and therefore area-specific
DOI: 10.1177/0734242X05050078
characteristics must be taken into consideration when con-
templating the adoption of a strategy to integrate food waste Received 12 September 2003; accepted in revised form
disposers in the waste–wastewater management system. 14 October 2004
Introduction
Rapid urbanization coupled with the associated growth of problem, and for several cities, seemingly unsolvable, thus
industry and services constitute a key feature of economic creating the need to consider other waste minimization alter-
and demographic development in many developing coun- natives at the source. In this context, the use of food waste
tries. Cities are currently absorbing two-thirds of the total disposers enables the separation of a considerable fraction of
population increase throughout the developing world food-waste ingredients out of the entire municipal solid
(UNCSD 1999). An important environmental concern of waste (MSW) stream by grinding the waste using mechani-
urbanization is the amount of solid waste that is generated at cal means with the addition of tap water, and allowing the
a rate that surpasses the capacity of municipal authorities to mixture into the sewage system. This paper evaluates the
manage it, resulting in potential adverse impacts on the role of food waste disposers within the waste management
environment, human health, and the quality of urban life. system of urban areas, taking the Greater Beirut Area (GBA)
With limited land areas around many urban centrers, the as a case study. Background information on food waste dis-
search for environmentally safe as well as socially and politi- posers is first presented followed by an examination of their
cally acceptable sites for landfills has become a perennial impact on the solid waste and wastewater management
20 Waste Management & Research

Effect of food waste disposers on municipal waste and wastewater management
schemes with emphasis on operational and economic feasi- Further, it has been widely reported that the cost of elec-
bilities taking area-specific characteristics into considera- tricity to run food disposers and its associated pollution is rel-
tion. atively insignificant. The most comprehensive study in this
context is the 21-month pilot project in New York where it
was estimated that food waste disposers are used two to three
Background times a day for a total of 0.6 min. If, to be conservative, using
A garbage grinder or a food waste disposer unit is a kitchen the industry upper limit of 2 min/day, the most common
appliance that is mounted directly under the kitchen sink 0.5 hp motor of a food waste disposer consumes less than a
and connected to the sewer pipe. These units are designed to 75 W light bulb uses in 10 min (The Plumbing Foundation
grind biodegradable organics such as meat scraps, vegetables, City of NY 2001).
fruit pits, citrus fruit peelings, coffee grounds and small bones On the other hand, it is expected that the quantity of
(Nilsson et al. 1990). organic material and suspended solids will exhibit radical
Food waste disposers were first introduced back in the change with the use of food disposers as the idea with the
1930s in the US where their usage evolved to reach more disposer is after all to move as much organic material from
than 94% of all cities and they are included as a standard the solid waste to wastewater stream. In a pilot study, Nilsson
item in more than 80% of new home construction and are et al. (1990) reported that the biochemical oxygen demand
found in almost half of all US households (Macnair 2000). (BOD) and suspended solids (SS) increased by almost 50%
This use, however, was surrounded by scepticism in certain after integrating disposers in the city of Staffanstorp in Swe-
large cities. New York City for instance, had banned waste den, whereas the increase in total nitrogen was 12% and
grinders for a long time because of concerns that the city’s negligible for phosphorus. In contrast, a study examining the
old sewer infrastructure could not handle the additional impacts of food waste disposal units and compost bins used in
load. It was not until 1995 when the City started to worry the Ashmore suburb of the Goald City Coast in Queensland
more about where it was going to dispose of its garbage after showed an increase of 16.5% for BOD, 3.0% for total nitro-
the closure of its major landfill, that it commissioned the gen and 4.6% for total phosphorus (based on a 100% market
most comprehensive pilot project ever conducted to investi- penetration) (Waste Management Research Unit 1994).
gate the impact of food grinders on the sewer system. Based Similarly, a study conducted in the town of Shurammar in
on the positive outcome of the study, the City lifted the ban Sweden showed no increase in the amount of incoming
and legalized the installation of food waste grinders in resi- BOD, nitrogen or phosphorus. Only an increase in the BOD/
dential buildings in 1997 (Dunham 2001). Today, food waste nitrogen was detected (Sudo 2000).
disposers are sold to households under limited or no restric- In long-term testing for clogs, Nilsson et al. (1990)
tions in approximately 50 countries including England, Ire- showed that a stimulated optimal usage of disposers for a
land, Italy, Spain, Japan, Canada, Mexico and Australia. period of 15 years did not exhibit operational problems
Although a ban was in effect in France, it was lifted in 1986 within the plumbing system. Regular inspection and yearly
after another in-depth investigation by the French authori- videotaping of the piping system revealed that the outer
ties (Nilsson et al. 1990). sewage pipes function well during the use of food disposers
Although food waste disposers allow diversion of organic and the buildup of sewage was reported at the water level
waste from the solid waste stream and hence save on their with a width of 2–3 cm along the envelope surface and a
associated management costs, their use raises numerous ques- thickness of 0.5–1.5 cm. Similar results were reported by
tions regarding the additional energy required to run these Sinclair Knight (1990), Waste Management and Research
units, the amount of additional tap water required for the Unit (1994), Koning & Van Der Graaf (1996), NYC
transfer of particles into sewage, the alteration of sewage Department of Environmental Protection (1997) and Strutz
quality in relation to the addition of suspended solids and (1998).
organic substances, and the additional loads on the sewage At the wastewater treatment plants, theoretical calcu-
system and wastewater treatment plants. Various studies lations showed that the amount of sludge increases by
have been conducted to investigate these issues. 57% due to usage of food disposers, affecting primarily the
The extra water use due to disposers is reported to be neg- bio-stage and sludge treatment (Nilsson et al. 1990). Simi-
ligible, amounting to 4.3 L/capita per day on average and lar theoretical estimations by Galil & Yaacov (2001)
representing 2.2% of the total household water use (Nilsson reported that the contribution of garbage disposers is
et al. 1990, Waste Management Research Unit 1994, Ketzen- expected to increase the weight of raw sludge by about
berger 1995, New York City DEP 1997, Wainberg, et al.2000, 60% in the case where biological treatment is applied and
The Plumbing Foundation City of NY 2001). 62% in the case of primary sedimentation followed by bio-
Waste Management & Research 21

N. Marashlian, M. El-Fadel
Fig. 1: Current integrated solid waste management scheme of the Greater Beirut Area (El Fadel & Khoury 2001).
logical treatment. In contrast, a study by Waste Manage- content; and (5) transport and disposal of sorted/baled as
ment Research Unit (1994) indicated an increase of only well as bulky waste at two old nearby quarries converted to
18.1% in sludge production due to the introduction of landfills (Fig. 1).
food disposers. Concerns about increased sludge genera- At nearly US$ 120 per tonne (UNEP 2000, MoE &
tion persist and its potential environmental and economic LEDO 2001), the ISWM has suffered from many deficiencies
implications may differ with location and therefore area- since its implementation, the major ones being at the treat-
specific characteristics must be taken into consideration ment and disposal levels. Indeed, the system has failed to
when contemplating the adoption of a strategy to inte- achieve its targets, with more than 80% of the total wastes
grate food waste disposers in the waste-wastewater man- generated routed to the landfills, raising into question the
agement system. purpose of the sorting-processing–composting facilities as
well as the recycling programme (Table 1).
Apparently, the market demand for compost and recycla-
Existing conditions ble materials may be either less than the generation rate or
At present, MSW in the study area is managed through an not economically competitive. Thus, whether viewed as a
integrated solid waste management system (ISWM) involv- hierarchy or as complementary components, the current
ing: (1) collection and transport of raw municipal waste; waste management activities, particularly source separation
(2) sorting and processing of raw municipal waste at two and recycling have not measured up favorably with the steps
transfer facilities; (3) recycling of the waste fraction com- outlined in an ISWM system (El-Fadel & Chahine 1999).
posed of glass, metals, papers and plastics; (4) composting On the other hand, the difficulty associated with locating
of the waste that is rich in highly biodegradable organic and approving a suitable site for landfilling has been increas-
Table 1: Performance of adopted ISWM.
Actual achievements
ISWM targets (1997) LACECO (1999) LACECO (2002)
tonnes/day tonnes/day tonnes/day
Total wastes received at transfer/processing plants 1700 1922 2085

Waste handling means
Composting 850 216 300
Recycling 160 99 143
Landfilling 690 1607 1640

Fig. 2: Scenarios examined.
Table 2: Average solid waste composition in the study area. Table 3: Projected municipal wastewater generation rates in the study
area.
Waste category Waste composition (%)
Parameter 2005
Food waste 63
Population projections (× 1000 persons) 1782
Paper and cardboard 15
3
Plastic 10 Wastewater generation rates (m /day) 257 609
BOD (kg/day) 1 114 378
Glass/china 6
2
COD (kg/day) 162 294
Metal 3
Fabric 2 SS (kg/day) 3 146 837
1
Based on an average of 444 mg/L (MoE & LEDO 2001); 2Based on
Other 1
an average of 630 mg/L (Khatib & Alami 1994); 3Based on an aver-
Source: Ayoub et al. (1996); Baldwin et al. (1999); El-Fadel & age of 570 mg/L (El Fadel & Abou Ibrahim 2002).
Khoury (2001); MoE & LEDO (2001).
ing continuously, which dictates the adoption of policies that 50% (Galil & Yaacov 2001). A variable amount of food
will minimize the amount of waste to be disposed of in a ground at the household level was adopted (75 to 95%). The
landfill. Therefore, solid waste minimization alternatives lowest value (75%) was reported by Wainberg et al. (2000).
such as food waste disposers are examined in this study. The upper range (95%) was used since only a limited number
The waste stream in the study area is characterized by a high of food wastes could not be ground including highly fibrous
proportion of food waste (63%) (Table 2), and has a projected wastes and shells of certain seafood.
solid generation rate exceeding 2000 tonnes/day. With more The current and anticipated future loadings to wastewater
than 70% moisture content in typical food waste (Tchoba- treatment plants from the use of food waste disposers was
noglous et al. 1993), processing such waste at a wastewater treat- estimated based on a laboratory investigation that was con-
ment plant appears to be a suitable approach, if technically and ducted to assess the BOD and SS contents of ground food
economically feasible. Currently, while no wastewater treat- waste from the study area. The investigation was performed
ment plants exist in the study area, many are planned to comply at the Environmental Engineering Research Center at the
with the Government’s signed protocol for the protection of the American University of Beirut (AUB). Kitchen food waste
Mediterranean (MoE & LEDO 2001). The implementation of consisting of vegetable, fruit, meat and other food waste con-
planned investments in wastewater treatment is still in its early stituents was collected from several households. The waste
phase, so that an increase in capacity is feasible at the design was mixed thoroughly and divided into three batches of
level. The projected wastewater generation in the study area is equal size. The three batches were blended with tap water. A
summarized in Table 3 with corresponding loadings. volume of 11.7 L of water was used to grind 1 kg of food
waste (Hartmann 2000, Wainberg et al. 2000). The resulting
mixtures were then analysed for BOD and SS using Standard
Methodology Methods for the Examination of Water and Wastewater (APHA
The operational impacts associated with the integration of 1998). Each of the experiment was duplicated to assure repli-
food waste disposers include primarily: (1) solid waste com- cability and consistency of the results.
position and distribution; (2) domestic water consumption; Economic impacts entailed the evaluation of the conven-
and (3) wastewater loading. Six scenarios (Fig. 2) were tional (tangible or direct) and environmental (non-tangible
examined using a variable market penetration rate (25 to or indirect) costs/savings for all scenarios. The conventional
75%). The latter covers all the possible market penetration costs included the capital and operating cost of food disposer
scenarios reviewed in the literature with 25 and 50% being units, the cost of wastewater and sludge treatment of the
the most realistic ones since after 60 years of marketing gar- added wastewater volume (loadings and flow), and the cost
bage disposers in the US (which is considered the oldest of increased domestic water. As indicated in the background
market worldwide), their distribution reached a maximum of section, the cost of electricity needed to run food waste dis-

Fig. 3: Methodology for costs/savings estimation. 1Adopted from reported values in Carawan (1996), Union Sanitary District-California (2003)
and WSC (2003). 2Examined technologies include centrifuge thickening and dewatering; belt filter press; composting; recessed-plate filter; aero-
bic digestion; anaerobic digestion; alkaline stabilization; thermal aerobic pre-treatment and anaerobic digestion; pre-pasteurization and anaero-
bic digestion; reactor composting; anaerobic digestion and thermal drying; and incineration. Adopted from Hallvard et al. 2001; EC 2002;
Minett & Fenwick 2001; US EPA 2000a, b, c. 3Current domestic water charging rate as assigned by the Beirut Water Authority. 4Adopted from the
European Commission (2002). 5Adopted from Massoud (2000) and MoE & LEDO (2001). 6Adopted from CIWMB (1990). 7Equal to: Min conven-
tional costs + min environmental costs. 8Equal to: Max conventional costs + max environmental costs.
posers was considered as negligible. Similarly, foregone earn- (SWM) alternatives are used to estimate the value of poten-
ings from potential energy recovery from food waste were tial damages (Fig. 3). Note that all values used in the present
assumed to be insignificant particularly in cases where the analysis are at constant year zero therefore inflation was not
wastewater treatment process involves anaerobic digestion. taken into consideration.
The conventional savings included the costs forgone due to
reduced management requirements of food wastes diverted
from the solid waste stream. Environmental costs/savings are
Results
associated with potential impacts that are usually not The variation of the food waste composition in the study
directly perceived by the community. Due to the complexity area as a result of introducing food disposers is summarized in
and the inter-connection of the environmental media (air, Fig. 4. Naturally, the integration of food disposers is expected
water, soil and humans), the valuation of these environmen- to reduce the total food waste generated and collected. The
tal impacts is difficult. Nonetheless, they can be estimated percentage of food waste within the MSW stream decreases
using the abatement cost method in which costs required to from 63 to 58% under S1a (25% market penetration with
abate pollution resulting from solid waste management 75% of the food ground), and down to 33% under S3b (75%

Fig. 4: Food waste composition after installation of food disposers (2005 values).
Fig. 5: Benefits achieved under S1a (25% market penetration + 75% of food grinded) and S3b (75% market penetration + 95% of food grinded)
as percentage of existing SWM cost.
market penetration with 95% of the food ground), which < 0.20 cm (CIWEM 2003). Kitchen sewer connection pipes
translates into 12 to 43% reduction in wastes to be landfilled in the study area are of standard size of 3.18 and 5.08 cm
(Table 4). Consistent with values reported in the literature inner diameter (ID). On the other hand, the ID of the sew-
(USEPA 1980, Nilsson et al. 1990, Waste Management age connection system ranges from 0.4 to 2 m. Thus, no clog-
Research Unit 1994, Ketzenberger 1995, New York City ging is expected to occur in the plumbing connections
DEP 1997, Wainberg, et al. 2000, The Plumbing Foundation within households or in sewers, which is consistent with the
of New York 2001), the increase in water consumption is rel- absence of clogging problems in cities where food waste dis-
atively insignificant, ranging from 0.72 to 2.35% under S1a posers were installed (Nilsson et al. 1990, Strutz 1998, Sudo
(25% market penetration with 75% of food ground) to S3b 1998, Galil & Yaacov 2001).
(75% market penetration with 95% of food ground). The Table 5 presents the details of the cost-saving analysis
corresponding increase in the wastewater flow is equally associated with the integration of food waste disposers into
insignificant accounting for 1.1 to 4.4% under the same sce- the solid waste/wastewater management schemes. The bene-
narios. The anticipated increase in sewage loadings from the fits achieved constitute 1.9 to 5.0% of the existing solid
use of food waste disposers was based on the laboratory inves- waste management cost under S1a (25% market penetration
tigation that indicated BOD and SS concentrations of 7042 with 75% of food ground) and 11.5 to 23.3% under S3b
and 1537 mg/L, respectively. The anticipated increase (75% market penetration with 95% of food ground), respec-
ranged from 17 to 62% in terms of BOD loading under S1a tively. The benefits increased with the inclusion of environ-
(25% market penetration with 75% of food ground) to S3b mental externalities to reach 7.2 to 10.4% of the existing
(75% market penetration with 95% of food ground) and solid waste management cost under S1a (25% market pene-
from 1.9 to 7.1% for SS loading under the same scenarios. tration with 75% of food ground) and 31.6 to 44.0% under
Measurements of the output from food waste disposers S3b (75% market penetration with 95% of food ground),
show that about 98% of the input is reduced in size to respectively. Figure 5 illustrates the savings achieved with

Table 4: Impacts of introducing food disposers on SWM and WWM schemes (2005 values).
Scenario % Reduction in solid waste % Increase in domestic % Increase in % Increase in % Increase in SS

to be managed water consumption wastewater flow BOD loading loading
(1) (2) (3) (4) (5)
S1a 11.8 0.7 1.1 16.9 1.9
S1b 14.7 0.8 1.4 21.3 2.4
S2a 23.0 1.3 2.3 33.4 3.8
S2b 29.1 1.6 2.9 42.0 4.8
S3a 34.3 1.9 3.4 49.5 5.6
S3b 43.4 2.4 4.4 62.2 7.1
(1) Y T = X × a YT = Total solid waste generated in the GBA in 2005 (tonnes/day)

X = Estimated population in 2005 (capita)
Y Food = Y T × b a = Average daily solid waste generation rate (kg/capita per day)
YFood = Food waste generated (tonnes/day)
Y FoodGround = Y Food × m × g
b = % Composition of food waste in waste stream (assuming con-
R L = 100 – [ ( Y FoodGround ÷ S ) × 100 ] stant waste composition)
YFoodGround = Food waste ground (tonnes/day)
(2) W T = X × c m = % Market penetration of food waste disposers (25, 50 or 75%)
g = Estimated food ground (75 or 95%)
W FoodGround = w × Y FoodGround
S = Solid waste expected to be landfilled if the current ISWM
I W = [ W FoodGround ÷ W T ] × 100 scheme remains operational (without integration of food waste
disposers) (tonnes/day)
(3) V WW = X × e RL = % Reduction in solid waste to be landfilled
V FoodGround = Y FoodGround × MC + W FoodGround WT = Estimated total water demand for GBA in 2005 (without integra-
tion of food waste disposers) (m3/day)
I WW = ( V FoodGround ÷ V WW ) × 100 c = Average daily water demand rate (L/capita per day)
WFoodGround = Amount of water needed to grind food waste (m3/day)
( X BODWW × V WW ) + ( X BODFood × V Food ) w = Amount of water needed to grind 1 Kg of organic food
(4) X NewBOD = ------------------------------------------------------------------------------------------------------
(V +V WW )
Food (11.7 L/kg)
IW = % Increase in domestic water consumption
( M Food × V ExpFood ) VWW = Estimated wastewater flow for the GBA in 2005 (m3/day)
V Food = ----------------------------------------------
M ExpFood e = Average daily wastewater generation rate (L/capita per day)
VFoodGround = Volume of food waste ground expected to be disposed down the
( X NewBOD – X BODWW ) drain (m3/day)
I BOD = --------------------------------------------------------- × 100
X BODWW MC = Moisture content (%)
IWW = % Increase in wastewater flow
( X SSWW × V WW ) + ( X SSFood × V Food ) XNewBOD = New BOD loading after installation of food disposers
(5) X NewSS = ---------------------------------------------------------------------------------------------
(V +VWW )
Food XBODWW = BOD loading of the current wastewater sewage of the GBA
(mg/L)
( X NewSS – X SSWW ) XBODFood = Average BOD of food waste based on experimental results
I SS = ------------------------------------------------ × 100
X SSWW (7042 mg/L)
Vww = Total volume of the wastewater generation in the GBA (m3/d)
VFood = Volume of food ground (in m3/day)
MFood = Mass of food disposed in the sink (tonnes/day)
MExpFood = Mass of food sample used in the experiment (500 g)
VExpFood = Volume of the food sample used in the experiment (6.5 L)
IBOD = % increase in BOD loading after integration of food disposers
XNewSS = New SS loading after installation of food disposers
XSSWW = SS loading of the current wastewater sewage of the GBA (mg/L)
XSSFood = Average BOD of food waste based on experimental results
(1537 mg/L)
ISS = % increase in SS loading after integration of food disposers
the integration of food waste disposers as percentages of the as relatively high and efforts are directed towards reducing it
existing SWM cost, based on the minimum and maximum through competitive tendering by the private sector. Hence,
total costs (conventional and environmental) for 2005 and the savings and net benefits that are achieved from the inte-
2020. It indicates that using current costs of solid waste and gration of food disposers are expected to decrease. A
wastewater management, the benefits of integrating food breakeven analysis would allow decision makers to define the
waste disposers would increase with time as the quantities of percentage reduction required under which the integration
solid waste to be managed increase. of food waste disposers within the management scheme
The above analysis assumes that the cost of managing would become non-profitable. Assuming that all other val-
1 tonne of MSW will remain constant at the current charg- ues are constant, the breakeven points for S1a (25% market
ing rate of US$ 119 per tonne. Locally, this cost is perceived penetration with 75% of the food ground), and for S3b (75%

Table 5: Economic benefit of food waste integration (2005 values).
Scenario S1a S1b S2a S2b S3a S3b
% of market penetration 25 25 50 50 75 75
% of food ground 75 95 75 95 75 95
Costs (MUS$/year) Cost of food disposer units (1) 4.6 4.6 9.1 9.1 13.7 13.7
Cost of added volume of domestic water (2) 0.4 0.5 0.8 1.0 1.2 1.5
Cost of wastewater treatment (3) 0.6–2.4 0.8–3.0 1.2–4.7 1.6–6.0 1.8–7.1 2.3–9.0
Conventional cost of sludge management (4) 0.1–1.0 0.2–1.3 0.3–2.0 0.3–2.5 0.4–3.0 0.5–3.8
Environmental cost of sludge management (5) 0.02–0.15 0.03–0.19 0.04–0.30 0.05–0.38 0.06–0.45 0.08–0.57
Conventional costs (6) 5.7–8.3 6.0–9.3 11.4–16.6 12.0–18.6 17.1–25.0 18.0–28.0
Environmental and conventional (7) 5.7–8.5 6.0–9.5 11.5–16.9 12.1–19.0 17.2–25.4 18.1–28.5
Savings (MUS$/year) Conventional solid waste savings (8) 9.9 12.5 19.8 25.1 29.7 37.6
Environmental solid waste savings (9) 4.6 5.8 9.1 11.6 13.7 17.4
Net benefits (MUS$/year) Based on conventional costs/savings (10) 1.6–4.2 3.2–6.5 3.1–8.4 6.4–13.0 4.7–12.5 9.6–19.5
% of existing SWM cost (12) 1.9–5.0 3.8–7.8 3.8–10.0 7.7–15.6 5.6–15.0 11.5–23.3
Based on conventional and environmental costs/savings (11) 6.0–8.7 8.8–12.3 12.0–17.5 17.6–24.6 18.0–26.2 26.4–36.8
% of existing SWM cost (12) 7.2–10.4 10.5–14.7 14.3–20.9 21.0–29.3 21.5–31.3 31.6–44.0
H = Expected number of food waste disposers to be installed under studied scenarios

(1) H = ( X + f ) × m
(disposer unit)
n f = Number of capita/household
i(1 + i) - A = Annual cost of a food waste disposer unit (US$)
A = P ( A/P, i, n ) → A = P --------------------------
n P = Initial cost of the food waste disposer unit (assumed to be US$ 400)
(1 + i) – 1 i = Opportunity cost per household (5% per household) (US$)
n = Expected economic life of a disposer (12 years – Wainberg et al. 2000)
C FWD = A × H CFWD = Total cost of food disposer units (MUS$/year)
CW = Cost of added domestic water consumption (MUS$/year)
(2) C W = V W × h h = Annual domestic water charge rate (refer to Fig. 3).
BOD = Added BOD loading (kg/day)
(3) BOD = V FoodGround × X BODFood × d d = Water density (1000 L/tonne)
MinCWW = Total minimum cost of wastewater treatment (MUS$/year)
SS = V FoodGround × X SSFood × d MinCBOD = Minimum cost of secondary wastewater treatment per kg of BOD (refer to Fig. 3)
(US$/kg)
MinC WW = [ BOD × MinC BOD + SS × MinC SS ] × 365 MaxCWW = Total maximum cost of wastewater treatment (MUS$/year)
MaxCBOD = Maximum cost of secondary wastewater treatment per kg of BOD (refer to Fig.3)
MaxC WW = [ BOD × MaxC BOD + SS × MaxC SS ] × 365 (US$/kg)
SS = Added SS loading (kg/day)
(4) Sl = V FoodGround × l × d MinCSS = Minimum cost of secondary wastewater treatment per kg of SS (refer to Fig. 3)
(US$/kg)
MinC Sl = Sl × MinC ST × 365 MaxCSS = Maximum cost of secondary wastewater treatment per kg of SS (refer to Fig. 3)
(US$/kg)
MaxC Sl = Sl × MaxC ST × 365 Sl = Generated sludge due to integration of food disposers (tonnes/day):
l = Average settable solids of the food waste adopted from the literature (3327 mg/L:
(5) MinEC Sl = MinC Sl × 0.15 Wainberg et al. 2000)
MinCSl = Minimum conventional cost of sludge treatment (MUS$/year)
MaxEC Sl = MaxC Sl × 0.15 MinCST = Minimum cost of sludge treatment per dry tonne (refer to Fig. 3) (US$/dry tonne)
MaxCSl = Maximum conventional cost of sludge treatment (MUS$/year)
(6) MinC = C FWD + C W + MinC WW + MinC Sl MaxCST = Maximum cost of sludge treatment per dry tonne (refer to Fig. 3) (US$/dry tonne)
MinECSl = Minimum environmental cost associated with sludge treatment (refer to Fig. 3)
MaxC = C FWD + C W + MaxC WW + MaxC Sl (MUS$/year)
MaxECSl = Maximum environmental cost associated with sludge treatment (refer to Fig. 3)
(7) MinEC = C FWD + C W + MinC WW + MinC Sl + MinEC Sl (MUS$/year)
MinC = Minimum conventional costs (MUS$/year)
MaxC = Maximum conventional costs (MUS$/year)
MaxEC = C FWD + C W + MaxC WW + MaxC Sl + MaxEC Sl
MinEC = Minimum environmental & conventional costs (MUS$/year)
MaxEC = Maximum environmental & conventional costs (MUS$/year)
(8) CS = Y FoodGround × p × 365
CS = Conventional savings (MUS$/year)
p = Cost of managing 1 tonne of food waste under current ISWM scheme
(9) ES = Y FoodGround × q × 365 (collection, transportation, sorting, baling, and landfill disposal) (US$/tonne)
NEBmin = Net benefits based on minimum environmental and conventional savings/costs
(10) NB min = CS – MinC (MUS$/year)
NEBmax = Net benefits based on maximum environmental and conventional savings/costs
NB max = CS – MaxC (MUS$/year)
Pmin = % of existing SWM cost based on minimum conventional savings/costs (MUS$/
(11) NEB min = ( CS + ES ) – MinEC year)
Pmax = % of existing SWM cost based on maximum conventional savings/costs (MUS$/
NEB max = ( CS + ES ) – MaxEC year)
EPmin = % of existing SWM cost based on minimum environmental and conventional sav-
(12) P min = [ NB min ÷ ( Y Food × r × 365 ) ] × 100 ings/costs (MUS$/year)
EPmax = % of existing SWM cost based on maximum environmental & conventional sav-
P max = [ NB max ÷ ( Y Food × r × 365 ) ] × 100 ings/costs (MUS$/year)
EP min = [ NEB min ÷ ( Y Food × r × 365 ) ] × 100

EP max = [ NEB max ÷ ( Y Food × r × 365 ) ] × 100
market penetration with 95% of the food ground), taking costs, are depicted in Fig. 6a and c, respectively. The
into consideration minimum and maximum conventional breakeven points for the same scenarios, taking into consid-

Fig. 6: Breakeven points for S1a (25% market penetration + 75% of food grinded) and S3b (75% market penetration + 95% of food grinded) tak-
ing into consideration the lower and upper range of costs (2005 values) (a) Based on minimum conventional costs; (b) Based on minimum total
(conventional + environmental) costs; (c) Based on maximum conventional costs; (d) Based on maximum total (conventional + environmental) costs.
eration the maximum conventional and total (conventional cost of managing the remaining solid waste will increase if
and environmental) costs, are depicted in Fig. 6b and d. the total quantity of the waste to be managed has decreased.
Clearly, the introduction of food waste disposers under the This will ultimately affect the total savings achieved from
lowest market penetration S1a, excluding environmental the SWM scheme as a result of integrating food waste dispos-
externalities, becomes non-profitable if the current cost of ers. In this context and in order to define the cost of manag-
SWM decreases by 52% (to reach US$ 57.1 per tonne) ing the remaining solid waste generated ‘X’ (US$ per tonne)
(Fig. 6a), taking into consideration the minimum conven- after the integration of food waste disposers at which the pro-
tional costs defined in Fig. 3 and Table 5. However, if the posed system would breakeven, the worst case scenario in
maximum conventional costs for wastewater and sludge terms of economy of scale (100% market penetration with
management were considered, the proposed system becomes 100% food ground) was assessed. Excluding environmental
non-profitable if the current cost of SWM decreases by 26% externalities, the integration of food waste disposers will
only or down to US$ 88.5 per tonne (Fig. 6c). With the remain profitable until the cost/tonne of managing the
inclusion of externalities, the introduction of food disposers remaining solid waste reaches 1.8 times the current charging
under the same scenario (S1a) remains largely profitable rate (US$ 223 per tonne). If environmental externalities are
even if the cost of SWM decreases by 70% to reach US$ 35.3 included, the integration of food waste disposers will still be
per tonne (if minimum costs were assumed) (Fig. 6d) or 98% profitable up to a management cost of US$ 315 per tonne
to reach US$ 2.4 per tonne (if maximum costs were (2.6 times the current charging rate). Certainly, it is not
assumed) (Fig. 6b). On the other hand, using the highest expected that the cost of SWM would reach such levels in
market penetration S3b, the proposed system becomes non- the study area in the near future, which justifies the adoption
profitable under higher SWM cost reductions ranging from of food waste disposers.
42% (reaching US$ 68.7 per tonne) (Fig. 6a) to 16% (reach-
ing US$ 100.1 per tonne) (Fig. 6c), taking into considera-
tion minimum and maximum conventional costs, respec-
Limitations
tively. With the inclusion of externalities, the margin of Accomplishing the penetration levels assessed in this study
safety is higher and the proposed system remains profitable constitutes the main constraint in the analysis presented
even if the current SWM charging rate decreases by 60% above. The study assumes that food waste disposers are used
(reaching US$ 46.9 per tonne) (Fig. 6b) to 88% (reaching daily for the adopted market penetrations. This may not be
US$ 13.9 per tonne) (Fig. 6d). the case when residents are travelling or dine outside
Conversely, decision makers should consider the dynam- although it is reasonable and relatively easier to integrate
ics of economy of scale whereby it can be argued that the food waste disposers in restaurants. Furthermore, the labora-

Table 6: Effluent quality from food waste disposers.
Source Suspended solids (mg/L)4 BOD5 (mg/L)4
Wainberg et al. (2000)1 5834 11150

2
Koning and Van der Graaf (1996) 10667 11648
Waste Management Research Unit (1994)1 10369 7524
1
NYC DEP (1990) 5634 8078
Sinclair Knight (1990)3 6356 4000
Current study 1537 7042
1
Based on experimental works. 2Based on generic literature values. 3Based on theoretical calculations. 4Average of two experiments with
triplicate analysis per experiment. BOD5, Biochemical Oxygen demand – 5 day.
tory investigation was conducted using a relatively small Concluding remarks

number of food waste samples, which may not be statistically
representative of the waste stream in the study area. The This study revealed that a reduction of 12 to 43% in the total
food waste was blended instead of ground, resulting in SS solid waste stream could be achieved by integrating food
concentrations that are lower than those reported in the lit- waste disposers under market penetration ranging between
erature (Table 6). However, if the highest values for BOD 25 and 75%, respectively. While no significant increase in
and SS loadings reported in Table 6 (Koning & Van der domestic water consumption (for food grinding) and waste-
Graaf 1996) were considered in the economic analysis, the water flow rates were expected, wastewater loadings
integration of food waste disposers in the study area would increased by 17 to 62% (BOD) and 1.9 to 7.1% (SS). Con-
remain beneficial. More explicitly, the net benefits achieved cerns about increased sludge generation persist and its poten-
(2005 values) would constitute 7.5 to 32.7% of the existing tial environmental and economic implications may differ
SWM cost, taking into consideration the lower and upper with location and therefore area-specific characteristics must
range of market penetration based on the minimum (con- be taken into consideration when contemplating the adop-
ventional and environmental) total costs. The net benefits tion of a strategy to integrate food waste disposers in the
would range from 0.5 to 6.3% of the existing SWM cost, waste-wastewater management system. In this study, the
based on the maximum total costs. introduction of food disposers into the waste and wastewater
Fig. 7: Proposed action plan for the integration of food disposers within an urban area.

management systems led to net economic benefits that waste disposers within new homes in form of building code
ranged between 7.2 and 44.0% of the current solid waste requirements; (2) Implementation, which comprises activi-
management cost. Food waste disposers can constitute a via- ties or processes associated with law implementation with
ble option (economically and environmentally) that could corresponding responsibilities of line Ministries; and (3)
reduce the load on the solid waste stream and minimize the Monitoring which consists of supervising the proper imple-
amount of end waste requiring landfilling. The main techni- mentation of the law. Equally important is a public awareness
cal constraint lies in the ability to increase the loading campaign with the first two phases of the plan. Figure 7
capacity of wastewater treatment plants. Administratively, a depicts a typical action plan for the integration of food dis-
proper action plan is needed to integrate food waste disposers posers within an urban setting taking into consideration the
within the SWM scheme of an urban area. Inadequate legis- current institutional framework in the study area.
lative and administrative frameworks and limited institu-
tional capacity, as is the case in many developing countries,
coupled with overlapping responsibilities of line Ministries,
Acknowledgements
necessitate the role definition of the various parties involved Special thanks are extended to the United States Agency for
where such a policy is to be adopted. In this context, the International Development for its support to the Environ-
main components that are required include: (1) Legislation, mental Program and the Water Resources Center at the
which entails the promulgation of a law for integrating food American University of Beirut.
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REGIONAL WORKSHOP
ON
THE COST OF
ENVIRONMENTAL
DEGRADATION
METHODOLOGY
Session 14
THE VALUE OF LIFE AND
HEALTH
Useful references
• Quantifying Environmental Health Impacts &
Environmental Burden of Disease Series published by
THE COST OF ENVIRONMENTAL World Health Organization (WHO) @
www.who.int/quantifying_ehimpacts/en/
• Global Burden of Disease Methodology and
Documentation @ www.who.int/whosis/en/
Session 14a
The Value of Life and Health • WHO 2002. World Health Report 2002- reducing risks,
promoting healthy life. Geneva, World Health
Burden of Disease organization. @ www.who.int/whr/2002/en/
Environmental hazards/risk factors

Environmental hazards/risk factors
• Examples of environment-related
health problems
– Noise Î Hearing loss; Cardiovascular (?)
– Biologically-contaminated water Î Diarrhea
– Air pollution Î Exacerbation of asthma
– Pesticide Î Acute poisoning; Neurotoxicity
– Asbestos Î Lung cancer
– Lead Î Neurocognitive deficits
– Lack of safety Î Fatal and non-fatal injuries
(Figure 2.1 from EBD Series no. 1)
Environmental hazards/risk factors Environmental hazards/risk factors
The role of environment becomes • How does the environment affect health?
– Direct effect
more significant if the holistic definition • Agent causes health problem
of health is adopted – Indirect effect
• Reduction of immunity
Health is not the absence of disease • Exacerbation of an existing health problem
and disability but the attainment of
physical, mental, and social well- CAUSAL WEB
being. Distal social & economic causes
A causal web for lead exposure
Health burden of environment
Measuring Health Impacts

We ask:
• Two links to be established in estimating monetary
1. What fraction of the national values of changes in human health associated
with environmental changes
burden of disease is attributable to Link
1
Link
2
environmental risk factors?
2. What is the burden of disease 1. Link between environmental change and change in
health status
attributable to a specific • Establishing DRRs
• Establishing DALYs
environmental risk factor? 2. Link between change in health status and its
monetary equivalent
• Establishing a WTP
Measuring Health Impacts Measuring Health Impacts

• Health impacts of pollution may be well recognized • Types of studies that provide evidence of the
– Air pollution
• From itchy eyes and chest discomfort
impacts of exposure to pollutants
• To chronic bronchitis, asthma attacks, and premature death – Epidemiology and field studies
– Inadequate water supply and sanitation • Involve estimating a statistical relationship between the
• Diarrhea, intestinal nematodes and other diseases frequency of specific health effects observed in a study
• Health impacts measured via population and measured levels of pollutants
– Various types of studies including • Types of studies
• Epidemiology and field studies – Cohort studies
• Human clinical studies
» Analyze the incidence of health effects in a sample of
• Laboratory and toxicology studies identified individuals usually selected specifically for the study
• Epidemiologic studies allow the establishments of » Allows better control of risk factors since characteristics of
– Dose-response relations (DRR) linking environmental variables individuals are well known
with observable health effects – Population studies
• DRRs established for air pollutants » Rely on the data available for the population as a whole rather
– Burden of disease in terms of DALYs than tracking the effects on specific individuals
» Readily available and cost-effective
• Types of studies that provide evidence of the • Types of studies that provide evidence of the
impacts of exposure to pollutants impacts of exposure to pollutants
– Epidemiology and field studies – Human clinical studies
• Advantages • Examine response of human subjects to pollutant
– Provide sufficient information to infer a concentration- exposure in a controlled laboratory setting
response function used to predict a change in the number of • Can provide evidence of causation because
cases of a given health effect and pollutant concentration confounding variables are well controlled
– Define health effects in terms of factors that can be directly
related to perceived welfare • Advantages
» Risks of premature death – Provides more accurate dose-response information
» Days with noticeable symptoms • Limitations
• Limitations – Limited to considerations of short-term reversible health
effects that can be induced on purpose in human subjects
– Uncertainty about whether the causal factors for the
observed association with health effects has been fully and – Requires assumptions to link human exposure in real life to
accurately specified health effect

• Types of studies that provide evidence of the impacts • DRRs
of exposure to pollutants – Correlate mortality and morbidity outcomes for susceptible
– Laboratory and toxicology studies population groups with ambient concentration of a given air
• Use animal subjects and human tissue or cells to study pollutant
biological responses to pollutants in a controlled laboratory – Epidemiological studies associated with air pollution
setting • Time series
• Provide important information about specific biological pathways • Cross-sectional
and mechanisms by which pollutants cause harm to living
organisms – Most studies have focused on mortality effects
• Advantages
– Pollutant exposures well-controlled and variations in confounding
factors reduced
– Can consider both long term and short term exposures
• Limitations
– Requires analysis and assumptions to link human exposure in real-life
to laboratory exposure
– Uncertainty in extrapolating data from animal subjects to human
populations
– Sometime focus on health effects that are difficult to interpret in terms
of specific symptoms
Measuring Health Impacts Burden of Disease (BoD

(BoD))
• DRRs- Example • BoD study
Estimated increments in annual health effects associated with unit change in pollutants
– aims to quantify the burden of premature mortality and disability
Outcome PM10 SO2 Ozone Lead NO2 for major diseases or disease groups
(10μg/m3) (10μg/m3) (pphm) (1.0 mg/m3) (pphm)
– Uses a summary measure of population health (DALY) to
Premature mortality (% change) 0.96 0.48 combine estimates of the years of life lost and years lived with
Premature mortality/ 100,000 6.72 disability
Respiratory hospital admissions/100,000 12 7.7 – Data are broken down by age, sex, and region
Emergency room visits/100.000 235.4
Restricted activity days/person 0.575 • Global Burden of Disease (GBD)
Lower respiratory illness/child 0.016 – Constituted the most comprehensive set of estimates of mortality
Asthma symptoms/asthmatic 0.326 0.68 and morbidity yet produced (Murray and Lopez, 1996)
Respiratory symptoms/person 1.83 0.55 – WHO now regularly develops BoD estimates at regional and
Chronic bronchitis/100,000 61.2
global level for a set of more than 135 causes of disease and
injury
Minor restricted activity days/person 0.34
– National BoD studies involve obtaining country-specific
Respiratory symptoms/1,000 children 0.18
estimates for input to national policy
Respiratory symptoms per adults 0.1 0.1
Eye irritations/person 0.266
Why do we need robust processes
for setting priorities?
Measuring the
Burden of Disease • To ensure that health care resources are
used in the most appropriate manner
is a TOOL for • To achieve maximum health benefits
setting health priorities using available resources
Î Prioritize actions
Other uses of measures of Criteria/ information used in

setting health priorities
Burden of Disease
• Evaluating health interventions • Goals for population health
• Predicting health gains from interventions • Current and projected estimates of
• Evaluating policy programs burden of disease
• Estimating performance indicators and • Human, financial, and logistic resources
assessing trends over time • Historical trends in policy focus
• Making comparison between regions • Interest & pressure groups (local and
• Identifying high risk groups international)
Indicators that can be used to

assess the Burden of Disease Prevalence
• Prevalence is the number of existing
• Incidence cases in a given population over a
• Prevalence Cost: specified time period
– Medical care
– Lost productivity – Number of diabetics per 100,000 in 2007
• Mortality
– Social burden – Number of asthmatics per 1000 children less
• Morbidity than 5 years old in 2007
• Disability
Old + New cases in a given population
Challenges to interpretation
Incidence
• Incidence is the number of new cases in a • How does a death at the age of 20 years
given population over a specified time compare with a death at the age of 70
period years?
• How do 200 acute respiratory infections
– Number of new cases of diabetes in 2007 compare to 400 cases of infectious
among 100,000 who had no diabetes on
January 1, 2007 diarrhea?
– Number of new cases of asthma in 2007
among 1,000 children less than 5 years old
with no asthma on January 1, 2007
(EBD Series no. 1; page 4)
None of the individual Burden of Disease (BoD

(BoD))
indicators is sufficient.
There is a need for a Disability Adjusted Life Years (DALY)
– Measures health gaps as opposed to health
composite index to assess BOD expectancies, using time measures
– Measures the difference between
• a current situation and an ideal situation
A summary measure of life lost due to

disease plus disability associated with An ideal situation is where “everyone
lives up to the standard life
living with the disease relevant to a
expectancy and in perfect health”
measure of expected population health
Burden of Disease (BoD

(BoD)) Burden of Disease (BoD
(BoD))
Disability Adjusted Life Years (DALY)

– YLL
• Corresponds to the number of deaths multiplied by
the standard life expectancy at the age at which
death occurs
YLL = N × L
Where:
L = standard life expectancy at age of death in years
(BoD)) Burden of Disease (BoD)
Disability Adjusted Life Years (DALY) Disability Adjusted Life Years (DALY)
– Disability weights
– YLD • Quantify societal preferences for different health states
• Estimated by measuring the incidence of disability • DO NOT represent the lived experience of any disability or
health state
and the average duration of each disability • DO NOT imply any societal value for the person in the disability
• Number of disabilities is multiplied by the average • Example
weight factor that reflects the severity of the – A weight for paraplegia of 0.57
– Does NOT mean
disease on a scale from 0 (perfect health) to » Person in this health state is half dead
1(dead) » Person experience life as half way between life and death
» Society values them less as a person compared to healthy people
• Years of Life with Disability (without applying social – It means
preferences): » Society judges a year with blindness (0.43) to be preferable than a
year with paraplegia
Where: » Society would prefer living for 3 years followed by death (1.7 lost
I = number of incident cases healthy years) than have one year of good health followed by
YLD = I × DW × L DW = disability weight death (2 lost healthy years)
L = average duration of disability (years)

(BoD))
(BoD))
1 DALY = one lost year of healthy life
1. Stroke at age 50 with paraplegia (death 60)
– Disability weights example (Murray and Lopez, 1996) duration of disability x severity weight
Disease Mean disability Disease Mean disability
weight weight
AIDS 0.5 Asthma, cases 0.10 Birth 50 years 10 x 0.7 YLD 60 years
Infertility 0.18 Deafness 0.22
Diarrhea disease, episode 0.11 Brain injury, long term 0.41 2. Cerebrovascular death at age 60
Measles episode 0.15 Spinal cord injury 0.73 expected lifetime - age at death
Tuberculosis 0.27 Sprains 0.06
Malaria episode 0.20 Burns (> 60%) long term 0.25
Birth 60 years 20 YLL 80 years
Cancer, terminal stages 0.81 Congestive heart failure 0.32
Parkinson disease cases 0.39 Benign prostatic hypertrophy 0.04
Alzheimer disease cases 0.64 TOTAL DALYs for this person=YLD + YLL= 7 + 20 = 27

(BoD))

– Other social values
• Challenges/ Ethical issues • Age weights
– What is the ideal condition? What is perfect health? A year of healthy life lived at younger and older ages was
– How sensitive are measures to gender and regional weighted lower than for other ages
– Various studies have shown a broad social preference to value a
differences? year lived by a young adult more than a year lived by a young child
– Are all years of life equivalent? or lived at older ages
• Age weighting: young adulthood more valuable than infancy and old – Age weights in DALYs are controversial
age • Time discounting
• Discount rate: a year of perfect health today is more valuable than a The net present value of lives lost was estimated using a 3%
year of perfect health 10 years later discount rate
– Is there an “objective” measure of disability? – Studies have shown that people prefer a healthy year of life
immediately, rather than in the future
– BoD studies may or may not include time discounting
and age weights depending on local preference
(BoD))
Disability Adjusted Life Years (DALY) Disability Adjusted Life Years (DALY)
– Calculating DALYs with a 3% discount rate – Calculating DALYs with age weight and a 3%
• YLL: discount rate
N Where: • YLL:
YLL = (1 − e−rL) N = number of deaths
L = standard life expectancy at age of death
r r = discount rate (0.03)
KCera −(r + β )(L+a) 1− K
YLL = [e [−(r + β )(L + a) −1] − e −(r + β )a [−(r + β )a −1]] + (1 − e−rL)
(r + β ) 2 r
• YLD: Where:
Where:
I × DW × L
I = number of incident cases β = age weight ing constant (Ex: β = 0.04)
YLD = (1 − e−rL) DW = disability weight
L = duration of disability in years
r r = discount rate (0.03)
C= adjustment constant for age-weights (Ex: C = 0.1658)
L = standard life expectancy at age of death (years)

(BoD))

– Calculating DALYs with age weight and a 3% • Disability
discount rate Adjusted
• YLD: Life
Years
YLD = DW{
KCera −(r +β )(L+a)
[e [−(r + β )(L + a) −1] − e−(r +β )a [−(r + β )a −1]] +
1− K
(1 − e−rL)}
(DALY)
(r + β ) 2 r – Example
YLL for
Where: diarrhea
β = age weighting constant (Ex: β = 0.04)
C= adjustment constant for age-weights (Ex: C = 0.1658)
L = duration of disability (years)
DW = Disability weight

(BoD))
• Other issues to remember

• Disability – Priorities are not decided on the basis of
Adjusted numbers only
Life Years
(DALY) – DALY measure is health focused– other gains
– Example are not considered
YLD for
Alzheimer
Same principles for..
Illustration from the
• Global Burden of Disease (GBD) studies National Burden of Disease
• National Burden of Disease (NBD) studies Study in Lebanon
• Nationally:
– Sub-regional data The case of Coronary
– Modify disability weights, adjustment rates, Heart Disease (CHD)
life expectancy, etc. for national purposes
– Comparison to other countries requires Presented at the “Fighting Together
adherence to universal method Cardiovascular Diseases” Conference
Lebanese Order of Physicians, Beirut
February 19-21, 2004
CHD: Flow chart What do we need?

• Prevalence data by age, sex, and region.
Lebanese population
• Proportion hospitalized
CHD: • Long-term survival Cohort
Prevalence/ incidence Social burden
• Complications studies
Angina Myocardial
infarction
Hospitalization
Complications
Need for gender and social analysis
Surgical intervention Mortality/ Survival rate
Prevalence of CHD (%) CHD: Flow chart

< 40 40- 50- 60- >=70 All ages Lebanese population
49 59 69
Beirut 1994 M 0.0-0.9 4.6 11.7 15.0 24.1 4.3
(Nuwayhid et al., 1997)
CHD:
F 0.2-0.9 3.2 8.2 16.4 24.4 3.9
NHHEUS 1999 M + + + + +
Prevalence/ incidence Social burden
3.8
+ + + + +
F 3.3
Prostate screening 1997- M + + +
15 Angina MI
98
Hospitalization
Several hospital-based studies: Complications
Male hospitalized patients to
Female hospitalized patients = 3-4
Hospital admissions CHD: Flow chart
Lebanese population
• 4500 out of 60000 (7.5%) hospital
discharge diagnoses in Beirut were due to CHD:
CHD. Prevalence/ incidence Social burden
• 13% of all 3981 hospital admissions were Angina MI

due to vascular/circulatory diseases (NHHEUS
1999)
Hospitalization
Complications
Proportionate CVD mortality

Hospital survival (1966-
(1966-1996)
• 201 MI patients in 1993 (Jazra et al., 1995):
Study (year) % CVD
– 29 (18 M) died within 1 week (14.4%) mortality
– Death rate increased with age Beirut (1966-67):Death certificates 48.4
• 443 MI admissions in 1996 (Sawaya et al., 1999): Beirut (1983-84):Household survey 17.2
– 99 Females
Beirut (1992-93): F/U HH survey 42.4
– Mortality rate (males): 7%, 5%, 11%, and 13% for
<=50, 51-60, 61-70, and >70 Beirut (1998): Death certificates 32.0
– Mortality rate (females): 8%, 12%, 16%, and 25% for
Beirut (PHS 1996): Household survey 39.4
<=50, 51-60, 61-70, and >70
Lebanon (PHS 1996): HH survey 34.9
Population-
Population-based mortality Population-
Population-based mortality
rate (Sibai et al., 2001) rate (continued) (Sibai et al., 2001)
• 1567 (50+ years) men and women • Total deaths in 10 years = 416
(Beirut- 1983) • Mortality rate due to IHD:
• Follow-up in 1993 – 16.2 per 1000 person-years (95% CI 3.5-
• Total deaths in 10 years = 416 19.5) for males
– 40% ischemic heart disease – 7.6 per 1000 person-years (95% CI 5.8- 9.9)
for females
– 13% Cerebrovascular disease
– 7% Other CVD
CHD: Can we calculate its
DALY?
Lebanese population
CHD: Global Burden of Disease

Prevalence/ incidence Social burden (WHO)
Angina MI
Selected results
Hospitalization
Complications
Results - global leading causes of Projected Change in Rank Order:2020 vs. 1990
deaths … and ……DALYs
……DALYs
Cardiovascular 29% Cardiovascular 10%
Neoplasms 13% Neoplasms 5%
Injuries 9% Injuries 12%
Respiratory 7% Respiratory 6%
HIV/AIDS 5% HIV/AIDS 6%
Perinatal 4% Perinatal 7%
Diarrhoea 4% Diarrhoea 4%
TB 3% TB 3%
Malaria 2% Malaria 3%
Traffic accidents 2% Traffic accidents3%
Depression <1% Depression 5%
2001 data, World Health Report 2002
Burden of Disease and Injury Attributable to

Selected Risk Factors in the World in 1990
We ask:
1. What fraction of the national

burden of disease is attributable to
Environmental Burden of Disease
environmental risk factors?
2. What is the burden of disease

attributable to a specific
environmental risk factor?
What is attributable risk? More on attributable risk

• If the specific exposure is controlled, then the
excess risk attributed to it will be reduced
• However, the excess risk can be attributed to

more than one risk factor
– For example, lung cancer is attributed to cigarette
smoking and ambient air pollution
Attributable risk is the excess risk that can be attributed to a specific exposure • Hence, if one exposure is controlled, the fraction
of the remaining excess risk attributed to the
(risk among exposed - background risk i.e., risk among non-exposed) other exposure will change
Why measure the Environmental

Two types of attributions
Burden of Disease (EBD)?
• Categorical attribution
• To set action priorities in health and the environment
– Event attributed to a single cause even if it is
associated with multiple causes (e.g., death can • To plan for preventive action
result from a combination of malnutrition and • To assess performance
measles, but the case of death is attributed to either • To compare/ contrast benefits from different actions
malnutrition or measles)
• To identify high-risk populations
– Used in GBD and NBD studies
• To plan for future needs
• To predict impact of future environmental changes
• Counterfactual attribution
• To set research priorities in health and the environment
– The scenario with (e.g., 50% of population smoke) is
compared to the scenario without (e.g., none smoke) • To guide policy making
– Used in Environmental Burden of Disease studies Environmental Burden of Disease Series, No. 1
and the like Introduction and methods: Assessing the environmental
Burden of disease at national and local levels. WHO, 2003
Conceptual framework Examples
• What fraction of asthmatic cases can be
Risk factor A
attributed to air pollution?
Risk factor B • What proportion of cancer can be
Health Outcome
attributed to smoking? Asbestos?
Risk factor C
• What proportion of diarrhea can be
Environmental * attributed to lack of hygiene and
risk factor sanitation?
• What proportion of new cases of malaria
* Proportion attributed
can be attributed to climate change?
to environmental risk factor
Sources of evidence on association

between environmental risk factor
and health outcome is needed
• Epidemiological (population-based) studies

• “Natural” experimental studies
– Intentional and non-intentional incidents
– Disasters (human-made or natural)
• Designed experimental studies
– Human
– Animal
Key information needed

1. Indicators for selected environmental
problems/areas
Examples of
Key information needed
environmental indicators
• Water, sanitation and • Water supply coverage 1. Indicators for selected environmental
hygiene • Sanitation coverage problems/areas
2. Data on these indicators (regularly)
• Ambient air pollution • PM10 (annual mean)
• Lead • Blood lead
• Climate change • Sea level rise

(coastal floods) • Frequency of coastal
floods
Key information needed Examples of health indicators

• Water supply coverage • Diarrhea
1. Indicators for selected environmental
• Sanitation coverage
problems/areas
2. Data on these indicators (regularly) • PM10 (annual mean) • Mortality from
cardiopulmonary disease
3. Health indicators
• Blood lead • Mental retardation
• Loss of IQ points
• Anemia
• Sea level rise
• Frequency of coastal • Deaths and injuries
floods
Key information needed Key information needed

1. Indicators for selected environmental 1. Indicators for selected environmental
problems/areas problems/areas
2. Data on these indicators (regularly) 2. Data on these indicators (regularly)
3. Health indicators 3. Health indicators
4. Data on health indicators 4. Data on health indicators
5. Fraction of health outcomes attributed to
the environmental hazard
Causal web for fecal-
fecal-oral transmission:
which indicator to use?
Practical approach
• Complicated causal pathways are

simplified
• Easier parameters are used more
Main global findings

(Pruss-
(Pruss-Ustun et al. 2008)
• 13-37% of countries’ disease burden

(about 13 million deaths per year) can be
prevented by environmental improvements
– 4 million deaths could be prevented by
improving water, sanitation, and hygiene
• Environmental DALYs = 14 – 316 per
1000 capita per year
Global burden of
Outdoor Air Pollution
The Burden of • 1.4% of total mortality

Outdoor Air Pollution • 0.4% of all DALYs
Ostro B.
• 2% of all cardiopulmonary
Environmental Burden of Disease Series, No. 5.
Outdoor air pollution: Assessing the environmental disease
burden of disease at national and local levels.
WHO 2004.
Indicators (markers) Sources of evidence
• Indicator for air pollution (environmental) • Smog incidents in cities in Europe and the
– Particulate matter (PM10 or PM2.5) USA
• Health indicator • Epidemiological studies
– Mortality – Fixed monitor sites (hot spots might be
• Mainly older people (with pre-existing missed)
cardiovascular and respiratory disease) and infants – Limited to large cities (> 100,000)
– Morbidity – Most limited to PM (many excluded ozone
• Hospitalization and emergency room visits and other air pollutants)
• Asthma attacks, bronchitis, respiratory symptoms – Most limited to PM10 not PM2.5
• Lost work and school days
Increase of daily total mortality

Increase of daily total mortality
per 10 ug/m3 PM10
per 10 ug/m3 PM10 in non-
non-Western countries and cities
• 0.8% (0.5-1.1%) (Schwartz et al. 1996)
• Bangkok: 1.7% (1.1-2.3%)
• 0.7% (0.2-1.2%) (Burnett et al. 2000)
• Mexico City : 1.83% (0.9-2.7%)
• 0.6% (Katsouyanmi et al. 2001)
• 0.27% (Dominici et al. 2002) • Santiago: 1.1% (0.9-1.4%)
Î0.8% (0.5-1.6%) for the USA • Inchon (S. Korea): 0.8% (0.2-1.6%)
• 0.6% for Europe (WHO 2004) In some cities, the air pollution is very high with PM10
• 0.4-0.6% for Asia (HEI 2004) exceeding 200 ug/m3.
Recommended to cap the range for the assumption of
linearity
Model inputs for determining city-

city-
specific PM10 concentrations
• Energy consumption
• Atmospheric and geographical factors
• City and national population density
PM2.5= 0.5 – 0.65 PM10 • Local urban population density
• Local intensity of economic activity
• National income per capita
• Time trends
• Binary variable for each country
Relative risk functions for
Relative Risk (RR)= exp [β
[β (X-
(X-X0)]
mortality and lung cancer
Child and infant mortality

related to PM10
Steps 1-
1-5
• Assess ambient exposure of the population to
PM (PM10 or PM2.5)
– Fixed monitoring vs. Modeling
– Need for background concentration (comparison
region)
• Determine size of population groups exposed to
PM10 and PM2.5
• Determine type of health effect of interest
(Cardiopulmonary diseases and Lung cancer)
• Estimate the incidence of health effect
• Use concentration-response functions
(epidemiological studies) that relate ambient
concentrations of PM to selected health effects
Step 6
• Estimate the following:
– Number of cases of premature mortality and
End of Session 14a

DALYs (cardiopulmonary and lung cancer)
attributed to long-term exposure to PM2.5 for
people > 30 years old
– Number of cases of premature mortality and
DALYs from respiratory diseases attributed to
short-term exposure to PM10 for children < 5 Thank You
years old
– Number of cases of premature mortality from
all causes from short-term exposure to PM10
Value of Life and Health
Introduction
REGIONAL WORKSHOP ON • Two links to be established in estimating monetary
values of changes in human health associated
with environmental changes
THE COST OF ENVIRONMENTAL Link
1
Link
2
Session 14b 1. Link between environmental change and change in

health status
The Value of Life and Health • Establishing DRRs
• Establishing DALYs
2. Link between change in health status and its
monetary equivalent
• Establishing a WTP
Value of Life and Health Value of Life and Health

Valuating Health Impacts Human Capital Approach (HCA)
• Considers individuals as units of human capital that produce goods
Methods for valuing health impacts and services for society
• Measures loss of productivity resulting from an individual’s
– death (Work Loss Days-WLD)
– injury (Restricted Activity Days-RAD)
• Human life and time spent ill or recovering are valued using forgone
earnings
HCA =
(# of Life Years Lost due to premature death or due to illness)
×
(Average Wage Rate)
• WLD and/or RAD estimated for
– specific individuals in a detailed study
– average individuals, which is most commonly applied
• HCA usually provides a lower-bound estimate

Human Capital Approach Human Capital Approach
• Values calculated are dependent on income, skill level, and
country of residence • Applying HCA
• Considered as the most difficult and controversial aspect of 1. Specify the type of economy for the population of
valuing health effects associated with environmental changes interest
Human capital and mortality cost by age in the US 2. Specify the characteristics of the economy for the
population of interest
Age group (yrs) Life years lost Mortality cost
(1992 US$) 3. Specify the family and community structure
<5 75 502,421 4. Specify the unit of analysis
5-14 68 671,889 5. Specify the desired measure of productivity changes
15-24 57 873,096 6. Estimate the maximum loss in productive time as a
25-44 42 785,580 result of the health outcome
45-64 25 278,350 • Requires information as to the groups of patients that are
65+ 10 22,977
working
• Requires decisions about value of time of children and retired
Cost estimates are based on life-expectancy at the time of death and include people
labor-force participation rates, average earnings, the value of home-making
services, and a 6% discount rate
Human Capital Approach Human Capital Approach
• Problems with HCA
– Faces difficulty in accurately estimating forgone earnings
• Employee’s compensation includes more than wages
– Pension plans, health insurance, flexible hours
– Does not provide information about the individual’s WTP to
reduce probability of loss of life
– Does not measure net contribution to society
• Assumes full employment and no substitutability of labor
• Assumes a dominant cash economy where there exists market prices
which is not the case in developing countries
– Ignores non-market activities important to individuals
– Undervalues retired people, children, and home-makers
– Estimated value highly depends on discount rate used
• The higher the discount rate, the lower the economic value of children
– Does not value pain and suffering, the individual’s own well-
being and preferences, and the sentiments of the society

Cost of Illness (COI) Approach Cost of Illness (COI) Approach
Direct costs
• Useful economic tool as it indicates the direction and
magnitude of the economic flows resulting from health
shocks to the economy
• Easily understood and often readily available being

based on available market and expenditure data
• COI provides an estimate of an individual welfare

loss
– Direct expenditures do not correspond to a drop in income
or consumption for the economy as a whole, but constitute
a redirection of economic activity, with some sectors
benefiting from increased activity
COI provides a lower-bound estimate

Cost of Illness (COI) Approach Cost of Illness (COI) Approach
Direct costs Direct costs
• COI does not provide a direct measure of disease severity • Issues pertaining to its application
– Direct medical expenditures are influenced by income – Difficulty to disaggregate hospital payments
distribution
• Increased income is accompanied with increased consumption of health • Drugs administered on the premise
care • Salaries paid to health professionals and staff…
– Direct medical expenditures reflect the ability of current medical – Inaccuracies in hospital diagnostic data and the fact that
techniques to treat the disease under consideration expenses might not be attributed to the correct illness
• Example treatment of malaria is expected to generate fewer – A number of illnesses may be grouped under one
expenditures than treatment of cold because the former has few
remedies as compared to the latter diagnostic code making it hard to decipher individual
expenses
• COI not only measures disease severity but also the – Large data sets assume the same charge for all types of
population’s education, skill level, income, insurance physician services
coverage, types of medical interventions currently available, • A visit for a routine checkup does not cause the same as a visit
etc. for cancer
– Treatment of multiple conditions where all expenses are
allocated to the patient’s primary condition
Cost of Illness Approach Hedonic Pricing
• Estimation of direct cost of medical care (WASH, 1991)
• Involves the valuation of incremental morbidity or mortality by
1. Estimate proportion of those affected at each level of severity of the
disease identifying wage differentials due to risk differences
2. Estimate the proportion of those desiring treatment who have access
to treatment • Based on the assumption that there is a fixed supply of jobs and a
3. Specify the process of treatment for each level of severity of the freely functioning job market where individuals choose jobs based
disease on perfect information and with no mobility restrictions
• Resource use
• Number of inpatient days
• Outpatient visits • Based on the theory that workers have to be paid a premium
4. Estimate the unit costs of resources used for treatment and the side to undertake jobs that are inherently risky, which can be used
effects for each level of severity of the disease taking into account to estimate the implicit value individuals place on sickness or
that many fixed costs are not affected by reductions in the use of the
health service premature death
5. Estimate total treatment costs for each level of severity of the disease
without intervention • Estimates of VOSL in the US
6. Determine the proportion of the costs that can be avoided in the
short- and long-run – 1.9-10.7 million USD (1990 dollars)
7. Determine the direct costs that would have been avoided

Hedonic Pricing Hedonic Pricing
• Issues and limitations

– Difficulty in assessing an objective measure of
the risk of death
– Contains a high degree of uncertainty
– Requires considerable data sets for
regression analysis, containing data on all
Where: P = payment rate for a given job relevant and confounding variables
S = vector of skills required to do the job
J = vector of other job-related attributes (working hours, holiday, sickness benefits) – Results are not transferable between
R = risk of death
countries due to differences in attitudes to risk
and incomes

• Benefit transfer • Advantages of a CVM
• Values may be adopted from the other countries by
adjusting for per capita income as follows – Can take into account non-use values
– Can be designed to include only the variables or
Per capita income characteristics of the market relevant to the
of country i = Xi
objective of the study
⇒ Income ratio Xj/Xi
Per capita income
– Allows individuals to consider the true costs to
of country j = Xj ⇓ themselves of a particular injury or illness
– CVM results are repeatable
Value of mortality Value of mortality or
or morbidity morbidity outcome • In terms of similarity in results across different settings
⇒ Multiply Yi by Xj/Xi ⇒
outcome in country in country j = Yj • Using a test-retest methodology
i = Yi

• Problems associated with CVM • Issues to consider
– Does not require cash transactions – WTP questions should be clear and unambiguous
– Biases: Strategic, design, hypothetical, etc.
– Survey responses cannot be verified except – Respondents must be familiar with the valued
through comparison with actual behavior commodity
following survey • Health risk studies involving common, mild illnesses
– WTP vs. WTA have a greater chance of being understandable,
– Short time given to respondents to think about the meaningful, plausible, than severe, rare diseases
answer – Respondents should have prior valuation/ choice
– In developing countries, questionnaires need to experience with respect to consumption levels of
be adapted carefully and trained researchers are the commodity in order to give it well-formed
required to administer the surveys
values

Valuating Health Impacts
• The VOSL obtained from wage differential and contingent Recommended methods of valuation for health-related benefits of environmental health interventions
valuation studies may be linked with the corresponding
number of DALYs lost in a specific study and so estimate the Types of benefits Market value Avertive Hedonic Contingent
(COI, HCA) expenditure pricing valuation
implicit value per DALY
Improved health-related quality of life 9
• The cost of a DALY lost valued by two approaches Improved life expectancy 9
– DALY (yrs) × GDP/capita (USD/year) Medical cost avoided 9 (9)
• Based on the rationale that the economic value of a year lost to illness or
early death is the productive value of that year, which is approximated Reduced time spent in care 9 (9)
by GDP per capita
Reduced travel expenses to care 9 (9)
• Usually represents the lower bound estimate
• Has nothing to do with the non-economic value of life in general Reduced avertive expenditure 9 (9) (9)
– DALY (yrs) × WTP for mortality reduction
• Based on the willingness-to-pay (WTP) by an individual to reduce the Increased productivity 9 (9)
risk of death.
• Valuations arrived at, in studies in the United States and Europe that
Reduced sick leave 9 (9)
apply WTP, are substantially higher than the GDP per capita approach
(at least for adults) 9 = preferred method; (9) = second best method
End of Session 14
Thank You
REGIONAL WORKSHOP
ON
THE COST OF
ENVIRONMENTAL
DEGRADATION
METHODOLOGY
Sessions 14 & 15
Valuation of Life and Health
CASE-STUDIES
Case-
Case-Studies
REGIONAL WORKSHOP ON • Drinking Water Quality: A health-based
socio-economic assessment
THE COST OF ENVIRONMENTAL • Socio-Economic Benefits of Leaded

DEGRADATION METHODOLOGY Gasoline Phase-out, Lebanon
• PM in urban areas: health-based economic

Sessions 14 & 15 assessment, Lebanon
Valuation of Life and Health
CASE-
CASE-STUDIES • Economic Benefits of Reducing Particulate
and Sulfate Emissions from the Cement
Industry, Lebanon
CASE DESCRIPTION
Outline
Drinking Water Quality: A
health-based socio- INADEQUATE
water supply
economic assessment &
UNCLEAN SOCIO-ECONOMIC
water BURDENS
Water-related DISEASES
CASE DESCRIPTION
CASE DESCRIPTION Existing conditions of water supply
Public Water Supply in Beirut
• Water supply situation in Beirut is inadequate
• Falls under the responsibility of 2 water Weak water utilities
authorities under the jurisdiction of the +
Water scarcity
MEW
– Beirut Water Authority Intermittent supply in most areas
• Serves Beirut Municipal District and Northern &
Suburbs Lack of piped water for a large number
– Ain El Delbe Water Authority of the poor
• Serves the Southern Suburbs of Beirut and

Damour 22 % of the population are NOT connected
to the public water supply system -mainly in the suburbs
(CDR, 1998; CAS, 1997)
CASE DESCRIPTION
CASE DESCRIPTION
Other Sources of Water Supply Forms of water vending
• Two main supplementary water sources are

– private wells and/or on water vending
• Water Vending
Mobile water trucks
– Consumers, in the direct southern suburbs of
Beirut, resort to small-scale private water
providers – Water Vendors
– Around 800 water shops are distributed randomly
all over Lebanon
– The majority of shops operate without any
Water tanks within shops Water tanks provided
regulatory authorization by political organizations
CASE DESCRIPTION CASE DESCRIPTION

Water Quality in Lebanon Analyses by Central Laboratory
• Various studies were conducted to examine • 2001 statistics reported by the Central
the quality of water in Lebanon Laboratory, revealed pollution of water
– Analyses by Central Laboratory
supply
– Study on vended vs. bottled water
– Study on water quality in pilot area Water source Total
Bottled water Network water Groundwater
Samples exhibiting 97 (24%) 345 (24%) 450 (37%) 892 (36%)
• The studies revealed that microbiological
pollution
– Water quality in the Lebanese public supply Total number of 403 863 1215 2481
system is variable samples analyzed
– Quality of vended water is unacceptable
CASE DESCRIPTION Percent of samples exceeding MOI bottling

Study on Vended Water Vs. Bottled Water water guidelines
• Samples included
– 65 samples from water vending shops
– 23 samples of bottled water
• Analysis conducted at AUB
– pH, Conductivity, Salinity
– Total Hardness, Nitrates
– Total and Fecal Coliform
• Results
– Poor quality of some samples of Vended Water with
respect to microbiological indicators
– Acceptable quality of Bottled Water
Study on the water quality in a pilot Study on the water quality in a pilot area
area (cont’
(cont’d)
• 20 private wells were randomly sampled
• 15 samples were collected from the public • Results of analysis
supply
– Main station along the coast, the two reservoirs
uphill and dead ends in the network
– Household taps, after being stored in roof tanks
to be used for domestic purposes
– Public locations
• Results
– Acceptable quality in terms of physico-chemical
and microbiological characteristics
No microbiological contamination
Percent of samples exceeding USEPA drinking water guidelines
CASE DESCRIPTION Major Water-

Water-Related Diseases
(Muller & Morera,
Morera, 1994; WHO, 1996, 1998)
Health Impacts of Water Pollution Disease Geographic extent Number of cases a Deaths per year
WATER-BORNE DISEASES
Diarrheal disease Worldwide 500 million/yr 3-4 million
Polluted water + Water shortage + Unsanitary living conditions Cholera

Hepatitis A
South America, Asia, Africa
Worldwide
384,000/yr
600,000 – 3 million/yr
20,000
2,400-12,000
Paratyphoid & 80% in Asia, 20% in Latin America, Africa 16 million currently 600,000
typhoid
Polio 66% in India, 34% in Near East, Asia, Africa 82,000 currently 9,000
WATER-BASED DISEASES
Ascariasis Africa, Asia, Latin America 250 million currently 60,000
Short & Long-term HEALTH RISKS Clonorchiasis Southeast Asia 28 million currently None reported
Dracunculiasis 78% Sudan, 22% in other Sub-Saharan Africa, 153,000/yr None reported
(guinea worm) and few cases in India and Yemen
Paragonimiasis Far East, Latin America 5 million currently None reported
• 2.3 billion people in the world suffer from water-borne diseases Schistosomiasis Africa, Near East, rain forest belt in Central 200 million currently 20,000
(bilharzias) Africa, Western Pacific, Cambodia, Laos
with over 12 million death per year WATER-RELATED VECTOR DISEASES
Dengue Tropical environments, concentrated in Asia, 50-100 million/yr 24,000
• Water-related health impacts in Lebanon Central and South America
Filariasis Africa, Eastern Mediterranean, Asia, South 120 million currently None reported
America
Malaria Africa, Southeast Asia, India, South America 300-500 million/yr 2 million
Hence, providing clean water & ensuring proper sanitation facilities reduces (clinical)
Onchocerciasis Sub-Saharan Africa, Latin America 18 million currently None reported b
prevalence of water-related diseases
Rift Valley Fever Sub-Saharan Africa NA c 1% of cases
(RVF)

Health impacts of water pollution in
Mortality data
Lebanon
• Lebanon suffers from adverse health “Each child under 5 is exposed, on average,
impacts as a result of water pollution to 3.5 incidents of diarrhea each year,
• Prevalent water related-diseases include causing the death of 750 children per
– Diarrhea year”
– Typhoid & paratyphoid
– Hepatitis A (UNDP, 1990)
Note: This value may be an overestimation due to improvement in
• Data are limited due to absence of proper water supply & sanitation
disease reporting mechanism
– Mortality data
– Morbidity data
Morbidity data Mitigating adverse water-
water-related
health impacts
• Several studies examined the impact of
improved water supply and sanitation
– Expected reduction in morbidity rates
– Variation of effect of intervention with type of
disease
Average annual number of reported incidents for the years 1995-2000

(Ministry of Health, Directorate of Preventive Medicine)
Expected reductions in morbidity from water & Potential relations between water and sanitation
sanitation improvements (Esrey
(Esrey et al., 1991; interventions and morbidity from selected diseases
Dougherty & Hall, 1995) (Esrey et al., 1991)
Disease Percent reduction in morbidity
Diarrheal diseases 26-50 Disease Intervention
Typhoid 80
Improved Water for Water for Sanitation
Paratyphoid 40 drinking water domestic hygiene personal hygiene
Infective hepatitis 10 1 2 3
Ascariasis + ++ - ++
Ascariasis 29-40
Diarrhea + ++ ++ ++
Cholera 90
Dracunculiasis 78 Dracunculiasis ++ - - -
Onchoserciasis 20? Hookworm - - - ++
Hookworm infection 4 infection
Schistosomiasis 60-77 Schistisomiasis - ++ ++ ++
Trachoma 27-60 Trachoma - + ++ -
Guinea worm 100 1 + = strong impact; 2++ = stronger impact; 3- = little or no impact
ECONOMIC VALUATION OF ECONOMIC VALUATION OF

HEALTH IMPACTS HEALTH IMPACTS
• Associated with few constraints • Methods of economic valuation
– Actual identification and measurement of health – Economic valuation of mortality effects
impacts • Human Capital Approach (HCA)
– Estimation of monetary values for associated • Willingness to Pay (WTP)/Willingness to Accept
mortality and morbidity (WTA) Approach
– Establishing dose response functions (DRFs)
– Economic valuation of morbidity effects
• Cost of Illness Approach (COI)
“it is not ambient water quality per se that affects health
• WTP/WTA Approach
but access to clean drinking water and adequate
sanitation along with household level of income and • Economic valuation of health impacts in
education” Lebanon
APPLIED METHOD APPLIED METHOD
Human Capital Approach (HCA) WTP/WTA Approach
• Measures loss of productivity resulting from an individual’s • Assesses from market behavior
death or injury
– WTP for reduced risks of increased
HCA =
(# of Life Years Lost due to premature death) mortality/morbidity
×
(Average Wage Rate) – Or WTA increased risk of increased
mortality/morbidity
Advantages Disadvantages Total Benefit/Cost
• Easily measured • Biased against groups with low wages = ∑WTP of all concerned members of the society
= Value of Statistical Life (VOSL)
• Assigns no value to lives of old and
retired Advantages Disadvantages
• Assigns no value to leisure time
• Correct valuation method • Difficult to collect data
HCA provides a lower-bound estimate. • Captures the value of less
Yet, it is the best alternative in the absence of WTP data tangible changes in productivity
APPLIED METHOD RESULTS

Cost of Illness (COI) Approach Economic Assessment of water quality
• Measures the direct cost of morbidity in terms of in Lebanon
– Medical expenditure for treatment
– Lost wages during days spent in bed • Mortality estimation using HCA
– Days missed from work, etc.
• Compared to the WTP approach, • Mortality estimation using WTP
Advantages Disadvantages • Morbidity estimation using COI
• Required data generally • Incomplete due to insufficient • Estimation of mortality and morbidity reduction
obtained with more accuracy information
• Obtained estimates can be • Does not include non-tangible • Uncertainty
better communicated entities
COI provides a lower-bound estimate.

Yet, it is the best alternative in the absence of WTP data
RESULTS RESULTS
Mortality estimation using the HCA Mortality estimation using the WTP
• Assumptions approach approach
– Average Lebanese monthly salary = 400 USD
– Productivity age range = 20-65 years • WTP data are lacking in Lebanon
• Reported mortality • Values are adopted from the US as
– 750 deaths/year follows
Per capita income
of country i = X
– Children less than five years of age i
⇒ Income ratio Xj/Xi

• Calculation
Per capita income
– (400 USD/month) × (12 months/year) × (45 years of lost of country j = Xj ⇓
productivity) = 216,000 USD per case
Value of mortality Value of mortality or
or morbidity morbidity outcome
⇒ Multiply Yi by Xj/Xi ⇒
According to the HCA, the total economic cost of premature death outcome in country in country j = Yj
i = Yi
incurred in Lebanon, and caused by water pollution is 162 million
USD, assuming the same number of premature deaths as reported
by the UNDP in 1995
RESULTS RESULTS
Mortality estimation using the WTP Morbidity estimation using the COI
approach (cont’
(cont’d) approach
• WTP estimates range between 0.6-13.5 • COI incurred by society from water-related
MUS$ diseases consists of several elements
– Cost of hospitalization
• Ratio of GNP per capita in Lebanon to US – Cost of medication
= 0.1 (World Bank, 1999) – Lost productivity
• Value of statistical life in Lebanon ranges – Cost of transportation
between 0.06-1.35 MUS$ • The diseases are restricted to
– Dysentery
– Hepatitis A
The total cost of mortality ranges from 45 to – Typhoid & Paratyphoid
1,012.5 MUS$ • Total of COI
RESULTS RESULTS
Morbidity estimation using the COI Morbidity estimation using the COI
approach (cont’
(cont’d) approach (cont’
(cont’d)
• Length of hospital stay, recovery at home,
• The water-related illnesses are
and medication cost vary with type and
gastroenteritic in nature
severity of disease
– They have the same hospitalization cost
per day
Average length of stay and medication cost per disease
– Cost varies with class of admission
Variation of hospitalization cost with class of admission Hospital stay Recovery at home
Admission class Length of stay Medication Length of stay Medication
Social Security Third class Second class First class
(days) cost (days) cost
Physician visits 13.3 24 40 64 Range Average (USD per day) Range Average (USD per day)
(USD per day) Dysentery 2-4 3 15 0-1 1 0
Hospital room 22.5 33 56 90
Hepatitis A 3-7 5 10 7-14 10 10
(USD per day)
Laboratory 127 218 240 285 Typhoid 3-7 5 40 5-10 7 30
(USD per stay)
RESULTS RESULTS
Morbidity estimation using the COI Morbidity estimation using the COI
approach (cont’
(cont’d) approach (cont’
(cont’d)
• Productivity loss
– Productivity loss per day of leave from work = 18.2 USD • Upon summing up all input data, the total
(per capita GDP = 400 USD; working days per month = 22)
– 52.2 % of cases are in the productive age COI incurred by society from the water-
(Based on age distribution of Lebanese population)
– Productivity loss of care-providers was disregarded
related diseases under study ranges
• Transportation costs between 613,295 - 2,664,502 USD
– Roundtrip visit costs 1-3 USD
Number of Cost of illness per case Total cost of illness
– 3 roundtrips conducted per day of illness reported cases (USD/case) (USD)
Dysentery 529 254-1,054 134,366-557,566
Lost productivity & transportation costs per disease Hepatitis A 287 389-1,822 111,643-522,914
Total # of days of Lost productivity Transportation Typhoid 809 454-1,958 367,286-1,584,022
restricted activity (USD/case) cost (USD/case)
Total 613,295-2,664,502
Dysentery 2-5 36.4-91 6-45
Hepatitis A 10-21 182-382.2 30-189
Typhoid 8-17 145.6-309.4 24-153
RESULTS RESULTS
Estimation of Mortality & Morbidity Summary of socio-
socio-economic benefits due to
Reductions provision of clean water & proper
• Estimates the benefits associated with the reduction in
prevalence of diseases/mortality upon provision of clean
sanitation
water supply and ensuring proper sanitation
Estimated benefit = Endpoint Number of cases Total economic
Reported # of cases × Expected % reduction × Cost per case avoided benefits (MUS$/yr)
Mortality 412 25-557
Parameter Diarrhoeal Typhoid Infective Mortality
diseases paratyphoid hepatitis Morbidity 652-778 0.27-1.28
Number of cases 529 809 287 750
Total 1,064-1,190 25.27-558.28
Percent reduction (%) 26-50 60 10 55
Number of cases
138-264 485 29 412
avoided
Cost per case (USD) 254-1,054 454-1,958 389-1,822 (0.06-1.35) × 106
Economic benefit 0.035- 0.220- 0.011-
25-557
(million USD/year) 0.278 0.949 0.053
RESULTS
Uncertainty
• Absence of population-based vital and disease registries
End of Case Study

• Assumptions adopted related to transportation costs, age
distribution of ill, cost of lost productivity
• The reliance on epidemiological studies reviewed in the

literature (WTP)
Thank You
• The assumption that all diarrhea, typhoid, paratyphoid,
and hepatitis A are due to water pollution
• The disregard of effects of other water contaminants
Case Description
Study area - Lebanon
• Relatively old vehicle fleet → high pollutant
Socio-Economic Benefits of emission rates
• Prior to August 2002, leaded gasoline (max 0.66
Leaded Gasoline Phase-out, g/l lead (Pb)) predominantly used
Lebanon • Physiological effects of Pb:
– Biochemical effects (anemia, interference with enzyme
synthesis)
– Neurobehavioral effects (IQ deficiency, mental
retardation, hyperactivity) in children
– Increased probability of hypertension & cardiovascular
diseases
180 1.5
Correlation between
Lead consumed in gasoline (1000 tons)
Composite maximum quarterly average lead

150
gasoline lead content 1.25 Case Description
Correlation between
120and airborne lead
levels in the US
1
gasoline lead content Pb levels measurement in Lebanon
levels (mg/m )
3
90 0.75
and airborne lead BLL for working adults: Mean BLL = 15.8 μg/dl Regulations for Pb in air & blood
(Hashisho and El-Fadel, 2001)
60 0.5
levels in the US 60
Air (μg/m3) Blood (μg/dl)
Blood lead levels ( g/dl)

44
30 0.25 40 37 WHO 0.5-1 20
21.4 22 US 1.5 10
20.3 19.5
0 0 20
17.5
13.4 14.3 13.5 15.8 15.8
EU 2 NA
12.6
1974 1976 1978 1980 1982 1984
Australia 1.5 10
lead in gasoline Lead in air 0
17 110 Canada 5 10
Autobody
Grinding/Iron
Average
Smelting
Gas Stations
Mechanics
Radiator
Vehicle/Street
Retail Shop
Car licence
Factory
Car electric
Carpentry/Wood
plates
16
Total lead used per 6 nonths (1000 tons)

100 BLL in 10-17 year old
15 Mean BLL = 9.75 μg/dl for students; 11.36 for
90 Workplace
working students; 13.54 for workers
Average BLL (mg/dl)
Average Standard Deviation

14
Correlation 13
80
BLL in 1-3 year old healthy children: Mean BLL = 9.75 μg/dl
60
Percent within BLL range

Between Lead used 12
70
80
40
Percent within BLL range

9 Manual job of
and BLL in the US 11
60 60
the father 20
10 50
40
9 Living in an
20 area with 0
9 40 traffic jams <5 5-9 10-14 15-19 >=20
0
1976 1977 1978 1979 1980 1981 <5 5-9 10-14 15-16 9 Low income BLL (μg/dL)
BLL Lead used in Gasoline BLL (μg /dL) Students Students/workers Workers
Applied method Applied method

Impact assessment & CBA Valuation techniques
• Impact of use of leaded gasoline was examined: • Costs • Benefits
using dose-response functions for children & adults – Cost of switching consists of: – Mortality: WTP approach
derived by the USEPA cost of lubricant additives, – Morbidity: COI approach
• Cost benefit analysis of Pb phase out was additional transportation costs – Morbidity & mortality values
conducted: using income-adjusted mortality and to access new suppliers estimated for the US in the
morbidity figures from US – 0.01-0.02 USD/liter year 1990 were used
(worldwide experience) – Figures were adjusted for
Per capita income – Not adjusted for income as • Inflation to the year 1998 (by
of country i = Xi
driven by international market multiplication with an inflation
⇒ Income ratio Xj/Xi factor of 1.2547)
– Distribution system
Per capita income • Income (using an income
adjustment costs are minor &
of country j = Xj ⇓
can be neglected (same ratio of 0.12, as GNP in 1999
system is used but once-and- was 29340 USD for USA, &
Value of mortality or Value of mortality or 3560 USD for Lebanon)
morbidity outcome ⇒ Multiply Yi by Xj/Xi ⇒ morbidity outcome for-all cleaned, different pump
in country i = Yi in country j = Yj nozzle size)

Assumptions Health impact assessment
Number of cases
Effect
• Population of major urban areas only are considered (about • Tables show Average Range
1,639,000) Total IQ point loss (points) 42,689 35,176 - 48,495
• Lebanese population age distribution respectively health Mental retardation (cases)

Child Mortality (cases)
167
31
NA
NA
• Population within each age group evenly distributed by age impact assessment
• BLLs independent of age in children and adults in
Effect Age
group
Number of cases
Mean Minimum Maximum
• Average BLL in women 64 percent of that in men Hypertension men 20 - 74 1,688.3 NA NA
• BLL in pregnant women the same as that in non-pregnant ones – Children: number of CHD men 40 - 59 54.6 15.3 133.0
>80
avoided cases for a 60 - 64
65 - 74
24.1
30.7
10.0
3.3
482.6
152.4
70-74 77% reduction in BLL CHD women 45 - 74 46.8 12.2 122.2
60-64 CA men 45- 74 42.7 7.7 162.5
50-54 – Adults: number of CA women 45 - 74 22.9 4.6 77.3
40-44
30-34
avoided cases for a BI men 45 - 74 26.5 3.8 127.4
BI women 45 - 74 16.8 3.0 63.3
20-24
78% reduction in BLL Mortality men 40 - 54 50.9 21.1 0.01
10-14
55 - 64 36.1 6.8 121.2
0-4
65 - 74 12.9 5.4 78.0
80 60 40 20 0 20 40 60 80
Age distribution per thousand persons Mortality women 45 - 74 25.0 5.3 75.8
Male Female
Results Results
Health benefits Car related benefits
Cost per case Cost (1998 USD) x 1000
Health outcome
Children (1998 USD)
Average Range • In the US, car maintenance savings from the
Total IQ Loss
Mental retardation
450
8,023
19,217.5
1,069.3
13,414.7 – 25,175.5
NA
use of unleaded gasoline are about 0.003 to
Child Mortality 730,754 22,427.0 NA 0.024 USD/Liter
Adults Total - 42,713,8 36,911.0 – 48,671.8
• Cost savings from improved fuel efficiency
Effect Cost per case
(1998 USD)
Average cost
(1998 USD) x 1000
Cost range (1998 USD) x
1000
are about 0.0024 USD/Liter
Hypertension men 104 175.0 NA
CHD men 7,916 867.5 226.3 – 6,079.7 Car-related maintenance Leaded Unleaded
CHD women 7,916 370.8 96.4 – 967.7
Spark plug changes Every year Every other year
CA men 30,448 1,301.2 233.6 – 4,947.1
Oil changes and filter Twice per year One per year
CA women 22,836 521.9 104.2 – 1,766.4
BI men 30,448 808.2 114.6 – 3,880.6 Muffler replacements Twice per 5 years One per 5 years
BI women 22,836 384.2 69.4 – 1,444.4 Exhaust pipe replacements One per 5 years None
Mortality men 730,754 66,799.7 21,796.8 – 145,578.9
Mortality women 730,754 18,286.6 3,836.7 – 55,379.5
Total - 89,514.2 26,653.1 – 220,219.3
Results
CBA – Summary table
Economic Costs Benefits*
parameters (1998 million USD) (1998 million USD)
End of Case Study

Capital investments 11.3 7.6 - 15.1 NA NA
Health 132.2 63.6 - 268.9
Car maintenance 1.4 0.3 - 2.4
Not applicable
Energy efficiency 0.3 NA
Total per capita benefit
35.9 17.2 - 72. 9
(USD/capita)
*Previous values were adjusted for income
Thank You
LEAD PHASE OUT IS ECONOMICALLY

HIGHLY FEASIBLE
Case Description
Background
• PM is recognized as most important air pollutant in terms of health
impacts, reportedly associated with:
– Increase in cardiac and respiratory mortality;
PM in urban areas: health- –
–
Decrease in levels of pulmonary lung function in children and adults;
Increase in daily prevalence of respiratory symptoms in children and adults;
based economic –
–
Increase in functional limitations (school absenteeism, restricted activity days);
Increase in physician and emergency department visits for asthma and other
assessment, Lebanon respiratory conditions.
International Standard Long-term (μg/m3) Short-term (μg/m3)1

PM10 BS TSP PM10 BS TSP
EU limit values NA2 80 150 NA 250 300
EU guide values NA 40-60 NA NA 100-150 NA
USEPA 50 NA 260 150 NA 75
WHO guidelines NA 40-60 60-90 NA 100-150 150-230
WHO guidelines for Europe NA 50 NA 70 125 120
1
24 hours
2 NA = not available
Case Description Applied method
Study area - Lebanon 4
5
Health assessment & valuation
• Air quality measurements 1
3
• Assessment of health impacts
showed that:
2
– Average levels of ambient concentrations are related

6
7
8
9 10 11
12
to health effects through dose-response functions

13
– TSP concentrations range

14
16
(DRFs)
17
NORH
T
from 102 to 291 μg/m3 (with
MEDITERRANEAN SEA
18 19
20
21
an average of 166 μg/m3) – DRFs are related to the population at risk

– High levels • Assessment of associated monetary value:
unit economic values are applied to the cases
SAMPLING LO CATION
– Contributed by: 0 1 2 3Km
• Vehicle-induced emissions avoided by a 10 μg/m3 reduction in PM10 values

• Vehicle movement on dusty using the following approaches
22
roads
– Human capital approach
300
• On-going construction
activities 200 – COI approach: does not include the less tabgible
TSP, g/m3
Average
• Anthropogenic sources
166 μg/m 3
impacts to the individual’s well-being
• Dry climate (→ high dust
100
USEPA
24-hr standard
– WTP approach
levels in the atmosphere) 0
1 2 3 4 6 8 9 10 11 12 14 16 17 18 19 20 21 22

Data for mortality assessment in
Worldwide health impacts DRFs Lebanon – HC approach
Particulate Percent increase Percent increase Morbidity Type The annual death rate of 8.2 deaths/1000 persons was multiplied by the urban Lebanese population
in mortality in morbidity of 1.64 million → 13440 deaths multiplied by the percent distribution of Lebanese population by age
Increase of 10 μg/m3 in PM10 0.1-4.6 0.2-2.9 Pneumonia hospital admissions group and sex
0.8-11.5 COPD1 hospital admissions
0.2-6.4 Respiratory hospital admissions
0.6-1.2 Cardiac hospital admissions Percent distribution of death in Lebanese households
0.4-6.0 Emergency cases of asthma Sex1 Age group2
0.3-0.4 Bronchitis hospital admissions
1.1-24.9 LRI2 symptoms 0-9 10-19 20-39 40-59 60-69 >70 Unknown Total
0.4-13.0 URI3 symptoms Male (51) 5.54 2.67 9.60 18.31 21.35 37.48 5.07 100.00
1.6-17.6 Cough symptoms Female (49) 6.50 2.91 4.00 13.30 17.18 51.13 5.00 100.00
Increase of 10 μg/m3 in PM2.5 0.4-3.7 0.41-24.6 Respiratory hospital admissions Total (100) 5.93 2.77 7.31 16.27 19.66 43.03 5.03 100.00
3.7-20.9 Asthma hospital admissions
Increase of 10 μg/m3 in BS NR4 0.07-18.2 Respiratory hospital admissions
0.3-5.3 Asthma hospital admissions Distribution of predicted lives saved per year for a 10 μg/m3 reduction in PM10
1.2-16.5 COPD hospital admissions Sex Age group
Increase of 100 μg/m3 in TSP 3.3-8.3 NR NR 0-9 10-19 20-39 40-59 60-69 >70 Unknown Total
1 COPD = chronic obstructive pulmonary disease
2
Male (51) 0-17 0-8 1-30 1-58 1-67 3-118 0-16 6-314
LRI = lower respiratory illness
3 URI = upper respiratory illness Female (49) 0-20 0-9 0-12 1-40 1-52 3-155 0-15 5-303
4 NR = not reported
Total (100) 0-37 0-17 1-42 2-98 2-119 6-273 0-31 11-617

Data for mortality assessment in Data for morbidity assessment in
Lebanon – WTP approach Lebanon – COI approach
Values from US studies; to be adjusted for country GNP
Total hospital Lebanon 400,000
Study 1 Valuation/ case Study Valuation/ case admissions per year Beirut 133,000
Other urban areas 53,200
(MUS$/yr)2 (MUS$/yr)
Type of hospital Emergency visits in Beirut 145,000
R. S. Smith 1974 7.2 Herzog & Schlottman 1987 9.1 admission per year Emergency visits in other urban areas 58,000
a. Respiratory and cardiac hospital admissions (%) 15
R. S. Smith 1976 4.6 Leigh 1987 10.4 Number of hospital b Respiratory admissions (% of a) 37
c. COPD admissions (% of b) 37
V.K. Smith 1976 4.7 Gerking et al 1988. 3.6 admissions per d. Pneumonia admissions (% of b) 63
Viscusi 1978 4.1 Moore and Viscusi 1988 2.5 health endpoint (as
Percent decrease in Pneumonia hospital admissions 0.2-2.9
obtained from morbidity due to 10 COPD hospital admissions 0.8-11.5
Olson 1981 5.2 Moore and Viscusi 1988 7.3
literature) was μg/m3 reduction in PM10 Emergency visits 0.3-12.6
Viscusi 1981 6.5 Gaten 1988 13.5 multiplied by the %
Marin et al. 1982 2.8 Cousineau et al. 1988 3.6 decrease in Endpoint Change Total Cases avoided
Butler 1983 1.1 Jones-Lee3 1989 3.8 endpoint hospital Respiratory hospital admissions/100,000 6.6-17.3 108-284
admissions due to Emergency department visits/100,000 116.0-354.0 1,902-5,806
Leigh and Folson 1984 9.7 Kneisner and Leeth 1991 0.6-7.6
a 10 μg/m3 Lower respiratory illness/child/asthmatic 0.010-0.024 4,756-11,414
Smith and Gilbert 1984 0.7 Miller and Guria3 1991 1.2 reduction in PM10 Asthma attacks/person 0.33-1.96 541,200-3,214,400
Dillingham 1985 0.9-3.9 Viscusi et al. 1991 2.7
Respiratory symptoms/person 0.8-2.56 1,312,000-4,198,400
Gegax et al.3 1985 3.3 Chronic bronchitis/100,000 30.0-93.0 492-1,525
1 Labor market estimate; 2 1990 dollar value; 3 Contingent valuation estimate Restricted activity days/person 0.29-0.58 475,600-951,200
Applied method Applied Method
Data for morbidity assessment in
Lebanon – WTP approach
Assumptions
• There is no threshold below which PM10 is harmless or
Values from US Endpoint US Valuation (US$ / case)1
studies; to be adjusted Hospital admission2 not a cause of mortality.
for country health care COPD 8,100
• No difference in susceptibility or exposure between
rates Pneumonia 7,900
All respiratory 6,100 different populations.
Respiratory illness or symptom 3
• Reviewed studies are of similar quality and need not be
Chronic bronchitis 260,000
Acute bronchitis 45
weighted for difference in methodology or sample size.
Acute asthma 32 • Where an age-specific DRF is unavailable, the estimate
Acute respiratory symptoms 18
Upper respiratory symptoms 19
for all age groups will be applied to the baseline number
Lower respiratory symptoms 12 of deaths in each age group.
Restricted activity day3
Work loss days 83
• The estimations are not restricted to a particular or an
Mild restricted activity days 38 average value but ranges of values are considered in
1
2
3
1990 dollar value (USEPA, 1997)
Lebanese valuation is obtained by multiplying the US valuation by the health care ratio (0.24) order to ensure a broader perspective of the subject.
Lebanese valuation is obtained by multiplying the US valuation by the per capita GNP ratio (0.1)
Results Results
Mortality benefits for 10 μg/m3 Morbidity benefits for 10 μg/m3
reduction in PM10 reduction in PM10
• Cost of illness
• Human capital approach
– By multiplying # of cases avoided by corresponding
– By multiplying average productivity years (25 to 69) by
average monthly salary (400 USD in 1998) health endpoint cost
– Average benefit per case is 0.055 million USD – High benefits can be generated
• WTP approach Endpoint Avergae Stay Average cost Economic benefit

HC Approach (Days) 1 (US$/day) 1 (MUS$/yr)
– Values from US studies were Age # of lives Average Benefit COPD 6.6 261 0.06-0.9
adjusted for country GNP group saved productivity years (MUS$/yr)
Pneumonia 10 207 0.03-0.4
40-59 2-102 20 0.2-9.7
using a ratio of 0.1 60-69 3-122 5 0.07-2.9 Emergency visit - 76 0.05-1.9
– Average benefit per case Total 0.27-12.6 Total 0.14-3.2
Average per case1 0.055
ranges between 0.06 and
1 Based on survey data from the American University Hospital
1 Average total economic benefit divided by the average total number of and insurance companies (Djoundourian et al., 1998)
1.35 million USD lives saved
Results Results
Morbidity benefits for 10 μg/m3
reduction in PM10 Summary table
• WTP approach Endpoint Number of cases Total Economic benefit
avoided (MUS$/yr)
– US values were adjusted using a health care ratio of 0.24 (obtained by
COI1 WTP2
comparing cost of COPD & pneumonia in Lebanon & US; higher than Mortality3 11-617 0.27-12.6 3.5-157.9
income ratio → health care is expensive in Lebanon) All COPD 31-441 0.06-0.9 0.98-13.9
Endpoint US Valuation (US$ per case)1 Lebanese Valuation (US$ per case) 1 1990 dollar All Pneumonia 13-189 0.03-0.4 0.05-0.7
value (USEPA,
Hospital admission2 Emergency visits 609-25,578 0.05-1.9 NA4
1997b)
COPD 8,100 1,944
2
Total 0.41-15.8 4.53-172.5
Lebanese
Pneumonia 7,900 1,896 valuation is Percent of GDP5 0.003-0.1 0.03-1.06
obtained by
All respiratory 6,100 1,464 Percent of adjusted GDP6 0.03-1 0.3-10.6
multiplying the US
Respiratory illness or symptom3 valuation by the 1 COI = cost of illness; 2 WTP = willingness to pay; 3 Human capital approach; 4 NA = not available; 5 World Bank, 1998
health care ratio 6 Adjusted GDP assuming that the construction and transportation sectors are the main sources of particulate emissions in urban areas and
Chronic bronchitis 260,000 26,000 (0.24)
accounting for source/sector contribution to GDP and percent of urban population exposed as compared to total country population.
Acute bronchitis 45 5
3 Lebanese
Acute asthma 32 3 valuation is
obtained by
Acute respiratory symptoms 18 2
multiplying the US
Upper respiratory symptoms 19 2 valuation by the
per capita GNP Benefits of reducing PM concentration in the air can be significant;
Lower respiratory symptoms 12 1 ratio (0.1)
Restricted activity day3
they are dominated by mortality valuation although the number of
Work loss days 83 8 mortality cases is relatively small.
Mild restricted activity days 38 4
Economic Benefits of
Reducing Particulate and
End of Case Study Sulfate Emissions from the
Cement Industry, Lebanon
Thank You
Case Description
Study area - Lebanon
Cement deliveries (Million tons)
5
• Cement industrial complex, 4
Chekka, Lebanon 3
• 60% of country cement production 1

0
• Over years, production peaked in 1993 1994 1995 1996 1997 1998 1999 2000
1995; Lebanon had one of the

highest per capita production Australia, 1995
Canada, 1995
worldwide Egypt, 1999

Germany, 1995
• Contributes 77.2% of country’s Iceland, 1995

Jordan, 1995
industrial emissions
Country
Latvia, 1995
Lebanon, 1995
• Chronic public complaints Lebanon, 1999

New Zealand, 1995
• Media coverage suggested a Norway, 1995
correlation between emissions &

Switzerland, 1995
USA, 1995
adverse health impacts 0 200 400 600 800 1000 1200 1400
6
Cement production (10 ktons/capita/year )

Health & air quality assessment Health impact & economic valuation
• Health • Health impact assessment
– Questionnaire related to health outcomes – Benefits due to reduction of PM10 & SO2 in the form of SO42-
were estimated based on studies developed for the US
– 159 randomly selected households in 2 groups
• Group 1: 0 to 4 km from Chekka, 80 households – Potential lives saved = % change in mortality or respiratory
systems avoided due to reduction x local occurrence rates x the
• Group 2: 4 to 7 km from Chekka, 79 households
exposed population number
• More focus on children than on adults
• Air quality • Economic valuation
– Continuous 5-min measurement of CO, NO2 & SO2 (4 – Mortality: HC approach
locations, 4 to 7 days) – Morbidity: COI approach, using US values adjusted for:
– Gravimetric sampling of PM10 & less + analysis for • Inflation (1990 → 1998): factor of 1.2547
priority metals • Income: ratio of 0.12 (based on GNP comparison)
• Health care: ratio of 0.24 (based on comparison of cost of COPD &
pneumonia in Lebanon & US)
Results Results
Health & air quality Health benefits – PM10 reduction
Outcomes Group Group
Chronic bronchitis
1 (%)
15
2 (%)
11
• Higher prevalence of health • For 10 μg/m3 Morbidity Results
complaints among Group 1
Asthma 10 6 reduction in PM10 Endpoint Change
(Pearce &
Total cases
avoided
Other respiratory problems 15 6 • Exceedence of 24-hr AAQS
Hospitalization during the past year at all locations – Mortality Respiratory hospital
Croward, 1996)
6.6-17.3 1 – 16
Respiratory 11 9 • Size of exposed admissions
(RHA)/100,000
Non-respiratory 59 30
Constituent Concentration AAQS population was
Emergency 116.0-354.0 33 – 319
Cough with colds 74 43 range multiplied by death rate department
Cough apart from colds 13 6 CO (ppm) <2 9 (8-hour
Chronic cough 10 6 average) • A 0.1 to 4.6% decrease visits/100,000
Phlegm & congestion with colds 36 20 NO2 (ppm) 6.4 - 10.1 0.053 (annual in mortality was applied Lower respiratory
illness (LRI)/
0.010-0.024 10 – 78
average)
Phlegm & congestion apart from colds 8 3
• 0 to 34 lives saved asthmatic child
Chronic phlegm & congestion 6 1 TSP (μg/m3) 67 - 316 260 (24-hour
Asthma 0.33-1.96 9,652 –
Episodes of increased phlegm & congestion for 1 week/year 23 5
average)b
75 (annual – Morbidity attacks/person 176,577
average)b
Chest colds every year 19 4
• DRFs from Respiratory
symptoms/person
0.8-2.56 23,400 –
230,630
PM10 (μg/m3) 36.8 – 173.8 b 150 (24-hour
Wheezing 53 32
average) industrialized regions Chronic bronchitis 30.0-93.0 8 – 84
Chest illness that kept child off his activities in the past 3 years 25 11 50 (annual
Asthma 4 1 average)b were multiplied by (CB)/100,000
Bronchitis 10 8 SO2 (ppm) 0.45 - 0.7 0.14 (24-hour exposed population (incidence)
average) Restricted activity 0.29-0.58 8,482 –
Chest illness before age 2 years 9 5 0.03 (annual days (RAD)/person 52,253
average)
Hospitalization due to chest illness before age 2 3 3
Results Applied Method

Health benefits – SO42- reduction Mortality related benefits
• For 10 μg/m3 reduction in • Multiplying average productivity years (20 to 35
SO42- Morbidity Results
– Mortality
years) by the average income (US$313/month)
Endpoint a Number of
• Expressed by the equation cases avoided
• Economic benefit for a 10 μg/m3 reduction in
(Chestnut and Hagler CB (0.5 - 2.0)x10-4 14-181
Bailly Consulting, 1995): RHA (1.3 - 1.8)x10-5 3-17 PM10 & SO42- is equivalent to 0 to 0.027% & 0 to
LΔS = a x P x ΔS CHA (cardiac
hospital
(1.0 - 1.7)x10-5 2-16
0.08 % of the GDP, respectively
LΔS = annual # of lives saved admissions)
P = exposed people ASD (asthma (3.3 - 9.9)x10-1 4,536-41,919 PM10 SO42-
symptom days)
ΔS = change in Number of Economic benefit Number of Economic benefit
RAD* (4.7 - 14.6)x10-2 8,523-81,550
concentration lives saved (US$/year) lives saved (US$/year)
LRS* (6.6 - 23.0)x10-2 11,969-128,469
a = constant (8-112)x10-6 Total economic benefit 0 – 34 0 – 4,469,640 2-101 150,240 – 13,277,460
* Cases of RAD and LRS are computed using adults 18 years of
• 2 to 101 lives saved age and above as the exposed population, which
Equivalent percent of GDP 0 – 0.027 0 – 0.08
constitutes around 62 percent of the total population (US
– Morbidity Bureau of the Census, 2001)
Average per case* 131,460 131,640
• Similar equation with * Average total economic benefit divided by the average total number of lives saved
different ‘a’ values

Morbidity related benefits (1) Morbidity related benefits (2)
• Multiplying predicted # of cases avoided due to Endpoint US valuation
(US$/case)a
Lebanese
valuation
PM10 SO4
Cases Total cost (US$) Cases Total cost (US$)
reduction in pollutant concentrations by cost of (US$/case)
avoided avoided
corresponding health endpoints RHA (Respiratory

hospital admissions)
6,100 1,837b 1 – 16 1,837 – 29,392 3 – 17 5,511 – 31,229
• To avoid double counting in adding up costs, CHA (Cardiac hospital

admissions)
6,100 1,837b - - 2 – 16 3,674 – 29,392
overlapping categories were subtracted assuming CB (Chronic bronchitis) 260,000 32,622c 8 – 84 260,976 – 2,740,248 14 – 181 456,708 – 5,904,582
the following: ASD (Asthma symptom 32 4c 9,652 –

176,577
38,608 – 706,308 4,536 –
41,919
18,144 – 167,676
days)
– Incidence is proportional to age distribution: 62% of the Net RAD (Restricted 38 4.8c 2,493 – 11,966 – 56,088 5,689 – 27,307 – 266,016
population is 18 years and older; activity days) 11,685 55,420
– Each RHA averages 6.8 days & each CHA averages 6.9 days; Net LRS (Lower 12 1.5c 4,712 –
18,296
7,068 – 27,444 9,582 –
105,635
14,373 – 158,453
respiratory symptoms)
– All days in the hospital and all asthma symptom days are also Total 320,455 – 3,559,480 525,717 – 6,557,348
RADs & therefore are subtracted from the latter;
Per capita benefit 3.5 – 122 5.8 – 224
– RADs are also acute respiratory symptom days & therefore a (US$/capita)
fraction of RADs is subtracted from LRSs; Percent of per capita 0.09 – 3.16 0.15 – 5
incomed
– 28% of acute respiratory symptoms are lower respiratory tract a
1990 Dollars (USEPA, 1997)
b Lebanese valuation is obtained by multiplying the US valuation by the health care ratio (0.24), after adjustment for inflation.
c Lebanese valuation is obtained by multiplying the US valuation by the per capita GNP ratio (0.1), after adjustment for inflation.
d
GDP = 16.6 billion US$; per capita capita = US$ 3860 (World Bank, 2001).
Thank You
The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available at
http://www.emeraldinsight.com/researchregister http://www.emeraldinsight.com/1477-7835.htm
Drinking water
A health-based socio-economic quality
assessment of drinking water
quality: the case of Lebanon 353
M. El-Fadel, R. Maroun, L. Semerjian and H. Harajli
Department of Civil and Environmental Engineering, American
University of Beirut, Beirut, Lebanon
Keywords Water, Health, Economics, Lebanon
Abstract Water-related diseases are a human tragedy, resulting in millions of deaths each year,
preventing millions more from leading healthy lives, and undermining development efforts by
burdening the society with substantial socio-economic costs. This problem is of great significance in
developing countries, where polluted water, water shortages, and unsanitary living conditions
prevail. This paper presents a case study on a health-based socio-economic assessment of drinking
water quality in Lebanon, based on relevant valuation approaches and available country-specific
data. The assessment revealed that the potential health and economic benefits due to water and
sanitation improvements can be significant (0.15-3.35 percent of GDP).
Introduction
Historically, the provision of urban environmental services in general, and
piped water in particular, has been the responsibility of the public sector.
However, due to the rapid increase in urban populations, governments are often
facing major difficulties in meeting the citizens’ basic needs (Bennet, 1998).
This issue is of major concern in developing countries, where existing
conditions of the water supply infrastructure is poor, services are inferior, and
financial resources for the construction and maintenance of infrastructure are
inadequate (Gidman et al., 1995). In this context, the World Health Organization
(WHO) estimates that 20-30 percent of urban residents in Latin America,
Africa, and Asia lack access to potable water. Experience during the last
decade confirms that the solution to these problems is not merely to expand
capacity, but rather to better manage service delivery to meet user’s demand,
via the establishment of public-private partnerships (PPP) (Gidman et al., 1995).
Four groups can be identified to play a role in PPPs:
(1) the government at the national, regional, or local level;
(2) the formal private sector;
(3) non-governmental organizations/community-based organizations; and
(4) the informal private sector. Management of Environmental
Quality: An International Journal
Vol. 14 No. 3, 2003
Special thanks are extended to the United States Agency for International Development for its pp. 353-368
q MCB UP Limited
support to the Environmental Engineering and Science Programs at the American University of 1477-7835
Beirut. DOI 10.1108/14777830310479441
MEQ In recent years, the role of the informal private sector has been gaining much
14,3 attention, because it is seen to be most accountable to the low-income
population. More specifically, the informal private sector is widely involved in
the provision of water through what is commonly known as “water vending”,
which is defined as the act of providing water through tanker trucks or mobile
water vendors, stand-pipes, and water shops, with the exclusion of the “bottled
354
water” industry (World Health Organization and United Nations Children
Fund, 2000). In most developing countries where public water and sanitation
networks are not trusted or are altogether absent, consumers resort to
alternative sources of freshwater, such as small-scale water vendors. As such,
water vending is an old tradition worldwide, and in some African cities, for
instance, it has become the major mode of access to drinking water (see Table I).
The proportion of the population served through vendors and tanker trucks
varies significantly between different urban and rural areas, with urban
populations being the largest consumers (see Table II). In Lebanon, water
supply through vendors is becoming substantial, particularly in the southern
Public connection Private standpipes Other private providers

City (%) (%) (%)
Kampala-Uganda 36 5 59
Dar Es Salam-Tanzania 31 0 69
Conakry-Guinea 29 3 68
Table I. Nouakchott-Mauritania 19 30 51
Mode of access to Cotonou-Benin 27 0 73
drinking water in Ouagadougou-Burkina Faso 23 49 28
selected African Bamako-Mali 17 19 64
cities in 1999 Source: Collignon and Vezina (2000)
Country Year Source of water Urban population (%) Rural population (%)
Angola 1996 Tanker truck 25.2 0.8

Cambodia 1998 Vendor 16 3.5
Chad 1997 Vendor 31.5 0.5
Ecuador 1990 Tanker truck 16 7
Eritrea 1995 Tanker truck 30.5 1.4
Jordan 1997 Tanker truck 1 10.6
Libya 1995 Tanker truck 6.8 13.9
Table II. Mauritania 1996 Vendor 53 0.9
Percentage of Mongolia 1996 Vendor 16 1
selected population Niger 1998 Vendor 2.4 1.9
consuming vended Syria 1997 Tanker truck 4.1 11.3
water Source: World Health Organization and UNICEF United Nations Children Fund (2000)
suburbs of Beirut, as a response to the inadequate public water supply system. Drinking water
Yet, it is difficult to estimate the exact numbers and locations of these quality
small-scale entrepreneurs due to the absence of official registries, and to the
illegal status of the majority (Al-Safir Newspaper, 2002).
Recently, water vending is being acknowledged more by researchers and
policy makers, and linked with an increased interest in cost recovery and
privatization. However, the main concern regarding this service is the 355
quality of the supplied water and its associated health risks. In fact, scarce
and unclean water supplies represent critical public health problems in
much of the world. Polluted water, water shortages, and unsanitary living
conditions are associated with various short- and long-term health risks.
Water-related diseases are indeed a human tragedy, whereby about 2.3
billion cases are estimated with over 12 million deaths per year.
Furthermore, some 60 percent of all infant mortality is linked to infectious
and parasitic diseases, most of them are water-related (Hinrichsen et al.,
1997). In most countries, the main risks to human health associated with
the consumption of polluted water are microbiological in nature. However,
the importance of chemical contamination should not be underestimated
(World Health Organization, 1997). Table III summarizes major
water-related diseases prevalent worldwide.
The present study assesses the problems associated with unclean and
inadequate water supply in Lebanon. The quality of vended water at a typical
area (Beirut southern suburbs) where the informal sector plays a pivotal role in
providing drinking water to the local population is presented. Water-related
health impacts in terms of increased mortality and morbidity rates are
assessed, and corresponding socio-economic burdens are estimated.
The Lebanese context

Historically, Lebanon has always been distinguished in the region to be blessed
with relatively adequate water resources; however, available resources are
unevenly distributed geographically and seasonally (El-Fadel et al., 2000),
leading to problems of water shortage that are prominent in over-populated
cities, such as the capital Beirut and its suburbs (Yamout, 2002). Beyond the
impact of population growth, water demand has been rising in response to
industrial development, increased reliance on irrigated agriculture, massive
urbanization, and rising living standards. On the other hand, high
“unaccounted-for water” (UFW) volumes, estimated at an average of 40
percent, further aggravate the problem of water shortage as well as water
quality (Environmental Resource Management, 1995). Recent attempts at
estimating water demands, availability, and deficit for Beirut reveal a
significant water deficit in the city (see Table IV).
Evidently, the water supply situation in Beirut cannot meet the demand. The
combination of weak water utilities and water scarcity at the source leads to
intermittent supply in most areas (10 hours of supply every other day), and to a
14,3
356
MEQ
diseases
Table III.
Major water-related
Disease Geographic extent Number of casesa Deaths per year
Water-borne diseases
Diarrheal disease Worldwide 500 million/year 3-4 million
Cholera South America, Asia, Africa 384,000/year 20,000
Hepatitis A Worldwide 600,000 – 3 million/year 2,400-12,000
Paratyphoid and typhoid 80 percent in Asia, 20 percent in Latin America, 16 million currently 600,000
Africa
Polio 66 percent in India, 34 percent in Near East, Asia, 82,000 currently 9,000
Africa
Water-based diseases
Ascariasis Africa, Asia, Latin America 250 million currently 60,000
Clonorchiasis Southeast Asia 28 million currently None reported
Dracunculiasis (guinea worm) 78 percent Sudan, 22 percent in other Sub-Saharan 153,000/year None reported
Africa, and few cases in India and Yemen
Paragonimiasis Far East, Latin America 5 million currently None reported
Schistosomiasis (bilharzias) Africa, Near East, rain forest belt in Central 200 million currently 20,000
Africa, Western Pacific, Cambodia, Laos
Water-related vector diseases
Dengue Tropical environments, concentrated in Asia, 50-100 million/year 24,000
Central and South America
Filariasis Africa, Eastern Mediterranean, Asia, South 120 million currently None reported
America
Malaria Africa, Southeast Asia, India, South America 300-500 million/year (clinical) 2 million
Onchocerciasis Sub-Saharan Africa, Latin America 18 million currently None reportedb
Rift Valley Fever (RVF) Sub-Saharan Africa NAc 1 percent of cases
Notes: a Number of cases is reported as incidence (“per year”) – the number of new cases occurring in a year – or as prevalence (“currently”) –
the number of cases existing at a point in time
b
No deaths but causes 270,000 reported cases of blindness annually
c
NA¼ not available
Source: Muller and Morera (1994); World Health Organization (1996, 1998)
Drinking water
1995 2000 2005 2015
quality
Beirut City population 600,000 608,000 612,000 628,000
Northern suburbs population 546,000 591,000 637,000 695,000
Southern suburbs population 698,000 820,000 939,000 1,258,000
Total population 1,844,000 2,019,000 2,188,000 2,581,000
Domestic water demand (Ml/d) 371 418 466 580 357
Non-domestic water demand (Ml/d) 121 134 149 174
Water losses (Ml/d) 266 241 212 208
Total consumption & loss (Ml/d) 758 793 827 962
Table IV.
Minimum water available (Ml/d)a 315 575b 575b 575b
Predicted maximum
Maximum water available (Ml/d)a 415 675b 675b 675b
population, water
Maximum water deficit (Ml/d) 443 218 252 387
a
demand,
Notes: Water resources vary throughout the year availability, and
b
Includes the planned construction of a water supply reservoir south of the city deficit for Beirut
Source: Council for Development and Reconstruction (1998) City
lack of piped water supply for a large number in poor urban areas (Saghir et al.,
2000). It is estimated that about 22 percent of the total population are not even
connected to the public water supply system, with the highest proportion of
unconnected households being located in the southern suburbs (Council for
Development and Reconstruction, 1998; Central Administration of Statistics,
1997). In response to the shortage/absence of public piped-water supply,
consumers in some quarters of Beirut, especially in the southern suburbs, rely
on their own resources to meet their water requirements. Many resort to
pumping water from private wells, or purchasing water from small-scale
private water providers, more commonly known as water vendors. While it is
difficult to estimate the exact numbers and locations of these small-scale
entrepreneurs in the absence of official registries, the majority operates without
any regulatory authorization (Al-Safir Newspaper, 2002).
Water quality indicators

Recent statistics reported by the Central Laboratory, affiliated with the
Ministry of Health, revealed the microbiological contamination of 24 percent of
403 samples collected from water vending companies and 40 percent of 863
samples collected from the potable water network in various regions across
Lebanon[1]. Moreover, of 450 samples collected from groundwater and springs,
37 percent were microbiologically contaminated (see Table V).
As part of the present study, water quality from 65 water-vending shops
located in the Beirut southern suburbs was examined. The analysis revealed
the poor quality of some samples, particularly with respect to microbiological
indicators (see Figure 1).
The statistical significance of the sample size is limited, as the number of
samples and the frequency of sampling need to be increased and spread over a
wider geographical area to draw more accurate conclusions and ascertain
MEQ trends within some statistical confidence. Nevertheless, these data are
14,3 alarming, owing to the fact that polluted water is associated with various short
and long-term health risks, which translate into a socio-economic burden.
Health impacts
Similar to worldwide trends, Lebanon suffers from adverse health impacts as a
358 result of water pollution. Data pertaining to water-related mortality and
morbidity in the country are limited due to the absence of a proper disease
reporting mechanism. Available data are restricted to prevalent known
water-related diseases, including diarrhea, typhoid and paratyphoid, and
hepatitis A. In terms of mortality, a study conducted by the United Nations
Development Program (UNDP) in 1990 stated that each child under five is
exposed, on average, to 3.5 incidents of diarrhea each year, causing the death of
750 children per year (United Nations Development Program, 1995). While more
recent data are unavailable today, this value may be an over-estimation,
especially now that substantial efforts for the improvement of water supply and
sanitation have been ongoing. As for morbidity, the average annual number of
reported incidents of dysentery, hepatitis A, and typhoid and paratyphoid for
the years 1995 to 2000, as compiled by the Directorate of Preventive Medicine of
the Ministry of Health (MoH), were 529, 287, and 809, respectively (see Figure 2).
Economic valuation of water-related health impacts

The health costs of water pollution and the benefits of improvements in water
and sanitation in Lebanon are assessed based on international experience and
Water source
Bottled water Network water Groundwater Total
Samples exhibiting
Table V. microbiological pollution 97 (24 percent) 345 (24 percent) 450 (37 percent) 892 (36 percent)
Results of water Total number of samples
analysis by the analyzed 403 863 1,215 2,481
central laboratory Source: Al-Safir Newspaper (2002)
Figure 1.
Percentage/number of
samples exceeding
USEPA drinking water
guidelines
available country-specific data. Refined estimates can be obtained with Drinking water
elaborate and updated local data such as statistics about mortality and quality
morbidity and their corresponding unit costs.
Health-related costs of water pollution 359

Generally, the economic valuation of health impacts proceeds by conducting
epidemiological studies in order to establish dose-response relationships
(DRRs) linking environmental variables with observable health effects.
However, in the case of water pollution, establishing dose-response functions
(DRFs) is complicated and less advanced than is the case of evaluating health
impacts from air pollution, for instance. This is due to the fact that “it is not
ambient water quality per se that affects health but access to clean drinking
water and adequate sanitation along with the household’s level of income and
education” (The World Bank Group, 1998).
Valuing the health costs of water pollution depends on country-specific
factors such as the cost of labor, labor productivity, capital and medical care,
life expectancy, people’s value of health and life, and their willingness to accept
risk. Hence, concrete valuation is limited by the availability of such data as well
as the level of uncertainty in the adopted approximations.
Valuation techniques. Several methods are available for valuing mortality
and morbidity costs associated with water pollution. These methods can
generally be grouped in two categories:
(1) methods that measure only the loss of direct income such as lost wages;
and
(2) approaches that attempt to capture the willingness to pay (WTP) of
individuals for avoiding or reducing the risk of death or illness.
The first category does not include inconvenience, suffering, losses in leisure
and other less tangible impacts to individual and family well being. They may
also underestimate the health cost of people who are not members of the labor
force. Therefore, these methods indicate only the lower bound of social costs.
Figure 2.
Average number of
reported cases per year
for the period 1995-2000
MEQ Mortality valuation. Typical methods used for valuing mortality outcomes
14,3 include the human capital approach and the willingness to pay (WTP)
approach:
(1) The human capital approach. The human capital approach, also known
as the forgone-earnings approach, measures the loss of productivity (net
360 present value of productivity) resulting from an individual’s death or
injury (Lesser et al., 1997). This approach considers individuals as units
of human capital that produce goods and services for society. As such,
the value of a premature death is obtained by multiplying the number of
life years lost by the average wage rate in the country in question. In the
case of Lebanon, the total socio-economic cost due to premature
mortality was estimated based on two main assumptions including:
.
The average Lebanese monthly salary is US$400[2].
.
Productivity age ranges between 20 and 65 years.
As such, considering that the mortality rate is 750 cases per year (United
Nations Development Program, 1995), all pertaining to children less than
five years of age, the total economic cost of premature death caused by
water pollution is estimated at US$162 million[3].
(2) The WTP approach. Unlike the human capital approach that measures
tangible changes in productivity, the WTP approach captures intangible
aspects. It involves asking people directly through surveys – contingent
valuation studies – or assessing from market behavior, their WTP for
reduced risks of increased mortality (or their willingness to accept the
increased risk of increased mortality). The total value of the benefit or
cost in question is then estimated by averaging the WTP of all concerned
members of society. In case original data on the WTP are lacking, one
can use income adjusted mortality values from other countries after
compensating for income difference. In this study, individual WTP
values estimated in the USA have been adopted (see Table VI), whereby
US mortality values estimated for the year 1990 have been adjusted for
the Lebanese context based on income ratio as depicted in Figure 3 with
a ratio of about 0.1 (World Bank, 1999).
Hence, on adjusting the range of WTP estimates (US$0.6-13.5 million) to the
Lebanese context, the value of a statistical life in Lebanon would range between
US$0.06-1.35 million. The corresponding total cost of mortality would range
from US$45 to 1,012.5 million, constituting 0.2 to 6.1 percent of the GDP in
Lebanon for the year 2000. This range encompasses the value calculated using
the human capital approach (US$162 million).
Morbidity valuation. To assess the morbidity outcomes, the methods
typically used include the cost of illness (COI) approach, and the WTP
approach. The choice of the method to be used depends on the availability of
Drinking water
Valuation/case Valuation/case
Studya (MUS$/year)b Studya (MUS$/year) quality
R.S. Smith (1974) 7.2 Herzog and Schlottman (1987) 9.1
R.S. Smith (1976) 4.6 Leigh (1987) 10.4
V.K. Smith (1976) 4.7 Gerking et al. (1988) 3.6
Viscusi (1978) 4.1 Moore and Viscussi (1988) 2.5 361
Olson (1981) 5.2 Moore and Viscussi (1988) 7.3
Viscusi (1981) 6.5 Gaten (1988) 13.5
Marin et al. (1982) 2.8 Cousineau et al. (1988) 3.6
Butler (1983) 1.1 Jones-Leec (1989) 3.8
Leigh and Folson (1984) 9.7 Kneisner and Leeth (1991) 0.6-7.6
Smith and Gilbert (1984) 0.7 Miller and Guriac (1991) 1.2
Dillingham (1985) 0.9-3.9 Viscussi et al. (1991) 2.7
Gegax et al.c (1985) 3.3
Table VI.
Notes: a Labor market estimate Summary of
b
1990 dollar value mortality valuation
c
Contingent valuation estimate estimates in the
Source: El-Fadel and Massoud (2000) USA
data. In this study, the cost of water-related diseases was estimated using the
COI approach, whereby the direct cost of morbidity is measured in terms of
medical expenditure for treating an illness (physician care, drugs, and
hospitalization costs), and in terms of lost wages during days missed from
work, and other days when activities are significantly restricted due to illness.
The diseases were restricted to dysentery, hepatitis A fever, typhoid and
paratyphoid, being the only water-related illnesses reported to the Ministry of
Health. The actual medical expenditure on hospitalization requirements for
these diseases and the associated number of days of restricted activity was
obtained through surveys of medical personnel. Transportation costs were
approximated based on average round trip to hospital and associated cost of
fuel, while productivity loss was estimated by assuming equal age distribution
between the reported cases and the Lebanese population (see Figure 4).
The total cost per case was found to vary with type and severity of disease
as well as the class of hospital admission, as depicted in Table VII.
Figure 3.
Transfer of mortality
and morbidity values
across countries
MEQ
14,3
362
Figure 4.
Age distribution of the
Lebanese population
Accordingly, the total COI incurred by society from the reported water-related
cases is estimated to range between US$613,295 and US$2,664,502 (see
Table VIII). This provides a conservative estimate of the real costs as it
excludes the value of pain, suffering, diet, and behavior modification in
addition to the side effects of medications.
Benefits of improved water supply and sanitation. Providing clean water and
ensuring proper sanitation facilities have been shown to reduce the prevalence
of water-related diseases. Several studies examined the health benefits
associated with water and sanitation interventions. Despite the mix of both
Table VII. COI per admission class (US$/case)

Variation of the Social security Third class Second class First class
total COI per case
with type of disease Dysentery 254-423 387-599 487-777 658-1,054
and class of Hepatitis A 389-836 544-1,076 683-1,371 902-1,822
admission Typhoid 454-972 609-1,212 748-1,507 967-1,958
Number of Cost of illness per case Total cost of illness

reported cases (US$/case) (US$)
Dysentery 529 254-1,054 134,366-557,566

Table VIII. Hepatitis A 287 389-1,822 111,643-522,914
Total COI incurred Typhoid 809 454-1,958 367,286-1,584,022
due to water-related Total 613,295-2,664,502
illnesses % GDP 0.003-0.02
positive and negative results towards the improvements in one or more Drinking water
components of water supply and sanitation, the overwhelming evidence is in quality
favor of positive impacts, with the exception of hookworm infection. Expected
reductions in morbidity rates from improved water and sanitation for selected
water-related diseases are summarized in Table IX. The mechanisms through
which improved water and sanitation can promote health vary from one 363
disease to another as depicted in Table X.
Economic valuation of health benefits associated with the provision of clean
water supply and ensuring proper sanitation facilities can be estimated using
similar health costs derived in the previous section. This is calculated by first
multiplying the reported number of cases by the expected percent reduction in
prevalence for each disease (see Table IX) to obtain the number of cases
avoided. Then, the economic benefit is estimated by multiplying the number of
cases avoided by the COI per case. Table XI outlines the application of
economic valuation of water-related health benefits in the context of Lebanon.
Disease Percent reduction in morbidity
Diarrheal diseases 26-50

Typhoid 80
Paratyphoid 40
Infective hepatitis 10
Ascariasis 29-40
Cholera 90
Dracunculiasis 78 Table IX.
Onchoserciasis 20? Expected reductions
Hookworm infection 4 in morbidity for
Schistosomiasis 60-77 selected diseases
Trachoma 27-60 from water and
Guinea worm 100 sanitation
Source: Esrey et al.(1991); Dougherty and Hall (1995) improvements
Intervention
Improved Water for Water for
Disease drinking water domestic hygiene personal hygiene Sanitation
Ascariasis + ++ 2 ++
Diarrhea + ++ ++ ++ Table X.
Dracunculiasis ++ 2 2 2 Potential relations
Hookworm infection 2 2 2 ++ between water and
Schistisomiasis 2 ++ ++ ++ sanitation
Trachoma 2 + ++ 2 interventions and
Notes: + ¼ strong impact; ++ ¼ stronger impact; 2 ¼ little or no impact morbidity from
Source: Esrey et al. (1991) selected diseases
MEQ Hence, based on the reported percent reduction in cases, high economic benefits
14,3 are expected to result from improving the quality of the water supply and
sanitation, ranging between US$25 and US$558 million per year, constituting
0.15 to 3.35 percent of the GDP in Lebanon for the year 2000. In other words,
around 55 percent of the incurred costs calculated above (US$45-1,0125 million)
can be avoided. However, the true relation between the degree of improvement
364 in water supply and sanitation and the expected reduction in disease
prevalence and mortality still needs to be ascertained.
Limitations of the study

Limitations in this study can be classified into three categories:
(1) limitations in the available data;
(2) limitations in the health impact assessment; and
(3) limitations in the economic assessment.
Limitations in the available data, particularly data pertaining to morbidity and
mortality rates, are mainly attributed to the absence of population-based vital
and disease registries. Limitations in the health impact assessment are mainly
due to the absence of DRFs for water-related health effects and the assumption
that all reported diarrhea, typhoid, paratyphoid and hepatitis-A fever cases are
water-related. In contrast, underestimation in the number of cases is expected,
since many remain unreported. The limitations in the economic assessment
result from uncertainties in mortality valuations, the adjustment of
international values by the income ratio between countries, and the
assumptions adopted in the absence of better estimates of specific data
related to productivity loss, transportation costs, etc.
Summary and conclusions

Scarce and unclean water supplies represent critical public health problems in
much of the world, particularly in developing countries. In Lebanon, water
shortages, weak public utilities, and poor management of available water
resources have forced the public to rely on water sources and supply practices
which are often polluted, posing significant health risks, welfare and financial
losses. In some quarters of Beirut, especially in its southern suburbs,
consumers rely on small-scale private water providers, more commonly
referred to as water vendors. An investigation of the quality of vended water in
this area revealed serious microbiological contamination.
Various valuation methods were used in the economic assessment of the
health impacts of water pollution. The human capital and WTP approaches
were applied to estimate mortality costs, and the COI approach was used to
estimate morbidity costs. The WTP values were adjusted by the income ratio
between the USA and Lebanon. Estimated health costs ranged between US$45
and US$1,025 million per year (0.2-6.1 percent of the GDP in the country for the
year 2000), dominated by mortality costs. Economic benefits of improvement in
Parameter Diarrhoeal diseases Typhoid/paratyphoid Infective hepatitis Mortality Total
Number of casesa 529 809 287 750 2375

Percent reductionb (%) 26-50 60c 10 55d
Number of cases avoidede 138-264 485 29 412
f
Cost per case (US$) 254-1,054 454-1,958 389-1,822 (0.06-1.35) £ 106
Economic benefit (US$ million/year) 0.035-0.278 0.220-0.949 0.011-0.053 25-557 25-558
Percent of GDP (0.2-1.7) £ 102 3 (1.3-5.7) £ 102 3 (0.06-0.3) £ 102 3 0.15-3.34 0.15-3.35
Notes: aRefer to Figure 2
b
Refer to Table IX
c
Average percent reduction
d
Reduction in child mortality from water-related diseases as reported in Esrey et al. (1991)
e
Number of cases £ percent reduction
f
Refer to Table VIII
Drinking water
improvements
water and sanitation
benefit derived from
Estimated economic
Table XI.
quality
365
MEQ water and sanitation were approximated based on reduction in prevalence and
14,3 mortality as reported in epidemiological studies. They are expected to reduce
the incurred costs by 55 percent.
Based on these estimates, actions to improve the water and wastewater
infrastructure are imperative. Economic health benefits should be incorporated
within the cost analysis of water and sanitation infrastructure projects. This
366 must be coupled with proper quality/quantity water resources management
and planning policies to overcome the water problems and constraints
commonly encountered by governments. Strategies should emphasize proper
resource allocation and water quality (for example instituting water quality
monitoring systems, protecting watersheds, regulating wastewater discharge,
imposing sanctions for abuse and pollution) in addition to resource
development and increasing water quantity. While these strategies are
medium to long-term, immediate efforts should be directed towards managing
the water vending sector as an intermediary solution to water deprivation in
low-income areas.
Notes
1. Note that these samples were collected from houses and not from the network itself,
indicating that the source of pollution could have occurred at any spot between the point of
delivery from the network to the point of collection.
2. Based on the per capita GDP in Lebanon for the year 2000 (Banque Audi, 2000).
3. At the 2002 dollar value < 1,500 LP.
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MEQ Further reading
14,3 Cairncross, S. and Kinnear, J. (1991), “Water vending in urban Sudan”, Water Resources
Development, Vol. 7 No. 4, pp. 267-73.
Kjellen, M. (2000), “Complementary water systems in Dar es Salaam, Tanzania: the case of water
vending”, Water Resources Development, Vol. 16 No. 1, pp. 143-54.
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368 Water Resources Development, Vol. 15 No. 1/2, pp. 29-42.
United States Environmental Protection Agency (2001), National Primary Drinking Water
Standards, EPA 816-F-01-007, Office of Water, available at: wwwepagov/safewater
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Socio-economic benefits of Leaded gasoline

phase-out:
leaded gasoline phase-out Lebanon
The case of Lebanon

Z. Hashisho and M. El-Fadel 389
Department of Civil & Environmental Engineering,
American University of Beirut, Lebanon
Keywords Leaded gasoline, Lead health effects, Health economics, Blood lead levels, Lebanon
Abstract Lead emissions from vehicles using leaded gasoline is a serious environmental
problem in urban areas. While leaded gasoline has been completely phased out in many developed
countries, it is still the predominant fuel grade in most developing countries. This paper presents
an estimation of the health and economic benefits and costs of the transition from leaded to
unleaded gasoline in Lebanon based on relevant dose-response functions and available country-
specific data. Comparing the potential costs of the phase-out and the predicted benefits, it was
concluded that such action is economically highly justified.
1. Introduction
Lead is a toxic heavy metal. Even at low exposure level, it is associated with
serious health hazards such as cardiovascular problems in adults and
neurological disorders in children. Lead emissions from leaded gasoline
combustion is a significant source of atmospheric lead, accounting for more
than 90 percent where no lead phase-out measures have been implemented
(Lovei, 1998). The reduction in blood lead levels (BLL) will reportedly reduce
health hazards associated with lead exposure, which is directly translated into
a lower health expenditure. In the USA, annual health benefits from reducing
the population's BLL by 1g/dl were estimated at 6.9 and 9.9 billion USD for
children and adults respectively (Schwartz, 1994). Similarly, in Russia, the
annual environmental benefit from the complete phase-out of leaded petrol is
estimated at about 1.44 billion USD (SCEP, 1997). As a result, many countries
have implemented (Antigua and Barbuda, Argentina, Austria, Bahamas,
Bolivia, Brazil, Canada, Columbia, Costa Rica, Denmark, Dominican Republic,
El Salvador, Finland, Germany, Guatemala, Haiti, Honduras, Hungary, Japan,
Mexico, Nicaragua, Norway, Saba, Slovak Republic, St Eustasius, Thailand, the
USA) or are implementing ± EU countries, Egypt ± a lead phase-out program
(Lovei, 1999). Even some countries, such as China and India, have switched to
unleaded gasoline in major urban cities as a direct solution for the problem of
lead pollution.
The authors would like to thank Dr I. Nuwayhid, Faculty of Health Sciences, American
University of Beirut, for providing data on blood lead levels in Lebanon. Special thanks are Environmental Management and
Health, Vol. 12 No. 4, 2001,
extended to the United States Agency for International Development for its support to the pp. 389-406. # MCB University
Environmental Engineering and Science Programs at the American University of Beirut. Press, 0956-6163
EMH Lead particles emitted to the atmosphere from the combustion of leaded
12,4 gasoline are dispersed into various environmental media from where they can
enter the human body, mainly through inhalation and ingestion[1]. While the
former is the major exposure route for adults, ingestion of lead-contaminated
water, food, dust, and soil, can be more significant in children. In the human
body, lead is accumulated mainly in the mineralizing tissue for long periods,
390 thus allowing for latent exposure, even after the cessation of the external
exposure, as a result of decalcification processes (WHO, 1995).
1.1 Physiologic effects

Although health effects of exposure to high doses of lead have been well known
for at least some 5,000 years[2], it was not until the 1970s that it was established
that exposure to low levels of lead can have significant implications on human
health. In fact, advancements in edpidemiology, toxicology, and laboratory
technologies allowed for better detection, identification, and characterization of
the effects of lead exposure in systems not known to be vulnerable, and at
levels lower than previously acknowledged.
In this context, the health impacts of lead exposure are diversified and
highly dependent on several factors, including age, individual susceptibility,
health conditions, and exposure level. Although the exposure dose to lead from
vehicle emissions might be low, it is aggravated by the chronic and cumulative
nature of exposure. Irrespective of the route, the physiologic effects of lead
exposure are the same and include biochemical effects (such as anemia, and
interference with enzyme synthesis), and neurobehavioral effects (such as IQ
deficiency, mental retardation, hyperactivity) in children. In adults, lead is
strongly correlated with increased probability of hypertension and
cardiovascular diseases. Despite the long known adverse effects of exposure to
lead, many countries are still adding lead to gasoline because it is the cheapest
way to boost the octane content in gasoline and lubricate vehicle engines.
1.2 Standards and regulations

Standards for blood lead levels have been continuously reviewed and reduced
as emergent studies showed the inadequacy of previous standards (ATSDR,
1995; IOMC, 1998; WHO, 1995) (see Table I). While a firm consensus on the
maximum permissible concentration of lead in blood has not been reached, the
Air (g/m3) Blood (g/dl)
WHO 0.5-1.0 20
US 1.5a 10b
EU 2.0c NAd
Table I. Australia 1.5 10
Summary of standards Canada 5.0 10
and regulations for
lead in air and blood Notes: a Annual average; b
Action level for children; c
Quarterly average; d
NA = not
(IOMC, 1998) available
amount of lead considered to cause lead poisoning continues to be reduced as Leaded gasoline
new toxicological and epidemiological evidences are becoming available. In phase-out:
1980, the World Health Organization (WHO) recommended a health-based Lebanon
blood lead level (BLL) of 40g/dl for workers and a limit of 30g/dl for women
of childbearing age (WHO, 1980). Subsequent WHO standards have been based
on keeping levels in the vast majority of the population below 20 g/dl (WHO,
1995). The US Centers for Disease Control (CDC) have repeatedly revised its 391
standard (Figure 1). Today, although a 10g/dl is adopted, several studies have
revealed some health effects associated even with lower levels. In fact, there
may be no safe level below which no negative health effects are observed
(ATSDR, 1995).
This paper assesses the problem of lead emissions from the combustion of
leaded gasoline in Lebanon. Available information on BLL, and gasoline
consumption and characteristics are presented. The benefits of the switch from
leaded to unleaded gasoline in urban areas is evaluated using available dose-
response relationships developed by the US Environmental Protection Agency
(EPA) for selected health endpoints. The potential costs of the transition to
unleaded gasoline in addition to the benefits from health and car-related
savings are estimated by relying on previous phase-out initiatives with
adjustment for income difference.
2. The Lebanese context

The Lebanese vehicle fleet mainly comprises of passenger cars and is
characterized by relatively old (14 years average age), deteriorated and poorly
maintained vehicles, resulting in high pollutant emission rates (Kaysi and
Salvucci, 1993). In the absence of direct governmental intervention, leaded
gasoline (maximum lead content of 0.66g/l) is the predominant grade of fuel
used. In 1997, total gasoline import was about 1,319 thousand tons, of which
530 thousand, were of the regular grade, 631 thousand of the premium grade,
and 158 thousand of the unleaded grade (UNDP, 1999).
Figure 1.
Historical recommended
action level for blood
lead level in children in
the USA
EMH Measurements of blood lead levels have been conducted in adults and children
12,4 (Nuwayhid, 1999). One study conducted in 1993 measured BLL in male
working adults (Figure 2). The distance commuted to work along with
occupation type and smoking habit were associated to a mean BLL of 15.8g/dl
(Nuwayhid, 1999), which is comparable to values reported in European and
American countries before phase-out programs were implemented (Figure 3).
392 Another study measured BLL in more than 70 working children (10-17 years
old) and compared it to children who are studying but working part-time and
children who are only studying (Figure 4). Mean BLL was 9.75g/dl for
students, 11.36g/dl for working students and 13.54g/dl for workers.
Measurements of BLL among 284 healthy babies and children (1-3 years old)
presenting to the AUB medical center for routine checkup have also been
conducted in 1998. Mean BLL was 6.6g/dl; 14 percent had a BLL of 10 mg/dl
Figure 2.
Blood lead levels for
working adults in
Lebanon
Figure 3.
BLL in Lebanese adult
males in comparison to
international reported
trends
Leaded gasoline
phase-out:
Lebanon
393
Figure 4.
BLL in 10-17 year old
working and
non-working children in
Lebanon
or more. This was associated with manual job of the father, living in an area
with traffic jams, and low income.
Measurements of BLL among school children revealed that 15-18 percent of
tested children have BLL greater than or equal to 10g/dL. Highest BLL were
about 17-18 g/dL (Figure 5).
As is the case with adults, children's BLL are comparable to values reported
in countries in the 1970s and 1980s when leaded gasoline was the predominant
fuel grade (Figure 6).
3. Impact assessment
Although the association between the phase-out of leaded gasoline and the
drop in blood lead levels is evident, it is difficult to quantify the impacts of
lead exposure. As such, precise assessment of health outcomes of the phase-
out of leaded gasoline is difficult to make. This is mainly due to factors such
Figure 5.
BLL in 1-3 year old
healthy children in
Lebanon
EMH
12,4
394
Figure 6.
BLL in Lebanese
children in comparison
to international trends
before lead phase out
as the lack of a dose-response relationship for some exposure outcomes, or

the uncertainty associated with available ones. In this context, dose-response
relationships have been derived for only few outcomes associated with BLL.
This section presents the methodology used to estimate harmful health
endpoints associated with elevated BLL. Dose-response functions and
summary of health impacts for each affected group are presented.
3.1 Methodology
The impact assessment of the predominant use of leaded gasoline in Lebanese
urban areas was conducted using dose-response functions for children and
adults derived by the USEPA (USEPA, 1997) based on available epidemiologic
studies.
3.1.1 Potential health impacts in children. Lead induces neurobehavioral
deficiency in young children, including hyperactivity, behavioral and attention
difficulties, as well as mental, motor and perceptual skill deficits. Limited
effects can be quantified and expressed in IQ tests and scores due to lack of
data. Currently, available data permit the quantifying of the relationship
between BLL and IQ points loss, mental retardation, and mortality. A highly
significant relationship (p < 0.0001) suggests that a 1g/dl increase in BLL
results in a decrease of 0.245 0.039 IQ points. Accordingly, the total IQ points
loss for each group can be expressed by equation (1). Note that the population
of children up to age six was divided by seven in order to avoid multiple
counting, assuming even distribution by age.
X P
IQ 0:25 Ex 1
7
where Leaded gasoline
Ex = change in the mean of BLL distribution phase-out:
P = total population of children up to age six Lebanon
In addition, lead increases the incidence of mentally retarded children (IQ
scores < 70). Assuming that the population of children have blood lead
distributions defined by some geometric mean and geometric standard 395
deviation, and that the population has a normalized IQ point distribution with a
mean of 100 and a standard deviation of 15, the proportion of population
expected to have an IQ < 70 is determined by:
PIQ<70 znoÿcontrol ÿ zcontrol znoÿcontrol ÿ 0:02775 2
z
1 z2
z p eÿ 2 dz 3
2
ÿ1
where
(z) = standard distribution function
PIQ < 70 = change in the probabilty of children having IQ < 70
zcontrol = standard normal variate
For an IQ score of 70, with mean IQ score of 100 and standard deviation of 15, Z
is computed as:
70 ÿ 100
z ÿ2
15ÿ 4
70 ÿ 100 0:25 PbB
znoÿcontrol
15
PbB = change in the average BLL, g/dl
Multiplying the probability change P (IQ<70) by the exposed population of

children yields the number of children with mental retardation due to increase
in BLL. As in equation (1), this relation is applicable to children up to age six,
and the population is divided by seven to avoid multiple counting.
Maternal blood lead levels were correlated with several adverse health
impacts on fetuses including decreased gestational age, induced birth weight,
late fetal death, and increased rate of infant mortality. To estimate the changes
in infant mortality, gestational age was linked to maternal BLL and infant
mortality was linked to gestational age. Accordingly, the risk of infant
mortality decreased by 10-4 for each 1g/dl decrease in maternal BLL.
3.1.2 Potential health impacts in adults. Quantified health effects in adults are
related to the effects of lead on blood pressure, including increased probability of
hypertension, initial coronary heart disease (CHD), strokes, and premature
EMH mortality. Elevated BLL has been related to high blood pressure in adults. For
12,4 men aged between 20 and 74 years a dose-response relationship for hypertension
(defined as diastolic blood pressure above 90 mmHg) is expressed as[3]:
1 1
Pr HYP 2:744ÿ0:793ln x
ÿ 2:744ÿ0:793ln x2
5
1e 1 1e
396 where
Pr(HYP) = change in the probabilty of hypertension[4]
x1 = BLL in the control scenario, g/dl
x2 = BLL in the no-control scenario, g/dl
In addition to increased probability of hypertension, increased blood pressure
increases the probability of initial occurrence and reoccurrence of coronary
heart disease (CHD), initial cerebrovascular accidents (CA), initial
atherothrombotic brain infarctions (BI), and premature mortality. Accordingly,
changes in BLLs are related to changes in blood pressure which are in turn
related to changes in the probability of occurrence of these effects. Thus for
men, the change in diastolic blood pressure can be expressed as:

x1
DBPmen 1:4 In 6
x2
where
DBPmen = changes in men's diastolic blood pressure, mmHg
For women, results of several studies suggested that the effect on blood
pressure of a decrease of BLL from 10 to 5g/dl is about 60 percent of the effect
of the same change observed in men.

x1
DBPwomen 0:6 1:4 ln 7
x2
where
DBPwomen = changes in women's diastolic blood
The general form of the change of probability of occurrence of the above effects
in adults is expressed as:
1 1
Pr ÿ 8
1e ÿln DBP1 1e ÿln DBP2
where
Pr = change in the probability
DBP1 = mean diastolic blood pressure in the control scenario, mmHg
DBP2 = mean diastolic blood pressure in the no-control scenario, mmHg
= empirical constant
= Does-response coefficient
Table II presents a summary of dose-response coefficients used in the Leaded gasoline
probability distribution to estimate lead health effects in adults. Note that the phase-out:
dose-response coefficients for CHD and strokes account only for non-fatal Lebanon
cases. It was reported that two-thirds of the CHD and 70 percent of the strokes
are non-fatal. Fatal CHD and strokes were accounted for in the mortality
coefficients.
397
3.2 Summary of health impacts
Using the above dose response relationships, the impact of vehicular lead
emissions on adult and children in major urban regions in Lebanon is
estimated. Due to limitation in data availability, several assumptions have been
made:
(1) Population of major urban areas only are considered (about 1,639,000
(ERM, 1995)) since it is expected that in such locations vehicular
emissions would constitute a significant source of lead pollution with
high exposure potential.
(2) Age distribution of the studied population is assumed to be the same as
that of the whole Lebanese population distribution (Figure 7).
(3) Population within each age group is assumed to be evenly distributed
by age.
(4) Blood lead levels are assumed to be independent of age in children and
adults.
(5) Based on average levels reported in several studies, average BLL in
women is assumed to be 64 percent of that in men (COWI, 1998a;
Wietlisbach et al., 1995).

Standard
Health effect Age group mean deviation
CHDmena 40-59 4.996 0.03036 0.003586

60-64 5.19676 0.023531 0.028
65-74 4.90723 0.02031 0.00901
CHDwomen 45-74 6.9401 0.03072 0.00385
BImen 45-74 8.58889 0.04066 0.00938
BIwomen 45-74 9.07737 0.04287 0.00754
CAmen 45-74 9.9516 0.04840 0.00711
CAwomen 45-74 10.6716 0.0544 0.00637
Mortalitymenb 40-45 5.3158 0.03516 0.16596
55-64 4.89528 0.01866 0.00533
65-74 3.05723 0.00547 0.00667 Table II.
Mortalitywomen 45-74 5.40374 0.01511 0.00419 Summary of dose-
Notes: a
ten-year probability; b
12-year probability response coefficients
for two-year
Source: USEPA (1997) probability distribution
EMH
12,4
398
Figure 7.
Age distribution of the
Lebanese population
(6) The phase-out of leaded gasoline will result in a 77 percent reduction in

BLL of children and 78 percent reduction in BLL of men and women
(Pirkle et al., 1994).
(7) BLL in pregnant women is assumed to be the same as that in non-
pregnant ones.
The results of the health impact assessment for children and adults are
presented in Tables III and IV respectively.
4. Cost-benefit analysis of lead phase-out

The costs and benefits of switching from leaded to unleaded gasoline in
Lebanese urban areas are assessed based on international experience. Refined
estimates can be obtained with elaborate and updated local data and detailed
analysis of country-specific characteristics such as blood lead levels, ambient
air lead monitoring, statistics about mortality and morbidity as well as their
corresponding unit costs, and maintenance savings unit costs.
Number of cases
Effect Average Range
Table III. Total IQ point loss (points) 42,689 35,176-48,495

Impact of vehicular Mental retardation (cases) 167 NA
lead emissions on Child mortality (cases) 31 NA
children in Lebanese
urban areas Notes: NA = Not applicable
Number of cases Leaded gasoline
Effect Age group Mean Minimum Maximum phase-out:
Lebanon
Hypertension men 20-74 1,688.3 NA NA
CHD men 40-59 54.6 15.3 133.0
60-64 24.1 10.0 482.6
65-74 30.7 3.3 152.4
CHD women 45-74 46.8 12.2 122.2
399
CA men 45-74 42.7 7.7 162.5
CA women 45-74 22.9 4.6 77.3
BI men 45-74 26.5 3.8 127.4
BI women 45-74 16.8 3.0 63.3
Mortality men 40-54 50.9 21.1 0.01
55-64 36.1 6.8 121.2 Table IV.
65-74 12.9 5.4 78.0 Impact of vehicular
Mortality 45-74 25.0 5.3 75.8 lead emissions on
women
adults in Lebanese
Notes: NA = Not applicable urban areas
4.1 Costs of lead phase-out

Worldwide experience showed that phasing out lead from gasoline is
technically feasible, and the costs are generally modest. In general, the costs of
removing lead from gasoline are grouped into: first, costs of refinery
adjustments and gasoline additives; and second, costs of the distribution
system adjustments.
4.1.1 Unleaded gasoline and lead additives. In gasoline importing countries,
phase-out of leaded gasoline can be easily accomplished without substantial
cost. In fact, the incremental cost of switching to unleaded gasoline is
determined by the difference in price between unleaded and leaded gasoline on
their main import markets. Frequently, unleaded gasoline prices have been
lower for some octane grades (for example, 95 RON) than leaded gasoline, due
to structural over-capacities in production. The cost of switching from leaded to
unleaded gasoline for importers is expected to be very low, consisting mainly of
the costs of lubricant additives and additional transportation costs to access
new suppliers if necessary (Lovei, 1997).
World-wide experience and hypothetical estimates indicate that annualized
investment expenditures and added operating costs associated with the
removal of lead from gasoline are typically about 0.01-0.02 USD per liter.
Although these estimates were made for specific refineries, the numbers are
relatively comparable and within the same order of magnitude. Hence, they
provide a reasonable estimate of the expected costs of actions and measures
associated with lead phase-out programs.
In Lebanese urban areas, annual gasoline consumption is estimated at 0.65
million tons (equal to the 1997 import of leaded gasoline multiplied by
percentage of vehicles in urban areas). Taking gasoline density to be equal to
0.785kg/l, the annual cost difference between unleaded and leaded gasoline is
about 7.6-15.1 million USD for a unit cost of 0.01-0.02 USD/l.
EMH 4.1.2 Distribution system adjustments. Typically, adjustments to the
12,4 distribution system do not entail major expenditure, particularly in developing
countries (where labor is significantly cheaper), since the same system can be
used for distributing unleaded gasoline after phasing out leaded gasoline.
These costs are attributed to the once-and-for-all cleaning of tank lorries, pipes,
pumps, and underground storage tanks which can be performed by one to two
400 workers for one work day (Naranong, 1995). In the transition period during
which leaded and unleaded gasoline are both distributed, unleaded gasoline
can replace one grade of leaded gasoline without the need for additional
distribution infrastructure, except for different pump nozzle sizes for leaded
and unleaded grades. Overall, distribution costs are minor and can be neglected
in comparison to the cost of refinery adjustments, when assessing the cost of
lead removal from gasoline.
4.2 Benefits of lead phase-out

Generally, the benefits associated with phasing out lead from gasoline can be
grouped into: health-related benefits; and car-related benefits. In the USA, the
benefits of lead phase-out from gasoline are estimated to exceed its costs by
more than ten times (Schwartz, 1994). Similarly, estimated benefits of lead
removal exceeded the costs by three to six times in Nizhny Novgorod, Russian
Federation (Lovei, 1997).
4.2.1 Health benefits. Valuing the benefits of lead phase-out depends on
country-specific factors such as the cost of labor, labor productivity, capital and
medical care, life expectancy, people's values of health and life, and their
willingness to accept risk. Therefore, concrete valuation of the health benefits
of the phase-out of leaded gasoline is difficult to make due to the lack of
country-specific data. The situation is worsened by the uncertainty associated
with the parameters and functions used in estimating the health outcomes of
lead exposure. Nevertheless, this process provides a rough estimate of the
magnitude of the health benefits associated with switching to unleaded
gasoline.
4.2.1.1 Valuation techniques. Several methods are available for valuing the
health benefits of removing lead from gasoline. Typical methods used for
valuing mortality outcomes include the human capital approach and the
willingness to pay (WTP) approach. In case original data on the WTP are
lacking, one can use income adjusted mortality values from other countries
after compensating for income difference (see Figure 8).
To assess the morbidity outcomes, methods typically used include the cost
of illness (COI) approach, and the WTP approach. The choice of the method to
be used depends on several factors, particularly the availability of data for the
method used. In this study, COI values estimated for the US population have
been used to estimate morbidity outcomes of lead exposure. To estimate
mortality costs, WTP values estimated in the USA have been used. US
morbidity and mortality values estimated for the year 1990 (USEPA, 1997)
have been adjusted for inflation to the year 1998 (by multiplication with an
inflation factor of 1.2547 (CJR, 1999) and for the Lebanese context based on Leaded gasoline
income ratio as depicted in Figure 8, where a ratio of about 0.12 has been phase-out:
estimated based on a gross national per capita product (GNP) of 29,340 USD for Lebanon
the USA (World Bank, 1999b) and 3,560 USD for Lebanon (World Bank, 1999a)
for the year 1998. Note that the income ratio method was not applied in the
estimation of the phase-out costs since they are based on unit costs, which rely
to a large extent on the international market. 401
. Valuing benefits of lead phase-out for children. For children, IQ reduction
is expected to result in reduced present value of expected lifetime earnings
and increased educational expenditure on an infant who becomes
mentally disadvantaged or is in need of compensatory education. Table V
presents the estimated benefits resulting from decreased BLL in children.
. Valuing health benefits of lead phase-out for adults. Benefits from
reduced morbidity in adults can be approximated by medical costs
(physician care, drugs, and hospitalization costs) and costs of restricted
activity or work loss days (Table VI). This provides a conservative
estimate of the real costs as it excludes the value of pain, suffering, diet,
and behavior modification in addition to the side effects of medications.
4.2.1.2 Application to Lebanon. Using the methodology outlined above and
applied on estimated reduction in adverse health outcomes from Tables III and
IV, the monetized benefits of phasing out leaded gasoline are presented in
Tables VII and VIII. While these costs exhibit wide variations and are for
selected age groups and for some health effects, they provide a conservative
Figure 8.
Transfer of mortality
and morbidity values
across countries
Cost per case

Health outcome (1990 USD)a (1998 USD)b
Lost IQ points (per point) 2,957 3,710 Table V.

IQ < 70 (per case) 42,000 52,697 Monetized benefits
Infant mortality (per case) 4,800,000 6,022,560 from reducing
children's BLL in the
a b
Notes: (USEPA, 1997); Inflation factor = 1.2547 (CJR, 1999) USA
EMH estimate of the benefits expected from switching to unleaded gasoline. Clearly,
12,4 mortality costs constitute the major contributor to the estimated benefits from
the reduction in BLL.
4.2.2 Other benefits of lead phase-out. In addition to the human health
benefits, shifting from leaded to unleaded gasoline results in important cost
savings associated with reduced car maintenance from lead induced corrosion
402 of exhaust systems and engines. Switching from leaded to unleaded gasoline
may increase engine life by as much as 150 percent (Faiz et al., 1996). The
savings can be attributed to (Walsh and Shah, 1997):
Cost (1990 USD per case)a Cost (1998 USD per case)b
Health outcome Men Women Men Women
Hypertension 681 - 854

CHD 52,000 52,000 65,244 65,244
Table VI. Stroke 200,000 150,000 250,940 188,205
Monetized benefits Mortality 4,800,000 4,800,000 6,022,560 6,022,560
from reducing adult Notes: a
USEPA (1997); b
Inflation factor = 1.2547
BLL in the USA
(USEPA, 1997) Source: CJR (1999)
Cost per case Cost (1998 USD) 1,000

Health outcome (1998 USD) Average Range
Total IQ loss 450 19,217.5 13,414.7-25,175.5

Table VII. Mental retardation 8,023 1,069.3 NA
Monetized benefits Child mortality 730,754 22,427.0 NA
from reducing Total ± 42,713.8 36,911.0-48,671.8
children's BLL in
Lebanese urban areas Note: NA = Not applicable
Cost per case Average cost Cost range

Effect (1998 USD) (1998 USD) 1,000 (1998 USD) 1,000
Hypertension men 104 175.0 NA

CHD men 7,916 867.5 226.3-6,079.7
CHD women 7,916 370.8 96.4-967.7
CA men 30,448 1,301.2 233.6-4,947.1
CA women 22,836 521.9 104.2-1,766.4
BI men 30,448 808.2 114.6-3,880.6
BI women 22,836 384.2 69.4-1,444.4
Table VIII. Mortality men 730,754 66,799.7 21,796.8-145,578.9
Monetized benefits Mortality women 730,754 18,286.6 3,836.7-55,379.5
from reducing adult Total 89,514.2 26,653.1-220,219.3
BLL in Lebanese urban
areas Note: NA = Not applicable
. longer intervals between spark plug changes (every other year instead Leaded gasoline
of every year); phase-out:
. longer intervals between oil and filter changes (once a year instead of Lebanon
twice a year);
. reduced need for muffler replacement (twice per five years instead of
once per year); 403
. reduced need for exhaust pipe replacement (none opposed to once every
five years);
. reduced need for carburetor servicing.
Car maintenance savings from switching from leaded to unleaded gasoline in
Canada were estimated at about 0.017 USD per liter of gasoline (1980 prices)
corresponding to about 27 USD per year per car (Walsh and Shah, 1997).
Savings estimates for the USA are about 0.003-0.024 USD per liter of petrol
(Hirshfeld and Kolb, 1995). If similar unit cost savings are assumed for
Lebanon, the estimated total benefits in car maintenance savings from
switching to unleaded gasoline in Lebanese urban areas range from 2.5 to 19.9
million USD after accounting for inflation till the year 1998. However, these
estimates seem to over-predict real values since part of these savings are
associated with labor costs which vary among countries, particularly between
Lebanon and the USA. On the other hand, using the income ratio approach
would provide the minimum cost savings because car maintenance involves
both labor and spare parts. The latter is typically at the same price, if not more
expensive, in non-manufacturing countries. Accordingly, the minimum car
maintenance savings from switching to unleaded gasoline range from 0.3 to 2.4
million USD.
In addition to cost savings from reduced maintenance costs, the phase-out of
lead from gasoline improves fuel economy in three ways:
(1) increasing the energy content of petrol through more intense processing;
(2) reducing the fouling of oxygen sensors in mis-fuelled late-model
vehicles; and
(3) reducing the fouling of spark plugs.
Monetized estimates of the cost savings attributable to improved petrol energy
density from shifting from leaded to unleaded petrol are estimated at 0.0024
USD per liter of petrol (COWI, 1998b). For the case of Lebanon, using unleaded
gasoline in urban areas [5] will result in a cost saving from improved fuel
efficiency of about 2 million USD, which when multiplied by income ratio
results in 0.25 million USD. These values are conservative estimates since the
income ratio approach reflects minimal savings in this case.
Generally, the costs of modifying the vehicle fleet to operate on unleaded
petrol or the cost of the addition of lubricants may be comparable to the
savings in maintenance costs and the increased fuel economy from phasing out
lead (COWI, 1998b). Comparing the estimated benefits and costs of the phase-
EMH out of leaded gasoline, it is evident that such action is economically justified.
12,4 However, several measures should be adopted to accelerate the transition from
leaded to unleaded gasoline.
5. Limitations
Limitations in this study can be classified into three categories:
404 (1) limitations in the available data;
(2) limitations in the health impact assessment; and
(3) limitations in the economic assessment.
Limitations in the available data are mainly attributable to BLL values as they
reflect only recent exposure at a single point in life, and to the relatively small
sample size. Limitations in the health impact assessment are mainly incurred
from the absence of dose-response functions for several health effects of lead
exposure and the uncertainties in the available ones, as well as in the
assumptions adopted in the absence of better estimates of specific data, such as
the assumption of even age distribution within each age group, independence
of BLL of age in children and adults, population estimation, relation between
men's and women's BLL values, etc. The limitations in the economic
assessment result not only from uncertainties in the mortality and morbidity
values estimated in the USA, but also in the extrapolation of these values by
the multiplication by the income ratio between countries. The application of
income ratio in the estimation of car maintenance savings limits the usefulness
of this method to lower bounds rather than real estimates.
6. Summary and conclusions

Lead emission constitutes a significant environmental health concern,
particularly in urban congested areas. Although vehicles are not the only
source of lead emissions, they are often the main one in these areas. In Lebanon,
leaded gasoline is the predominant fuel grade used (88 percent). Available
information reveals that average BLL in Lebanese babies one to three years old
(6.6g/dl), children 10-17 years old (9.75 to 13.54g/dl), and adults (15.8g/dl)
are comparable to those previously reported in other countries before the
phase-out of leaded gasoline, and are expected to drop with the implementation
of such a program.
Based on previous lead phase-out initiatives, BLL are expected to decrease in
excess of 75 percent in children and adults. Using dose-response relationships
developed on the basis of epidemiologic studies, selected health benefits from a
decline in BLL are estimated for children and adults in Lebanese urban areas.
In children, a 77 percent reduction in BLL will prevent the loss of 42,689 IQ
points, the occurrence of 167 cases of mental retardation, and 31 cases of
premature mortality. In adults a 78 percent reduction in BLL will prevent the
occurrence of 1,688 cases of hypertension in adult males, 157 cases of coronary
heart disease, 44 cases of brain infarctions, 66 cases of cerebrovascular
accidents, and 125 cases of premature mortality in both males and females. The Leaded gasoline
cost of illness and willingness to pay values derived for the USA are used to phase-out:
estimate morbidity and mortality cost savings respectively after adjustment for Lebanon
income difference between the USA and Lebanon. Estimated cost savings are
about 42.7 million USD for children and 89.5 million USD for adults. These
benefits will translate to nearly 40 USD per capita per year for the entire
population. Additional cost savings can be accrued from reduced car 405
maintenance and improved fuel efficiency. The comparison of the expected cost
savings from phasing out leaded gasoline with the potential costs indicates that
such action is economically highly justified.
Notes
1. While organic lead such as gasoline lead additives can be easily absorbed through the
skin, dermal absorption of inorganic lead, the predominant form of vehicular lead
emissions, is negligible (WHO, 1995).
2. Symptoms described by Hippocrates at about the fourth century BC for lead intoxication
are the same as those classified today.
3. Elevated BLL is associated with hypertension in both men and women; however, no dose-
response function for hypertension in women is currently available.
4. Due to lack of averaging time, the number of annual cases of hypertension was estimated
by dividing the total number of cases by 55 (74 ± 20 +1).
5. Costs and savings for cars outside urban areas were not included to restrict the cost-benefit
analysis to urban areas.
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Case History: An assessment of the economic impact of airport noise emissions
near Beirut International Airport
M. El-Fadela) and M. Chahinea)
(Received 2001 January 15; revised 2001 October 04; accepted 2001 October 12)
This paper presents a socio-economic assessment of noise impacts from aircraft traffic on
communities near the Beirut International Airport. Mathematical modeling was conducted to
simulate aircraft-induced noise emissions and delineate noise contour zones. An economic
valuation of noise-impacted areas was performed using model-delineated noise contour zones
coupled with population and home rental statistics. The same aircraft traffic data were also
used to evaluate the effects of a different runway configuration to minimize the impacted areas
and corresponding noise cost. When the current runways were used a total social cost of noise
impact was evaluated at 16.9 million USD per year or 0.0038USD/passenger/km traveled. It is
estimated that an 87 percent reduction in social cost could be accomplished by changing the
runway configuration. © 2002 Institute of Noise Control Engineering.
Primary subject classification: 67.1; Secondary subject classification: 76.1.1.3
1. INTRODUCTION the hedonic price method was applied and compared with
Aircraft traffic is a major source of community concern international survey results. The WTP approach was deemed
due to aircraft noise emissions, particularly in locations close inappropriate because of the illegal nature of major settlements
to airports and aircraft flight tracks. The effects of noise on in the immediate vicinity of the airport where it is not feasible
humans can range from minor annoyance, sleep disruption, to conduct an economic survey to define the WTP.
and speech interference, to hearing damage.1-3 Noise impacts
are typically dependent on the duration and level of the noise A. Hedonic price method
exposure. As a result, noise exposure criteria have been The cost of noise can be best estimated by the decline in a
developed by many organizations using various noise property value affected by noise generated from aircraft traffic.
indicators (Table 1). This is reinforced by the fact that people are ready to pay
While noise is best known for its disruptive effects such more for a property in order to avoid high noise levels.14 Most
as loss of sleep, decrease in productivity, and loss of hearing, estimates are developed using hedonic pricing methods which
these effects are very hard to quantify in monetary terms. assume that an item’s value (property or house) is composed
However, since noise is associated with a place, its social of a number of factors (area, age, location, neighborhood,
cost has been commonly related to a loss in property value.10 environmental quality, etc.). The contribution of each
In this context, the hedonic price method has been extensively parameter can be obtained by regression analysis. 10 To
used to evaluate social cost due to noise pollution. In this estimate the implicit cost of noise due to aircraft traffic, the
method, the evaluation of the cost of noise can depend on decline in the price of a property is modeled as a function of
several variables ranging from locational traits (access to ambient noise.15 For this purpose a noise depreciation index
central business district), land use characteristics (zoning or the percent reduction in a house price per A-wtd sound
codes), and site peculiarities (width of the frontal road).11 pressure level (in dB) above a reference background value is
While hedonic methods have become the best-suited used. Using this method, the annual cost of noise impacts
techniques for estimating noise damage cost,12 they require can be estimated from Eq. (1).12
Cn = Â INDI ◊ Pv ◊ (Nai - N0) ◊ Hi
significant amounts of hard to acquire data to conduct a
meaningful cost estimation. Another method for the evaluation (1)
i
of noise cost is through the determination of the willingness
Where INDI is the noise depreciation index, Pv is the annual
to pay (WTP) for environmental benefits. This method
average house rent in the area, Nai is the noise for the ith section
consists of asking people if they are willing to pay for a
of the noise contour, N0 is the background noise, Hi is the
reduction of noise in their neighborhood for example, or how
number of residences in the ith section.
much they want as a compensation for deterioration in
Research has shown that the INDI has an average value of
environmental conditions such as increased noise.13 Simpler
0.62 percent and an A-wtd background sound pressure level
methods based on international field surveys relating social
of 50 dB is typical in urban areas.10 International surveys
costs to travel distance have also been reported.10 In this study,
constitute a more simplified process that can be used for noise
valuation. This method is based on field surveys in which the
a) cost of noise is evaluated as a function of passengers and
American University of Beirut, Faculty of Engineering and Architec-
ture, Bliss Street, P.O. Box 11-0236, Beirut, Lebanon; Fax: 961-1744- kilometers traveled as shown in Table 2.
462; E-mail: mfadel@aub.edu.lb. In this paper, both approaches were compared in
30 Noise Control Eng. J. 50 (1), 2002 Jan–Feb © 2002 Institute of Noise Control Engineering
Table 1 – Worldwide criteria for noise exposure.
A. World Health Organization annoyance criteria in residential areas 4
Impact Characterization Daytime Leq (dB) Nighttime Leq (dB) Approximate DNL (dB)
Serious Annoyance 55 45 55
Moderate Annoyance 50 40 50
B. World Bank Group 5
Receptor Time Period Time Period Leq Equivalent DNL (dB)
Residential, institutional, educational Daytime 55 55

Nighttime 45
Industrial, commercial Daytime 70 —
Nighttime 70
C. International Organization for Economic Co-operation and Development6
Land Area Time Period Time Period Leq (dB) Equivalent DNL (dB)
Urban Daytime 55 55
Nighttime 45
Rural Daytime 50 50
Nighttime 40
D. US National Bodies
D.1 US Department of Transportation, Federal Highway Administration Noise Abatement Criteria7
Activity Leqa (dB) Description of Category

Category
A 57 (exterior) Land on which serenity and quiet are of extraordinary significance and serve an important public need and where the
preservation of those qualities is essential if the area is to continue to serve its intended purpose
B 67(exterior) Picnic areas, recreational areas, playgrounds, active sports areas, parks, residences, motels, hotels, schools, libraries, and hospitals
C 72(exterior) Developed land, properties and activities not included in categories A or B
D — Undeveloped land
E 52(interior) Residences, motels, hotels, schools, libraries, public meeting rooms, churches, auditoriums, and hospitals
a
A-wtd equivalent noise level
D.2 US Environmental Protection Agency 8

Level requisite to protect health and welfare with an adequate margin of safety DNL 55 dB
D.3 National Research Council 9

Residential areas DNL of 55 dB
conducting the economic valuation of aircraft noise impacts 2. AIRCRAFT NOISE MODELING
at the Beirut International Airport (BIA), which is located on
the southern periphery of the city of Beirut, about 8 km from A. Existing conditions
the city center, occupying a coastal site bordered by mountains The airport has two intersecting runways, the eastern
as shown in Fig. 1. For this purpose, noise modeling was first runway (21-03) for take-off, and the western runway (36-18)
performed to delineate noise-impacted areas by aircraft traffic for landing. A new maritime runway extending into the sea
and an economic valuation of noise impacts was then was completed in summer 2000. This maritime runway would
performed using the hedonic approach and a comparison with replace the presently used western runway as shown in Fig.
international surveys. The same aircraft traffic data were also 2. This study focuses on delineating, through model
used to evaluate the effects of changing the runway simulations, the change in noise impacted areas due to the
configuration on minimizing the impacted areas and introduction of the new runway using an economic valuation
corresponding noise cost. approach that correlates noise-impacted areas with
corresponding house rental statistics.
At present, the airport serves a number of regional and
international airlines, in addition to two local airlines. The
Noise Control Eng. J. 50 (1), 2002 Jan–Feb 31

Table 2 – Noise cost generated from aircraft traffic.10
Average cost
$/ passenger/km traveled
Country 1995 1999
Canada 0.0039 0.0043
Germany 0.0049 0.0054
Italy 0.0079 0.0087
Holland 0.0099 0.0108
Sweden 0.0014 0.0015
Switzerland 0.0017 0.0019
France 0.0030 0.0033
United Kingdom 0.0018 0.0020
Mediterranean Sea
Average 0.0043 0.0047
N
most common types of aircraft using the airport are the Airbus
A310 and A320. Other types of commercial jet aircraft include
the Boeing B707, B727, B737, B767, B777, and the Tupolev
TU54 as summarized in Table 3. There are still a few daily
operations of the aging Boeing 707 for cargo shipments. The
average number of daily operations is 78 landings and
departures. The estimated current number of passengers using 0 100 250 500 m
BIA is 2.2 million per year and is expected to reach 6 million

passengers by the year 2015.16
B. Noise simulation
The Integrated Noise Model (INM) developed by the
Federal Aviation Administration (FAA) was used to simulate
aircraft noise emissions. Day-night noise level (DNL)
contours, which are the most widely used metric for the
Fig. 2 – Runway configuration at the Beirut International Airport.
analysis and development of compatible land use,17 were

adopted as indicators to delineate noise-impacted areas due
to aircraft traffic. The DNL metric is a member of a group of
exposure metrics obtained from the noise level expressed as:
LE = 10 log (W1E1 + W2E2 ) – 10 log (T), (2)
where LE is the A-weighted equivalent noise level, W1 and
W2 are weighting factors for day and night time periods, E1
and E2 are noise exposure ratios for day and night time periods,
and T is averaging time over a reference time of one second.
The area around the airport was divided into six DNL
values, which would produce five A-weighted noise contour
ranges: 55-60, 60-65, 65-70, 70-75, and 75-80 dB. Aircraft
fleet composition and daily arrival and departure schedules
were obtained from airport authorities. Figure 3 depicts the
arrival and departure noise contours at standard INM landing
Fig. 1 – Location of the Beirut International Airport relative to and take-off weights and flight operation procedures for
Beirut City (note that North is down in the photograph). present airport activities. A total developed area of 27 km2
32 Noise Control Eng. J. 50 (1), 2002 Jan–Feb

Table 3 – Average daily traffic at BIA.
Arrival Departure
Aircraft type Daya Eveningb Nightc Daya Eveningb Nightc
A310 9 1 2 10 0 2
A320 6 5 4 8 1 6
B707 2 0 0 2 0 0
B727 1 0 0 0 0 1
B737 0 0 3 0 0 3
B767 0 0 1 0 0 1
B777 2 0 0 2 0 0
Mediterranean Sea
MD82 1 0 1 1 0 1
TU54 1 0 0 1 0 0
Total 22 6 11 24 1 14
Grand Total 39 39
a b c
7:00 A.M.–7:00 P.M. 7:00 P.M.–10:00 P.M. 10:00 P.M.–7:00 A.M.
was affected by noise generated from aircraft traffic. Note

that noise contours generated from departing aircraft are
mostly above the sea.
0 1 2 3 Km
3. ECONOMIC VALUATION
The area surrounding the airport and falling under the Fig. 4 – Zone subdivision of noise impacted areas.
aircraft flight path was subdivided into three zones, shown in
Fig. 4, corresponding to economic affluence based on a survey
of household average annual income and house rental
statistics. Table 4 summarizes the total number of residences
and average annual rents in areas exposed to aircraft-induced

noise with corresponding noise exposure levels. The average
annual rent was adjusted for an average house lifetime of 30
years and a mortgage interest of 6 percent. Using the hedonic
price method (Eq. 1), the corresponding total social cost due
to noise was estimated at 16.9 million USD per year.
Mediterranean Sea
N Using annual travel activities (number of passengers and

the travel distance to each destination as obtained from airport
authorities)20 and the social cost incurred by applying the
hedonic price method, the equivalent average cost will be
0.0038 $/passenger/km traveled which is consistent with the
range reported in the literature for international cost-based
surveys (see Table 2).
4. EFFECT OF RUNWAY CONFIGURATION

0 1 2 3 Km
Day-night average sound levels (DNL) contours were
generated for the same aircraft traffic, but using the new
runways configuration whereby the western runway was
replaced by the maritime runway. The simulated noise
contours are depicted in Fig. 5 and a comparison (with respect
to the old runway) of the affected areas is shown in Fig. 6.
While the total noise-impacted areas decreased by 5.5 percent
Fig. 3 – Day-night-level noise contours for the year 2000 traffic (Fig. 6), using the hedonic price method (Eq. 1) the estimated
and existing runway. cost of noise was reduced by nearly 87 percent or 2.2 million

Table 4 – Residences within noise contours.
Zone Total number Average annual Percent of area in noise contour (A-wtd. level contours)
of residences18 rent (USD)19
55-60 dB 60-65 dB 65-70 dB 70-75 dB 75-80 dB 80-85 dB
A 42,849 18,150 26.3 — — — — —
B 54,173 10,890 17.9 10.7 1.2 — — —
C 18,876 3,630 19.4 11.9 9.4 9.4 2.5 1.3
USD per year. This sharp reduction is mainly due to the fact category.12 At the BIA, international airline companies are
that when the new maritime runway is used, the most affluent the main night operators. This can be attributed in part to the
and heavily populated zones A and B are no longer affected geographic location of Beirut, which dictates its use as a transit
by aircraft noise, as shown in Table 5. hub for the region. Another reason may be that the airlines in
Currently a night surcharge of 184 USD is applicable for question are avoiding airports that ban night operations, and
each movement (landing or take-off) at BIA.21 Based on the accordingly they switch to airports with less stringent
daily average traffic, the yearly charges are 2.1 million USD standards on night operations. In addition, existing
per year. However this surcharge is for the usage of the runway environmental standards are not generally enforced at the BIA.
and apron lights only, and is not related to the noise category Many aircraft operating at the airport are not in compliance
of the aircraft or its weighted noise impact increase. with international noise standards. While Chapter 2 aircraft
Other operational measures that can be adopted to reduce (such as the Boeing 747-200) are being phased out in several
aircraft noise include flight scheduling control and airports22 and Chapter 1 (such as the Boeing 707) aircraft are
enforcement of environmental regulations. At present, about banned from most airports, they are still in use at the BIA.
30 percent of the daily flights occur at night (between 10:00 These aircraft are known to contribute to excessive noise
PM and 7:00 AM). Noise during the night is known to cause pollution and they must be replaced.
a high level of annoyance. The DNL metric adds a 10 dB
night operation penalty to account for this fact. Most airports
in Europe and the US restrict the number of operations during 5. SENSITIVITY ANALYSIS
the night, and many airports are charging additional fees for Important parameters that directly affect noise contours
aircraft landing at night in accordance with its acoustic noise were examined to evaluate 1) how the results might change if
important parameters were varied; and 2) mitigation
alternatives such as modifying aircraft operations or types.
The fleet mix, the breakdown of day and night operations,
and airport operations are the parameters considered in this
sensitivity analysis. For this purpose the current traffic of 78
operations per day (landing and departure), and the current
runway configurations were used in two additional
N simulations. In the first scenario, all Chapter 1 aircraft (B707
Mediterranean Sea
and B737) were replaced with Chapter 2 aircraft (B767-300)

of comparable weight and capacity. Chapter 1 aircraft, which
are banned at most international airports, are still in operation
20
–
15.5
0 1 2 3 Km 16 Y 2000 old runways
Area (km2)
11.9
Y 2000 new runways
12
8 6.9
6.0
3.6 2,7
4
1.0 0.9
–
0
55-60 dB 60-65 dB 65-70 dB 70-75 dB
Fig. 5 – Day-night-level noise contours for the year 2000 traffic Fig. 6 – Variation in noise impacted areas with new maritime run-
and new runway configuration. way.

Table 5 – Percent of area within noise contours when using new runways.
Zone Total number Average annual Percent of area in noise contour (A-wtd. level contours)
of residence18 rent (USD)19
55-60dB 60-65 dB 65-70 dB 70-75 dB 75-80 dB 80-85 dB
A 42,849 18,150 — — — — — —
B 54,173 10,890 6.0 3.6 0.6 — — —
C 18,876 3,630 15.6 8.1 7.5 8.8 1.9 1.3
(12 daily operations) at the BIA. It is expected that these 6. STUDY LIMITATIONS
aircraft would be replaced in the coming two years by Chapter Despite recent improvements in INM simulation accuracy,
2 and 3 airplanes. In the second scenario, all night operations the results should be considered carefully. Several elements
were replaced by day operations. Night operations (between that may attenuate the exposure of individuals to aircraft noise
10:00 P.M. and 7:00 A.M.) are known to cause the highest around airports (i.e. topography of the area, existence of
level of annoyance in communities near an airport, and the buildings, vegetation, and other types of sound barriers near
DNL metric accounts for this by applying a 10 dB night-time the airport) are not yet fully considered in the INM.23 In
penalty. Finally, in the third scenario, the departure and arrival addition, atmospheric conditions (i.e. humidity, wind
track paths were swapped: the western runway was used for direction, turbulence, etc.) are not simulated in the INM
taking-off, while the eastern runway was used by approaching calculations although it is well established that these
aircraft. conditions have a direct effect on noise propagation.24 The
The DNL metric was used as an indicator in this sensitivity validity of the noise contours generated is a function of the
analysis, when simulating the areas of noise contours. The accuracy of the input data. While these data may be known to
exclusion of Chapter 1 aircraft resulted in a 5 to 16 percent some extent, unpredictable airline and airport decisions can
decrease in noise-affected areas and the total social cost was largely affect these variables. In addition, noise contours were
evaluated at 15.5 million USD as summarized in Table 6. developed for an average 24-hour day, and actual daily
Banning night operations would decrease the affected areas conditions may differ from the average conditions considered.
more significantly reaching 60 to 69 percent and a total cost In calculating the cost of noise using the hedonic price
of 6 million USD. This is mainly due to the high number of method (Eq. 1), the Noise Depreciation Index (INDI) value was
night operations (31 percent) and the 10 dB weighting factor taken as 0.62 percent based on previous studies which may
applied in the DNL metric. On the other hand, the change in not be representative of the characteristics of the study area.
the runways operations resulted in minimal increase in the The cost of noise may have also been reduced if the
overall impacted area (total social cost of 17.2 million USD). background noise level was taken into account. On the other
However, in the basic simulation a major part of the noise hand, an A-weighted background noise level of 50 dB was
contours from departing aircraft was over the sea, while these assumed as an average value for day and nighttime. Extensive
contours would be mainly above zone A residential- noise measurements are necessary to better assess temporal
commercial area if the departure and arrival track paths are variations, validate model simulations, and define a more
swapped. accurate value for the background noise level. Also, in the
hedonic economic valuation method, it is not usual, if not
rare, that the buyer is informed, the relations between variables
are linear, or the variables are independent. In fact, noise may
Table 6 – Effects of Changing the Fleet Mix, Removing Night Operations, and Changing Runways Operation.
Fleet mix:No Chapter 1a No night operations Change runways operation

Noise contour zone Do nothing
(A-wtd)(dB) area(km2) Area(km2) Difference(%) Area(km2) Difference(%) Area(km2) Difference(%)
55-60 23.43 22.32 5 8.80 62 23.60 -1

60-65 11.91 10.04 16 3.64 69 12.16 -2
65-70 4.90 4.61 6 1.72 65 5.15 -5
70-75 2.12 1.86 12 0.84 60 2.24 -6
Total Cost
(Million USD) 16.9 15.5 6.0 17.2
a
Chapter 1 aircraft: licensed before 1970 (ICAO classification)

5
correlate directly with variables that can increase an asset’s Pollution Prevention and Abatement Handbook, General Environmental
worth such as distance from the airport. Last but not least, Guidelines (World Bank Group, 1998)
6
Environmental Criteria for Sustainable Transport, Report on Phase 1 of
the social cost does not include occupational related expenses the Project on Environmentally Sustainable Transport (EST) (Organization
due to employee potential illness, absenteeism, or reduced for Economic Co-Operation and Development, OCDE/GD(96)136, Paris,
efficiency due to exposure to elevated and prolonged noise France, 1996).
7
levels inside the airport. Highway Traffic Noise Analysis and Abatement Policy and Guidance
(Federal Highway Administration, Office of Environment and Planning,
Noise and Air Quality Branch, Washington DC, 1995).
8
Information on Levels of Environmental Noise Requisite to Protect Public
7. SUMMARY AND CONCLUSIONS Health and Welfare with an Adequate Margin of Safety (US Environmental
An economic assessment of aircraft noise impacts was Protection Agency, Office of Noise Abatement and Control (ONAC), Report
EPA550/9-74-004, Washington D.C., 1974).
conducted at the Beirut International Airport. The FAA INM 9
Guidelines for Preparing Environmental Impact Statements on Noise
was applied to simulate aircraft induced noise and to delineate (National Research Council, Assembly of Behavioral and Social Sciences,
noise-affected areas for the current runway configuration, and Committee on Hearing, Bioacoustics and Biomechanics (CHABA),
when a new maritime runway is utilized. The hedonic price Washington DC, 1977).
10
method was adopted to estimate the social cost generated from D. Levinson, D. Gillen, A. Kanafani, and J. M. Mathieu, The Full Cost of
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T. Morioka, T. Fujita, and N. Yoshida, “Performance and shortcomings of
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by Hedonic Price Method,” The Science of the Total Environment 189/
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D. Haling and D. Cohen, “Residential noise damage costs caused by motor
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M. Delucchi and S. L. Hsu, “The external damage cost of noise emitted
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A. Filho, J. Braaksma, and J. Phelan, “Interpreting airport noise contours,”
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K. Kryter, “Community annoyance from aircraft and ground vehicle noise,” 22
W. Meyer and W. Willkie, “A noise contour comparison of stage 3 Hushkit
J. Acoust. Soc. Am. 72(4), 1222-1242 (1982). options for the Boeing 727-200” (In Preprint CD ROM, Transportation
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S. Lang, “Kids near airports don’t read as well because they tune out
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1997).

The Science of the Total Environment 257 Ž2000. 133᎐146
Particulate matter in urban areas: health-based

economic assessment
M. El-FadelU , M. Massoud
Department of Ci¨ il & En¨ ironmental Engineering, American Uni¨ ersity of Beirut, Beirut, Lebanon
Received 1 February 2000; accepted 31 March 2000
Abstract
The interest in the association between human health and air pollution has grown substantially in recent years.
Based on epidemiological studies in several countries, there is conclusive evidence of a link between particulate air
pollution and adverse health effects. Considering that particulate matter may be the most serious pollutant in urban
areas and that pollution-related illness results in financial and non-financial welfare losses, the main objective of this
study is to assess the economic benefits of reducing particulate air pollution in Lebanese urban areas. Accordingly,
the extent and value of health benefits due to decreasing levels of particulate in the air are predicted. Health impacts
are expressed in both physical and monetary terms for saved statistical lives, and productivity due to different types
of morbidity endpoints. Finally, the study concludes with a range of policy options available to mitigate particulate air
pollution in urban areas. 䊚 2000 Elsevier Science B.V. All rights reserved.
Keywords: Particulate matter; Health impacts; Dose᎐response function; Economic assessment
1. Introduction sources, size ranges, formation mechanisms, and

chemical composition and are characterized by
Ambient particulate matter ŽPM. is composed various physical and chemical properties. While
of a heterogeneous mixture of particles varying in physical properties affect the transport and depo-
size and chemical composition. Particles differ in sition of particles in the human respiratory sys-
tem, chemical composition determine their im-
pact on health. A wide range of natural and
U
Corresponding author. American University of Beirut,
anthropogenic emission sources contribute to PM
Faculty of Engineering and Architecture, 850 Third Avenue, concentrations in the atmosphere such as wind-
New York, NY 10022, USA. Fax: q1-961-1-744-462. blown soil dust, marine and biogenic aerosol,
E-mail address: mfadel@aub.edu.lb ŽM. El-Fadel.. road traffic and off-road vehiclesrmachines, sta-
0048-9697r00r$ - see front matter 䊚 2000 Elsevier Science B.V. All rights reserved.
PII: S 0 0 4 8 - 9 6 9 7 Ž 0 0 . 0 0 5 0 3 - 9
134 M. El-Fadel, M. Massoud r The Science of the Total En¨ ironment 257 (2000) 133᎐146
tionary combustion processes, industrial and con- to the concentration of particulates in ambient
struction processes, and combustion of agricul- air, which is often expressed in dose᎐response
tural waste. Particles can be emitted directly from functions ŽDRFs. that correlate mortality and
such sources and are commonly referred to as morbidity outcomes of susceptible population
primary particulates, or formed in the atmo- groups with ambient concentrations of a certain
sphere from gaseous precursors and are called air pollutant. DRFs can also be derived for lesser
secondary particulates. The chemical complexity health impacts, such as respiratory hospital
of PM requires that sources of a large number of admissions, emergency admissions, bed disability
primary and secondary components be considered days, restricted activity days, asthma attack, acute
ŽDe Nevers, 1995.. respiratory symptoms, chronic bronchitis, lower
Suspended particulate matter is ubiquitously respiratory illness, and others. Table 1 represents
recognized as the most important air pollutant in a summary of health impact DRFs for PM10 ,
terms of human health effects considering that PM2.5 , BS, and TSP as derived from an array of
many epidemiological studies substantiate sig- worldwide literature-based sources. Sensitive
nificant associations between concentration of PM groups that appear to be at a greater risk for
in the air and adverse health impacts ŽUSEPA, particulate air pollution include the elderly, those
1997; Vedal, 1997.. Fine particulates are likely to with pre-existing respiratory conditions and car-
be the most significant contributors to the dio-pulmonary diseases such as asthma, smokers,
observed health effects, owing to their ability to and children.
accumulate and reach the lower regions of the Global annual deaths as a result of air pollu-
respiratory system. While the effects of PM vary tion are estimated at more than 2.7 million, with
considerably depending on its composition and cities accounting for approximately 33% ŽWHO,
size distribution, generally, exposure to inhalable 1997.. Approximately 1.4 billion urban residents,
PM can cause an increase in cardiac and respira- mostly in developing countries, may be exposed to
tory mortality, a decrease in levels of pulmonary air with borderline or unacceptable levels of par-
lung function in children and adults with obstruc- ticulates ŽALA, 1998; Gamble, 1998; AEAT,
tive airways disease, an increase in daily preva- 1999.. This paper assesses the health impacts of
lence of respiratory symptoms in children and particulate air pollution in Lebanese urban areas.
adults, an increase in functional limitations as The economic benefits due to decreasing levels of
reflected by school absenteeism or restricted ac- ambient air particulates are estimated. Health
tivity days, and an increase in physician and emer- impacts are expressed in both physical and mone-
gency department visits for asthma and other tary terms for saved statistical lives, and produc-
respiratory conditions ŽCOMEAP, 1998; Miche- tivity due to various morbidity endpoints. The
lozzi et al., 1998.. study concludes with a range of policy options
The best evidence that particulate air pollution and mitigation measures to minimize TSP levels
is causally associated with human adverse health in the air.
impacts is provided by the mass of existing epi-
demiological data. A number of time-series stud-
ies using various measures of PM ŽTSP, PM10 , 2. TSP measurements in Lebanon
PM2.5 , COH, BS, SO42y .1 have been widely re-
ported in the literature. A relatively large number Air samples collected from several locations in
of these studies adopted PM10 as an indicator. Beirut ŽFig. 1. revealed that TSP concentration
The severity of health disorders is directly related ranges from 102 to 291 ␮grm3 with an average
value of 166 ␮grm3 ŽFig. 2.. In addition to vehi-
cle-induced emissions, movement of motor vehi-
1
Abbre¨ iations: TSP, total suspended particualtes; PM10 ,
cles on dusty roads and on-going construction
PM - 10 ␮m in aerodynamic diameter; PM2.5 , PM of the 2.5 activities are generally the major potential sources
␮m size and less; COH, coefficient of haze; SO42y, sulfate. for particulates. Anthropogenic sources coupled
M. El-Fadel, M. Massoud r The Science of the Total En¨ ironment 257 (2000) 133᎐146 135
Table 1
Summary ranges of worldwide health impacts DRFs for PM 10 , PM 2.5 , BS, and TSP ŽVedal, 1997. a
Change in PM Percent increase Percent increase Morbidity type

concentration in mortality Ž%. in morbidity Ž%. b
Increase of 10 ␮grm3 in PM 10 0.1᎐4.6 0.2᎐2.9 Pneumonia hospital admissions

0.8᎐11.5 COPD hospital admissions
0.2᎐6.4 Respiratory hospital admissions
0.6᎐1.2 Cardiac hospital admissions
0.4᎐6.0 Emergency cases of asthma
0.3᎐0.4 Bronchitis hospital admissions
1.1᎐24.9 LRI symptoms
0.4᎐13.0 URI symptoms
1.6᎐17.6 Cough symptoms
Increase of 10 ␮grm3 in PM 2.5 0.4᎐3.7 0.41᎐24.6 Respiratory hospital admissions

3.7᎐20.9 Asthma hospital admissions
Increase of 10 ␮grm3 in BS NR 0.07᎐18.2 Respiratory hospital admissions

0.3᎐5.3 Asthma hospital admissions
1.2᎐16.5 COPD hospital admissions
Increase of 100 ␮grm3 in TSP 3.3᎐8.3 NR NR

a
Abbre¨ iations: COPD, chronic obstructive pulmonary disease; LRI, lower respiratory illness; URI, upper respiratory illness; NR,
not reported.
b
Morbidity ᎏ the incidence of respiratory andror cardiovascular symptoms and diseases.
with the nature of the dry Lebanese climate, and USEPA reflect the technological feasibility of
particularly during the summer, results in high attainment as well. Many countries adopted these
dust levels in the atmosphere ŽERM, 1995.. While guidelines or else they established their own am-
the measurements serve to give a general indica- bient air quality standards.
tion of particulates at various urban junctions, the In Lebanon, ambient air quality standards have
clear implication is that anthropogenic activities been proposed within the 1994 Urgent Draft Law
contribute substantially to these levels. concerning the determination of the specifica-
tions and levels for the prevention of air, water
2.1. Air quality standards and soil pollution ŽMOE, 1996.. However, it has
not been approved to date. These standards seem
to be political or administrative settings only.
Based on clinical, toxicological and epidemio- They do not provide a scientifically representative
logical evidence, guideline values of ambient par- picture of particulate standards ŽStaudte et al.,
ticulate concentrations were established by de- 1997.. The limit values are lower than some inter-
termining concentrations with the lowest observed national standards and seem to be unreachable
adverse effect and adjusted by an arbitrary mar- under current emission practices where no con-
gin of safety factor to allow for uncertainties in trol is enforced.
extrapolation. Generally, the most frequently used
reference guidelines for PM are those set by the
World Health Organization ŽWHO., the Euro- 3. Economic valuation of health impacts
pean Union ŽEU., and the United States Environ-
mental Protection Agency ŽUSEPA. ŽTable 2.. Valuing the health impacts of air pollution is a
While WHO guidelines are based on health con- major problem facing policy makers. It comprises
siderations only, standards determined by the EU the actual identification and measurement of
Fig. 1. Air quality sampling locations in Beirut.
Fig. 2. Average particulates concentrations at various locations in Beirut.

Table 2
Reference standards and guidelines of average ambient particulate concentration ŽUSEPA, 1996; WHO, 1997; RECCEE, 1998. a
International Long-term Ž␮grm3 . Short-term Ž␮grm3 . b

standard PM 10 BS TSP PM 10 BS TSP
EU limit values NA 80 150 NA 250 300

EU guide values NA 40᎐60 NA NA 100᎐150 NA
USEPA 50 NA 260 150 NA 75
WHO guidelines NA 40᎐60 60᎐90 NA 100᎐150 150᎐230
WHO guidelines NA 50 NA 70 125 120
for Europe
Lebanon NA NA NA 80 NA 120
a
NA, not available.
b
24 h.
health impacts and the estimation of monetary underestimate the health cost of people who are
values for associated premature mortality and not members of the labor force. Thus, these
morbidity. Generally, health damage studies methods indicate only the lower bound of the
proceed by establishing average levels of ambient social cost and understate the total cost to indi-
concentration of a pollutant and then relating viduals ŽLarssen et al., 1997.. A summary of vari-
those concentrations to health effects through ous valuation methods of health effects resulting
DRFs. Local or country-specific epidemiological from air pollution is represented in Table 3.
studies are the most appropriate indicators of
health impacts associated with air pollution in a
given region. These studies establish DRFs linking
4. Health assessment
environmental variables to observed health ef-
fects. However, given the time and cost involved
in such studies as well as the problems encoun- The first step in a health assessment is to
tered with data availability, DRFs established in establish a DRF between an increase in PM and
other countries can be adopted assuming that adverse health effects. Considering that the data
human reaction is similar in different locations. were acquired from studies worldwide, several
Consensus DRFs are possible if there are numer- assumptions were employed in this assessment
ous reliable studies that appear to converge, as including:
appears to be the case for PM. The next step is to
relate the DRF to the population at risk and then 䢇 there is no threshold below which PM10 is
apply unit economic values ŽUSGAO, 1994; harmless or not a cause of mortality;
Calthrop and Maddison, 1996; Pearce and 䢇 there is no difference in susceptibility or expo-
Crowards, 1996; Hartman et al., 1998.. sure between different populations;
Methods used in various studies to value health 䢇 reviewed studies are of similar quality and
costs associated with environmental pollution can need not be weighted for differences in
generally be grouped into two categories: Ž1. those methodology or sample size;
that measure only the loss of direct income such 䢇 where an age-specific DRF is unavailable, the
as lost wages or cost of illness ŽCOI.; and Ž2. estimate for all age groups will be applied to
approaches that attempt to capture the willing- the baseline number of deaths in each age
ness to pay ŽWTP. individuals for avoiding or group; and
reducing the risk of death or illness. The first 䢇 the estimations are not restricted to a particu-
category does not include inconvenience, suffer- lar or an average value but ranges of values
ing, losses in leisure and other less tangible im- are considered in order to ensure a broader
pacts to the individuals well being. They may also perspective of the subject.
Table 3
Economic valuation methods for the health effects of environmental pollutiona
Valuation method Description
Mortality effects
Human capital The human capital approach places a value on a premature death. It is based on the
economic productivity of an individual and values life according to the net present
value of productivity of an individual. As such, individuals are considered as units of
human capital that produce goods and services for society. The value of each unit
of human capital is equivalent to the present value of the future output, in the form
of earning, that might have been generated had the individual not died prematurely.
In the absence of WTP estimates, this approach provides the best available
alternative for valuing loss in productivity.
WTP Unlike the human capital approach that measures tangible changes in productivity,
the WTP captures intangible aspects. The WTP consists of asking people directly
what they would be willing to pay for reduced risk of increased mortality.
Morbidity effects
COI The COI approach applies mostly to morbidity and is consistent with or similar to the human
capital approach. The direct cost of morbidity can be divided into two categories:
Ž1. Medical expenditure for treating illness; and Ž2. lost wages during days spent in bed,
days missed from work, and other days when activities are significantly restricted to illness.
Most COI estimates fall short of being full estimates because of insufficient
information. Even full COI estimates will understate total WTP because they do not
include the value of avoiding the pain and suffering associated with the illness that
necessitates hospital admission.
WTP The WTP approach is a more theoretically sound measure of morbidity effects. It
estimates what people would be willing to pay to avoid illness and can be inferred
using two different methods: Ž1. The averting behavior method, which is based on the
notion that the time and money spent by an individual to avoid exposure to air
pollution or avoid illness is indicative of a lower bound value hershe attaches to
avoid it. Ž2. The contingent valuation method, which uses survey information to
determine what people are willing to pay to avoid a certain symptom or illness.
Unit valuations that rely exclusively on the contingent valuation method include
chronic bronchitis, respiratory related diseases, minor restricted activity days, and
visibility.
a
Abbre¨ iations: COI, cost of illness; WTP, willingness to pay.
4.1. Mortality characterization concentration in the air is dependent on the

baseline number of deaths in the country, which
Total lives saved due to a reduction in PM is calculated by multiplying the size of the ex-
Table 4
Percent distribution of death in Lebanese households
Sex a Age group b

0᎐9 10᎐19 20᎐39 40᎐59 60᎐69 ) 70 Unknown Total
Male Ž51. 5.54 2.67 9.60 18.31 21.35 37.48 5.07 100.00
Female Ž49. 6.50 2.91 4.00 13.30 17.18 51.13 5.00 100.00
Total Ž100. 5.93 2.77 7.31 16.27 19.66 43.03 5.03 100.00
Total number of deaths 808 375 921 2131 2593 5935 677 13 440
a
US Bureau of the Census Ž1999..
b
MSA Ž1996..
Table 5
Distribution of predicted lives saved per year due to 10 ␮grm3 reduction in PM 10
Sex Age group

0᎐9 10᎐19 20᎐39 40᎐59 60᎐69 ) 70 Unknown Total
Male Ž51. 0᎐17 0᎐8 1᎐30 1᎐58 1᎐67 3᎐118 0᎐16 6᎐314
Female Ž49. 0᎐20 0᎐9 0᎐12 1᎐40 1᎐52 3᎐155 0᎐15 5᎐303
Total Ž100. 0᎐37 0᎐17 1᎐42 2᎐98 2᎐119 6᎐273 0᎐31 11᎐617
posed population with the death rate. Based on a number of hospital admissions in urban areas
death rate of 8.2 deathsr1000 person per year with the percent of health endpoint hospital
ŽMSA, 1996. and a total population correspond- admissions. The data used in order to perform
ing to the Lebanese urban areas of approximately these calculations are summarized in Table 6.
1.64 million ŽERM, 1995., the baseline number of Second, multiplying the value obtained in the first
deaths is calculated to be approximately 13 440. step by the percent decrease in health endpoint
Multiplying the value of total deaths with the hospital admissions due to a 10 ␮grm3 reduction
percent distribution of death in Lebanese house- in PM10 provides the total number of cases
hold by age and sex, results in the total number of avoided. Accordingly, the ranges of pneumonia
deaths by age group ŽTable 4.. and COPD cases avoided per 10 ␮grm3 reduc-
The calculation of the number of lives saved by tion in PM10 are 15᎐214 and 35᎐498, respectively
age group involves multiplying the values of base- ŽTable 7.. Similarly the number of emergency
line number of deaths in each age group with the visits avoided ranges between 609 and 25 578
percent change in the number of cases due to a cases.
specific reduction in PM10 , which is assumed to Considering that there are no adequate data
be 10 ␮grm3 in this study. As mentioned previ- for all morbidity effects, morbidity DRFs per per-
ously, where age-specific DRFs are not available, son due to a 10 ␮grm3 reduction in PM10 can be
the estimate for all age groups will be applied to used to compute the morbidity cases avoided in
the baseline number of deaths in each age group. urban areas. The assumption again is that such
Based on epidemiological time series studies DRFs can be transferred across societies. In this
ŽVedal, 1997; Gamble, 1998., the decrease in case, DRFs are multiplied by the total urban
mortality due to 10 ␮grm3 reduction in PM10 population Ž1.64 million. given that the impact is
ranges between 0.1 and 4.6%. Accordingly, the measured per person. Thus, Table 8 represents
predicted total number of lives saved in Lebanese the predicted values of morbidity effects.
urban areas ranges between 11 and 617 ŽTable 5.
with average values depicted in Fig. 3. Note that
while it is preferable to use DRFs from country-
specific studies, these are not available for most
developing countries.
4.2. Morbidity characterization
The assessment was performed on the effect of

decreasing 10 ␮grm3 of PM10 in the air with
pneumonia, COPD and emergency visits as end-
points. Similar to mortality assessment, morbidity
calculations are performed in two steps. First, the
total number of hospital admissions of each health Fig. 3. Predicted average number of lives saved due to 10
endpoint is determined by multiplying the total ␮grm3 reduction in PM10 .
Table 6
Data used to perform morbidity health assessment
Total hospital admissions per Lebanon 400 000

year a Beirut 133 000
Other urban areas 53 200
Type of hospital admission Emergency visits in Beirut 145 000

per year b Emergency visits in other urban areas 58 000
Ža. Respiratory and cardiac hospital admissions Ž%. 15
Žb. Respiratory admissions Ž% of a. 37
Žc. COPD admissions Ž% of b. 37
Žd. Pneumonia admissions Ž% of b. 63
Percent decrease in Pneumonia hospital admissions 0.2᎐2.9

morbidity due to 10 ␮grm3 COPD hospital admissions 0.8᎐11.5
c
reduction in PM 10 Emergency visits 0.3᎐12.6
a
Total number of hospital admissions in Lebanon is obtained from the Central Bank of Lebanon Ž1998. Annual Report,
whereby one-third of the total hospital admissions occurred in Beirut. The hospital admissions in other urban areas is assumed to
be proportional to the ratio of inhabitants in Beirut and other urban areas.
b
Total number of emergency room visits per day is extracted from a project conducted by senior medical students at the
American University of Beirut in 1993. The percentage of patients admitted to hospitals for respiratory and cardiovascular diseases
was estimated by contacting three major hospitals in Beirut. Respiratory diseases include COPD Žbronchitis, chronic bronchitis,
emphysema, asthma, bronchiectasis, and chronic airway obstruction. all pneumonias Žpneumococcal, other bacterial, infectious
diseases, and bronchopneumonia., acute laryngitis and tracheitis, acute upper respiratory infections, and acute bronchitis
ŽDjoundourian et al., 1998..
c
Literature-based time series studies.
5. Economic assessment 䢇 Based on the per capita GDP in Lebanon for

the year 1998, the average Lebanese monthly
5.1. Mortality calculations using human capital salary is approximately US$400 ŽAudi Bank,
approach 1998..
䢇 Productivity age ranges between 25 and 69
years.
Air quality-related mortality typically occurs at
a late age due to a long period of chronic expo- 䢇 The two age groups 40᎐59 and 60᎐69 are
sure to inferior air quality. Therefore, most stud- representative death ages with corresponding
ies measure compensation of mortality risks for average lost productivity years of 20 and 5,
individuals who are, on average, approximately 40 respectively.
years of age. In the present study, the total socio- 䢇 The estimations are not restricted to a partic-
economic cost due to premature mortality in ur- ular or average value but ranges of values are
ban areas was predicted assuming that: considered in order to ensure a broader per-
spective of the subject.
Table 7
Based on the health assessment, the ranges of
Morbidity cases avoided per year due to 10 ␮grm3 reduction
in PM 10 lives saved per 10 ␮grm3 reduction in PM10 for
the age groups 40᎐59 and 60᎐69 are 2᎐10 and
Endpoint Cases Cases 3᎐122, respectively. Multiplying average produc-
occurringryear avoidedryear
tivity years by the average income yields the total
COPD 4334 31᎐441 economic benefits ŽTable 9.. Therefore, it is ben-
Pneumonia 7379 13᎐189 eficial to control particulate emissions, as it con-
Emergency visits 203 000 609᎐25 578 stitutes a significant productivity source relative
Table 8
Change in morbidity effects per 10 ␮grm3 reduction in PM 10 ŽPearce and Crowards, 1996.
Endpoint Change Total cases avoided
Respiratory hospital 6.6᎐17.3 108᎐284

admissionsr100 000
Emergency department 116.0᎐354.0 1902᎐5806
visitsr100 000
Lower respiratory illnessr 0.010᎐0.024 4756᎐11 414 a
asthmatic child
Asthma attacksr 0.33᎐1.96 541 200᎐3 214 400
person
Respiratory symptomsr 0.8᎐2.56 1 312 000᎐4 198 400
person
Chronic bronchitisr 30.0᎐93.0 492᎐1525
100 000
Restricted activity 0.29᎐0.58 475 600᎐951 200
daysrperson
a
Taking 29% of the total urban population Ž1.64 million. between 0 and 14 ŽUS Bureau of the Census, 1999..
to country economic resources Žup to 1% of GDP.. Each study provides an estimate of the mean
While the change in PM seems small in terms of WTP to avoid a statistical premature death. Mul-
health risk, they signify a substantial number of tiplying the per capita GNP ratio by the range of
avoidable deaths due to the size of the population WTP estimates Ž0.6᎐13.5 MUS$., the value of a
impacted. statistical life in Lebanon would range between
0.06 and 1.35 MUS$. It is reasonable to obtain
5.2. Morbidity calculations using cost of illness such a relatively high range considering that the
approach WTP captures the value that an individual assigns
to measurable and less tangible effects.
The predicted number of cases avoided due to

10 ␮grm3 reduction in PM10 multiplied by the 5.4. Morbidity calculations using willingness to pay
cost of the corresponding health endpoint results approach
in the total economic benefits due to morbidity
avoidance ŽTable 10.. Similar to mortality, mor-
bidity calculations imply a considerable increase Willingness to pay to avoid a day of specific
in economic benefits. morbidity endpoint has been estimated by only a
small number of studies. However, total benefits
associated with any reduction in pollutant con-
5.3. Mortality calculations using willingness to pay centrations is determined largely by the benefit
approach associated with the corresponding reduction in
mortality risk because the dollar value associated
Generally, WTP estimates are lacking in most with mortality is significantly greater than any
countries. Consequently, the value of a statistical other valuation estimate. In the case of hospital
life from several US studies is adjusted by the per admissions, the COI substitutes for the WTP
capita GNP ratio which is approximately 0.1 based estimates due to lack of information regarding
on country-specific data ŽWorld Bank, 1999.. the latter. These COI estimates are likely to
Table 11 represents a summary of mortality valu- substantially understate the total WTP to avoid
ation estimates based on the individual WTP for an illness or a particular hospital admission. The
small reductions in mortality risk. average ratio of health care in Lebanon to that in
Table 9
Mortality related economic benefits due to a 10 ␮grm3 reduction in PM 10
Age group likely Number of Average productivity Economic benefit

to be affected lives saved years ŽMUS$ryear.
40᎐59 2᎐102 20 0.2᎐9.7

60᎐69 3᎐122 5 0.07᎐2.9
Total 0.27᎐12.6
Average per case a 0.055
a
Average total economic benefit divided by the average total number of lives saved.
Table 10
Economic benefits due to reduced morbidity per 10 ␮grm3 reduction in PM 10
Endpoint Average stay Average cost Economic benefit

Ždays. a ŽUS$rday. a ŽMUS$ryear.
COPD 6.6 261 0.06᎐0.9

Pneumonia 10 207 0.03᎐0.4
Emergency visit ᎐ 76 0.05᎐1.9
Total 0.14᎐3.2
a
Based on survey data from the American University Hospital and insurance companies ŽDjoundourian et al., 1998..
the US is estimated at approximately 0.24. This 5.5. Limitations and uncertainty

ratio was obtained by comparing the cost of COPD
and pneumonia in Lebanon ŽDjoundourian et al., In evaluating epidemiological studies as a
1998. and the US ŽUSEPA, 1997.. On the other
Table 12
hand, the per capita GNP ratio of Lebanon and Health effect unit valuation
the US is 0.1 ŽWorld Bank, 1997., reflecting that
in Lebanon the cost of health care is relatively Endpoint US valuation Lebanese
very expensive in comparison to income. Conse- valuation ŽUS$ per case. a valuation
ŽUs$ per case.
quently, the COI estimates in the US are multi-
plied by the ratio of health care in the two coun- Hospital admissionb
tries, resulting in approximate estimates for COPD 8100 1944
Lebanon. Similarly, in the case of work loss days, Pneumonia 7900 1896
mild restricted activity days, chronic bronchitis, All respiratory 6100 1464
and respiratory-related illnesses or symptoms, Respiratory illness or symptomc
which rely exclusively on the contingent valuation Chronic bronchitis 260 000 26 000
method, the per capita GNP ratio in the two Acute bronchitis 45 5
countries is used to obtain a value for Lebanon Acute asthma 32 3
ŽTable 12.. Acute respiratory symptoms 18 2
Upper respiratory symptoms 19 2
Lower respiratory symptoms 12 1
Table 11
Summary of mortality valuation estimates ŽUSEPA, 1997. Restricted acti¨ ity day c
Work loss days 83 8
Study type Valuationrcase Mild restricted activity days 38 4
ŽMUS$ryear. a
a
1990 Dollar value ŽUSEPA, 1997..
b
Labour market 0.6᎐13.5 Lebanese valuation is obtained by multiplying the US
Contingent valuation 1.2᎐3.3 valuation by the health care ratio Ž0.24..
c
Lebanese valuation is obtained by multiplying the US
a
1990 Dollar value. valuation by the per capita GNP ratio Ž0.1..
whole, many issues arise, primarily associated with ated uncertainty includes both selection of scien-
causality. While the mortality effects attributed to tific studies and statistical uncertainty from the
PM have generally been consistent, disagreement original studies. Similarly, range of estimates for
remains as to whether these effects can be at- monetized benefits is based on the quantified
tributed entirely to fine particles. The fact that uncertainty associated with the health effects esti-
negative correlations between PM exposure and mates and the unit valuations applied to them.
different health endpoints have been indicated in Moreover, due to the lack of affluence and public
certain studies raises uncertainty about the true perception, the WTP approach cannot be per-
dose᎐response relationship. Associations found formed and thus, increasing the uncertainty by
in a particular study may reflect chance, bias, or transferring estimates across countries.
cause. In addition, epidemiological studies were Uncertainty about the true dose᎐response rela-
conducted in various cities under a broad range tionship of PM and health endpoints and the
of environmental conditions, by a number of dif- uncertainty regarding the extrapolation should not
ferent investigators ŽFrey, 1998; Rabl and delay the implementation of control measures,
Spadaro, 1999.. Real world exposures involve particularly that the true association may likely be
combinations of potentially toxic materials that stronger than that observed in epidemiological
may be inhaled together or sequentially under studies. Moreover, even a small effect such as
different conditions. Possible interactions that increase in total mortality associated with a 10
may result from the inhalation of a mixture of ␮grm3 increase in daily PM10 would have a large
toxicants can include simply additive, synergistic impact at the population level.
or antagonistic effects. Further uncertainties in
the evidence of a causal relationship in the
observed association between adverse health im- 6. Air quality management
pacts and increase in airborne particles include
ŽLarssen et al., 1997; Lipfert and Wyzga, 1997.:
Particulate emission reduction will have multi-
dimensional benefits considering the adverse ef-
䢇 lack of an accepted biologically demonstrated
fect of particulate air pollution on health and the
mechanism;
environment. In addition to the improved health
䢇 lack of quantitative support from experimen-
status of the population, a decrease in pollution
tal animal andror human clinical studies;
levels will reduce work absence Žarising from
䢇 confounding, and difficulty of separating ef- health problems., and the costs of health insur-
fects of co-occurring pollutants; ance. Thus, new, stricter and enforced standards
䢇 misclassification of personal exposure to am- will provide increased health protection due to
bient particles; saved lives, lower hospital admissions and emer-
䢇 estimates relate to all PM10 regardless of gency room visits, reduced risk of symptoms asso-
source; and ciated with chronic bronchitis and asthma, and
䢇 differences in socio-demographic factors and reduced risk of respiratory symptoms in children.
the health status of the exposed population. In many developing countries, there is a lack of
institutional capacity and technical expertise to
The problems in extrapolating DRFs are also adequately address environmental issues. New
exacerbated by potential inaccuracy in estimating legislation may fail to meet its objective unless
economic health impacts. The economic costs of several combinations of measures are simultane-
mortality and morbidity were predicted on the ously implemented alongside.
basis of epidemiological studies reviewed in the Proper air quality management requires an in-
literature. This is attributable to the fact that tegrated approach that encompasses coordination
Lebanon, similar to many countries, lacks popula- and consensus building across sectors, identifica-
tion-based vital and disease registries. The associ- tion of technically feasible abatement options,
and introduction of policies and instruments to 7. Summary and conclusions

support implementation. A clear set of objectives
and priorities for the environmental policy need
to be determined and related to overall develop- Epidemiological studies conducted in several
ment and growth goals. Identifying a target group countries show consistent associations of expo-
of serious polluters that can be regulated effec- sure to ambient particulates with adverse health
effects including increased mortality, hospitaliza-
tively constitutes the basis of any environmental
tion for respiratory or cardiovascular diseases,
management program. Improving environmental
and respiratory symptoms and decreased lung
performance of identified polluters requires the
function. Based on epidemiological time series
adoption and enforcement of updated environ-
studies, dose᎐response functions were identified
mental standards. These standards have to be of
between an increase in PM and adverse health
realistic nature in order to attain higher levels of
effects. Accordingly, mortality and morbidity
compliance and polluters should be given ade-
economic valuations were performed for
quate time before standard implementation is
Lebanese urban areas.
effective ŽCalifano, 1996..
Overall, the assessment showed that potential
Incentives and economic instruments such as health and economic benefits of reducing PM
charge systems, fiscal and financial instruments, concentration in the air can be significant. A
property rights, market creation, and liability sys- summary of the average economic benefit for the
tems are essential for medium term application of main health endpoints is represented in Table 13.
a comprehensive environmental strategy. For in- These benefits can be dominated by mortality
stance, a wide range of market-based instruments valuation. While the number of mortality cases is
are applicable at the level of the transportation relatively small, the wide range of monetary value
sector such as taxes on emissions from fuel and can result in large monetary benefits. The ranges
private vehicle ownership. Moreover, measures to are indicative of the uncertainties inherent in
mitigate the negative effects of pollution may such an exercise within a specific methodology
focus on separating pollution sources and recep- and across methodologies. Despite such limita-
tors, reducing the pollution activity, and its char- tions, the striking feature of these estimates is
acteristics, and controlling emissions with air that high benefits could result from reductions in
quality control devices. Implementing alternatives concentrations of PM in the air.
of emissions reduction vary across pollution Implementation of monitoring and setting of
sources. Mitigation measures that should be enforceable regulations Ži.e. ambient air quality
adopted to reduce air pollution, particularly PM and emission standards. are necessary to initiate
include: a comprehensive air quality management pro-
gram. Monitoring activities and regulations must
䢇 Improving fuel quality or introducing fuel al- be developed, taking into consideration local
ternatives and compulsory vehicle testing and socio-economic and technical characteristics.
maintenance at state controlled and certified Moreover, it is essential to develop a strategy that
garages. can be used to evaluate the willingness to pay to
䢇 Adopting proper construction measures such refine the economic valuation of exposure to PM.
as site enclosure, on-site mixing and unloading
operations, adequate maintenance and repair
of construction machinery, minimal traffic
Acknowledgements
speed on-site, and proper water spraying when
necessary.
䢇 Installing proper end-of-pipe control tech- The authors wish to express their gratitude to
nologies at industrial facilities such as elec- Mr E. Bou Zeid and Mr H. Sbayte at the Depart-
trostatic precipitators and baghouses. ment of Civil and Environmental Engineering,
Table 13
Economic benefit due to 10 ␮grm3 reduction in PM 10
a
Endpoint Number of cases Total economic benefit ŽMUS$ryear.

avoided COI WTP
b
Mortality 11᎐617 0.27᎐12.6 3.5᎐157.9 c
All COPD 31᎐441 0.06᎐0.9 0.98᎐13.9
All pneumonia 13᎐189 0.03᎐0.4 0.05᎐0.7
Emergency visits 609᎐25 578 0.05᎐1.9 NA
Total 0.41᎐15.8 4.53᎐172.5
Percent of GDP d 0.003᎐0.1 0.03᎐1.06
Percent of adjusted GDP e 0.03᎐1 0.3᎐10.6
a
Abbre¨ iations: COI, cost of illness; WTP, willingness to pay; NA, not available.
b
Human capital approach.
c
Determined by multiplying the value of a statistical life in Lebanon by the number of cases avoided between the age groups
40᎐59 and 60᎐69 in order to compare with the human capital approach value.
d
World Bank Ž1999..
e
Adjusted GDP assuming that the construction and transportation sectors are the main sources of particulate emissions in urban
areas and accounting for sourcersector contribution to GDP and percent of urban population exposed as compared to total country
population.
American University of Beirut, for conducting Djoundourian S, Nuwayhid I, Chaaban F. The economic and
field measurements used in this study. Special social impacts of mobile source pollution in Beirut,
Lebanon: A country case study, METAP III, Med Policies
thanks are extended to the United States Agency
Initiatives Ž1998..
for International Development for its continuous Environmental Resources Management ŽERM.. Lebanon As-
support to the Environmental Engineering and sessment of the State of the Environment, Council of
Science programs at the American University of Development and Reconstruction, Beirut, Lebanon Ž1995..
Beirut. Frey HC. Methods for quantitative analysis of variability and
uncertainty in hazardous air pollutant emissions. Air and
Waste Management Association’s 91st Annual Meeting
References and Exhibition, June 14᎐18, 1998, San Diego, California,
98᎐RP105B.01 Ž1998..
Gamble JL. Effects of ambient air pollution on daily mortal-
Atomic Energy Authority Technology ŽAEAT.. Quantification
ity: a time series analysis of Dallas, Texas, 1990᎐1994. Air
of the health effects of air pollution in the UK for the
and Waste Management Association’s 91st Annual Meet-
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aeat.co. htmlx Ž1999..
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Hartman RS, Wheeler D, Singh M. The cost of air pollution
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whttp:rrwww.lungusa.orgrairrpmy factsheet.html x Ž1998.. abatement. World Bank, Policy Research Working Paper
噛1398 Ž1998..
Audi Bank. Lebanon facts and figures 1996᎐1998 Ž1998..
Califano, R.J. Risk assessment of air emissions. whttp:rrwww. Larssen S, Gronskei KE, Hanegraaf MC et al. In: Shah JJ,
pirnie.com.htmlx Ž1996.. Nagpal T, Brandon C, editors. Urban air quality manage-
Calthrop E, Maddison D. The dose᎐response function ap- ment strategy in Asia guidebook. Washington, DC: World
proach to modeling the health effects of air pollution. Bank, 1997.
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Central Bank of Lebanon. Annual Report, Beirut, Lebanon implications of uncertainties in regression modeling and
Ž1998. . exposure measurement. J Air Waste Manage Assoc 1997;
Committee on the Medical Effects of Air Pollutants ŽCOM- 47:517᎐523.
EAP.. The quantification of the effects of air pollution on Michelozzi P, Forastiere F, Fusco D et al. Air pollution and
health in the U nited K ingdom . w http:rrwww. daily mortality in Rome, Italy. Occup Env Med
doh.gov.uk.htmlx Ž1998.. 1998;55:605᎐610.
De Nevers N. Air pollution control engineering. New York: Ministry of Environment ŽMOE.. Proposed Law number 1r52.
McGraw Hill, Inc, 1995. Standards and regulations for limiting air, water and soil
pollution. Ministry of Environment, Beirut, Lebanon ŽIn United States Environmental Protection Agency ŽUSEPA..
Arabic. Ž1996.. The benefits and costs of the clean air act, 1970 to 1990,
Ministry of Social Affairs ŽMSA., Population and housing EPA 410-R-97-002, Office of Air and Radiation Ž1997..
survey, Beirut, Lebanon Ž1996.. United States General Accounting Office ŽUSGAO.. Air pol-
Pearce D, Crowards T. Particulate matter and human health lution: EPA’s progress in determining the costs and bene-
in the United Kingdom. Energy Policy 1996;24Ž7.:609᎐619. fits of clean air legislation. Resources, Community, and
Rabl A, Spadaro JV. Damages and costs of air pollution: an Economic Development division, GAOrRCED-94-20
analysis of uncertainties. Env Int 1999;25Ž1.:29᎐46. Ž1994..
Regional Environmental Centre for Central and Eastern Eu-
Vedal S. Ambient particles and health: lines that divide. Crit
rope ŽRECCEE.. Reduction of SO and particulate emis-
Rev J Air Waste Manage Assoc 1997;47:551᎐581.
sions. whttp:rrwww.rec.orgx Ž1998..
Staudte M, Rau M El-Fadel M. Urban air quality monitoring World Health Organization ŽWHO.. WHO guidelines for air
program for the greater Beirut area, Transtec-Fitchner quality. Fact Sheet No. 187 whttp:rrwww.who.intrinf-
Consortium, Ministry of Environment, Beirut, Lebanon fsrenrfact187.htmlx Ž1997..
Ž1997.. World Bank, Lebanon at a Glance whttp:rrwww.
US Bureau of the Census, International Data Base worldbank.orgrdatarcountrydataraagrlbny aag.pdfx
whttp:rrwww.census.govrgci-binripcr idbsumx Ž1999.. Ž1999..
United States Environmental Protection Agency ŽUSEPA.. World Bank. Pollution prevention and abatement handbook
Air quality criteria for particulate matter. USEPA, Office ᎏ part III whttp:rrwww-esd.worldbank.org.htmlx Ž1997..
of Air and Radiation, USEPA 600rP-95r001aF Ž1996..
REGIONAL WORKSHOP
ON
THE COST OF
ENVIRONMENTAL
DEGRADATION
METHODOLOGY
Sessions 16 &17
The Value of Life and Health
GROUP EXERCISES

July 1‐5, 2008
SESSIONS 15-16
GROUP EXERCISE 1
Impact of Water Quality on Health in Syria

(World Bank, 2004)
Case description
Syria is a relatively water scarce country. According to the World Bank statistics, renewable
freshwater resources per capita are around 2,700 cubic meters. While this is higher than average for
the countries of the Middle East and North Africa, it is less than a third of the world average.
Moreover, water availability is unevenly distributed across the country in relation to population
centers and irrigated agricultural land, resulting in local pressures on water resources, declining
groundwater tables, and water quality problems. In terms of water and sanitation services, Syria
reported that only 64 percent of the rural population had access to an improved water source in 2000.
For urban areas, the water coverage rate was 94 percent, but water is being pumped from distant
sources for some major urban centers due to local water quality and scarcity problems. For sanitation,
nearly 20 percent of the rural population was reported as lacking access to hygienic sanitation
facilities.
The aim of this study is to estimates environmental damage costs associated with the health
impacts of low quality potable water, inadequate sanitation and hygiene, and the economic
impacts of water resources pollution.
1. Calculate the number of DALYs from child diarrheal disease deaths:
Given:
Live births per year = 401,000 thousand
Child mortality = 20.2 per 1,000 live births
Child diarrheal disease deaths = 13.0% of child mortality rate
DALYs per child death = 35 discounted years of life lost
DALYs from child diarrheal disease deaths = __________________________________________
__________________________________________________________________________________
2. Calculate the number of DALYs from child diarrheal disease morbidity:
Given:
Child population (0-4 yrs) = 2.106 million
4.5% of children under 5 suffered from diarrhea in the last 24 hrs
A severity weight of 0.2 assigned to diarrhea (DALYs lost from one day of diarrhea = 0.2/365)
DALYs from child diarrheal disease morbidity = _______________________________________
__________________________________________________________________________________
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July 1‐5, 2008
3. Calculate the monetary loss from the DALYs calculated above for both mortality and morbidity
using the human capital approach. Perform the calculations at 50% and 100% of the GDP. Report
the value in terms of SYP/year and in terms of % of GDP.
Given:
GDP (2001) = 920 billion SYP
GDP/capita (2001) = 55,000 SYP
Mortality (based on 50% of GDP): _______________________________________________ SYP
___________________________________________ % GDP
(based on 100% of GDP) _______________________________________________ SYP
___________________________________________ % GDP
Morbidity (based on 50% of GDP): ______________________________________________ SYP
___________________________________________ % GDP
(based on 100% of GDP) _______________________________________________ SYP
___________________________________________ % GDP
Total: _______________________________________________________________________ SYP
___________________________________________________________________ % GDP
4. Calculate the Cost of Illness for severe cases of diarrhea treated in public and private clinics
Given:
Reported cases of diarrhea in public clinics = 130,000
Reported cases of diarrhea in private clinics = 390,000
Cost of doctor visit per treatment = 200 SYP/case
Cost of medication per treatment = 600 SYP/case
Assumed that 1 day is lost by caregiver per case of severe diarrhea
Value of one day lost to caregiver = 175 SYP
Cost of treating severe diarrhea =_________________________________________________ SYP
Cost of lost time due to care giving = ______________________________________________ SYP
Total cost of treating severe diarrhea cases= _______________________________________ SYP
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July 1‐5, 2008
5. Calculate the Cost of Illness for mild cases of diarrhea treated by Oral Rehydration Therapy
Given:
8.1 million mild cases of diarrhea per year
43.5 % of mild cases treated by ORT at home
Unit cost of ORT treatment = 75 SYP/case
Total cost of ORT treatment = ___________________________________________________ SYP
6. Calculate the Cost of Illness for mild cases of diarrhea treated by private doctors and with
medication
Given:
50 % of mild cases treated by private doctor
Cost of doctor visit per treatment = 200 SYP/case
Cost of medication per treatment = 500 SYP/case
Total cost of treatment by private doctors and medication = __________________________ SYP
7. Calculate the total COI in terms of SYP/year and in terms of % of GDP.

Given:
Total cost of diarrheal illness = __________________________________________________ SYP
Total cost of diarrheal illness = _______________________________________________ % GDP
3 of 14

July 1‐5, 2008
GROUP EXERCISE 2
Impact of Water Quality on Health in Tunis and Sfax

(Sarraf et al., 2004)
Case description
Sub-standard quality and an inadequate quantity of potable water for drinking and hygiene purposes,
inadequate sanitation facilities and sanitary practices and inadequate personal, food and domestic
hygiene have a cost to society. It is well known that these factors are associated with waterborne
illnesses and mortality. The most common of these illnesses is diarrhea. The impact assessment
presented below is linked mainly to mortality and morbidity in children younger than five years due to
diarrheal diseases.
impacts of low quality potable water, inadequate sanitation and hygiene, and the economic
impacts of water resources pollution.
1. Calculate the number of DALYs from child diarrheal disease deaths:
Given:
Annual child deaths from all causes= 5,392 per year
Child diarrheal disease deaths = 10.0% of child mortality
DALYs per child death = 35 discounted years of life lost
DALYs from child diarrheal disease deaths = __________________________________________
__________________________________________________________________________________
2. Calculate the number of DALYs from child diarrheal disease morbidity:
Given:
Diarrheal episode per child per year = 2.8
Average duration per episode = 96 hrs
A severity weight of 0.2 assigned to diarrhea
DALYs from child diarrheal disease morbidity = _______________________________________
__________________________________________________________________________________
__________________________________________________________________________________
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July 1‐5, 2008
3. Calculate the monetary loss from the DALYs calculated above for both mortality and morbidity
using the human capital approach. Perform the calculations at 50% and 100% of the GDP Report
the value in terms of DT/year and in terms of % of GDP.
Given:
GDP (2001) = 24 billion DT
GDP/capita (2001) = 2,634 DT
Mortality (based on 50% of GDP): _______________________________________________ DT
___________________________________________ % GDP
(based on 100% of GDP) _______________________________________________ DT
___________________________________________ % GDP
Morbidity (based on 50% of GDP): _______________________________________________ DT
___________________________________________ % GDP
(based on 100% of GDP) _______________________________________________ DT
___________________________________________ % GDP
Total: _______________________________________________________________________ DT
___________________________________________________________________ % GDP
4. Calculate the Cost of Illness for mild cases of diarrhea treated by Oral Rehydration Therapy
Given:
94.8 % of mild cases treated by ORT at home
Unit cost of ORT treatment = 2 DT/case
Total cost of ORT treatment = _________________________________________________DT
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July 1‐5, 2008
5. Calculate the Cost of Illness for severe cases of diarrhea treated by private doctors and with
medication
Given:
Percentage of severe diarrhea cases of children (0-4 yrs) = 5.75%
If the average duration of a severe diarrhea case is 10 days, the number of cases per child per year is 1 (lower
bound)
If the average duration of a severe diarrhea case is 7 days, the number of cases per child per year is 1.5 (upper
bound)
Cost of doctor visit per treatment = 16 DT/case
Cost of medication per treatment = 15.5 DT/case
Assumed that 1 day is lost by caregiver per case of severe diarrhea
Value of one day lost to caregiver = 11.5 DT
Cost of treating severe diarrhea (include lower and upper bound) =________________________
_____________________________________________________________________________ DT
Cost of lost time due to care giving (include lower and upper bound) = =____________________
_____________________________________________________________________________ DT
Total cost of treating severe diarrhea cases (include lower and upper bound) =
_____________________________________________________________________________ DT
6. Calculate the total COI in terms of DT/year and in terms of % of GDP.
Given:
GDP/capita (2001) = 2,634 DT
Total cost of diarrheal illness = ___________________________________________________ DT
Total cost of diarrheal illness = _______________________________________________ % GDP
6 of 14

July 1‐5, 2008
SESSIONS 15-16
GROUP EXERCISE 3
Impact of Air Quality on Health in Syria

(World Bank, 2004)
Case description
Significant sources of air pollution in Syria include power stations, residential furnaces, industry and
traffic. Excessive emissions from traffic are in part due to Syria’s ageing vehicle fleet that is 15 to 20
years old. There is substantial research evidence from around the world that outdoor urban air
pollution has significant negative impacts on public health and results in premature deaths, bronchitis,
respiratory disorders, and cancer. The air pollutant that has shown the strongest association with these
health endpoints is particulate matter (PM), and especially fine particulates of less than 10 microns in
diameter (PM10) or smaller. The gaseous pollutants (SO2, NOx, CO, and ozone) are generally not
thought to be as damaging. This study therefore focuses on PM10, the smallest measure of PM for
which data is available in Syria.
impacts of poor air quality, particularly elevated levels of PM10.
There are three main steps to quantifying the health impacts from air pollution.
Step 1. The pollutant needs to be identified and its concentration measured.

Monitoring data from nine cities was used: Damascus, Aleppo, Homs, Hama, Lattakia, Dier-Azzour,
Al-Raka, Al-Sweida, and Tartous. For each city, four to ten monitoring sites had data available from
the Syrian Atomic Energy Commission (SAEC) and the Higher Institute of Applied Sciences and
Technology (HIAST). All data is for 2001 with the exception of Lattakia and Hama where data was
collected in 1994 and 1992 respectively.
Step 2. Calculate the number of people exposed to the pollutant.

City population estimates were taken from the Central Bureau of Statistics (2001). It was assumed
that 100 percent of the city’s population is exposed to air pollution. Using expert advice from HIAST,
the number of people living or spending most of their time near each monitoring site was estimated.
The remainder of the city’s population not living near a monitoring site were assumed to be exposed
to the average PM10 levels measured in the residential and background location monitoring sites.
Some health outcomes affect only certain segments of the population such as adults or children. As
only total population data is available at the city level the number of adults and children in each city
had to be estimated. This was done by applying the percentage of Syria’s population that is under
fifteen years of age to the city population data. A sample of Steps 1 and 2 for Damascus are presented
in the table below.
7 of 14

July 1‐5, 2008
Monitoring site Commercial Major Heavy traffic & Residential Residential Other
center Roundabout industrial workshop pop
Crude death rate (per

4.8 4.8 4.8 4.8 4.8 4.8
1,000)
Annual average PM10

222 304 437 120 102 111
(μg/m3)
Exposed total
0.15 0.02 0.08 0.35 0.28 1.83
population (millions)
Exposed adult
population (≥15 yrs) 0.10 0.01 0.05 0.22 0.18 1.16
(millions)
Exposed children
population (≤14 yrs) 0.05 0.01 0.03 0.13 0.10 0.66
(millions)
Step 3. Estimate the health impacts from this exposure based on epidemiological information.
For this, the study relied upon scientific literature. Scientific studies estimate a dose-response
coefficient linking PM10 concentrations with mortality and morbidity outcomes. The health endpoints
considered as well as the dose-response coefficients are presented in the table below. The dose-
response coefficients are taken from Lvovsky et al (2000).
Health categories Units Impacts per 1μg/m3 Annual cases in Syria
Premature mortality % change in crude mortality rate 0.084 3,513
Chronic bronchitis Per 100,000 adults 3.06 16,970
Hospital admissions Per 100,000 population 1.2 10,454
Emergency room visits Per 100,000 population 23.54 205,073
Restricted activity days Per 100,000 adults 5,750 31,887,775
Lower respiratory illness in children Per 100,000 children 169 535,054
Respiratory symptoms Per 100,000 adults 18,300 101,486,312
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July 1‐5, 2008
Step 4. Quantify the health impacts and estimate the value of this damage.
1. Calculate the number of DALYs from premature mortality and morbidity associated with elevated
PM levels by completing the table below (Fill in the grey cells). Given the number of DALYs per
case adopted from Lvovsky et al. (2000) and the annual cases in Syria.
Health categories DALYs/ 10,000 cases Annual cases Syria Annual DALYs Syria
Premature mortality 100,000 3,513
Chronic bronchitis 12,037 16,970
Hospital admissions 264 10,454
Emergency room visits 3 205,073
Restricted activity days 3 31,887,775
Lower respiratory illness in children 3 535,054
Respiratory symptoms 3 101,486,312
Total DALYs lost per year
2. Calculate the monetary loss from the DALYs calculated above for both mortality and morbidity.
For mortality estimations, use the HCA approach for lower bound calculations and the WTP
approach for upper bound calculations. For morbidity estimations, use only HCA approach:
Given:
WTP = 320,000 SYP/year (adopted from studies in Europe and US and then adjusted for GDP per capita
differentials for Syria)
Mortality (HCA-lower bound): __________________________________________________ SYP
Mortality: (WTP- upper bound): __________________________________________________ SYP
_____________________________ - ______________________ % GDP
Morbidity: ______________________ SYP
______________________ % GDP
9 of 14

July 1‐5, 2008
3. Calculate the Cost of Illness for health impacts caused by urban air pollution by completing the
table below.
Given:
Hospital admissions:
Two days of hospitalization
Two work days lost
ER visits:
Cost of ER visits
Half a day of work lost
RADs:
1 work day lost per 10 RADs
Chronic bronchitis:
Monthly doctor visit for 25% of individuals with CB
Twice a year doctor visit for 65% of individuals with CB
Emergency doctor visit once a year for 30% of individuals
Average 6 day hospitalization for 2.5% of individuals
5 working days lost pr year for 35% of individuals
Costs discounted at 10% for 15 years to reflect chronic nature of illness
Data based on studies from US and Europe
Unit costs Chronic Hospital Emergency RAD Total cases

bronchitis admissions room visits
Annual cases 16,970 10,454 205,073 31,887,775 32,120,273
COI (million SYP/yr)

Hospitalization 2,000 SYP/day 43
Doctor visits 400 SYP/visit 244
ER visits 200 SYP/visit 9
Lost work days 200 SYP/day 50
Total COI (million SYP/yr) 345
4. Calculate the total COI in terms of SYP/year and in terms of % of GDP.
Total COI = _____________________________________________________________ (SYP/yr)
______________________________________________________________ % GDP
10 of 14

July 1‐5, 2008
GROUP EXERCISE 4
Impact of Air Quality on Health in Tunis and Sfax

(Sarraf et al., 2004)
Case description
There is substantial research evidence from around the world that outdoor/urban air pollution have
significant negative impacts on public health and result in premature deaths, chronic bronchitis,
respiratory disorders, and even cancer. The most significant air pollutant in terms of impacts on health
is most commonly found to be particulate matter, especially fine particulates (PM10 or smaller). No
study that statistically links urban air pollution and health, based on local health and ambient air
monitoring data, has been carried out in Tunisia. However, applying findings from international
studies to the local air pollution situation in Tunisia can produce an estimate.
impacts of poor air quality, particularly elevated levels of PM10.
There are three main steps to quantifying the health impacts from air pollution.
Step 1. The pollutant needs to be identified and its concentration measured.

The annual average of PM10 considered, is a result of monthly averages of 9 months recorded by
CITET (Centre International des Technologies de l’Environnement de Tunis) and reported in 1998.
Step 2. Calculate the number of people exposed to the pollutant.

City population estimates were taken from WDI, World Bank (2001). It was assumed that 80% of the
population is exposed to air pollution. The population was broken-down by age-groups applying
percentages of Tunisia’s population. A sample of Steps 1 and 2 for Tunis and Sfax are presented in
the table below.
Parameter Tunis Sfax
Crude death rate (per 1,000) 5.6 5.6
Annual average PM10 (μg/m3) 65 65
Exposed total population (80% of Total population) (millions) 1.3 0.6
Exposed adult population (≥15 yrs) (millions) 0.9 0.4
Exposed children population (≤14 yrs) (millions) 0.4 0.2
Step 3. Estimate the health impacts from this exposure based on epidemiological information.
For this, the study relied upon scientific literature. Scientific studies estimate a dose-response
coefficient linking PM10 concentrations with mortality and morbidity outcomes. The health endpoints
considered as well as the dose-response coefficients are presented in the table below. The dose-
response coefficients are taken from Lvovsky et al. (2000).
11 of 14

July 1‐5, 2008
Health categories Units Impacts per 1μg/m3 DALYs per 10,000
cases
Premature mortality % change in crude mortality rate 0.084 100,000
Chronic bronchitis Per 100,000 adults 3.06 12,037
Hospital admissions Per 100,000 population 1.2 264
Emergency room visits Per 100,000 population 23.54 3
Restricted activity days Per 100,000 adults 5,750 3
Lower respiratory illness in children Per 100,000 children 169 3
Respiratory symptoms Per 100,000 adults 18,300 3
Step 4. Quantify the health impacts and estimate the value of this damage.
1. Calculate the number of DALYs from premature mortality and morbidity associated with elevated
PM levels by completing the table below (Fill in the grey cells). Given the number of DALYs per
case adopted from Lvovsky et al. (2000) and the annual cases in Tunis and Sfax.
Health categories DALYs per Cases in Cases in Total cases Annual DALYs
10,000 cases Tunis Sfax Tunis & Sfax Tunis & Sfax
Premature mortality DALY 100,000 391.4 195.7
Chronic bronchitis 12,037 1,771 885
Hospital admissions 264 998 499
Emergency room visits 3 19,585 9,793
Restricted activity days 3 3,327,627 1,663,814
Lower respiratory illness in 3 42,805 21,402

children
Respiratory symptoms 3 10,590,535 5,295,267
Morbidity DALY
Total DALYs lost per year
2. Calculate the monetary loss from the DALYs calculated above for both mortality and morbidity.
For mortality estimations, use the HCA approach for lower bound calculations and the WTP
approach for upper bound calculations. For morbidity estimations, use only the HCA approach:
12 of 14

July 1‐5, 2008
Given:
GDP/capita (2001) = 2,634 DT
WTP = 6,440 DT (adopted from studies in Europe and US and then adjusted for GDP per capita differentials for
Tunisia)
Mortality (lower bound): ________________________________________________________ DT
Mortality: (upper bound): ________________________________________________________ DT
_________________________ - _______________________ % GDP
Morbidity: _________________________________________________________________ DT
_______________________________________________________________ % GDP
3. Calculate the Cost of Illness for health impacts caused by urban air pollution by completing the
table below.
Given:
Treatment costs used are adopted from averages in Lebanon and Morocco and then adjusted for GDP per capita
differentials for Tunisia
Hospital admissions
Two days of hospitalization
Two work days lost
Emergency Room (ER) visit estimation is based on:
Cost of consultation
Half a day of work lost
Restricted Activity Days (RADs)
1 work day lost per 10 RADs
Chronic bronchitis
Average 6 day hospitalization for 2.5% of patients
Monthly doctor visit for 25% of patients
Twice a year visit for 65% of patients
Emergency doctor visit once a year for 30% of patients
5 working days lost per year for 35% of patients
Costs discounted at a rate of 10% for 15 years to reflect chronic nature of illness
Data based on studies from US and Europe
13 of 14

July 1‐5, 2008

Annual cases 2,656 1,498 29,378 4,991,441 32,120,273
Annual COI (million DT / year)
Hospitalization DT 250 / day

0.8
Doctor visits DT 25 / visit

2.4
ER visits DT 65 / visit
0.4
Lost work days DT 30 / day

1.2
Total COI (million DT/yr) 4.8
4. Calculate the total COI in terms of DT/year and in terms of % of GDP.
Total COI = _________________________________________________________________ (DT/yr)
_________________________________________________________________ % GDP
14 of 14
CASE-
CASE-STUDIES
REGIONAL WORKSHOP ON 1. Impact of water quality on health in Syria
2. Impact of urban air quality on health in Syria
3. Impact of water quality on health in Tunis and
THE COST OF ENVIRONMENTAL Sfax
DEGRADATION METHODOLOGY 4. Impact of urban air quality on health in Tunis
and Sfax
5. Impact of water quality on health in Egypt
Sessions 16 &17 6. Impact of urban air quality on health in Egypt
The Value of Life and Health 7. Impact of water quality on health in Morocco
8. Impact of urban air quality on health in Morocco
GROUP EXERCISES
9. Impact of water quality on health in Lebanon
10. Impact of urban air quality on health in Lebanon

Case-
Case-study 1: Impact of Water Quality on Health
in Syria
Background
Case-
Case-study 1:
• Syria is water scarce
Impact of Water Quality on • Renewable freshwater • Local pressure on
Health in Syria resources = 2,700 m3

water resources
• Declining
• Less than a third of the groundwater tables
world average • Water quality
• Water availability degradation
unevenly distributed
According to WHO/UNICEF (2000)

•64 % of rural population had access to an improved water source
•94 % of urban areas covered with water supply network
•20 % of rural population lacking access to hygienic sanitation facilities

Case-
ase-study 1: Impact of Water Quality on Health Case-
ase-study 1: Impact of Water Quality on Health
in Syria in Syria
Background
The lack of safe drinking water Methodology
Inadequate hygiene and sanitation Mortality Morbidity
water pollution •DALY/ HCA approach •DALY/ HCA approach
+
•Cost of illness approach
Impact on human health and quality of life • Severe diarrhea
• Medication costs
through diarrheal diseases (mainly children) • Lost time for caregivers
• Mild diarrhea
• Oral rehydration
therapy
• Private doctor visits
Cost to society
Case-
Case-study 1: Impact of Water Quality on Health Case-
in Syria in Syria
Results Results
• DALYs- Mortality • DALYs – Morbidity
– 13% of all deaths in children under five attributable to diarrheal disease – Based on household surveys by MoH
(MoH) • 8.6 million cases of diarrhea per year
– Death of a child under 5 represents a loss of 35 DALYs (Global Burden • 4.5% of children under 5 suffered from diarrhea in the last 24 hrs
of Disease) – A severity weight of 0.2 assigned to diarrhea
Parameter Value • DALYs lost from one day of diarrhea = 0.2/365
Child population (0-4 yrs) 2.106 million
Live births per year 401 thousand
Child mortality 20.2 per 1,000 live births Parameter Value
Annual child deaths (all causes) 8,100 per year Child population (0-4 yrs) 2.106 million
Child diarrheal disease deaths 13.0% of child mortality rate Diarrheal prevalence in children (0-4 yrs) in last 24 hrs 4.5%
Child diarrheal disease mortality rate 2.6 per 1,000 Total diarrhea days per year 34.6 million
Annual child diarrheal disease deaths 1053 DALY (disability severity weight) 0.2
DALYs per child death 35 discounted years of life lost DALYs from child diarrheal disease morbidity 18, 954 per year
DALYs from child diarrheal disease deaths 36,856

Case-
in Syria in Syria
Results
• COI- Severe cases of diarrhea
– Severe cases often treated in health clinic
– 130,000 diarrhea cases per year in public clinics (MoH)
– Ratio of private to public clinics according to NEAP = 3:1
Parameter Value – Assumed that 1 day is lost by caregiver per case of severe diarrhea
Mortality Parameter Value
Total number of DALYs 36,900 Reported cases of diarrhea, public 130,000
Price per DALY 27,500-55,000 SYP/yr Reported cases of diarrhea, private clinics 390,000
Monetary loss 1,015 - 2,030 million SYP/yr Total cases of reported diarrhea 520,000
% of GDP 0.11 – 0.22 % Cost of doctor visit per treatment 200 SYP
Morbidity Cost of medication per treatment 600 SYP
Total number of DALYs 19,000 Total cost of treatment 800 SYP
Price per DALY 27,500-55,000 SP/yr Cost of treating severe diarrhea 416 million SYP
Monetary loss 523 – 1,045 million SYP/yr Value of one day lost to caregiver 175 SYP
% of GDP 0.06 – 0.11 % Cost of lost time due to care giving 91 million SYP

Case-
in Syria in Syria
Results Results
• COI- Mild cases of diarrhea treated by Oral • COI- Mild cases of diarrhea treated by private
Rehydration Therapy doctors and with medication
– 8.6 million cases -0.5 million severe cases = 8.1
million mild cases of diarrhea per year Parameter Value
Number of diarrhea cases per year in children 0-4 8.1 million
– 44 % of mild cases treated by ORT at home
Percent of cases treated by private doctors 50%
– Average length of diarrheal episode = 4 days
Cost of doctor visit per treatment 200 SYP
Parameter Value Cost of medication per treatment 500 SYP
Number of diarrhea cases per year in children (0-4 yrs) 8.1 million Total cost of treatment 700 SYP
Percent of cases treated with ORT 43.5 % Cost of treating non-severe diarrhea 2,835 million SYP
Cases treated with ORT 3.53 million

Unit cost of ORT treatment 75 SYP/case Total COI = 3.6 billion SYP/year
Total cost of ORT treatment 264 million SYP
= 0.4% of GDP
Case-
Case-study 2: Impact of Urban Air Quality on
Health in Syria
Background
Case-
Case-study 2: • Sources of air pollution in Syria
– Power stations
Impact of Urban Air Quality – Residential furnaces
on Health in Syria – Industry
– Ageing vehicle fleet that is 15-20 yrs old

Case-
Case-study 2: Impact of Urban Air Quality on Case-
Health in Syria Health in Syria
Methodology Methodology- Identify pollutant and measure its
concentration
• Monitoring data from 9 cities used
-Damascus -Aleppo -Tartous
-Homs -Hama -Al-Sweida
-Lattakia -Deir-Azzour -Al-Raka
• 4-10 monitoring sites per city from

– Syrian Atomic Energy Commission
– Higher Institute of Applied Science and Technology
• Data for 2001 except Lattakia (1994) and Hama
(1992)
• In all cities, one monitoring station collected both PM10
and TSP
– PM10 data inferred from remaining monitoring data by
calculating the ratio PM10:TSP

Case-
Methodology- Determine exposed population
• City population estimates taken from Central Bureau of
Methodology-Sample for Damascus
Statistics (2001)
Monitoring site Commercial Major Heavy Residential Residential Other
• Assumed that 100% of the city’s population exposed to air center Roundabout traffic & pop
pollution industrial
workshop
Crude death rate (per 1,000) 4.8 4.8 4.8 4.8 4.8 4.8
• Using expert advice from HIAST Annual average PM10 (μg/m3) 222 304 437 120 102 111
– Number of people living or spending most of their time near each Exposed total population 0.15 0.02 0.08 0.35 0.28 1.83
monitoring site estimated (millions)
– Remaining population assumed to be exposed to average PM10 Exposed adult population (≥15 0.10 0.01 0.05 0.22 0.18 1.16
levels measured in residential and background locations yrs) (millions)
Exposed children population 0.05 0.01 0.03 0.13 0.10 0.66
(≤14 yrs) (millions)
• Population broken-down by age-groups applying percentages
of Syria’s population
Case-
Methodology- Estimate health impacts from Methodology- Valuate health impacts from exposure
exposure
• Relied on dose-response coefficients reported in Mortality Morbidity
the literature by Lvovsky et al. (2000) •DALY/ HCA approach •DALY/ HCA approach
• Limitation: reported DRR from developed •DALY/ WTP approach +
countries
Health categories Units Impacts per 1μg/m3
•Cost of illness
Premature mortality % change in crude mortality rate 0.084 approach
Chronic bronchitis Per 100,000 adults 3.06 • Chronic bronchitis
Hospital admissions Per 100,000 population 1.2
• Hospital admissions
Emergency room visits Per 100,000 population 23.54
Restricted activity days Per 100,000 adults 5,750 • Emergency room visits
Lower respiratory illness in children Per 100,000 children 169 • Restricted activity days
Respiratory symptoms Per 100,000 adults 18,300

Case-
Results- Mortality and Morbidity Results
• DALYs –Valuation
• Health outcomes converted to DALYs – Mortality
• Low estimate at
• DALYs adopted from Lvovsky et al. (2000) GDP/capita (2001) =
55,000 SYP
Parameter Value
Mortality
• Data calculated per city and then aggregated • High estimate at WTP
adopted from studies in Total number of DALYs 35,100
Health categories DALYs per Annual cases Annual DALYs Europe and US and then
adjusted for GDP per Price per DALY 55,000 – 320,000 SYP/yr
10,000 cases Syria Syria capita differentials for
Syria Monetary loss 1,931 – 11,232 million
Premature mortality 100,000 3,513 35,126 SYP/yr
• Adjusted WTP then
Chronic bronchitis 12,037 16,970 20,427 modified to reflect
approximate number of % of GDP 0.21 – 1.22 %
Hospital admissions 264 10,454 276 DALYs lost due to air Morbidity
pollution relative to DALYs
Emergency room visits 3 205,073 62 lost in WTP studies Total number of DALYs 60,900
– 10 DALYs per case
Restricted activity days 3 31,887,775 9,566 usually considered for Price per DALY 55,000 SP/yr
air pollution
Lower respiratory illness in children 3 535,054 161 Monetary loss 3,350 million SYP/yr
– Morbidity
Respiratory symptoms 3 101,486,312 30,446 • Low estimate at % of GDP 0.36 %
GDP/capita (2001)
Total DALYs lost per year 96,062 = 55,000 SYP

Case-
Results- COI approach- Basis for cost estimates
• Chronic bronchitis
Results- COI approach
– Monthly doctor visit for 25% of individuals with CB
– Twice a year visit for 65% of individuals with CB bronchitis admissions room visits
– Emergency doctor visit once a year for 30% of individuals
Annual cases 16,970 10,454 205,073 31,887,775 32,120,273
– Average 6 day hospitalization for 2.5% of individuals
COI (million SYP/yr)
– 5 working days lost pr year for 35% of individuals
Hospitalization 2,000 SYP/day 43 42
– Costs discounted at 10% for 15 years to reflect chronic nature of illness
– Data based on studies from US and Europe Doctor visits 400 SYP/visit 244
• Hospital admissions ER visits 200 SYP/visit 9 41

– Two days of hospitalization Lost work days 200 SYP/day 50 4 21 638
– Two work days lost Total COI (million SYP/yr) 345 46 62 638 1,090
• ER visits Cost per case (SYP) 20,331 4,400 300 20 33.9
– Cost of ER visits
– Half a day of work lost Total COI = 1.1 billion SYP/year
• RADs
– 1 work day lost per 10 RADs = 0.12% of GDP
Case-
in Tunis and Sfax
Background
Case-
Case-study 3: The lack of: safe drinking water
& sanitation
Impact of Water Quality on & water pollution
Health in Tunis and Sfax
Impact on human health and quality of life
through diarrheal diseases (mainly children)
Mortality and Morbidity

Case-
Case-
in Tunis and Sfax
in Tunis and Sfax
Methodology Results
• DALYs- Mortality
Mortality Morbidity – 10% of all deaths in children under five attributable to diarrheal disease
– Death of a child under 5 represents a loss of 35 DALYs (Global Burden
•DALY/ HCA approach •DALY/ HCA approach of Disease)
+
Parameter Value
•Cost of illness Child population (0-4 yrs) 0.9 million
approach Child mortality 30 per 1,000 live births
• Severe diarrhea Annual child deaths (all causes) 5,392 per year
• Medication costs Child diarrheal disease deaths 10.0% of child mortality rate
• Private doctor visits Child diarrheal disease mortality rate 2.9 per 1,000
• Lost time for caregivers Annual child diarrheal disease deaths 539
DALYs per child death 35 discounted years of life lost
• Mild diarrhea
DALYs from child diarrheal disease deaths 18,865
• Oral rehydration therapy

Case-
in Tunis and Sfax in Tunis and Sfax
Results
• DALYs – Morbidity
– A severity weight of 0.2 assigned to diarrhea
• DALYs lost from one day of diarrhea = 0.2/365
Parameter Value
Mortality
Parameter Value
Total number of 18,865
Child population (0-14 yrs) 2.9 million DALYs
Price per DALY 1,315-2,630 DT/yr
Diarrheal episode per child per year 2.8
Monetary loss 24.81 – 49.61 million DT/yr
Total number of episodes per year 8.12 million
% of GDP 0.10 – 0.20 %
Average duration per episode 96 hrs
Morbidity
Total diarrhea hrs per year 780 million
Total number of 17,808
Total diarrhea duration in years per year 89,000 DALYs
Price per DALY 1,315-2,630 DT/yr
DALY (disability severity weight) 0.2
Monetary loss 23.41 – 46.83 million DT/yr
DALYs from child diarrheal disease morbidity 17,808 per year
% of GDP 0.10 – 0.20 %
Case-
in Tunis and Sfax in Tunis and Sfax
Results
• COI- Severe cases of diarrhea Results
– If the average duration of a severe diarrhea case is 10 days, the number of cases per
child per year is 1 (lower bound) • COI- Mild cases of diarrhea treated by Oral
– If the average duration of a severe diarrhea case is 7 days, the number of cases per
child per year is 1.5 (upper bound)
Rehydration Therapy
– Assumed that 1 day is lost by caregiver per case of severe diarrhea – 94.8 % of mild cases treated by ORT at home
Parameter Value
Parameter Value
Number of diarrhea cases per year in children (0-4 yrs) 2.52 million
Percentage of severe diarrhea cases of children < 5 5.75
Percent of cases treated with ORT 94.8 %
Number of severe diarrhea cases per year (lower bound) 0.9 million
Number of severe diarrhea cases per year (lower bound) 1.3 million
Unit cost of ORT treatment 2 DT/case
Cost of doctor visit per treatment 16 DT
Total cost of ORT treatment 4.78 million DT
Cost of medication per treatment 15.5 DT
Total cost of treatment 31.5 DT
Cost of treating severe diarrhea 28.31- 40.95 million DT Total COI = 43.4 – 59.66 million DT/year
Value of one day lost to caregiver 11.5 DT
Cost of lost time due to care giving 10.3 - 13.93 million DT
= 0.16-0.25 % of GDP

Case-
Background
Case-
Case-study 4:
Impact of Urban Air Quality
on Health in Tunis and Sfax
• No air pollution impact studies has been undertaken in

Tunisia. The present study considers international studies
results adjusted for Tunisian conditions.

Case-
Health in Tunis and Sfax Health in Tunis and Sfax
Background Methodology- Valuate health impacts from exposure
Tunis Sfax Mortality Morbidity
Crude death rate (per 1,000) 5.6 5.6 •DALY/ HCA approach •DALY/ HCA approach
•DALY/ WTP approach +
Exposed total population (80% of Total population) (millions) 1.3 0.6
Exposed adult population (≥15 yrs) (millions) 0.9 0.4 •Cost of illness
Exposed children population (≤14 yrs) (millions) 0.4 0.2 approach
• Chronic bronchitis
• The annual average of PM10 is a result of monthly averages
of 9 months recorded by CITET (Centre International des • Hospital admissions
Technologies de l’Environnement de Tunis) and reported in • Emergency room visits
1998 • Restricted activity days
Case-
The Results The Results
• Calculate the number of DALYs lost due to urban air
• Estimate the DALY per Health Category pollution
Health categories Units Impacts per DALYs per Health categories DALYs per Cases in Cases Total cases Annual DALYs
1μg/m3 10,000 cases 10,000 Tunis in Sfax Tunis & Sfax Tunis & Sfax
Premature mortality % change in crude mortality rate 0.084 100,000 cases
Chronic bronchitis Per 100,000 adults 3.06 12,037 Premature mortality DALY 100,000 391.4 195.7 587.1 5,871
Hospital admissions Per 100,000 population 1.2 264 Chronic bronchitis 12,037 1,771 885 2,656 3,197
Emergency room visits Per 100,000 population 23.54 3 Hospital admissions 264 998 499 1,497 40
Restricted activity days Per 100,000 adults 5,750 3 Emergency room visits 3 19,585 9,793 29,378 9
Lower respiratory illness in children Per 100,000 children 169 3 Restricted activity days 3 3,327,627 1,663,814 4,991,441 1,497
Respiratory symptoms Per 100,000 adults 18,300 3 Lower respiratory illness in children 3 42,805 21,402 64,207 19
Respiratory symptoms 3 10,590,535 5,295,267 15,885,802 4,766
• DALY estimations relied on dose-response coefficients Morbidity DALY 9,528
reported in international studies Total DALYs lost per year 15,399

Case-
The Results The Results
• Valuate the lost DALYs Cost of Illness (COI) assumptions
Lower Upper
• Treatment costs used are adopted from averages in Lebanon and Morocco and
Bound Bound
– Low estimate at GDP/capita then adjusted for GDP per capita differentials for Tunisia
(1999) = 2,630 DT Total DALYs lost per
15,399 • Chronic bronchitis
year – Average 6 day hospitalization for 2.5% of patients
– Monthly doctor visit for 25% of patients
GDP / capita WTP – Twice a year visit for 65% of patients
– High estimate at WTP adopted Price per DALY (DT)
– Emergency doctor visit once a year for 30% of patients
2,630 6,440
from studies in US and then – 5 working days lost per year for 35% of patients
adjusted for GDP per capita Total Annual – Costs discounted at a rate of 10% for 15 years to reflect chronic nature of illness
differentials for Tunisia = monetary loss 40.5 99.2 – Data based on studies from US and Europe
6,440 DT (million DT) • Hospital admissions
– Two days of hospitalization
– Two work days lost
• Emergency Room (ER) visit estimation is based on:
– Cost of consultation
– Half a day of work lost
The Average Annual DALY Losses Due to Urban • Restricted Activity Days (RADs)
Pollution represent 0.2-
0.2-0.4% of the GDP – 1 work day lost per 10 RADs

Case-
Results
Cost of Illness (COI) calculations
Chronic Hospital
Case-
Case-study 5:
Impact of Water Quality on
Unit costs ER visits RADs Total
bronchitis admissions
Annual cases 2,656 1,498 29,378 4,991,441
Annual COI (million DT / year)
Hospitalization DT 250 / day 0.8 0.7
Health in Egypt
Doctor visits DT 25 / visit 2.4
ER visits DT 65 / visit 0.4 1.9
Lost work days DT 30 / day 1.2 0.1 0.4 15.0
Total Cost of Treatment
4.8 0.8 2.3 15.0 22.9
(million DT per year)
Cost per case (DT) 1,807 534 78 3
The Annual Cost of Illness Due to Urban Pollution

represents
22.9 million DT or 0.09 % of the GDP
Case-
in Egypt in Egypt
Background
Impact on human health and quality of life

Intestinal work infections, schistosomiases,
schistosomiases, diarrheal diseases
17,000 children die annually from diarrheal diseases
Cost to society

Case-
in Egypt in Egypt
Results Results
– Estimates based on children only because of their high incidence rate
– 20% of all deaths in children under five attributable to diarrheal – A severity weight of 0.2 assigned to diarrhea
disease
– Death of a child under 5 represents a loss of 35 DALYs (Global
Burden of Disease) • Base data are from WDI, World Bank 2001
– Base data are from WDI, World Bank 2001 Parameter Value
Child population (0-14 yrs) 22 million
Parameter Value Diarrheal episodes per child per month 1
Child population (0-4 yrs) 8.15 million Total episodes per year 264 million
Annual child deaths (all causes) 88,020 per year Average duration per episode 10 hrs
Child diarrheal disease deaths 20.0% of child mortality Total duration per year (hrs) 2,640 million
Annual child diarrheal disease deaths 17,604 Total duration per year (yrs) 301,370
DALYs per child death 35 discounted years of life lost DALY (disability severity weight) 0.2
DALYs from child diarrheal disease deaths 616,140 per year DALYs from child diarrheal disease morbidity 60,274 per year

Case-
in Egypt in Egypt
Results
More than 657,000 DALYs lost each
Parameter Value year due to diarrheal diseases
Mortality
amounting to a damage cost of
Total number of DALYs 616,140
Price per DALY 2,400-4,800 LE/yr 0.5-
0.5-1.1 % of GDP per year
Monetary loss 1,478 - 2,957 million LE/yr
% of GDP 0.49 – 0.98 %
Morbidity
Price per DALY 27,500-55,000 LE/yr
Monetary loss 145– 289 million LE/yr
% of GDP 0.05 – 0.1 %
Case-
Health in Egypt
Background
Case-
Case-study 6:
Impact of Urban Air Quality
on Health in Egypt

Case-
Health in Egypt Health in Egypt
Methodology- Identify pollutant, measure its concentration,
Methodology determine exposed population
– Annual average concentrations of PM10 in Greater Cairo

– Rough estimates of PM10 from Alexandria
– No study in Egypt statistically linking urban pollution and health
based on local health data
Parameter Egypt Greater Cairo Alexandria
Population (million) 63 14.9 3.3
Adult population ≥15 yrs) (millions) 41 9.7 2.1
Children population (≤14 yrs) (millions) 22 5.2 1.2
Crude death rate (per 1,000) 7 7 7
Exposed total population (millions) 11.92 2.64
Exposed adult population (≥15 yrs) (millions) 7.8 1.7
Exposed children population (≤14 yrs) (millions) 4.2 0.9

Case-
Methodology- Estimate health impacts from Methodology- Valuate health impacts from exposure
exposure
• Relied on dose-response coefficients from Mortality Morbidity
international studies (Lvovsky et al., 2000) •DALY/ HCA approach •DALY/ HCA approach
• Limitation: reported DRR from developed •DALY/ WTP approach
countries
Premature mortality % change in crude mortality rate 0.084
Chronic bronchitis Per 100,000 adults 3.06
Hospital admissions Per 100,000 population 1.2
Emergency room visits Per 100,000 population 23.54
Restricted activity days Per 100,000 adults 5,750
Lower respiratory illness in children Per 100,000 children 169
Case-
Results- Mortality and Morbidity Results
• Health outcomes converted to DALYs • DALYs –Valuation
• DALYs adopted from Lvovsky et al. (2000) – Mortality
• Low estimate at
GDP/capita (2001) = 4,800
Health categories DALYs Annual DALYs Annual DALYs Annual LE Parameter Value
per 10,000 cases Greater cases Alexandria DALYs • High estimate at WTP = Mortality
cases Greater Cairo Alexandria Syria 28,000 LE
Cairo – adopted from studies in Total number of DALYs 200,000
Europe and US and then
Premature mortality 100,000 18,924 189,242 1,552 15,523 204,765 adjusted for GDP per capita Price per DALY 4,800 – 28,000 LE/yr
Chronic bronchitis 12,037 64,092 77,148 5,257 6328 83,476 differentials for Egypt
Monetary loss 960 – 5,600 million LE/yr
– Adjusted WTP then modified
Hospital admissions 264 38,621 1,020 3,168 84 1,103 to reflect approximate number % of GDP 0.32– 1.86 %
of DALYs lost due to air
Emergency room visits 3 757,611 227 62,146 19 246 pollution relative to DALYs lost Morbidity
in WTP studies
Restricted activity days 3 120,434,571 36,130 9,879,048 2,964 39,094 » 10 DALYs per case usually Total number of DALYs 250,000
considered for air pollution
Respiratory symptoms 3 383,296,114 114,989 31,440,000 9,432 124,421 Price per DALY 4,800 LE/yr
Lower respiratory illness 3 1,899,367 570 155,802 47 617
– Morbidity
• Low estimate at Monetary loss 1,200 million LE/yr
in children
GDP/capita (2001) % of GDP 0.4 %
Total DALYs lost per year 419,326 34,397 453,722 = 4,800 LE

Case-
Health in Egypt
Results
More than 450,000 DALYs lost each
Case-
Case-study 7:
year due to urban air pollution Impact of Water Quality on
amounting to a damage cost of Health in Morocco
0.7 - 2.3 % of GDP per year

Case-
in Morocco in Morocco
Background
+
Impact on human health and quality of life • Severe diarrhea
through diarrheal diseases (mainly children) • Medication costs
• Lost time for caregivers
• Mild diarrhea
• Oral rehydration
Cost to society therapy
Case-
Results Results
– 20% of all deaths in children under five attributable to diarrheal disease – Based on the National Survey on the Health of Mother and
(National Survey on the Health of Mother and Child, ENSME, 1997)
– Death of a child under 5 represents a loss of 35 DALYs (Global Burden
Child
of Disease) • 9% of children under 5 suffered from diarrhea in the last 24 hrs
– A severity weight of 0.2 assigned to diarrhea
Parameter Value
Child mortality rate 46 per 1,000 live births
Annual child deaths (all causes) 27,951 per year Parameter Value
Child diarrheal disease deaths 20.0% of child mortality rate Child population (0-4 yrs) 3.038 million
Child diarrheal disease mortality rate 9.2 per 1,000 Diarrheal prevalence in children (0-4 yrs) in last 24 hrs 9%
Annual child diarrheal disease deaths 5,590 Total diarrhea days per year 99.8 million
DALYs from child diarrheal disease deaths 186,868 DALYs from child diarrheal disease morbidity 64,887 per year

Case-
Results
• COI- Severe cases of diarrhea
– Severe cases often treated in health clinic
– Cost of treatment obtained Moroccan doctors’ consultation
– Assumed that 1 day is lost by caregiver per case of severe diarrhea
Parameter Value
– Value of a work day based on average rural income = Dh1,500/ month
Mortality
Parameter Value
Cases of diarrhea treated in public hospitals (20% of cases) 4,191,780
Price per DALY 6,150-12,300 Dh/yr
Cases of diarrhea treated in private clinics (7% of cases) 1,357,338
Monetary loss 1,205 - 2,411 million Dh/yr
Total cases of reported diarrhea 5,549,118
% of GDP 0.34 – 0.68 %
Cost of doctor visit per treatment 70 Dh
Morbidity
Cost of medication per treatment 100 Dh
Total cost of treatment 170 Dh
Price per DALY 6,150-12,300 Dh/yr
Cost of treating severe diarrhea (< 5 yrs) 943 million Dh
Monetary loss 338 – 677 million Dh/yr
Value of one day lost to caregiver 60 Dh
% of GDP 0.10 – 0.19 %
Cost of lost time due to care giving 333 million Dh

Case-
Results Results
• COI- Mild cases of diarrhea treated by Oral
Rehydration Therapy
– 30% of mild cases treated by ORT at home Total cost of treatment
– Average length of diarrheal episode = 5 days
Parameter Value
= 1,635 million Dh
Total number of diarrheal days/yr in children < 5yrs
Average duration of a diarrheal case
99.8 million
5 days
= 0.46 % of GDP
Number of diarrhea cases per year in children (0-4 yrs) 19.9 million
Percent of cases treated with ORT 30 %
Unit cost of ORT treatment 60 Dh/case
Total cost of ORT treatment 359 million Dh
Case-
Health in Morocco
Background
• Sources of urban air pollution in Morocco
Case-
Case-study 8: – Ageing diesel vehicle fleet (in 2000, 808,000 diesel vehicle, of which 74%
are 10 years or older)
Impact of Urban Air Quality – Low quality oil products

– Industry not converted to cleaner technologies:
on Health in Morocco
• Thermal energy centers and oil refineries
• Chemical and para-chemical industries
• Textile and leather industries
• Agro-industries
• Electrical and electronic industries
• Metal and metallurgical industries
– Power stations

Case-
Health in Morocco Health in Morocco
Measure the concentration Step 1: Measure the concentration of atmospheric pollutants
Step 1
of atmospheric pollutants • Air quality monitoring data are available from:
– Casablanca
Step 2 Identify populations – The urban prefecture of Rabat-Sale
vulnerable to pollution – Cities of Safi
– Fes, Marrakech and Tangiers (by analogies with other
Step 3 Assess the effect on health with Moroccan cities)
the dose-response coefficients • 2 to 7 monitoring sites per city reported in:
– Casa Airpol, 2000: Etude de la pollution atmosphérique et de
Step 4
son impact sur la santé des populations à Casablanca
Assess mortality risk – REEM, 2001 (Status of Environment Report in Morocco)
– Ministry of Public Health,1998: Etude de la pollution
Step 5
atmosphérique et de son impact sur la santé de la population de
Valuate Morbidity Safi

Case-
Step 1: Measure the concentration of atmospheric pollutants Step 2: Identify populations vulnerable to pollution
Cities Casablanca Rabat-Sale Safi Fes, Marrakech &
City PM (μg/m3) PM3 (μg/m3) PM10 (μg/m3) PM10 (μg/m3) Tangiers
Average level Average level Low level High level
Crude death rate (per 1,000) 4.9 4.9 4.9 4.9
Casablanca 244 33 94 122
Low level PM10 (μg/m3) 94 70 70
Rabat - Sale 246 - 70 123 70
High level PM10 (μg/m3) 122 123 139
Safi 277 - 70 139 Exposed total population (millions) 3.31 1.44 0.43 1.72
Fes, Marrakech & Tangiers - - 70 Exposed adult population (≥15 yrs) (millions) 2.16 0.94 0.28 1.12
Exposed population (≤14 yrs) (millions) 1.15 0.50 0.15 0.60
• Lower estimate for PM10 in Casablanca is based on a conversion factor between PM2.5 and
PM10 equivalent to 0.35 Exposed children population (≤5 yrs) (millions) 0.27 0.15 0.05 0.18
• Lower estimates for PM10 in Rabat-Sale and Safi is based on expert judgements
• Population data were taken from the Ministry of Public Health (Santé en chiffres, 2001)
• Higher estimates for PM10 in Casablanca, Rabat-Sale and Safi is based on the average PM • The demographic distribution of the six cities was estimated by extrapolation from national
concentration converted to PM10 on the basis of a ratio of 0.5 averages
• For Fes, Marrakech and Tangiers air pollution is mainly due to the transport sector, as in • Certain impacts affect more particularly a certain portion of the population (for example, the elderly
Rabat. The lower value of PM10 for the city of Rabat was allocated to these cities (70). and children under five years of age).
Case-
Step 3: Assess the effect on health with the help of dose-response coefficients Step 3: Assess the effect on health with the help of dose-response coefficients
• Relied on dose-response coefficients reported in the literature by Lvovsky Cases / city Casablanca Rabat-Sale Safi Fes, Marrakech, Total cases
et al. (2000) Health categories Low High Low High Low High
Tangiers
Low High
Premature mortality 1281 1662 416 731 125 248 496 2,318 3,137
Chronic bronchitis 6217 8069 2020 3549 607 1205 2410 11,254 15,233
Premature mortality % change in crude mortality rate 0.084
Hospital 3734 4846 1213 2131 365 724 1447 6,759 9,148
Chronic bronchitis Per 100,000 adults 3.06 admissions
Emergency room 73242 95059 23794 41810 7151 14201 28392 132,579 179,462
Hospital admissions Per 100,000 population 1.2 visits
Restricted activity
11682529 15162431 3794846 6668087 1140556 2264818 4528061
Emergency room visits Per 100,000 population 23.54 days
21,145,992 28,623,397
Lower respiratory
Restricted activity days Per 100,000 adults 5,750 illness in children 182462 236812 59290 104180 17820 35285 70745 330,317 447,022
Lower respiratory illness in children Per 100,000 children 169 Respiratory

37180919 48256086 12077511 21221913 3629944 7208032 11411045 64,299,419 88,097,076
symptoms

Case-
Methodology Results
Step 3: Assess the effect on health with the help of dose-response coefficients Step 4: Assess mortality risk
Lower Upper
Bound Bound
• DALY approach is used to compare and assess the number of years lost • Two common approaches were
due to disabilities used: Total Annual Mortality
23,180 31,370
DALYs
Health categories DALYs per Annual cases Morocco Annual DALYs Morocco – Human Capital (HC) approach
10,000 cases as a lower bound estimate GDP /
Low High Low High WTP
1 DALY = GDP/capita One DALY capita
Premature mortality 100,000 2,318 3,137 23,180 31,370 = 12,308 Dh monetary value (Dh)
Chronic bronchitis 12,037 11,254 15,233 13,546 18,336 12,308 63,324
Hospital admissions 264 6,759 9,148 178 242 – Willingness To Pay (WTP) Total Annual Mortality DALYs
Emergency room visits 3 132,579 179,462 40 54 approach as a higher bound value (million Dh)
285.3 1,986.5
Restricted activity days 3 21,145,992 28,623,397 6,344 8,587 estimate; adopted from studies
Lower respiratory illness in children 3 330,317 447,022 99 134
in US and then adjusted for Average Annual Mortality
1,135.9
GDP differentials for Morocco DALY value (million Dh)
Respiratory symptoms 3 64,299,419 88,097,076 19,290 26,429 = 63,324 Dh
Total Morbidity 39,497 53,782 The Average Annual Mortality Losses Due to Urban
Total DALYs lost per year 62,677 85,152 Pollution Represents 0.32% of the GDP

Case-
Step 5: Valuate Morbidity Step 5: Valuate Morbidity
Lower Upper
Assess DALY at GDP per Bound Bound
Two approaches used capita to account for people’s Total Annual Morbidity
39,497 53,782
1. Assess on DALY at GDP per capita to account for suffering associated with DALYs
people’s suffering associated with respiratory respiratory illnesses One DALY
12,308
monetary value (Dh)
illnesses
Total Annual Morbidity
486.1 661.9
DALYs value (million Dh)
2. Medical Cost of Treatment of respiratory
Average Annual Morbidity DALY
diseases such as chronic bronchitis and lower value (million Dh)
574.0
respiratory illnesses in children
Case-
Step 5: Valuate Morbidity - Cost of Treatment Step 5: Valuate Morbidity - Cost of Treatment
Unit costs Hospital
• Chronic bronchitis estimates are based on: Chronic bronchitis admissions
ER visits RADs
– Average 6 day hospitalization for 2.5% of patients Low High Low High Low High Low High
– Monthly doctor visit for 25% of patients
Annual cases 11,254 15,233 6,759 9,148 132,579 179,462 21,145,992 28,623,397
– Two visit per year for 65% of patients
Annual COI (million Dh / year)
– Emergency consultation once a year for 30% of patients
– 5 working days lost per year for 35% of patients Hospitalization
Dh 1200/
16.7 22.6 16.6 22.4
day
– Costs are converted into annual numbers and discounted rate of 10% over a
period of 15 years to take into account the nature of chronic bronchitis Doctor visits Dh 70/ visit 28.6 38.7
– Data based on studies conducted in the US and Europe Dh 300/
• Hospital admissions ER visits
visit
8.7 11.8 40.6 55.0
– Two days of hospitalization Dh 115/

Lost work days 19.1 25.8 1.8 2.5 7.4 10.0 243.1 327.9
– Two work days lost day
• Emergency Room (ER) visit estimation is based on: Total Cost of Treatment
73.1 98.9 18.4 24.9 48.0 65.0 243.1 327.9
– Cost of consultation (million Dh per year)
– Half a day of work lost Cost per case (Dh) 6,569 2,741 362 11.5
• Restricted Activity Days (RADs)
– 1 work day lost per 10 RADs Total cost of treatment ranges between 383 and 517 million Dh/year
Dh/year

Case-
Health in Morocco
Results
Step 5: Valuate Morbidity Case-
Case-study 9:
Lower
Bound
Upper
Bound Impact of Water Quality on
The average
annual morbidity
Total Annual Morbidity
DALYs value (million Dh)
486.1 661.9 Health in Lebanon
Total Annual Cost of
losses due to Treatment (million Dh)
382.6 516.7
urban pollution Total Annual Morbidity

Cost (million Dh)
868.7 1,178.6
represents 0.29% Average Annual Morbidity Cost

1,023.65
(million Dh)
of the GDP

Case-
in Lebanon in Lebanon
Background
Substandard quality and inadequate quantity of potable water Methodology
Inadequate sanitation facilities and sanitation practices Mortality Morbidity
Inadequate personal, food and domestic hygiene •DALY/ HCA approach •DALY/ HCA approach
+
Impact on human health and quality of life – Treatment costs
through diarrheal diseases (mainly children) • Doctor and medical
facilities visits
• Medicines
• Oral Rehydration Therapy
– Time cost for caregivers of
severe cases
Cost to society
Case-
Results Results
– 10% of all deaths in children under five attributable to diarrheal disease – Based on Lebanese Mother and Child Health Census by MoH
(based MoH, 1996 and CBS/Unicef, 2001) • Average duration of diarrhea case is 4 days
– Death of a child under 5 represents a loss of 35 DALYs (Global Burden • 2.0 million cases of diarrhea per year
of Disease) • 5.0% of children under 5 suffered from diarrhea in the last 24 hrs
Parameter Value – A severity weight of 0.2 assigned to diarrhea
Child mortality rate in 2000 30 per 1,000 live births Parameter Value
Annual child deaths (all causes) 2,640 per year Child population (0-4 yrs) 0.44 million
Child diarrheal disease deaths 10.0% of child mortality rate Diarrheal prevalence in children (0-4 yrs) in last 24 hrs 5.0 %
Child diarrheal disease mortality rate 3 per 1,000 Total diarrhea days per year 8.0 million
Annual child diarrheal disease deaths 264 Total diarrhea duration in years per year 22,000
DALYs from child diarrheal disease deaths 9,240 per year DALYs from child diarrheal disease morbidity 4,400 per year

Case-
Results
Results
• DALYs – Valuation
– Valuation per DALY: • Cost of illness approach
• High, 100% of Lebanese GDP per capita, 3,900 US$/yr – According to MoH, 1996:
• Low, 50% of Lebanese GDP per capita, 1,950 US$/yr • 48% of diarrhea cases are treated by doctors or medical facilities; and
• 9% by pharmacies
Parameter Value
Mortality
– According to CBS/Unicef, 2001:
• 44% of diarrhea cases are treated by Oral Rehydration Therapy (ORT)
Price per DALY 1,950-3,900 US$/yr
– Average cost (Beirut and small town) of doctor or medical facility visit is 30
US$/visit (information from doctors in Lebanon)
Monetary loss 18.01 – 36.2 million US$/yr
– Cost of medicines for diarrhea treatment is 12 US$/case (information from
% of GDP 0.11 – 0.22 %
doctors in Lebanon)
Morbidity
– Cost of ORT is 1.5 US$/case
Price per DALY 1,950-3,900 US$/yr
– Assumed that 1 day is lost by caregiver per case of severe diarrhea
Monetary loss 8.5 – 17.1 million US$/yr – Value of 1 day lost by caregiver (based on low-skilled wage rate) is
10.0 US$/day
% of GDP 0.05 – 0.10 %

Case-
Results
Results
• COI- Valuation of treatment costs
• COI- time cost of care giving for severe cases
Parameter Value
– According to CBS/Unicef, 2001, 0.76 million of severe diarrhea
Total diarrhea cases per year (all children 0-4 years) 2.01 million
cases per year
Percent of cases treated (doctor, medical facilities) 48%
– 1 day is lost by caregiver per case of severe diarrhea
Total cases treated (doctor, medical facilities) per year 0.96 million
Cost of doctor/medical facilities visit 30 US$/visit
Total cost of doctor and medical facilities per year 28.9 million US$
Parameter Value
Percent of cases treated at pharmacy 9%
Total cases required medicines (cases treated at doctors and 1.14 million Number of severe diarrhea cases per year 0.76 million
pharmacy, 57%) per year Value of day lost by caregiver 10.0 US$
Cost of medicines per case 12 US$ Total cost of lost time by caregivers 7.63 million US$
Total cost of medicines per year 13.8 million US$
Percent of cases treated by ORT 44%
Total cases treated by ORT 0.88 million
Cost of ORT per case 1.5 US$
Total cost of ORT per year 1.3 million US$
Case-
in Lebanon
Results
• COI- Total cost of diarrheal illness Case-
Case-study 10:
Parameter Value Impact of Urban Air Quality
Total cost of doctor and medical
facilities visits per year
28.9 million US$
on Health in Lebanon
Total cost of medicines per year 13.8 million US$
Total cost of ORT per year 1.3 million US$
Total cost of lost time by caregivers 7.63 million US$
Total cost of diarrheal illness 51.63 million US$
Total COI = 51.6 million US$/year

= 0.31% of GDP

Case-
Health in Lebanon Health in Lebanon
Background Methodology
• Sources of air pollution in Lebanon
– Power stations
– Industries
– Vehicle induced emissions
- Premature deaths
- Chronic bronchitis
Urban air pollution
Negative impacts - Respiratory disorders
especially PM10
on public health - Cancer
and Lead (Pb)
- Hypertension
- IQ loss

Case-
Methodology- Identify pollutant and measure its Methodology- Determine exposed population
concentration
• City population estimates taken from WDI,
• Impacts of PM10 concentrations in Greater Beirut World Bank (2001)
and Tripoli areas were considered
• Data for pollutant concentrations: • Assumed that 80% of the population

exposed to air pollution
– PM10 in Greater Beirut area from El-Fadel et. al (2002).
Monitoring data after the ban of vehicle diesel fuel.
Annual average of 55 μg/m3 • Population broken-down by age-groups
– Annual average PM10 concentration in Tripoli was applying percentages of Lebanon’s
assumed equivalent to 55 μg/m3. population
Case-
Methodology-Data for Greater Beirut and Tripoli Methodology- Estimate health impacts from exposure
• Relied on dose-response coefficients reported in the
Key Parameter Unit Lebanon Greater
Beirut area
Tripoli literature by Ostro (1994) and Lvovsky et al. (2000)
Total population Million 4.3 1.3 0.35
Adult population (≥15 yrs) Million 2.95 0.89 0.24 Health categories Units Impacts per 1μg/m3
Children population (≤14 yrs) Million 1.35 0.41 0.11 Premature mortality % change in crude mortality rate 0.084
Exposed population (80% of total) Million 1.04 0.28 Chronic bronchitis Per 100,000 adults 3.06
Exposed adult population (≥15 yrs) Million 0.7 0.2 Hospital admissions Per 100,000 population 1.2
Exposed children population (≤14 yrs) Million 0.3 0.1 Emergency room visits Per 100,000 population 23.54
Crude death rate Per 1,000 6 6 6 Restricted activity days Per 100,000 adults 5,750
Annual average PM10 μg/m3 55 55 Lower respiratory illness in children Per 100,000 children 169

Case-
Methodology- Valuate health impacts from exposure Results- Mortality and Morbidity
• Health outcomes converted to DALYs
Mortality Morbidity • DALYs adopted from Lvovsky et al. (2000)
• Data calculated per city and then aggregated
•DALY/ HCA approach •DALY/ HCA approach
•DALY/ WTP approach +
Health categories DALYs
per 10,000
Cases
Greater
DALYs
Greater
Cases
Greater
DALYs
Greater
DALYs
Total
cases Beirut Beirut Tripoli Tripoli
•Cost of illness Premature mortality 100,000 288 2,883 78 776 3,659
approach Chronic bronchitis 12,037 1,201 1,445 323 389 1,835
Hospital admissions 264 686 18 185 5 23
• Chronic bronchitis Emergency room visits 3 13,465 4 3,625 1 5
• Hospital admissions Restricted activity days 3 2,256,407 677 607,494 182 859
• Emergency room visits Lower respiratory illness in

children
3 30,349 9 8,171 2 12
• Restricted activity days Respiratory symptoms 3 7,181,260 2,154 1,933,416 580 2,734
Total DALYs lost per year 7,191 96,062 1,936 9,127

Case-
Results
• DALYs –Valuation Methodology- Valuate health impacts from exposure
– Mortality
• Low estimate at
GDP/capita (2001) = •Cost of illness approach
3,857 USD
Parameter Value
• High estimate at WTP • Chronic bronchitis
adopted from studies in Mortality
Europe and US and then
adjusted for GDP per Total number of 3,650 • Hospital admissions
capita differentials for DALYs
Lebanon Price per DALY 3,857 – 21,000 USD/yr • Emergency room visits
• Adjusted WTP then Monetary loss 14.2 – 76.6 million USD/yr
modified to reflect • Restricted activity days (RADs)
approximate number of % of GDP 0.08 – 0.46 %
DALYs lost due to air
pollution relative to DALYs Morbidity
lost in WTP studies
– 10 DALYs per case Total number of 5,480
usually considered for DALYs
air pollution Price per DALY 3,857 USD/yr
– Morbidity Monetary loss 21.37 million USD/yr
• Low estimate at
GDP/capita (2001) % of GDP 0.12 %
= 3,857 USD
Case-
Case-study 10: Impact of Urban Air Quality on Value of Life, Health, Risk & Safety
Health in Lebanon Case-
Results- COI approach- Basis for cost estimates
Health in Lebanon
• Chronic bronchitis Results- COI approach
– Monthly doctor visit for 25% of individuals with CB
– Twice a year visit for 65% of individuals with CB Unit costs* Chronic Hospital Emergency RADs Total cases
– Emergency doctor visit once a year for 30% of individuals
– Average 6 day hospitalization for 2.5% of individuals Annual cases 1,524 871 17,090 2,863,901 2,883,386
– 5 working days lost pr year for 35% of individuals COI
– Costs discounted at 10% for 15 years to reflect chronic nature of illness Hospitalization 600 US$/day 1,148 1,045
– Data based on studies from US and Europe Doctor visits 50 US$/visit 2,742
• Hospital admissions ER visits 100 US$/visit 383 1,709
– Two days of hospitalization Lost work days 60 US$/day 1,339 105 513 17,183
– Two work days lost Total COI (Million US$/yr) 5.61 1.15 2.22 17.18 26.16
• ER visits Cost per case (US$) 3,681 1,320 130 6.0 9.1
– Cost of doctor visits
– Half a day of work lost * Cost of illness based on information from doctors in Lebanon
• RADs
– 1 work day lost per 10 RADs
Total COI = 26.16 Million US$/year
= 0.16% of GDP

Thank You
REGIONAL WORKSHOP
ON
THE COST OF
ENVIRONMENTAL
DEGRADATION
METHODOLOGY
Session 18a
Economic Assessment of
Environmental Degradation due to
the July 2006 Hostilities
OUTLINE
• Introduction
• Oil Spill
• Demolition, Military, and Medical Waste
• Water Degradation
Session 18a • Quarries
Economic Assessment of Environmental • Air Pollution
Degradation due to the July 2006 Hostilities • Forest Fires
INTRODUCTION INTRODUCTION
• This study aims at assessing the cost of environmental
• The 34-day hostilities in Lebanon started on July 12, degradation caused by the 2006 hostilities in Lebanon
2006 and continued until August 14, 2006 • Valuation methods used
– killed close to 1,200 people
Impacts Method used
– left more than 4,400 injured
1.Oil spill
– displaced more than a quarter of the population - Impact on birds and turtles1 Restoration cost model
– damaged severely the country’s infrastructure - Beach resorts, hotels, restaurant, marinas, fishing, ... Market price2
– had a devastating impact on the country’s fragile environment 2. Waste

- Impact of demolition waste on environment Cost of transport and disposal
and people’s health - Impact of UXOs on health DALYs3
• destruction of infrastructure left enormous amounts of debris and - Impact of UXOs on agriculture Market price
rubble - Impact of medical waste Cost of disposal
• bombing of a power plant in Jiyeh caused the spill of about 12,000- 3. Water Cost of alternative sources
15,000 tons of oil into the Mediterranean Sea 4. Quarries Hedonic price method
• widespread fires and oil burning deteriorated the air quality, 5. Air Not estimated
especially in Southern Beirut 6. Forests
- Impact on forests Market price4, substitute goods5, cost-based methods6
- Impact on national reforestation program Restoration costs
INTRODUCTION
• The overall estimated cost of environmental degradation
Impacts US$ million US$ million US$ million % of GDP1
Waste
(Min)
206.8
(Max)
373.5
(Average)
290.2 1.4
OIL SPILL
Oil spill 166.3 239.9 203.1 1.0
Water 131.4 131.4 131.4 0.6
Quarries 15.4 175.5 95.5 0.5
Forests 7.0 10.8 8.9 0.0
Air n.e. n.e.
Total environmental cost
526.9 931.1 729.0 3.6%
caused by hostilities
Based on an estimated GDP for 2006 of US$20.5 billion (Economic Intelligence Unit, 2006)
Oil Spill Oil Spill
• Bombing of Jiyeh power utility, • Initial shoreline assessment by the MOE indicated that
located 30 km south of Beirut, led to – heavy pooled oil existed in coastal coves and harbors
burning and spilling of heavy oil into
the Mediterranean Sea – sand and gravel beaches south of Beirut and around Byblos to
– About 12,000 to 15,000 tons of oil the north showed surface and buried oil
– Air and naval blockade limited – several observations of oil on the bottom
mitigation before two months during this spill, probably a result of
• According to MEDSLIK from the • oil burning
Oceanography Centre, University of • heavy oil concentrations mixing with
Cyprus sediment to form oil mats on the bottom
– spilled oil moved northward and onto
the shoreline, with heaviest impacts
occurring between Jiyeh and Beirut, • This type of oil has relatively low impact potential on
then between Byblos and Chekka, and fisheries and invertebrates, due to the low content of
onto the Palm Islands offshore (acute) toxic hydrocarbons
• Other areas showed patchy impacts – Environmental problems are mainly caused by the oil’s physical
• Oil reached the shoreline at Tartus, properties, such as the tendency to stick to objects and surfaces
Syria
Oil Spill Oil Spill

• Major impact on marine biodiversity, including • Estimates the environmental damages caused by the
– shoreline biota oil spill on the coastal zone
– subtidal bottom communities – users’ forgone benefits through the differences between
birds the expected and actual benefits derived from activities on
– marine reptiles the coast
• Expected benefits: the level of environmental benefits which
– marine mammals would have been enjoyed, had the oil spill not occurred
– Fish • Actual benefits: those currently provided after the outbreak of
– Nature reserves, particularly the Palm Islands Nature Reserve in the conflict.
the North
• These impacts were impossible to valuate within the – A 3-year time frame was adopted for the analysis, during
which the losses will gradually subside
scope of the study
• conservative time frame, as it does not capture potential effects
• Impact of the oil spill on water quality not yet probed or that may occur over an extended period of
time
– laboratory analysis did not show contamination of groundwater
through seawater intrusion, which could have occurred in
densely fissured zones
Oil Spill Oil Spill

• In the absence of primary surveys several assumptions were made
to arrive at damage estimates
• The following impacts were valuated
Damages caused by the oil spill – Hotels and furnished apartments
Impacts on 2006 2007 2008
Jul‐Aug1 Sep ‐Dec Jan‐Dec Jan‐Dec – Beach resorts, chalets and public beaches
% of expected income
Commercial fishing 0 50 a 5‐10 0‐5 – Marinas sports activities
Shore‐side fishing 0 50a 5‐10 0‐5
Hotels
World Heritage Site
0
0
10‐20
25‐50
5‐10
5‐10
0‐5
0‐5
– Palm Islands Nature Reserve
Beach resorts and chalets 0 25‐50 5‐10 0‐5
Nature Reserve 0 75‐100 5‐10 0‐5 – Byblos World Heritage Site
Restaurants 0 75‐100 5‐10 0‐5
Sport Services 0 75‐100 5‐10 0‐5 – Restaurants
1all losses during July-August are assumed to be caused by the hostilities themselves
– Fishing
• The assumptions for 2006 rely on the baseline information and,
consequently, vary from one activity to another – Oil fuel burnt and spilled in Jiyeh
• For 2007 and 2008, conservative assumptions based on the experts’
best knowledge at the time of valuation – Oil spill clean-up operations
Oil Spill Oil Spill
Hotels and Furnished Apartments Beach Resorts and Chalets
• A drop in the occupancy rate of hotels and furnished apartments • The Lebanese coast hosts about 68 beach resorts
along the coast • Many beach resorts made low income, while others closed for the
– In 2006 significant reduction due to visual signs of oiled beaches and whole season
contaminated water • According to discussions with the Syndicate of Maritime
– The Syndicate of Hotel Owners (2006) lists 54 licensed hotels located Establishments
on the coast
• about 3,500 rooms – about 500 daily visitors/beach resort during peak season
• room rates US$40 to US$300/night, averaging to US$100/night – around 300 visitors/beach/day during the rest of the season.
• additional hotel revenue is US$50/day for meals, phone and laundry – daily spending per visitor averages US$20/day
• the average hotel income is about US$150/person/day – the expected income of beach resorts in September 2006 was
– 97 furnished apartment establishments are located on the coast estimated at US$12 million, while the expected seasonal income is
• 2,800 apartment units about US$55.4 million
• daily price per apartment on average assumed that the net price of one furnished • In September 2006, the hostilities and the oil spill altogether caused a decline in
apartment is about US$220/night the expected income of about 80% in September 2006.
– The oil spill alone likely contributed a loss of about 25-50% to the expected income in
September 2006
• With a damage cost of 5-10% of expected income in 2007 and 0-5% – As in other cases, considerably lower share of 5-10% is assumed for 2007
– 0-5% for 2008
in 2008, total forgone income due to the oil spill ranges between
US$23-60 million, with an average of US$41 million • Total forgone income due to the oil spill falls between US$5-13
million
Oil Spill Oil Spill

Beach Resorts and Chalets Beach Resorts and Chalets
• Twenty-five chalet complexes can be found on the • About 15 public beaches in Lebanon, covering a total length
Lebanese coast, all located north of Jiyeh of 10-12 km
– The high season for renting chalets covers May-October – peak season from July to September
– oil spill affected only 9 beaches
– Each chalet complex has about 200 chalets
– as entrance is free, it is assumed that the individual benefit is
– Chalet rent is about US$1,000/month about half of that enjoyed by visitors to beach resorts, i.e.
– Thus, the monthly income from renting chalets averages to US$10/day
US$5 million • Expected monthly benefits from using public beaches during
– The chalets closed during hostilities and re-opened at the high-season = US$2.6 million
beginning of September 2006 – Public beaches closed during hostilities and re-opened
• expected income after re-opening beginning of September 2006
– US$10 million in 2006 • Expected income after re-opening is estimated at US$2.6 million in
– US$30 million in each of 2007 and 2008 2006 and US$7.8 million in each of 2007 and 2008
– Assuming that the oil spill contributes to the income • Assuming oil spill contributes to the decline in benefits from
decline in a similar way as in the case of beach resorts, public beaches in a similar way as in the case of beach
total forgone income to chalets is about US$4 - 9 million resorts, the present value of total forgone income is about
US$0.7-1.5 million
Oil Spill Oil Spill

Beach Resorts and Chalets Marine Sports Activities
• Beach resorts and chalet complexes organize weddings and other • Marinas offer recreational services to public such as
social events from May to October – Boating
– Social events count about 300 participants and cost US$40/person – Diving
– Beach resorts can organize events during warm months
• 4 events/week during 4 months
– Water-skiing
– Chalets complexes can arrange such events during half of the year – Docking
• 3 events/week during 6 months – Maintenance of private boats
– About 6,000-6,700 events per season, providing an income of about • In 2006, oil pollution of seawater, boats
US$71-80 million per year
and its effects on health prevented
• Income decline in 2006 is considered to be due to hostilities most marinas to resume their boat rental and water sports
• Assuming that in 2007 and 2008 the oil spill contributes to the activities
decline in the income from events in a similar way as in the case of
beach resorts • Based on field interviews, the total revenue of marinas is
– the present value of forgone income to events is about US$3-11 million. estimated about US$1 million per year, assume that
– Income during May-June is equal to September-October, i.e.
about 25% of total annual income
Overall, forgone income to beach resorts, chalets, public beaches
and events falls within US$13-35 million, with an average of – As recreational activities resumed in September 2006, the
US$24 million expected income for the rest of the year was US$250,000
Oil Spill Oil Spill
Marine Sports Activities Marine Sports Activities
• Assume that • Pollution of private leisure boats docked in marinas and fishing
– Income during May-June is equal to September-October, i.e. about 25% boats docked in fishing ports
of total annual income – limited the owners’ benefits from using their boats in the period following
– As recreational activities resumed in September 2006, the expected the hostilities until the end of 2006
income for the rest of the year was US$250,000 – imposed additional costs of cleaning the boats
Min Max • Loss of the recreational benefit from private leisure boats equal to
• Assume that (‘000 UsD) (‘000 UsD) – annual depreciation of the boat
– oil spill caused about Expected income: – cost of upkeep and docking in marinas
75-100% drop in income - in 2006 (Sept-Oct) 250 250 • Assuming that only 890 boats actually oiled (50% of 1,775)
in September-October - in 2007 (May-Oct) 1,000 1,000
2006. - in 2008 (May-Oct) 1,000 1,000 – Average price for common boat (6-12 m) = US$30,000
– loss is about 5-10% Forgone income due to oil – Considering a lifetime of about 20 years
of annual income - in 2006 (Sept-Oct) 188 250 • annual value of a boat = US$1,500.
in 2007 and 0-5% in 2008 - in 2007 (May-Oct) 50 100 – Assuming an annual cost of US$300/m/season and the average size of
- in 2008 (May-Oct) 0 50 a boat of 9 m
PV of forgone income 238 377 • Annual cost of upkeep and docking is about US$2,700
• The total loss to owners of private leisure boats = US$3.7 million.
• Loss from recreational activities in marinas ranges between
US$0.23-0.38 million, with an average of US$0.3 million
Oil Spill Oil Spill

Marine Sports Activities Palm Islands’
Islands’ Nature Reserve
• To estimate the loss due to oiled fishing boats, • The loss to tourism in 2006 estimated by the difference between
– the expected number of tourists (averaging 22,500)
annual maintenance costs used as proxy – actual arrivals (about 1,700)
– 20 oiled fishing boats • Forgone benefits
– losses in revenues from boat transportation of individuals and groups to the islands
– annual maintenance costs = US$2,700 – rentals of chairs and umbrellas
• Accordingly, loss due to oiled fishing boats • The tourist season is about 13 weeks (July-September) of which only three
remained after the end of blockade
amounts to US$54,000 • Considering that tourists are evenly distributed in time throughout the
season, and assuming that the oil spill will contribute to the forgone income
between
Total loss to private owners of leisure and fishing – 75-100% in 2006
– 5-10% in 2007
boats = US$3.8 million – 0-5% in 2008
• Loss in tourism due to oil spill is estimated at about US$15,400-27,600
NATURE RESERVE Min Max Notes
Overall losses to marinas’ sports activities = US$4 to Forgone annual income (13 weeks) 72.4 91.1
US$4.2 million, with an average of US$4.1 Forgone income due to the oil spill
- in 2006 (3 weeks) 12.5 15.8
% of expected income:
75-100%
million - in 2007 (13 weeks) 3.6 9.1 5-10%
- in 2008 (13 weeks) 0 4.6 0-5%
PV of forgone income (‘000 USD) 15.4 27.6
Oil Spill Oil Spill

Palm Islands’
Islands’ Nature Reserve Byblos World Heritage Site
• Oil spill heavily contaminated
• A long term monitoring program is foreseen for the reserve
and other ecologically significant sites affected by the spill – the harbor
– 7-10 years duration – two medieval towers at the entrance
– US$1.2-1.7 cost – other ancient ruins located below the archaeological Tell in
Byblos
• Part of this cost is directly related to the oil spill damage, while
the rest being an expression of WTP for future information
• Absence of information on the willingness-to-pay Æ loss of
• Assumed that 50% of the total impact assessment and historical value using restoration cost method
monitoring cost is due to the oil spill damage, ie. US$600,000-
850,000 – UNESCO team recommended a procedure to clean the oiled
archaeological remains
• The overall impact of the oil spill on the Palm Islands Nature • Assuming stones cleaned manually with a specially prepared solution
Reserve and other ecologically sensitive areas amounts to • Total cleanup cost of operations = US$100,000 as the minimum bound
US$0.7-1.2 million of the damage caused by the oil spill
• Assigning a monetary value to the loss of biodiversity was not
possible due to lack of such studies • Loss in recreational value estimated in terms of forgone
benefits due to decrease in number of visitors during 2006-
2008
Oil Spill Oil Spill
Byblos World Heritage Site Restaurants
• Visits to Byblos take place throughout the year and are organized both by • Oil spill affected negatively the activity of these restaurants, mainly due to
tour operators and private individuals fears of negative impacts of contaminated fish on human health
• According to the Syndicate of Restaurant Owners
Tours Private individuals – 170 restaurants specialized in fish
•Average number of visitors by tours is • There are twice as many visitors to – Annual turnover ranges between US$200,000 and US$ 600,000
about 300/year Byblos by private cars as those • Assuming average turnover of a fish restaurant is US$400,000/year
•Fee is about US$30/person if meals coming through tour operators (US$33,000/month) expected income during September – December 2006
are excluded • The average spending is would be about US$133,000 per restaurant
•The annual income of tour operators US$15/person RESTAURANTS Min Max
from organizing visits to Byblos is about •The annual income from individual trips No. of fish restaurants 170 170
US$72,000 would be about US$72,000 • In 2006, 75-100% of the expected income loss Annual turnover (000 US$/rest./ yr.) 400 400
• In 2007-2008, successful cleanup of oil Monthly turnover (000 US$/rest/mth) 33.3 33.3
• Annual income from all visits to Byblos = US$144,000 and gradual return to normal life Expected income in Sept-Dec 2006 133.3 133.3
• Assuming the oil spill contributes Min Max (000 US$/rest.)
• potential effects on human health
25-50% of the September- Expected annual income 144.0 144.0 reduce the restaurants’ expected profits Forgone income due to the oil spill
December income in 2006, 5-10% Forgone income due to oil spill by 5-10% in 2007 and by 0-5% in 2008 - in 2006 (million US$) 17.0 22.7
in 2007 and 0-5% in 2008 - in 2006 (Sept-Dec 9.0 24.0 - in 2007 (million US$) 3.4 6.8
• Damage to tourism in - in 2007 (Jan-Dec) 7.2 14.4 - in 2008 (million US$) 0 3.4
Byblos and other historical towns - in 2008 (Jan-Dec) 0.0 7.2 PV of forgone income to oil spill 19.5 31.1
ranges between US$15,300-42,800. PV of forgone income 15.3 42.8 (million US$)
Present value of forgone benefits ranges between
Total estimated damages to Byblos US$115,300-
US$115,300-142,800 US$19.5-
US$19.5-31.1 million with average at US$25.3 million
Oil Spill Oil Spill

Fishing Fishing
• Fishing supports about 30,000 fishermen who catch on average 8,000 ton • Recreational fishing
of fish per year – Impacts assumed to be similar to commercial ones
• Oil spill caused – Oil affected 2,600 anglers
– direct damages to the boats and gears and ultimately a partial decline of fish supply – Value of shore-side fishing includes the consumption and recreational value of fish
– indirect damages whereby the actual fish contamination or the perception of its effects – Using an average catch of 2 kg/day for a minimum of 50 days and an average price of
on health reduced the overall demand for fish consumption US$4/kg (FAO, 2006), the consumption value of fish is US$1 million/year
• In commercial fishing, fish catch varies largely across seasons • Assuming recreational value of anglers in Lebanon is similar to the value of
– 30% of annual catch in spring recreation on public beaches (US$10/day), the recreational value of anglers
– 42% in summer is US$1.3 million/year
– 22% in autumn • Overall, the annual value of shore-side fishing is about US$2.3 million.
– 8% in winter • Considering that fish catch varies seasonally in the same proportion as in
• Annual income from fishing is about US$31 million the case of commercial fishing
• Applying the seasonal catch factor to the total income, the expected fish – expected fish income during September-December 2006 was estimated at about
income during September-December 2006 was US$7.4 million. US$0.7 million
• It is estimated that the hostilities and oil spill caused the income of • Estimating the impact of the oil spill on shore-side fishing uses the same
fishermen to drop by 45%. percentages adopted for commercial fishing for 2006-2008,
– the present value of forgone benefits ranges between US$260,000-472,000
• Assuming that only 50% of this drop is owing to oil spill, the associated
damage cost in 2006 is about US$1.3 million
• Assuming oil spill causes a 5-10% decline in 2007 and 0-5% in 2008, the Overall, the impact of the oil spill on commercial and shore-side fishing
present value of damages to commercial fishing falls between US$3-6 amounts to US$3.2-6.5 million, with an average of US$5 million
million
Oil Spill Oil Spill

Oil Fuel Burnt and Spilled in Jiyeh Oil Spill Clean-
Clean-up Operations
• In addition to environmental damages the loss of • MOE estimated the cost of oil spill clean-up in the
an estimated 44,000 tons of stored IFO 150 at range of US$137-205 million (US$13,800/t)
Jiyeh electrical power plant represent an economic
loss
– Loss in resources due to the spill and burning of the • Approximately US$4 million was provided as
Jiyeh fuel = US$ 20 million (US$450/ ton) equipment and materials by international
– Cost of hiring three floating tankers to replace burnt community
tanks = US$ 4 million – Considering depreciation from use with this oil type
– Transfer of fuel from different plants to Jiyeh power
plan and soil test of soil in burnt tanks’ location = US$ – Considering that much of the material was provided
15 million as expendable supplies
• 25% of the total supplied, or USD 1 million, will be available
• In total, the burning and spilling of Jiyeh fuel oil for use after this incident and therefore is deducted from the
due to the hostilities resulted in a direct economic total mitigation cost
loss estimated at US$ 39 million.
million
Oil Spill Oil Spill
Oil Spill Clean-
Clean-up Operations Oil Spill Clean-
Clean-up Operations
• Estimated amount of oiled waste generated by Phase I clean • The estimated cost of transporting and treating the oiled
up operation waste resulting from Phase I cleaning operation is US$ 47.1
– 1,030 m3of liquid waste million
– 6,250 m3 of polluted waste
• sand, garbage, debris and equipment • Phase II of oil spill clean up will generate 4,500 m3 of solid
• Cost of oil waste removed during Phase I based on the waste waste
management options considered by the MOE • Additional costs include
– Cost of liquid waste re-processed at Zahrani refinery = US$ – 1 million USD for Phase II of the clean-up and monitoring
92,000 operations in Palm Islands Nature Reserve
– Cost of treating non-liquid oil-polluted waste = US$ 47 million – 0.5 million USD for sampling and analysis of water, sediments,
• 25% includes low-to-medium contaminated sand biota and fish species in 9 sites along the Lebanese coast over a
– 25% of low-to-medium contaminated sand will be re-used in cement, construction period of three years
or asphalt industries
– At a unit cost of US$10/m3 and a transport cost of US$80,000, the total cost of
transporting and treating the low-to medium contaminated sand is estimated at
US$96,000 Overall, the cost of oil clean-up, treatment of oiled waste
• 75% represents heavily contaminated sand and pebbles and monitoring the Lebanese coast is estimated at US$
– 4,700 m3 of heavily contaminated sand and pebbles to be shipped under Basel 63.5 million
convention at a cost of US$10,000/ m3
Oil Spill
Oil Spill Estimated costs of damage and clean-
clean-up
Summary due to the oil spill
Parameter Estimated Cost (million $)
• Overall damage and clean-up cost due to the oil spill is
Min Max Mean
conservatively estimated at US$203 million, or 1.0% of GDP
Damage
in 2006
- Hotels 22.8 59.6 41.2
- Beach resorts, chalets, public beaches 13.2 34.8 24.0
• Value represents lower bound of real costs - sports activities 4.0 4.2 4.1
– does not capture several damage costs - Nature Reserve 0.7 1.2 1.0
• effects on health (skin diseases) 0.1 0.1 0.1
• effects on ecosystem services (loss in habitat for spawning) - Restaurants 19. 5 31.1 25.3
• effects on marine biodiversity - Commercial fishing 3.0 5.9 4.4
– fails to cover the cost of many future clean-up operations - Sea‐shore fishing 0.3 0.5 0.4
– tends to reflect only partially the real cost of the oil spill for many - Cost of oil fuel burnt 39.1 39.1 39.1
impacts, as a result of the conservative assumptions adopted for Sub‐total 102.8 176.4 139.6
valuation Oil spill clean up
- Expenses already made 14.9 14.9 14.9
• Overall estimate and breakdowns should be regarded with - Oiled waste 48.2 48.2 48.2
care, as many of the assumptions are subjective and - Monitoring expenses 1.5 1.5 1.5
debatable due to lack of accurate data Sub‐total 63.5 63.5 63.5
Total 166.3 239.9 203.1
Construction & Demolition Waste

• Construction and Demolition (C&D) waste concentrated
in three areas:
CONSTRUCTION, DEMOLITION – Southern Suburbs of Beirut
– Districts of the South
AND MILITARY WASTE – Baalbek El Hermel region
• Typical C&D debris constituents:

– Primary inert fractions
• Asphalt, brick, glass, plastic pipes, etc.
– High organic based fractions
• Ceiling tiles, insulation-treated cellulose, plywood, etc.
– Composite materials
• Carpeting, gypsum wallboard, electrical fixtures, etc.
Construction & Demolition Waste Construction & Demolition Waste
General Quantities Handling, transport & disposal
• Beirut Southern Suburbs • Beirut Southern Suburbs
• 100-200 residential buildings completely
destroyed – Waste disposed at 4 sites
• 28 partially blasted
• 70 damaged • 2 in low-lying areas by the sea
• Districts of the South and Baalbek El • 1 in Choueifat
Hermel • 1 temporary along the airport
– 11,140 units destroyed road
– 1,249 units partially destroyed
– 81,000 units lightly damaged – Waste dumped haphazardly
• Actual quantities of rubble and demolition – Slope reached 1:1
waste
Regions Quantities (million m3) – Where sea encroachment
Beirut Southern Suburbs 1.43 occurs, the bulky C&D waste
South 3.32
gives a good angle of stability
Bekaa 1
Total 5.75

Handling, transport & disposal Handling, transport & disposal
• The South • Baalbek El Hermel
– Waste used to fill depressions – Waste used to rehabilitate
– Waste dumped on nearby lands and depressions
in valleys (Khyam)
– Waste dumped in abandoned
– Waste dumped in an abandoned
pond in Aytaroun quarries
– Associated damage difficult to – Sorting of asbestos mats,
quantify construction steel, and
• Ecosystem damage and visual intrusion concrete bricks at dumpsites
• Hydrology and hydrogeology
• Opportunity cost associated with land-
– Asbestos only in Baalbek El
use Hermel
• Limited short-term exposure

Handling, transport & disposal
Estimated cost of loading and transport of C&D waste
Road depreciation
Description Rate
Waste Haulinga • In South and Baalbek El Hermel
Dozer charging rateb ($/day) 400 – Damage due to military aggression
Filling capacity of 3 dozersc (Truck/day) 30
Daily volume of C&D waste loaded (m3/day) 540
– No damage from waste transport
Cost of Loading each Truck per m3 of DW ($/m3) 0.07 • In Beirut- cost of road depreciation
Waste Transporta
Truck charging rateb ($/day) 250
Description Rate
Daily number of round trips 6 Average road length (km)a 2-3
Loading capacity per truck (m3) 18 Average road width (m)a 6-8
Daily Volume of DW Transported per Truck (m3/day) 108 Average road area (m2) 12,000-24,000
Cost of Transport per m3 of DW ($/m3) 2.31 Cost of road refurbishment ($US/ m2)a 20-30b
Total Unit Cost ($/m3) 2.38 40 cm of compacted gravel
10 cm of asphalt
Cost in Beirut S. Suburbs ( millions $) 3.4 a Based on field surveys,
Cost in the South (millions $) 7.9 expert opinion, and GIS Total cost of road depreciation (US$) 240,000-720,000
analysis
Cost in Baalbek El Hermel (millions $) 2.4 b Range accounts for a Based on field surveys, expert opinion, and GIS analysis
degree of intervention b Range accounts for degree of intervention and thickness damaged
Total Cost (million $) 13.7 and thickness damaged
Construction & Demolition Waste Traffic Delays
Traffic Delays Estimated cost of traffic delays
Description Rate
• In South and Baalbek El Hermel, delays Average extra time spent in traffic (hr/day)a 2
Average hourly wage (US$/hr)b 2.5
not encountered Number of working days per monthc 22
Fraction of lost productive timea 0.5
– Traffic management and rerouting away from Duration of waste removal (months) 6-8
city center Opportunity cost of time (US$/ person/6-8 month) 330-440
– Dumpsites located in outskirts Average daily number of affected commutersd 115,150
Opportunity Cost of Time (US$ million) 38-51

• In Beirut, 1 to 3 hrs of traffic delays Fuel consumption per hr in traffic (L/hr)a 1
Unit cost of fuel ($US/L)a 0.8
– Difficult to differentiate between delays due to Cost of fuel spent per person per month ($US/month) 35.2
a Based on field surveys and
waste transport and delays due to bombarded Number of affected vehiclesd 60,000 expert opinion;
b Based on a GDP of 5,300
roads Cost of gasoline spent per person per 6-8 months
($US/person)
211-282 US$/capita;
c Peak travel delays are
assumed to occur 22 working
Total cost of gasoline spent per 6-8 months ($US million) 13-17 days/month;
d Based on DMJM+HARRIS,
Total cost of traffic delay (US$ million) 51-68 2003-Refer to Annex 3

Cost of land for waste disposal Depreciation of land surrounding dumpsites
• Assumptions • Waste disposal represents to surrounding
– All waste in each area is disposed in one neighborhood
equivalent landfill – Health hazard
– Height of landfill = 25 m – Visual intrusion
– Unit cost of land adopted is average to low • Damage assessment was not possible
Region Waste volume Landfill Area of Landfill Cost of land1 Cost of
(000m3) height (m) waste area ($/m2) land
(000m2) (000m2) (million $)
Beirut 1,430 25 57.2 74.4 1,000 74.4
South 3,320 25 132.8 172.6 10 1.72
Baalbek 1,000 25 40.0 52.0 15 0.78

1 Based on real estate information and expert opinion
Construction & Demolition Waste Military Waste (Unexploded Ordnances)

Summary Introduction
• 864 cluster bomb strike locations in South Lebanon
Estimated total damage cost of C&D waste
Parameter Damage cost (million US$)
Beirut South Baalbek Total
Waste hauling and transport 3.4 7.9 2.4 13.7
Road maintenance 0.2-0.7 - - 0.2-0.7
Traffic delays 51 - 68 - - 51 - 68
Land for disposal 74.4 1.7 0.8 76.9
Land depreciation - - - -
Subtotal 129-146.5 9.6 3.2 142-159
Military Waste (Unexploded Ordnances) Military Waste (Unexploded Ordnances)
Introduction Deaths and Injuries
• One million UXOs on 34 million square • Casualties from
meters August 14 2006 to 120
Current P ro je c te d
April 03 2007
102
• Demining 100
(MACCSL, 2007)
Number of casualties
– Costs 5.5 million USD per year 80
– 29 deaths
– Will need a period of two years
60
43
– 195 injuries 40
• Impact of UXOs 23 24
• UXO casualties by 20
16
8 6
– Death and injuries the end of the two- 0
4 4 4 4 4 4 4 3 3 3 2 2 2 2 2 2 2 2
– Preventing access and exploitation of year demining

agricultural lands period was
projected

Deaths and Injuries Deaths and Injuries
Estimated damage cost of UXOs
• DALY methodology applied
Age group Current nb of Current and DALYs DALY Current & projected
– Disability weight for death = 1 casualtiesa projected nb. per ($ VSL) economic loss (million
– Disability weight for injuries resulting from UXO (leg of casualtiesb casec US$/ age-group)
or arm amputation) = 0.3 MORTALITY
• DALY approaches 0-12 2 2.5 33 5,300-42,000 0.43 – 3.40

13-18 4 4.9 36 5,300-42,000 0.94 – 7.43
– Human Capital Approach 19+ 23 28.2 20 5,300-42,000 2.99 – 23.72
• 5,300 USD as GDP per capita in 2006
SubTotal 29 35.6 4.36 – 34.55
– Value of Statistical Life (VSL) MORBIDITY
• 42,000 based on the VSL divided by a time horizon of 25 0-12 24 29.5 9.9 5,300-42,000 1.55 – 12.25
years and discount rate of four percent
13-18 39 47.9 10.8 5,300-42,000 2.74 – 21.72
• Total damage cost of casualties resulting from 19+ 132 162.1 6 5,300-42,000 5.15 -40.84
US$ 14 and 109 million over a period of two SubTotal 195 239.4 9.44 – 74.81
years. Total 224 275 13.80 – 109.35
a MACCL, 2007
b Based on Figure 3.8 and the assumption that percent distribution of projected vs. current casualties is the same
c Murray and Lopez, 1996

Access to Agricultural Lands Access to Agricultural Lands
• Limited access to agricultural lands in the South • Assessing the productivity loss due to lack
will impact on agricultural production and farmer
livelihoods for at least two years of access to agricultural lands.
• Farmers may respond by Crop type Total
– burning their orchards to get rid of UXOs, losing Cultivated area (du) a Production rate b production Value b Total value
plantations in the process Cereals

South
37,638
Nabatiye
59,525
Total
97,163
(Tonne/du)
0.28
(Tonnes)
26,781
(USD/tonne)
297
(USD)
7,965,069
– doing nothing and wait for their lands to be cleared Legumes 2,096 5,869 7,966 0.54 4,270 565 2,413,839
from UXOs Fruit trees 123,304 20,768 144,073 1.26 181,973 746 135,786,268
– migrating to urban areas and adding to the poverty Olives 89,340 116,124 205,464 0.29 58,759 1,268 74,525,973
situation in urban belts. Oleaginous trees 5,806 3,836 9,642 0.10 931 2,083 1,939,556
Vegetables 20,753 12,141 32,894 3.19 104,871 251 26,276,441
• It is difficult to assign a monetary value on these Raw tobacco 14,625 40,026 54,652 0.12 6,395 2,988 19,110,223
types of behaviors. Total 268,017,000
Access to Agricultural Lands Summary
• Scenarios adopted and associated costs • Scenarios adopted and associated costs
Scenario Damage cost

Damage cost (million $US)
Minimum Maximum
1) 25% of the agricultural area (evenly distributed among crop categories in 67 million US$ per year
the 2 Mohafazas) will not be accessible for a whole year Casualties 14 109
2) 10% of the agricultural area (evenly distributed among crop categories in 27 million US$ per year Loss in agricultural opportunities 40 94
the 2 Mohafazas) will not be accessible for a whole year De-mining 11 11
3) 5% of the agricultural area (evenly distributed among crop categories in 13 million US$ per year Total 65 214
the 2 Mohafazas) will not be accessible for a whole year
Medical Waste
Summary
• Hostilities caused
– 1,200 deaths
– 4,400 injuries
• Around 200-250 tons of medical waste generated WATER DEGRADATION
• All generated waste is assumed to be infectious
requiring sterilization
• Handling cost of medical waste estimated at 0.015-0.045
million USD
– Sterilization cost = 60 USD/ton
– Disposal cost at an operational landfill = 15-120 USD/ton
• Cost of disposal of unwanted pharmaceuticals could not
be estimated due to lack of data
Water Degradation Water Degradation

Impacts on Water Resources Damage to Water Resources
• Strikes on industrial facilities • Impact on water quality
– Damage of Choueifat Industrial Area
• Pollution of Ghadir stream with waste residue, contaminated soil, – Requires establishment of dose-response
ash
• Groundwater contaminated with heavy metals and toxic benzene
functions
• Strikes on water and wastewater infrastructure – Absence of pre-conflict monitoring
– Affected mostly the Beirut Southern Suburbs and the South
– Caused a high risk of cross-contamination and a disruption of
– Absence of data regarding water use changes
water and sanitation services and waterborne disease incidences
– Imposed additional costs of securing clean water
– No monetary estimate could be made
• Destruction of bridges over the Litani River
– Obstruction of flow
– Risk of flooding in neighboring areas
– Excessive erosion and destruction of stream banks
• Destruction of irrigation canals
Damage to Water Resources Damage to Water Resources
• Impact on water quantity • Reservoir restoration
– 52 water reservoirs damaged – 82,900 people were gradually served by 48
– 100s of kms of water and wastewater reservoirs during Sept-Dec 2006
networks – 62,100 people were expected to be supplied
– About 150,000 people directly affected with water gradually during Jan-Dec 2007.
• Assumptions – It is expected that 5,000 people will be served
– Water reservoirs provide 50% of total water by June 2007
supply
– Average daily water consumption
• 1 liter/capita for drinking
• 79.5 liter/capita for other uses

Damage to Water Resources Damage to Water Resources
• Sample calculations:
– Additional costs of getting water during September-December 2006 • Total additional cost of getting water =
99.4 million USD
Sep Oct Nov Dec Total
Population affected (‘000) 83 62 41 21
– 64.4 million USD for the 62,100 people
Cost of bottled water a (USD/liter) 0.7 0.7 0.7 0.7 … expected to gradually receive water during
Cost of water tanksa (USD/liter) 0.06 0.06 0.06 0.06 … Jan-Dec 2007
Number of days 30 31 30 31
– 6.2 million USD for the remaining 5,000
…
Cost of drinking waterb (million USD) (1) 0.2 0.1 0.1 0.1 0.5
Cost of water for other usesc (million USD) (2) 11.3 8.7 5.6 3.0 28.6 residents expected to be served by June
Cost if hostilities had not occurredd (million USD) (3) 0.1 0.09 0.06 0.03 0.3 2007.
Additional cost (million USD) (1) + (2) - (3) 11.4 8.8 5.6 3.0
• Additional cost of repairing the water
28.8
Notes: a market price observed during the field visit (April 2007); b based on a drinking water consumption of about 0.5
liter/capita/day; 16% of population relies on bottled water and the remaining on water tanks; c based on a consumption of
79.5 liters/capita of water for other uses; all population relies on water tanks; d assumes that 50% of the daily consumption
infrastructure = 33 million USD
would have been satisfied by water reservoir.
Quarries
Methodology
• Pressure on quarrying activity to supply the
needed aggregate and sand for reconstruction
• Adopted methodology
QUARRIES – estimate the amount of aggregate and sand needed
for the reconstruction, based on the amount of debris
and demolition waste;
– estimate the distribution of quarrying activities by
Mohafazah;
– estimate the impact of quarrying activities during
operation on the surrounding environment
– non-rehabilitating quarries after completion of
exploitation on the surrounding environment
Quarries Quarries
Aggregate and Sand Quantities Aggregate and Sand Quantities
• Based on the amount of debris and rubble generated by the hostilities • Based on the amount of debris and rubble generated by the hostilities
Location Aggregate and sand (m3) Location Aggregate and sand (m3)
Beirut Beirut
Demolition waste generated a 1,430,000 Demolition waste generated a 1,430,000
Of which agg & sand (35-50%) b 501,000 715,000 Of which agg & sand (35-50%) b 501,000 715,000
Of which concrete (35-50%) b 501,000 715,000 Of which concrete (35-50%) b 501,000 715,000
Equivalent in agg & sand c 356,000 508,000 Equivalent in agg & sand c 356,000 508,000
Sub-total (i) 857,000 1,223,000 Sub-total (i) 857,000 1,223,000
South and Bekaa South and Bekaa
Demolition waste generated a 4,320,000 Demolition waste generated a 4,320,000
Of which agg & sand (30-40%) b 1,296,000 1,728,000 Of which agg & sand (30-40%) b 1,296,000 1,728,000
Of which concrete (40-60%) b 1,728,000 2,592,000 Of which concrete (40-60%) b 1,728,000 2,592,000
Equivalent in agg & sand c 1,227,000 3,568,000 Equivalent in agg & sand c 1,227,000 3,568,000
Sub-total(ii) 2,523,000 3,568,000 Sub-total(ii) 2,523,000 3,568,000
Average sub-total (i)+(ii) 4,086,000 Average sub-total (i)+(ii) 4,086,000
Total Aggregate & Sand (adding 15% loss of raw Total Aggregate & Sand (adding 15% loss of raw
4,700,000 4,700,000
material at quarry) material at quarry)
Quarries Quarries
Distribution of Activities by Mohafaza Environmental Impacts of Quarries in
Mount Lebanon
• Based on the number of short administrative extensions granted by • Threats to the environment
the Ministry of Interior and Municipalities according to the council of – Destruction of natural vegetation and habitat
ministers decision #6 dated January 4, 2007 – Air pollution from dusts
– South & Nabathieh 32% – noise pollution
– North & Akkar 24% – traffic from trucks carrying aggregates
– Bekaa &Baalback Hermel 31% – Deterioration of road condition
– Mount Lebanon 14% – Irreversible long-term visual/aesthetic impact
• Assuming the scale of excavation is evenly distributed, the • Hedonic Price Method previously conducted
distribution of aggregate and sand is as follows: – 4 quarrying sites in Mount Lebanon
– South & Nabthieh 1,494,000 m3 • the depreciation in real estate price resulting from quarrying activities for the
– North & Akkar 1,105,000 m3 Nahr Ibrahim quarry = 4 USD/m3 of extracted aggregate and sand
– Bekaa &Baalback Hermel 1,447,000 m3 • the change in property price due to the non-rehabilitation of the three other
quarries at the end of operation
– Mount Lebanon 654,000 m3 – Land prices: 0.13 - 40.0 USD/m3 of extracted aggregate and sand
– Total 4,700,000 m3 – Apartment prices: 0.4 - 5.0 USD/m3 of extracted aggregate and sand
Quarries Quarries
Environmental Impacts of Quarries in Relative price of land and apartments
Mount Lebanon by Mohafaza
Quarry 1 Nahr Ibrahim (Impact during operation)
Estimated quarry area (m2)a 96,830
Quarry 3 Abu Mizan (Impact after closure)
Estimated quarry area (m2) in 3 locationa 276,930
• Land and apartments prices compiled to derive
Estimated excavated volume (m3)b 4,115,000 Estimated excavated volume (m3)b 11,769,525 a price of land per Mohafazah
Land area affected by the quarry (m2)c 2,000,000 Land Area affected by the quarry (m2)c 175,000
– 90 districts in Mount Lebanon
Decline in Land price (US$/m2) in 2002c 7.0 Decline in Land price (US$/ m2) in 2002c 8
Decline in Land price (US$/m2) in 2006d 8.2 Decline in Land price (US$/ m2) in 2006d 9 – 15 districts in the Bekaa
Total decline in land price 2006
Decline in land price US$/ m3
16,400,557
4.0
Total decline in land price 2006
Decline in land price US $/ m3
1,537,552
0.13
– 41 districts in the North
Quarry 2 Shnanaayer (Impact after closure) Quarry 4 Antelias (Impact after closure)
– 10 districts in the South.
Estimated quarry area (m2) in 2 locations a 48,370 Estimated quarry area (m2) in 1 location a 51,577
Estimated excavated volume (m3)b 2,056,000 Estimated excavated volume (m3) b 2,192,000
Land Area affected by the quarry (m2)c 600,000 Land Area affected by the quarry (m2) c 100,000 Mohafazah Relative price of land Relative price of apartments
Decline in Land price (US$/m2) in 2002c 125 Decline in Land price (US$/ m2) in 2002 c 50 (USD/m2) (USD/m2)
Decline in Land price (US$/m2) in 2006d 146 Decline in Land price (US$/ m2) in 2006 d 59
Mount Lebanon 1 1
Total decline in land price 2006 87,860,125 Total decline in land price 2006 5,857,342
Decline in land price US $/ m3 43 Decline in land price US$/m3 3 Bekaa 0.19 0.58
Apartments affected by quarry (m2)c 36,000 Apartments affected by quarry (m2) c 7,500
North 0.68 1.03
Decline in apartment price (US$/ m2) in 2002c 225 Decline in apartment price (US$/ m2) in 2002 c 100
Decline in apartment price (US$/ m2) in 2006d 264 Decline in apartment price (US$/ m2) in 2006 d 117 South 1.11 0.99
Total decline in apartment value 2006 9,488,894 Total decline in apartment value 2006 878,601
Decline in apartment value US$/m3 5 Decline in apartment value US$/m3 0.40
Quarries Quarries
Impact of quarrying activities for Impact of quarrying activities for
reconstruction reconstruction
South & Nabatieh min max avg
• Computed as if all impacts were to happen in
North & Akkar min max avg
Needed aggregate (million m3) 1.5 Needed aggregate (million m3) 1.1
2006 Impact during quarrying operation on

land price (million US$) 6.6
Impact during quarrying operation on
land price (million US$) 3.0
• Alternatively, the impact should have been Impact of non rehabilitating quarries
on land price (million US$) 0.2 71.0 35.6
Impact of non rehabilitating quarries
on land price (million US$) 0.1 32.3 16.2
– spread over a few years and than discounted back to on apartment price (million US$) 0.6 6.8 3.7
on apartment price (million US$) 0.5 5.3 2.9
2006 (using a 4% discount rate). Sub Total 46.0 Sub Total 22.1
– taking into account the inflation rate (varying between Bekaa & Baalback Hermel min max avg Mount Lebanon min max avg
3.5 and 4.8%) Needed aggregate (million m3) 1.4 Needed aggregate (million m3) 0.7
Impact during quarrying operation on Impact during quarrying operation on
– Hence the overall impact is likely to have been the land price (million US$) 1.1 land price (million US$) 2.6
Impact of non rehabilitating quarries Impact of non rehabilitating quarries
same as if it was computed for 2006 only on land price (million US$) 0.0 11.9 6.0 on land price (million US$) 0.1 27.9 14.0
Impact of non rehabilitating quarries Impact of non rehabilitating quarries
• Estimated overall damage on apartment price (million US$) 0.3 3.9 2.1 on apartment price (million US$) 0.3 3.0 1.6
Sub Total 9.2 Sub Total 18.3
15 - 175 million USD (average = 95.5 million USD)
Air Pollution
Sources of Pollution
• Dust from reconstruction sites and quarrying activities
• Increased emissions from transport sector due to
reduced average speed in affected roads or highways
AIR POLLUTION • Emissions from burning of petroleum products (mainly
heavy fuel oil, kerosene, gasoline, and diesel)
• Emissions from forest fires
• Emissions from damaged industrial facilities
• Emissions from exploded weapons and ammunitions.
• Other sources of air pollution such as those generated
by waste disposal and burning of dead carcasses, rotten
vegetables/fruits, municipal and health care waste
Air Pollution Air Pollution

Impact Assessment Impact Assessment
• Air pollution from site clearing and removal, hauling, • Air pollution from the burning of around 60,000 m3 (55,764 tonnes) of fuel
transport, and disposal of demolition wastes in the Beirut oil at the Jiyeh Thermal Power Plant over a period of 12 days.
Southern Suburbs – Generated pollutants
• sulfur dioxide, nitrogen oxides, carbon monoxide,
– Estimated using the Fixed Box Model soot, particulate matter, semi-volatile organic
– Total Suspended Particulates (TSP) concentration range from compounds including polycyclic aromatic
hydrocarbons (PAHs) and dioxins and furans,
190 μg/m3 under typical scenario to 860 μg/m3 under worst- volatile organic compounds, such as benzene,
case scenario and other compounds resulting from incomplete
– Both values exceed the Lebanese, EU, USEPA, and WHO 24- combustion of the oil and oil products.
hour standards – Quantities of released pollutants were calculated
– The generated plume trajectory was estimated using the ALOFT-FT (A Large
Outdoor Fire Plume Trajectory- for Flat Terrains) model
• Emissions from the transport sector due to decrease in – The model indicated that
average vehicle speed • Particle concentrations at their highest concentrations near the pool of fire,
reaching approximating 34 mg/m3 (vertical elevation 0 m).
– Estimated to increase by a factor of 6 to 7, particularly at • Concentrations drop to 217 –295 µg/m3 at 1 to 4 km downwind and vertical
hotspots elevation of 695 m
• concentrations at 20 km downwind indicate a range of particulate concentrations
between 21 and 29 µg/m3 (vertical elevations 780 m and 350 m respectively).
Emission factors and estimated emissions from the Jiyeh oil fire • Air pollution from the burning of 40,000 tonnes of
Pollutant Emission Factors Estimated kerosene at the Rafiq Hariri International Airport.
Emissions • Pollutants released include
Sulfur dioxide (SO2) 40 g/kg 2.2 Gga – nitrogen oxides, particulate matter,
Nitrogen oxides (NOx) 5 g/kg 0.3 Gg formaldehyde, volatile organic
Particles 15 g/kg 0.8 Gg
compounds, and polycyclic aromatic
hydrocarbons
Soot 5 g/kg 0.3 Gg – Quantities of released pollutants were
Organic carbon 8 g/kg 0.5 Gg calculated
Polyaromatic hydrocarbons (PAHs) 0.8 g/kg 0.04 Gg – Generated plume trajectory was estimated
using the ALOFT model
Polychlorinated Dibenzodioxins (PCDDs) 6 mg TEQ • Particulate matter concentrations are at their highest concentrations
2.6 µg TEQ/TJb near the pool of fire, reaching almost 3.1 mg/m3 (vertical elevation 0
m)
Volatile organic compounds (VOCs) 7 g/kg 0.4 Gg • Concentrations drop to 30.3 µg/m3 at 3 km downwind and vertical
elevation of 725 m.
Carbon Monoxide (CO) 5 g/kg 0.3 Gg • Concentrations at 20 km downwind indicate a range of particulate
Source : UNDP, 2007 a 1 Gg = 1,000 tonnes; b TEQ/TJ = Toxic Equivalents/ Terajoule concentrations between 1 µg/m3 and 3.2 µg/m3 (vertical elevations
260 m and 725 m respectively)

• The impact of the burning of
Emission factors and estimated emissions from the Airport tanks fire
– 1,000 ha of forests in Mount Lebanon
Pollutant Emission Factors Estimated Emissions – 800 ha in South Lebanon
Nitrogen oxides (NOx) 11 g/kg 441 tonnes
– Main pollutants released
Volatile organic compounds (VOCs) 0.133 g/kg 5.3 tonnes
• particulate matters, carbon monoxide, total hydrocarbons or
Carbon Monoxide (CO) 2.8 g/kg 112 tonnes volatile organics, and nitrogen oxides
Sulfur Dioxide (SO2) 4 g/kg 160 tonnes
– Emissions estimated
PM10 1.4 g/kg 56 tonnes
Polychlorinated Dibenzodioxins (PCDDs) 4.3 x 10-9 172 mg
Pollutant Emission Factors Estimated Emissions
Methane (CH4) 0.02 0.8 tonnes (kg/Mg) (Mg)
PM10 8.5 88.1
CO 70 725.6
VOCs as methane 12 124.4
NOx 2 20.7

Health Impact Assessment Economic Valuation
• Much of the emissions are short-term and their impacts are hard to
quantify • Data available for long-term exposure to
• PM the most significant remaining pollutant
• Impacts include:
increased ambient concentrations of PM10
– Increase in cardiac and respiratory mortality
– Decrease in levels of pulmonary lung function in children and adults with
• Extrapolation for short-term exposure is
obstructive airway disease
– Increase in daily prevalence of respiratory symptoms in children and
difficult
adults
– Increase in functional limitations as reflected by school absenteeism or
restricted activity days
– Increase in physician and emergency visits for asthma and other
respiratory conditions
• A task force formed by the NSCR, AUB, and USJ is monitoring
PM10 levels in the Southern suburbs during the reconstruction
period.
– Generally, the recorded levels are high, exceeding national and
international air quality standards
Forest Fires
Introduction
• Impacts of hostilities on forests
– direct impacts
FOREST FIRES • accidental fires, resulting from direct bombing or
fallen flares
• deliberate fires from burning the land to clear
unexploded ordnances
– indirect impacts
• the occurrence of summer forest fires raging
unchecked because attention was focused on
humanitarian ai
• the limited accessibility to and utility from unburnt
forest sites where UXOs had not been cleared
Forest Fires Forest Fires

Impacts on forests Impacts on forests
• Based on Sattout 2005 Value Value
• The best available estimate of burnt forest area during the the total economic value
Types of values Quantity
(000 $) ($/ha)
34 day hostilities = 2,930 ha of one hectare of forests Use values
– Assuming that most fires occur during the three-month summer is least 465 USD per Firewood (m3) 82,300 2,011 15
season, the area burnt during one month = 400 ha year Charcoal (m.t.) 11,400 2,011 15
• This is a high estimate
– The area burnt due to the hostilities = 2,530 ha because Honey and wax n.s. 12,928 96
• Value of damages caused by forest fires depends on the – it represents the Pine nuts (t) 600 13,000 96
forests’ gross benefit, Medicinal and aromatic plants n.s. 17,717 130
value of the forest benefits lost. which is higher than Fodder for grazing (mil. FU) 9.6 1,022 8
– Intensive fires may cause a complete loss of benefits their net benefit
Carob (t) 2,000 625 5
– Lighter fires may cause only partial losses – the valuation is based
on the actual instead Hunting (no. hunters) 600,000 12,769 95
– The degree of damage and the period over which the impacts of of the sustainable rate - Legal hunting 200,000 6,384 48
fires persist depend on the intensity of fires of extraction
- Illegal hunting 400,000 6,384 48
– the limited forest area
• No accurate information on these issues has been in Lebanon contributes Recreation in reserves (no. visits) n.s. 287 2
reported for Lebanon to obtaining very high Non-use values
averages per hectare
• 10-20 years considered time-frame for forest regeneration of forests Biodiversity conservation (ha) n.s. 919 7
TEV 63,300 465

Impacts on forests Impacts on protected areas
• Because of high intensity of fires, it is
assumed • Al-Shouf Cedars Biosphere Nature
Reserve affected
500
– Forest benefits are completely lost in
annual losses of benefits (US$/ha)
450
2006
400
– Benefits will gradually recover within
10-20 years 350
300
– Decline in tourism activities and sales of local
– Benefits recover linearly
– A discount rate of 4% is used
250
200
products caused a loss of 150,000 USD
• The Present Value of losses on 1 150
hectare of burnt forest ranges between 100 – This impact affects the conservation effort of
2,200 – 3,700 USD 50
• The total damage on 2,540 ha of 0

1 3 5 7 9 11 13 15 17 19 21
protected areas in the near future
forests ranges between 5.6 – 9.4 Years
million USD
• The cost of cleaning of burned
broadleaves forest = 600 USD/Ha
The total damage on 2,540 ha of forests ranges

between 6.4 – 10.2 million USD
Impacts on the National Reforestation Impacts on the National Reforestation
Program Program
• The MOE’s reforestation program impacted in several ways: • The replacement cost method used
– direct impacts: – the long-term benefits provided by forests will be higher than the costs
• direct shelling and bombing leading to partial or total burning of the site of reforestation
• lack of access due to scattered UXOs – Damages to saplings on burnt areas
– indirect impacts • Each reforestation site has an average density of 750 saplings/ha and an
• wilting of newly planted saplings because watering schedules were average total cost of US$6/sapling
interrupted • All the saplings in South Lebanon died as a result of the hostilities, this loss
• termination of all contracts = 360,000 USD
• halting of maintenance of other areas (~ 360 ha) for 1.5 years until re- – Cleaning the burnt sites
contracting, thus losing saplings and a 5-year equivalent of forest benefits • The MOE will incur the costs of cleaning broadleaved burnt sites
• At least 5 sites in the cazas of the South and Nabatiyeh were • Assuming that burnt area covered by broadleaves is proportional to that at
impacted national level (55%), i.e., about 44 ha
• At a cost of US$600/ha, the cost of cleaning operations on burnt
Site Caza Area (ha) Post-conflict status broadleaved forests = 26,400 USD
Marwanieh South 15 Not assessed yet – Forgone forest benefits
Rihane South 20 At least 60% burnt
• If the saplings planted in 2004 had continued growing, the resulting forest
would have provided benefits earlier than any new planting will be able
Markaba Nabatiyeh 15 At least 50% burnt • As the burnt stands were less than 2 years old when hostilities started, and
Khirbet Silem Nabatiyeh 15 Not assessed yet assuming reforestation at these sites is undertaken relatively quickly (~5
years)
Zawtar el Charkieh Nabatiyeh 15 100% burnt • The present value of the delayed forest benefits is probably relatively small
Forest Fires
Impacts on the National Reforestation
Program
• As burnt stands cannot be reforested for at least 5 years,
the forgone carbon credits are a potential damage to
End of Session 18a

Lebanon in this period.
– Average carbon increment is 1.3tC/ha of broadleaved and 0.8tC/ha
of conifers
– 45% of forest area is coniferous and 55% is broadleaved
– Assuming the same distribution of forest types on the 80ha and a
market price of US$42/tC, the annual damage due to carbon loss is
about US$3,300.
– The present value of this loss for the next 5 years is about
US$14,600. Thank You
• Overall, the replacement costs of burnt forests =
US$401,000
– This figure is conservative, as it does not include
• loss of access to forests because of UXOs
• cost of cleaning UXOs
• loss of forgone benefits during 5 years of halted reforestation, etc.
REGIONAL WORKSHOP
ON
THE COST OF
ENVIRONMENTAL
DEGRADATION
METHODOLOGY
Session 18b
CONCLUSIONS
CONCLUSIONS

Assess costs and benefits
Session 18b via environmental valuation
POLICY IMPLICATIONS AND CONCLUSIONS
Intuitive Calculated
Decision-
Decision-making Decision-
Decision-making
POLICY IMPLICATIONS AND POLICY IMPLICATIONS AND

CONCLUSIONS CONCLUSIONS
• EIA • Environmental impacts should be valued in monetary terms in order
– Quantifies and describes the physical impact of projects and that they are given due and proper weight in the decision-making
policies process
– Documents complexity of an environmental issue
– Fails to help the decision-maker who has little knowledge of how • The non-monetization of environmental impacts may mean that
environmental changes affect the utility of the individual either they are under-valued or over-valued in the intuitive decision-
making process
• Environmental valuation • Monetization will permit the comparison of various environmental
– Gives the ‘true’ value of environmental resources to the society management proposals
– Tends to remove ambiguity and vagueness in the decision-
making process • Many studies revealed the inconsistency of intuitive decision-making
compared with a more structured approach
• Environmental valuation should NOT be applied – The numerous cognitive psychological biases in intuitive decisions
renders rational choice problematic
– To maximize benefits in order to justify a policy
– To minimize the estimated externality values of a project to
ensure its approval

Setting priorities for decision-
decision-making in Setting priorities for decision-
decision-making in
environmental management environmental management
• Priority setting is essential because of • Important questions

– What criteria and approaches can be used to rank
– Limited money environmental problems (and thus set priorities)?
– Limitless problems
– Limited political and public attention – What are the advantages and limitations of different
economic methods for defining priorities? (e.g. BCA,
– Limited time CEA, other methods [e.g. multicriteria approaches])
– Limited managerial time and attention
– What are the principles of and key lessons in
environmental priority-setting?
• It is essential to clearly identify and set
priorities for action (& investments)
Setting priorities for decision-
decision-making in Setting priorities for decision-
decision-making in
environmental management environmental management
• General principles for setting priorities for • Priority Setting in the real world
environmental investments/ policies – In a “first best” world all costs and benefits can be
– Narrow down the range of problems to be addressed valued in monetary terms and an economic efficiency
(the initial screening) criterion used to rank actions
– Choose clear selection criteria with respect to types – In a “second best” world all benefits cannot be valued
of impacts (e.g. economic, ecological, social, equity, and a cost-effectiveness criterion may be necessary
others) and ranking or evaluating alternatives (BCA/ (based on cost information)
CEA/ MCA?)
– In a “third best” situation with little information, time or
– Consider both benefits and costs of any action/ resources, qualitative ranking approaches are the
intervention whenever possible best recourse

A hypothetical example-
example- setting priorities A hypothetical example-
example- setting priorities for
for environmental interventions with environmental interventions with increasing
increasing levels of information levels of information
• Collecting information takes time and costs money Given this information, what is the priority area for
investment/ intervention??
• Public perceptions of what are priorities are not Parameter Impacts on economic growth
always well-informed Air quality medium
Water quality high
• Priorities often change with increased information Waste management medium
• The challenge is to avoid wasting money Congestion high
(resources), time, and political will
Noise low
POLICY IMPLICATIONS AND CONCLUSIONS POLICY IMPLICATIONS AND CONCLUSIONS

example- setting priorities for A hypothetical example-
environmental interventions with increasing levels environmental interventions with increasing levels
of information of information
Adding health effects: do priorities change now?? Problems and Issues:
Parameter Impacts on economic Distributional
growth impacts (equity
concerns) •It is necessary to define the
Parameter Impacts on Distributional Health spacial and time limits of the
Air quality medium high economic impacts effects
analysis:
growth (equity
Water quality high high • short-term vs. Long-term,
concerns)
• on-site vs. off-site,
Waste management medium high Air quality medium high high • financial analysis vs.
economic analysis
Congestion high medium Water quality high high high
What does “high” or “low”
Noise low high Waste medium high medium mean?
management
Congestion high medium low •Pollution can have different
Adding information on distributional impacts: what is the priority now?? impacts:
Problems and Issues: Noise low high low • Productivity
• How to compare a waste management project with a noise reduction one? Both rate • Health
“high”. • Recreation
• Weighting (emphasis) among the various problems may depend on political • Ecology
considerations. Which are the most
• It is possible to use experts’ opinion (Delphi technique) to identify degrees of impacts, important?
and their relative importance to society.
POLICY IMPLICATIONS AND CONCLUSIONS POLICY IMPLICATIONS AND CONCLUSIONS
example- setting priorities for A hypothetical example-
environmental interventions with increasing levels of environmental interventions with increasing
information levels of information
When economic data on costs are available to help identify priorities for action:
• When information is qualitative, one can use multiple Cost-effective analysis (CEA) is used
criteria approaches to rank problems:
– Qualitative ranking of problems using Delphi-techniques where Parameter Impacts on Distributional Health Annual
economic impacts effects management costs
quantitative data is unavailable. growth (equity
• Delphi is an expert-based, non- confrontational approach. concerns)
Air quality medium high high 1000
– Simple qualitative approaches rank problems by multiple
criteria without using trade-off considerations Water quality high high high 800
Waste medium high medium 900

– Scoring and weighting of criteria offers a qualitative approach management
to evaluating the relative severity of problems Congestion high medium low 1500
Noise low high low 1200

Selecting the appropriate valuation technique –
environmental interventions with increasing
a valuation flow chart
levels of information
Environmental Impact
Conduct the full Benefit Cost Analysis when both benefits and costs are known
Measurable change Change in environmental
in production quality
Parameter Impacts Distributional Health Annual Annual Annual Net
on impacts effects management benefits Benefits
Yes No Habitat Air and water Health effects Recreation Aesthetic,
economic costs (benefits Biodiversity,
quality
growth minus costs) Cultural,
Historical
Nondistorted market Opportunity- Sickness Death Travel cost assets
Air quality medium high high 1000 1300 300 prices available? cost approach Cost-
effectiveness
of prevention Contingent
Water quality high high high 800 900 100 Loss of CEA of valuation
Yes No Replacement earnings prevention Contingen
cost approach Valuation
Waste medium high medium 900 1150 250 Preventive
expenditure
management Medical Human
costs capital
Use change- Use surrogate Land value
Congestion high medium low 1500 1300 (200) in- market approaches
Replacement/
productivity approaches, Hedonic
apply shadow relocation
approach wage
costs
Noise low high low 1200 1100 (100) prices to
Contingent approach
changes in
production Valuation
Contingent Contingent
Valuation Valuation

CONCLUSIONS POLICY IMPLICATIONS AND
The Limits of Economic Analysis CONCLUSIONS
• Much can be done with the available tools of
• Areas where economic analysis is often weak economic analysis at both the macro and micro level
include the following:
– Incremental impacts • Both environmental policies and investment projects
– Uncertainty (especially with regards to the future) can be analyzed using the tools of environmental
– Irreversible impacts economics
– The value of genetic material (or biodiversity)
– Preferences of future generations (and projects with • The hard valuation areas (e.g. recreational demand,
long time horizons) cultural values, genetic materials, biodiversity,
– Distributional effects across social sectors others) are also often the same things that we care
the most about in the environment
• Factors for limited use of environmental values in decision- Prevailing Situation
making
– Skepticism towards environmental valuation methods • Environmental values are less routinely
– Lack of environmental economists within government agencies incorporated into policy and project appraisal in a
– Absence of a legal requirement to undertake a CBA of projects systematic way
or policies
– Uncritical acceptance of other methods such as
• Effect on production • Environmental changes tend to be assessed
• Dose response through EIAs in the US and EU rather than
• Opportunity cost approaches through economic valuation and CBA
– Suspicion of non-use values
– Distorted perceptions of the valuation methods by non-
economist • The World Bank and the Asian Development Bank
– Large variance associated with mean WTP and WTA values advocate the use of valuation methods to estimate
the welfare effects of environmental changes

Prevailing Situation Prevailing Situation
• Environmental valuation studies in different European • In some cases the environmental valuation process is formalized
countries were undertaken spasmodically with varying and fairly explicit and institutionally incorporated in the decision-
degrees of influence on decisions and with marked variations making process
between countries – US Forest Service
• Application of ‘unit day values’ of recreational opportunities and resources
– Switzerland
• Highest number of academic/ scientific studies employing TCMs, HPMs,
CVMs – CERCLA
• Type A assessment of natural resource damage from pollution spills
– Germany – Using an existing economic database
• Proportionately fewer and more policy oriented • Type B assessment for major pollution incidents
– Requires a site specific investigation
– UK
• Shift away from TCMs to HPMs and CVMs due to nature of goods
being valued – US Department of Interior authorized methods for environmental
– Netherlands valuation
• Market price where applicable
• Demand for valuation studies by governments and organizations is low • Uniform Appraisal Standards for Federal Law Acquisition
– Norway • Use values may be measured via
• Benefit estimation studies provided support for environmental decision- – TCM, HPM, unit values, CVM, and stated preference techniques
making but had not played a crucial role in the process • Non-use values may only be measured via
– CVM and SP

The future • Effort should be directed in the MENA region
• Desire to establish formal Environmental valuation methods to
benefit transfer methods by becoming
governments and agencies • more institutionalized
– Increase awareness on environmental valuation
• Advocacy of the use of benefit
transfer by organizations
•more routinely included in CBAs – Build capacity on COED methodology
– Institutionalize COED methodology in decision-
• Environmental valuation will witness a search for making process
– More accurate and robust semi- and non-parametric estimators – Establish a database for environmental valuation
– Improved understanding of the psychology of making choices studies in the region
and decisions
– The analysis of the non-stationarity of environmental values
– The application of other theories and techniques from other
branches of economics • Various databases on environmental
• Bayesian perspectives
• Game theory
valuation could be of help
Main features of selected valuation databases (McComb et al, 2006) Main features of selected valuation databases (McComb et al, 2006)
Name of Web host Purpose of the database Number Regions Available
database of studies covered languages Name of resource Web host Database purpose Overview
Environmental Environment To help policy analysts using the 1,500 International English,
Valuation Canada on behalf benefits transfer approach to French New Zealand Lincoln University, Canterbury, To help researchers identify nonmarket Searchable database
Reference of the EVRI Club1 estimate economic values for Non-market New Zealand valuation studies undertaken in New with 100 primary studies
Inventory http://www.evri.ca changes in environmental goods Valuation http://oldlearn.lincoln.ac.nz.markv Zealand from New Zealand
and services or human health Database al
Envalue New South Wales To help stakeholders value 400 International English ValuebaseSwe Beijer International Institute of To provide a survey of empirical economic Database with 200
Environment changes in environmental quality Ecological Economics, and the valuation studies on environmental change primary studies from
Protection Authority Swedish Env. Protection Agency in Sweden Sweden
http://www.epa.nsw http://www.beijer.kva.se/valuebas
e.htm
.gov.au/envalue
Beneficial Use Department of Agricultural and A guide for decision makers, policy Database of economic
Ecosystem Gund Institute for To provide a data and analysis 300 International English Values database Resource Economics, University analysts, and others interested in valuation values for beneficial
Services Ecological portal to assist in the informed of California, Davis of water resources uses of water. Variety
Database Economics, estimation of the economic values http://buvd.ucdavis.edu/ of sources
University of of ecosystem services
Vermont Sportfishing Industrial Economics, To provide a detailed account of the One hundred non-
Values database Incorporated under contract to the contents of numerous recent non-market market valuation studies
http://esd.uvm.edu
U.S. Fish and Wildlife Service valuation studies of sports fishing activity
Review of European To assist policy makers in 200 International English http://www.indecon.com/fish/defa
Externality Commission capturing the effects of ult.asp
Data http://www.red- externalities from new policies that
externalities.net have sustainable development as
their core concern

CONCLUSIONS
Main features of selected valuation databases (McComb et al, 2006)
Name of Web host Database purpose Overview
resource
End of Session 18b

Biodiversity IUCN-The World Conservation Union To encourage and assist in the use of Library of 100 non-market
Economics and WWF economics in support of biodiversity environmental valuation
http://www.biodiversityeconomics.org/ conservation and sustainable studies and a host of others
development on incentives, and business
and consumer relations
National U.S. National Oceanic and The creation and distribution to the Library of 200 non-market
Ocean Atmospheric Administration public of a spatially and temporally valuation studies and a
Economics http://noep.csumb.edu/ consistent data set that will support a database of market values
Project wide range of economic, scientific and from around the world
(NOEP) resource management activities
Ecosystem
valuation
D. King (U. of Maryland) and M.
Mazzotta (U.of Rhode Island), funded
by the U.S. Department of Agriculture
For non-economists who need
answers to questions about the
benefits of ecosystem conservation,
Clear, non-technical
description of ecosystem
valuation concepts, methods
Thank You
and National Oceanographic and preservation or restoration and applications
Atmospheric Administration, U.S.
http://www.ecosystemvaluation.org
Environment Editor and Publisher: Kenneth Acks Newsletter on valuation of Legal, academic, and
al damage http://envirovaluation.org/ environmental damages regulatory developments
valuation and pertaining to the valuation of
cost-benefit environmental amenities and
news disamenities
Regional Training Workshop on the Cost of Environmental
Degradation Methodology

July 1‐5, 2008
LIST OF PARTICIPANTS

Name Country Position Institution Email Phone
1. Abboud, Mazen Lebanon President Union of the Northern abboudmaz@hotmail.com Phone: +961 5467128

Associations for Development, Mobile:+961 3283642
Environment and Patrimony
2. Abdul Samad, Lama Lebanon Environmental COSV ‐ Lebanon l.abdulsamad@hotmail.com Phone: +961‐5‐452 838
specialist cosvlibano@gmail.com Mobile:+961‐3‐937 950

3. Akl, Georges Lebanon Forest engineer Ministry of Environment g.akl@moe.gov.lb Phone: +961‐1‐976 555 Ext. 452
Mobile: +962‐3‐614 303

4. Al Daia, Roula Lebanon Acting director Institute of the environment‐ roula.aldaia@balamand.edu.lb Phone: 961‐930250 ext. 3966
Environmental economics Mobile: 961‐3‐152 726
program‐ University of
Balamand
5. Al‐Oran, Raeda Jordan Environmental Ministry of Municipal Affairs, raedaoran@hotmail.com Phone: +962 6 5235585
officer Regional Planning Department, Mobile:+962 795059649
Project Management Team of
the Regional and Local
Development Project (RLDP)
6. Asfour, Feras Syria Head of Planning Ministry of Local ferasenv@scs‐net.org Phone: +963‐11 4465905
Section Administration and Mobile: +963‐944‐380810
Environment
7. Batta, Shareef Jordan/ Director of internal Environmental Quality shareefbatta@yahoo.com Phone: +970 599674797‐Palestine
West Bank auditing Authority/ Palestine shareefbatta@hotmail.com Phone: +962 53992179‐ Jordan

8. Beainy, Nada Lebanon Program Officer Italian Cooperation ‐ Lebanon nada.beainy.est@esteri.it Phone: +961‐5‐451494
Mobile:+961‐3‐909 744


July 1‐5, 2008
9. Bou Jawdeh, Issam Lebanon Consultant Self‐Employed iboujaoude@gmail.com Phone: +961‐4‐808 097

10. Chaabi, Ali Tunisia Sub‐director Ministry of Agriculture‐ Office alichaab@yahoo.fr Phone: 216 78 655 810
de developpment SYLVO‐ Mobile: 216 98 500 920
PASTORAL DU NORD OUEST
11. El Hajj, Rana Lebanon Project Coordinator AFDC rana@afdc.org.lb Phone: 961 1 752670
Mobile: 961 3 404625

12. El‐Shalakamy, Egypt Environmental Egyptian Environmental Affairs amir_epap@hotmail.com Phone:+202 22723172
Mohamed Specialist & EPAP Agency Mobile: +201 01011235
PMU staff
13. Fanous, Ramzi Lebanon Statistician Ministry of Environment r.fanous@moe.gov.lb Phone: +961‐1‐976 555 ext. 459
Mobile: +961‐3‐594 283

14. Ghanimeh, Sophia Lebanon Instructor and PhD Notre Dame University, Faculty sophia_ghanimeh@hotmail.com Mobile: +961‐3‐874 380
candidate of Engineering

15. Ghannouchi, Sana Tunisia Ingénieur principal Observatoire Tunisien de sana_kghannouchi@yahoo.fr Phone: +216 22 519 725
l'Environnement et du
Développement Durable
16. Ghosn, Sabine Lebanon Engineering Ministry of Environment s.ghosn@moe.gov.lb Phone: +961‐1‐976 555 ext. 437
Management Mobile: +961‐3‐740 171
Specialist

July 1‐5, 2008
17. Hakimi, Abdurrahman Libya METAP National Environment General Authority hakemi53@yahoo.com Mobile: +218 21 3612836

Focal Point (EGA)

18. Hassan, Mahgoub Sudan National Ministry of Environment and hmahgoub04@yahoo.com Mobile: +249912310284
environmental Physical Development
expert
19. Higazy, Mamdouh Egypt Environmental Egyptian Environmental Affairs mamdouh_higazy@hotmail.com Phone: +202 26355507
specialist & EPAPII‐ Agency Mobile: +201 01583878
PMU staff
20. Lichaa El‐Khoury, Lebanon Environmental & dlichaa@yahoo.com Mobile:+961‐3‐858 943
Dany land use planning
expert

21. Mawla, Darine Lebanon Environmental dme07@aub.edu.lb Phone: +961‐4‐531173
Specialist Mobile: 961 3 682147

22. Mitri, Ghada Lebanon Development Ministry of Environment g.mitri@moe.gov.lb Phone: +961‐1‐976 555 ext. 435
Specialist Mobile: +961‐3‐562 441

23. Nasr, Raoul Jordan Agricultural Jordan University of Science raoul@just.edu.jo Phone: +962‐2‐7201000 ext 22242
Economist and Technology, College of Mobile: +962‐79‐5580296
Agriculture
24. Omeira, Nada Lebanon Member Green Line Association greenline@greenline.org.lb Phone: +961‐1‐746 215
Mobile: +961‐3‐351 821


July 1‐5, 2008
25. Rachid, Grace Lebanon Environmental Ministry of Environment g.rachid@moe.gov.lb Phone: +961‐1‐976 555 ext. 510

specialist Mobile: +962‐3‐947 341

26. Roukoz, Salim Lebanon Engineer Ministry of Agriculture sroukoz@agriculture.gov.lb Phone: +961‐1‐849 623
Mobile: +961‐3‐665 719

27. Saliba, Salah Lebanon Coordination officer UNDP / UNRC salahsaliba@hotmail.com Phone: +961‐9‐932 650
Mobile:+961‐3‐318 093

28. Sattout, Elsa Lebanon Environmental elsa@intracom.net.lb Mobile: +961‐3‐601767
specialist

29. Slika, Marwan Syria Ministry of Local Drmarwan05@yahoo.com Phone: +963‐11 4465905
Administration and Mobile: 0932215790
Environment, General
Commission for Environment
Affairs
30. Shatnawi, Malak Jordan Head of section Cities and villages development malakshatnawi@yahoo.com Phone: +962 6 5682690
bank Mobile:+962 777787110
31. Al Duaij, Samia Kuwait Operation analyst METAP salduaij@worldbank.org


July 1‐5, 2008
AUB and World Bank teams

32. Bou Fakhreddine Raja Lebanon Environmental American University of Beirut rboufaldeen@sets‐lb.com Mobile: +961‐3‐575 229

consultant
33. Chaaban, Jad Lebanon Assistant Professor American University of Beirut Jc11@aub.edu.lb Phone: +961‐1‐350 000 Ext. 4067

34. Dobardzic, Saliha METAP Officer World Bank sdobardzic@worldbank.org

35. Doumani, Fadi Lebanon Economist METAP consultant fdoumani@yahoo.com Phone: +12022232623
Mobile: +12022151722
36. El‐Fadel, Mutasem Lebanon Professor American University of Beirut mfadel@aub.edu.lb Phone: +961‐1‐350 000 Ext. 3470
Mobile: +961‐3‐228 338
37. Hindi, Khalil Lebanon Professor American University of Beirut kh08@aub.edu.lb Phone: +961‐1‐350 000 Ext. 3950

38. Jamali, Dima Lebanon Associate professor American University of Beirut dj00@aub.edu.lb Phone: +961‐1‐350 000 Ext. 3727

39. Lotayef, Dahlia METAP Coordinator World Bank dlotayef@worldbank.org

40. Maroun, Rania Lebanon Environmental American University of Beirut rmaroun@sets‐lb.com Mobile: +961‐3‐396 318
consultant
41. Nuwayhid, Iman Lebanon Professor American University of Beirut inuwayhid@aub.edu.lb Phone: +961‐1‐350 000 Ext. 4627

42. Salti, Nisreen Lebanon Assistant Professor American University of Beirut ns17@aub.edu.lb Phone: +961‐1‐350 000 Ext. 4068

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Training Manual on

1. Asafu-Adjaye, J. 2005. Environmental Economics for Non-economists. Techniques

1 INTRODUCTION AND PURPOSE OF THE WORKSHOP

Private goods Congestion goods Public goods

Open access & Semi-public Pure public goods

Market Travel Cost Hedonic Averting Contingent Choice

Parameter Lower limit Upper limit

Moderate erosion 25% 50%

Slight erosion 50% 100%

Average (millions of Dh) 842 1,683

Parameter Steppe Forest Total

Loss in land value around surveyed quarries (US $ million) 8.1 9.6

Loss in apartment value around surveyed quarries (US $ million) 0.9 1.0

Annual land value occupied by all quarries (US $ million) 5.0 5.9

Total loss (US $ million) 14.0 16.5

Percent of GDP (%) 0.08 0.10

g. I’m very concerned about this issue and although I’m not sure I could afford to pay this Hypothetical

CHOICE 1 CHOICE 2 CHOICE 3

⇒ In co me ra tio Xj/ X i

P e r cap ita in com e o f

V alu e o f mo rtality o r Valu e of mo rta lity o r

THE COST OF ENVIRONMENTAL • The MENA region is suffering from serious

Air pollution Land and coast degradation

Liquid Solid waste pollution

• In comparison with other countries:

Cost of Environmental Degradation Capacity Building for COED

Day Session Time Topic Day Session Time Topic

6 10:30‐12:00 The revealed preference approach (cont’d) 12:30‐13:00 Coffee break

e) The aversive behavior method 10:00‐10:30 Coffee break

7 12:30‐14:00 Group Exercises: 12:00‐12:30 Coffee break

18 15:30‐17:30 Wrap‐up case with various concepts: The July 2006 War in Lebanon

8 15:30‐17:30 Presentation and discussion of group exercises Workshop evaluation

Cost-Benefit Contingent Contingent Group

The Competitive Market The Competitive Market

The Competitive Market Consumer Behavior and Demand

• Characteristics • Demand function

Price Price – If εD12 < 0, then q1 and q2 are complements

Consumer Behavior and Demand Producer Behavior and Supply

Price per unit

Market Equilibrium in the Market Equilibrium in the

Decrease in input price

Increase in input price

Market Equilibrium in the Consumer and Producer Surplus

defined Market demand

Application of the Competitive Model: Application of the Competitive Model:

logs decline (q’ < q)

Lack or Weak Property Rights Taxonomy of Environmental Goods

Most environmental goods

Inefficient allocation of resources and common

Open Access and Common

Resource allocation in a perfectly

costs waste treatment MCp

Resource allocation in a monopoly Resource allocation in a monopoly

• Monopoly rights cause • In the case of a monopoly

a – Monopoly profit maximized a

INTRODUCTION TO The Elements of Total Economic

Failure to account for the values of

• Crops • Recreation • Flood control • Future drugs • Satisfaction • Passing

Decisions/ Policies with negative

environmental and social implications

USE VALUES USE + NON-USE VALUES

The Policy Matrix: What Lessons learned from

Adapted from www.ecosystemvaluation.org Adapted from www.ecosystemvaluation.org