Willingness to pay to prevent the extinction of vertebrate species in Australia and New Zealand Prepared by Jessica Lai, Agtrans

Research
Introduction The purpose of this paper is to review several studies relevant to Australia and New Zealand in terms of estimating citizens willingness to pay to protect species from becoming extinct. The most appropriate estimate is then extracted and used in the impact analysis of the proposed Biodiversity Cooperative Research Centre (CRC). Methods to estimate non-market values The value society place on the existence of species is difficult to elicit due to the absence of a market for this environmental good. Consequently, non-market values can be estimated by inferring how much money people are willing to pay (or accept) for these benefits if a market for them did exist. There are several methods that have been developed to estimate non-market values and are broadly classified as either stated preference or revealed preference methods. Contingent valuation and choice modelling are examples of the stated preference method which involves a range of survey techniques that elicit respondent preferences. On the other hand, the revealed preference approach includes methods which infer preferences from observed behaviour, such as the travel cost method. Contingent valuation and choice modelling have been identified as the primary methods used to estimate peoples willingness to pay to prevent the extinction of species in Australia and New Zealand. The two methods are discussed below. The contingent valuation method involves directly asking people, usually in the form of a survey, what they are willing to pay for a specific good or service. This method is widely used despite it being the most controversial of the non-market valuation methods. The advantages of the contingent valuation method include its flexibility and the results are not difficult to analyse and describe (Land & Water Australia, 2005). However, the method is prone to a range of potential biases which are described below. Strategic bias arises when the respondent provides a biased answer in order to influence a particular outcome and therefore distorting their true valuation (Ecosystem Valuation, undated). Hypothetical bias arises when respondents provide poorly thought out answers because it is perceived that they will not actually be required to pay the stated amount (Goodstein, 2008). This may result in willingness to pay values that are unrealistically high if respondents believe they will not have to pay for the good or service, or unrealistically low if respondents believe they will have to pay. Vehicle bias arises when respondents are sensitive to the specific payment vehicle chosen to represent their willingness to pay, for example increased taxes (Pearce and Turner, 1990). Information bias arises when respondents are forced to value attributes with which they have little or no subject experience and therefore the amount and type of information presented to respondents may affect their answers (Land & Water Australia, 2005). Furthermore, respondents may find it difficult to state their true willingness to pay because most people are unfamiliar with placing a dollar value on non-market goods and services (Ecosystem Valuation, undated). Contingent valuation methods are also expensive and time-consuming to execute because of the extensive pre-testing and survey work.

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Choice modelling involves a series of questions, each of which asks respondents to choose their preferred option from several alternatives. Each option contains a standard set of attributes and is differentiated from other options by allowing the levels of the attributes to vary systematically. One of the options in each question is defined as the status quo and as such, the levels of attributes for this option are held constant. Unlike the contingent valuation method, choice modelling infers peoples willingness to pay values from the hypothetical choices or tradeoffs they make. The choice modelling method is the most recently developed stated preference method and is achieving greater acceptance and with time has become less controversial (Land & Water Australia, 2005). As mentioned above, respondents are often inexperienced and/or uncomfortable with placing a dollar value on non-market amenities. Therefore, one of the advantages of choice modelling is that it allows respondents to qualitatively rank their preferences which may give more meaningful answers to questions about their values than arbitrarily assigned dollar values (Ecosystem valuation, undated). This method may also minimise the bias that arises with other stated preference methods such as the contingent valuation method. Another advantage of choice modelling is that the method is suited to the role of benefit transfer because the different attributes can be valued individually and transferred to other situations. Benefit transfer is a convenient tool to use when it is too expensive and time-consuming to conduct a new valuation study (Land & Water Australia, 2005). There are several disadvantages of the choice modelling method. Firstly, choice modelling questions provide a limited number of options which may force respondents to make choices that they would not voluntarily make. Practitioners of choice modelling also face the challenge of providing respondents with complex information in a manageable format. Adequate information needs to be presented so realistic choices can be made but too much information may deter respondents (Land & Water Australia, 2005). Additionally, if the options are too complicated, respondents may resort to simplified decision rules, for example respondents may choose to select the status quo option for every question which would cause bias results (Ecosystem valuation, undated). Similar to the contingent valuation method, choice modelling is subject to a range of biases that are described above. Lastly, choice modelling requires more sophisticated statistical techniques to estimate the willingness to pay values. Review of Australian studies van Bueren and Bennett The choice modelling method was used to estimate a national willingness to pay value to protect species from extinction. The results indicate that Australian households are willing to pay $0.67 per annum (in perpetuity) for every species that is protected from extinction over the next 20 years (van Bueren and Bennett, 2004). This study also conducted several benefit transfer tests in order to estimate the scaling factor for calibrating the national estimate for transfer to a regional context. The results indicate that the national willingness to pay estimate to protect species from extinction should be multiplied by two when transferring to a regional context. That is, Australian households in a given region are willing to pay $1.34 per annum (in perpetuity) for every species that is protected from extinction over the next 20 years in their region. Since this paper is primarily concerned with using a willingness to pay estimate that describes a national value, this study is a possible candidate for use in the impact analysis of the proposed Biodiversity CRC. Blamey et al The choice modelling method was used to estimate peoples willingness to pay to conserve endangered species and to prevent the reduction of non-threatened species in the Desert Uplands region of central Queensland. The results indicate that Brisbane households are willing to make a
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one-off payment of $11.39 per endangered species to be maintained in the region and $1.69 to avoid a 1% reduction in the population of a non-threatened species (Blamey et al, 2000). The outcome of conserving endangered and non-threatened species is specific to the Desert Uplands region and the estimated willingness to pay to achieve this outcome is specific to Brisbane households. Consequently, it may be difficult to use the willingness to pay values estimated in this study to represent Australias willingness to pay to protect vertebrate species from extinction. Jakobsson and Dragun The contingent valuation method was used to estimate peoples willingness to pay to conserve all endangered species of flora and fauna in Victoria, and more specifically, the Leadbeaters possum. The results indicate that Victorian households are willing to pay $29 per year to conserve the Leadbeaters possum alone and $118 per year to conserve all 700 endangered species of flora and fauna (Jakobsson and Dragun, 2001). A simple calculation of dividing $118 by 700 suggests that Victorian households are willing to pay $0.17 per endangered species of flora or fauna per year. This is considerably less than the stated value Victorians place on the Leadbeaters possum, a threatened species in Victoria. The willingness to pay estimates quoted above represent the lower bound of the range of values derived and therefore could be considered as conservative. Additionally, the study was specific to the state of Victoria and included all endangered species of flora and fauna for one of the estimates. As a result, it may be difficult to transfer the willingness to pay values estimated in this study to represent Australias willingness to pay to protect vertebrate species from extinction. Kragt and Bennett The choice modelling method was used to estimate peoples willingness to pay for the protection of rare native animal and plant species in the George catchment, Tasmania. The results indicate that Tasmanian households are willing to make a one-off payment of $8.62 for every rare native animal and plant species that is protected in the catchment (Kragt and Bennett, 2011). The use of the wording rare in this study is a potential concern as its meaning is subject to the interpretation of the respondent. For example, a respondent may not interpret rare species as species that are becoming extinct and may interpret rare as something unique and desirable. Furthermore, this study is specific to Tasmania and as a result it may be difficult to extrapolate the willingness to pay estimate derived in this study to represent a national value for the conservation of vertebrate species. Review of New Zealand studies An attempt to review the literature relevant to New Zealand has revealed a lack of studies that have been conducted to value New Zealands willingness to pay to protect species from becoming extinct. This has been more widely acknowledged by Yao and Kaval (2008) who highlighted the scarcity in the number of biodiversity valuation studies in New Zealand. The New Zealand Institute of Economic Research (NZIER) regularly publishes short papers, called Insight, that are designed to stimulate discussion on topical issues. It was reported in a recent Insight, New Zealand households are willing to pay $144 per year to avoid losing four bird species from Hamilton Lake and $325 per year to avoid native birds becoming absent from Lake Rotoiti (NZIER, 2010). A stated preference method was used to derive these estimates, however the specific method used was not communicated explicitly. Due to the lack of information reported in the NZIER Insight, it is difficult to assess the applicability of the above willingness to pay estimates. It is also noted that the willingness to pay estimates described here are considerably higher than those
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estimated for Australia. Consequently, it may be risky to use the above estimates to represent the value New Zealand as a whole places on preventing the extinction of vertebrate species. Given that there are no other relevant studies for New Zealand, it may be practical and conservative to use the most appropriate Australian willingness to pay estimate for New Zealand as well. Summary of Australian and New Zealand studies Author van Bueren and Bennett, 2004 Blamey et al, 2000 Willingness to pay estimate ($ terms in year of analysis) $0.67 per Australian household, per annum (in perpetuity) for every species that is protected from extinction over the next 20 years (a) $11.39 per Brisbane household, as a one-off payment, for every endangered species that is maintained in the Desert Uplands region, Queensland (b) $1.69 per Brisbane household, as a one-off payment, to avoid a 1% loss of a non-threatened species in the Desert Uplands region, Queensland (a) $29 per Victorian household, per year, to conserve the Leadbeaters possum in Victoria (b) $118 per Victorian household, per year, to conserve all endangered species of flora and fauna in Victoria $8.62 per Tasmanian household, as a one-off payment, for every rare native animal and plant species that is protected in the George catchment, Tasmania (a) $144 per New Zealand household, per year, to avoid losing 4 bird species from Hamilton Lake, New Zealand (b) $325 per New Zealand household, per year, to avoid native birds becoming absent from Lake Rotoiti, New Zealand Additional details Choice modelling method Choice modelling method

Jakobsson and Dragun, 2001

Contingent valuation method

Kragt and Bennett, 2011

Choice modelling method

NZIER, 2010

Method used unknown

Application of the willingness to pay estimate It is noted that all of the above studies do not explicitly identify when households are willing to pay for the environmental attribute in question. For example, households may be willing to pay when conservation efforts begin, when success is expected, or alternatively when results are achieved, such as the improvement of status from endangered to unlisted. This type of information is useful to practitioners of willingness to pay estimates because the cash flows of benefits can be estimated with greater certainty. Therefore, in applying these estimates to the CRC investment an assumption needs to be made with regards to when households are willing to pay. It is assumed that households are willing to pay in the year ending June 2013, that is, the first year of the CRC. Depending on the payment method specified in each study, it may be a one-off payment in the year ending June 2013 or the year ending June 2013 may be the first year of the payment stream.

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Further evaluation of selected studies Two of the studies reviewed have been selected for further evaluation. In particular, the willingness to pay estimates of the selected studies are viewed in the context of the proposed Biodiversity CRC, as described in the section above. This will include converting both estimates to present day values. The two studies that have been selected for further evaluation are the van Bueren and Bennett study and the Blamey et al study. Respectively, the selected studies are individually referred to as the van Bueren study and Blamey study hereafter. Both of these studies were published in The Australian Journal of Agricultural and Resource Economics, an internationally recognised A-grade journal, and are therefore considered with high regard. Another reason supporting the selection of the van Bueren and Blamey studies is that the choice modelling method was used to derive the corresponding willingness to pay estimates. It is believed that the choice modelling method extracts more realistic estimates than the contingent valuation method and is seen to be better suited for benefit transfer (see Methods to estimate non-market values section above). In addition, estimates that are derived using the same method can better support one another and may allow for a more equal comparison because it may eliminate any method-specific differences. The van Bueren study estimated Australias willingness to pay value to be $0.67 per household, per annum (in perpetuity) for every species that is protected from extinction over the next 20 years. The estimate is assumed to be in 2000/01 dollar terms, the year the survey was completed. The annual willingness to pay estimate was then expressed in 2010/11 dollar terms. In 2010/11 dollar terms, this is equivalent to $0.89 per household, per annum (in perpetuity) for every species that is protected from extinction over the next 20 years. It is assumed that households are willing to make the first annual payment in the year ending June 2013. Although the van Bueren study specifies that this payment is in perpetuity, it is assumed that households will make the annual payment for only 40 years due to the discount factor becoming very small thereafter. The future annual payments were then discounted to 2013 using a discount rate of 5% and the sum of the discounted cash flows was then calculated so that a comparison could be made with Blameys one-off payment. In the year ending June 2013, the van Bueren study indicates that Australian households are willing to pay $15.97 for every species that is protected from extinction over the next 20 years. The Blamey study estimated Brisbanes willingness to pay value to be $11.39 per household, as a one-off payment, for every endangered species that is maintained in the Desert Uplands region in Queensland. This estimate is assumed to be in 1999/00 dollar terms, the year the study was published. The one-off willingness to pay estimate was then expressed in 2010/11 dollar terms. It is assumed that households are willing to make the one-off payment in the year ending June 2013. Therefore, Brisbane households are willing to pay $15.97 as a one-off payment in the year ending June 2013 for every endangered species that is maintained in the Desert Uplands region. It is probably a coincidence that the van Bueren and Blamey estimates are similar. A summary of the results is provided below. Author van Bueren Blamey Willingness to pay estimate (one-off payment in 2012/13, in 2010/11 dollar terms) $15.97 $15.97

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Potential constraints to consider There are several constraints that have been identified for consideration. Due to the lack of relevant New Zealand studies, the decision has been made to use Australias willingness to pay estimate for New Zealand, despite some uncertainty that New Zealand and Australian citizens share the same value for the conservation of vertebrate species in their respective countries. Likewise, it is acknowledged that there are limitations to the use of benefit transfer which may result in inaccurate inferences of non-market values. Conclusion The willingness to pay value estimated in the van Bueren study is the most appropriate estimate to use for valuing the avoidance of species decline associated with the CRC investment. That is, Australian households are willing to pay $0.67 per annum (in perpetuity) for every species that is protected from extinction over the next 20 years. In 2010/11 dollar terms, this is equivalent to $0.89. The main reason supporting the use of the van Bueren estimate is that it provides a national willingness to pay estimate as opposed to the other studies that were region-specific. Since the use of the willingness to pay estimate will represent households from both Australia and New Zealand, it is deemed most appropriate to apply van Buerens national estimate. Furthermore, the van Bueren estimate was chosen because it represents a conservative estimate compared to a number of other willingness to pay values reported in other studies. Moreover, the willingness to pay value estimated by Blamey supports the use of the van Bueren estimate. In terms of the CRC Impact Tool, the annual payment of $0.89 per household is applied annually for fifteen years (2013 to 2027), the time frame allowed for the impact analysis of the CRC, rather than in perpetuity. This results in a conservative estimate of the impact of the CRC.

Acknowledgment The author acknowledges the input from Peter Chudleigh for several comments on earlier drafts, as well as the input from Michael Burton, University of Western Australia with interpretation of the van Bueren willingness to pay estimate. References Blamey, R., Rolfe, J., Bennett, J. and Morrison, M. 2000. Valuing remnant vegetation in Central Queensland using choice modelling. The Australian Journal of Agricultural and Resource Economics. Ecosystem Valuation. No date. Ecosystem Valuation. http://www.ecosystemvaluation.org/ Goodstein, E. S. 2008. Economics and the Environment. 5th edition. John Wiley & Sons, Inc. United States of America. Jakobsson, K. and Dragun, A. 2001. The Worth of a Possum: Valuing Species with the Contingent Valuation Method. Environmental and Resource Economics. Land & Water Australia. 2005. Making economic valuation work for biodiversity conservation. http://www.environment.gov.au/biodiversity/publications/economic-valuation/pubs/economicvaluation.pdf New Zealand Institute of Economic Research (NZIER). 2010. Realistic valuations of our clean green assets. New Zealand.
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Pearce, D. W. and Turner, R. K. 1990. Economics of Natural Resources and the Environment. Harvester Wheatsheaf. Hertfordshire. van Bueren, M. and Bennett, J. 2004. Towards the development of a transferable set of value estimates for environmental attributes. The Australian Journal of Agricultural and Resource Economics. Yao, R. and Kaval, P. 2008. Valuing Biodiversity Enhancement in New Zealand. University of Waikato. Hamilton, New Zealand. http://researchcommons.waikato.ac.nz/bitstream/10289/1591/1/Economics_wp_0807.pdf

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