Economic Valuation of Natural Resources Using Contingent Valuation Method. Examples of Nepal and other countries.

1. Economic Valuation of Natural Resources Using
Contingent Valuation Method (some international
evidences)
(Term paper of Advance Natural Resource Economics, 602 NRM)
July 8, 2022
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Presented by
Prem Bahadur Shahi
Roll no: 24
M.SC. Forestry (2078-2080)
1st Year, 1st Semester
Presented to
Faculty of Forestry
Agriculture and Forestry
University
Hetauda

2. Outline of presentation
Introduction
Literature review
Discussion
Conclusion
Reference
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3. Introduction
• Economic valuation of natural resources defined as an attempt to put monetary values to
natural resource.
• It is difficult to quantify all goods and services available in nature in the monetary value
form.
• Economic valuation of natural resources is important for selling and buying in market,
decision making, policy making, planning, project designing, cost-benefit analysis of health,
safety, and environmental issues and adopting mitigation measures.
• A contingent valuation method (CVM) is economic valuation method to evaluate the
consumer’s responses in the absence of a real purchasing situation.
• The CVM directly estimates consumer's willingness to pay (WTP) to obtain good or services
and willingness to accept (WTA) to give or accept compensation for goods and services by
employing different elicitation techniques (Alberini and Cooper 2000).
Objectives of Presentation
• To review the application of contingent valuation method on globally and nationally and
determine the strength, weakness, reliability and it's suitability for Nepal.
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4. Literature review
• United States Environmental Protection Agency (EPA) were used contingent
valuation surveys in a quantitative assessment of damages of natural resources
(Onstad et.al, 2019).
• CVM is used by most Federal agencies with environmental responsibilities
and by many state agencies in United States (Onstad et.al, 2019) .
• Application of CVM is prominence in the USA in the 1980s to estimate the
existence value of natural resources (Onstad et.al, 2019)
• USA Federal and State agencies had been use the contingent valuation method
officially and unofficially for resource regulation, environmental protection,
also had accepted by courts in legal cases (Loomis, 2018).
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5. • Over 50 countries by government agencies and international organizations were conducting
the CVM (Richard, 2000).
• CVM is used for assessing residents’ willingness to pay (WTP) for upgrading the quality of
water resources and municipal sewage treatment in Poland and Greece (Miłaszewski, 2021)
• CVM was applied to determine the recreational value of Kabudval forest park in Iran in
2019. The average WTP of Kabudval Forest Park was 34,850 Rials for each visitor and also,
the recreational value was estimated to be 127,874,000 Rials per hectare annually (Mehrjo
A., 2019).
• CVM was the most prominent and widely used method in determining the used and non-
used values of natural resource e.g. forests, wetlands, rivers, forest parks, and watershed
Mehrjo A., Mehrjo A., 2019) .
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6. • World Bank, the United States Agency for International Development (USAID) and other
donor agencies have taken an interest in contingent valuation as a means of assessing the
demand for improvement of natural resources, the benefits of establishing national parks
and the costs/benefits of restricting land use to reduce tropical deforestation in developing
countries (Cropper and Alberini, 1998).
• According to (Robles et. al., 2018) dichotomous choice approaches is nowadays preferred
over alternative approaches, because it reduces the cognitive burden placed on the
respondent, and mimics the behavior of people in regular marketplaces.
• Several studies have been conducted to evaluate the environmental commodities and
services using the contingent valuation technique in Iran and worldwide (Robles-Zavala,
2018).
• Various surveys showed that the amount of WTP for public goods estimated in the discrete
extraction method was higher than in the continuous method (Brown et al. 1996)
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7. • Without the inclusion of passive-use considerations, pure public goods, including overall
level of air quality, national defense, and remote wilderness areas, had little or no measured
economic value (Richard, 2000).
• It is certainly possible to employ contingent valuation for commodities available for sale in
regular marketplaces, many applications of the method deal with public goods such as
improvements in water or air quality, amenities such as national parks, and private non-
market commodities such as reductions in the risk of death, days of illness avoided or days
spent hunting or fishing (Miłaszewski, 2021).
Research Gaps
• People show maximum willingness to accept for compensation of good and serves being
damaged or altered and minimum willingness to pay for non-marketed goods and services.
Such biasness remain in CVM.
• Application CVM on policy level and law enforcement level is not studied in Nepal.
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8. Discussion
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International and National Evidences of Use of Contingent Method for Valuation of Natural
Resources
• In 21st century different government organizations, non-government organizations, policy
makers, financial institutions are applying this method to determine the value of non-
marketable natural goods and services.
• Economic valuation of natural resources using contingent valuation method was done in
Ethopia, China, Combodia, developing countries and developed countries (Melak, et al., 202) .
• CVM is one of recognized valuation that is applied in assessment under Comprehensive
Environmental Response and Liability Act in USA(Loomis, 2018).
• CVM is an instrument supporting the decision-making process regarding investments in water
resources’ protection (Miłaszewski, 2021).
• World bank, Asian development bank and other financial institutions are using the contingent
valuation method for mitigation when project is developed (Richard, 2002) .
• (Khanal, et al., 2010) evaluate the economic valuation of water using the contingent
valuation method in Thulopakho and Jarneldhara community forest (CF) in Palpa
district.
• (Baral, et. al, 2008) carried out the economic valuation of ecotourism in Annapurna
Conservation Area using the CVM and recommend an increase in the entry fee to USD 50.
• Similarly, (Baral, et. al., 2016) used contingent valuation method to estimate the existence and
option value of Jagadishpur Ramsar Site, Nepal.

9. Strength of Contingent Valuation Method
• It is appropriate for valuation of non-marketable natural goods and services.
• Proper application of contingent valuation can and will provide valuable information to
policy-makers and donor agencies seeking to evaluate the benefits of intervention, or the
revenues associated with investment in infrastructure (Loomis, 2018).
• Contingent valuation used as a means of assessing the demand for sanitation services,
improvements in the water supply, the benefits of establishing national parks and the
costs/benefits of restricting land use to reduce tropical deforestation in developing
countries(Cropper and Alberini, 1998).
Weakness of Contingent Valuation Method
• If the respondent is not interested, he/she may give no responses or zero responses.
• People show maximum willingness to accept for compensation of good and serves being
damaged or altered and minimum willingness to pay for non-marketed goods and services.
The valuation of natural resources will be wrong when the respondents are not aware about
the importance of that resources and impact after alternation, replacement or damage of
that resources. (Mehrjo A., 2019).
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10. Implication of Contingent Valuation in Nepal
• Contingent valuation method can be used in Nepal for valuation of natural resources
which are non- marketed. Various researchers had used this method in Nepal.
• Khanal, et al., 2010; Baral, et. al, 2008 & Baral, et. al., 2016 evaluate the economic
valuation natural resources using the contingent valuation method in Nepal.
• The contingent valuation method can be applicable to non- marketed good and
services such as clean air and water, healthy environment, wildlife populations,
biodiversity, soil and watershed, pollination by bird and insect, aesthetic values of
nature, spiritual, cultural and recreational value etc. in Nepal.
• Contingent valuation method can implement alone or jointly with other valuation
technique for non-market goods, such as the travel cost method or hedonic
approaches (Miłaszewski, 2021).
• For contingent valuation method personal interview, telephone survey and mail
surveys can be used in Nepal. In remote and village area personal interview is best
but in urban area telephone survey and mail surveys are preferred.
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11. Conclusion
• It is method used for valuation non-marketable natural goods and services.
• Contingent valuation method can be used in Nepal for valuation of natural resources
which are non- marketed.
• Proper application of contingent valuation can and will provide valuable information
to policy-makers and donor agencies seeking to evaluate the benefits of intervention,
or the revenues associated with investment in natural resource.
• Different government organizations, non-government organizations, policy makers,
financial institutions are applying this method to determine the value of non-
marketable natural goods and services.
• People show maximum willingness to accept for compensation and minimum
willingness to pay for non-marketed goods. That is biasness of this method.
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12. Reference
• Alberini, A., Cooper, J., 1998.Applications of the contingent valuation method in developing
countries. Food and Agriculture Organization of the United Nations, Rome
• Baral N., Stern M.J., Bhattarai, R., 2008. Contingent valuation of ecotourism in the Annapurna
conservation area, Nepal: Implications for sustainable park finance and local development. Ecol
Econ 66 (2-3): 218-227. DOI: 10.1016/j.ecolecon.2008.02.004.
• Baral, S., Basnyat, B., Khanal, R., Gauli, K.,2016. Total Economic Valuation of Wetland
Ecosystem Services: An Evidence from Jagadishpur Ramsar Site, Nepal. Scientific World
Journal Volume 2016, Article ID 2605609, 9 pages http://dx.doi.org/10.1155/2016/2605609
• Loomis,J. B., 2018. Contingent Valuation Methodology and the US Institutional Framework,
Cambridge University Press, Cambridge.
• Khanal, Y., Upadhyaya., Sharma,P., (2010). Economic valuation of water supply service from
two community forests in Palpa district. Banko Janakari. 20. 24-29. 10.3126/banko.v20i1.3505
• Mehrjo A., Satari, Y.S., 2019. Estimating the recreational values of forest park using the
contingent valuation method (case study: Kabudval Forest Park, Golestan Province of Iran). J.
For. Sci, 65: 472–480.
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13. • Melak, A., Belayhun, T., Kefyalew,E., Hailu, A., Mustefa, A., ASSEFA, A.,2020.
Farmers' willingness to pay for Sinar donkey conservation in selected districts of
Metekel and Assosa zones, northwest Ethiopia: a contingent valuation study.
Biodiversitas Journal of Biological Diversity. 21. 10.13057/biodiv/d210762.
• Miłaszewski, R. 2021. Application of the Contingent Valuation Method in Water
Resources Protection. Central European Economic Journal, 8(55), 212-218
• Onstad, D. W., Crain, P. R., 2019. The Economics of Integrated Pest Management
of Insects. Boston, MA, USA Wallingford, Oxfordshire, UK: CABI (Centre for
Agriculture and Bioscience International). ISBN 978 1 78639 367
8. LCCN 2019016878. ISBN 978 1 78639 368 5. ISBN 978 1 78639 369 2
• RICHARD, T. C., 2000. Contingent Valuation: A User’s Guide, Department of
Economics, University of California.
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14. Thank You
For your Attentions !
Any
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