the monetary valuation of the environmental impacts of road transport a stated

8/16/2019 The Monetary Valuation of the Environmental Impacts of Road Transport a Stated

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TH E MONETARY VALUATION OF THE ENVIRONMENTAL IMPACTS OF

ROAD

TRANSPORT STATED PREFERENCE APPROACH

P.S Nelson

Booz Allen &

Hamilton

J.G Towriss

Cranfield School of Management

-

Centre for Logistics and Transportation

1. Introduction

Transport conveys many benefits to mankind but also has negative side effects such as

road casualties, and environmental impacts such s noise, vibration, ir pollution, etc.

Transport is necessary fo r people and firms, it is important fo r the economy s

whole, but it produces a certain number

of

undesirable effects such s pollution,

congestion, accidents and consumptiono scarce resources ,(Alexandre,

1995 .

Economists argue that at present many of the environmental costs of transport are being

externalised (i.e. not included in the market). Many goods and services have prices that

can be observed in the market place, for example the costs of road construction and

maintenance. Environmental goods and services are not invariably bought and sold in

the

market

place (e.g. air quality), and are therefore external to it.

It

is argued that the

effect of these external costs is an imbalance in the market,

so

that the environment is

under valued

or

not valued at all. The environment is therefore seen as a free

commodity that can be over utilised. Excessive depletion of environmental resources

occurs when their utilisation is external to the cost functions

of

those supplying or

using transport services (Button, 1990).

In an attempt to internalise these costs, monetary values are increasingly called for,

so

that

the true cost of man's impact on the environment is considered. Roads have a long

lifetime, therefore in terms of long-term environmental protection the correct decisions

need to be made and a 111 life cost-benefit assessment is required. Environmental

factors are often via series of quite sophisticated and ingenious procedures, examined

in quantitative manner, but are rarely reduced to the common denominator ofmoney

which is the currency

of

the standard cost-benefit ja m ew or k used fo r hansport

injastructure appraisal (Bannister and Button, 1993).

In

the United Kingdom the evaluation b e w o r k for the appraisal of

trunk

road

infrastructure considers both the environmental and economic impacts of a trunk road

scheme with the economic and environmental impacts being separated. The results are

presented in tabular form showing both quantified and unquantified impacts on a

number of different population groups. The decision-maker

is

therefore presented with

a balance sheet of large number of disparate elements, from which he/she has to base

a decision.

SACTRA, the Standing Advisory Committee on Trunk Road Assessment,

in

the

UK,

published its report on the Assessment

of

Environmental Impacts of Road Schemes in

1992. The report suggests that a common unit of measurement of economic and

environmental factors would make the decision process simpler and more consistent.

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That is that the environmental factors should be incorporated into a cost-benefit

appraisal process, where monetary values are used as relative weights on the different

impacts

of

transport infrastructure. Support for the use of economic tools to value

environmental impacts

is

not solely from SACTRA. The following quotation typifies

the support for economic appraisal of the impacts of transport infrastructure on the

environment:

“when deciding upon transportpolicy initiatives it is important that environmental

considerations are placed

on

the same footin g as other potential impacts (such as those

relating to mobiliiy, vehicle operating costs, regional development, industrial growth,

etc.). This can be achieved by adopting common unit of evaluation”(OECD, cited in

Alexandre, 1995).

This paper reports upon reasearch undertaken by the author’s on the use of Stated

Preference techniques to place monetary values on the environmental impacts of new

road schemes.

2. Monetary Valuation Techniques

In order to include environmental factors in a cost-benefit framework, monetary values

need to be assigned. Therefore, some method of placing monetary values on

environmental impacts is required. Rendel Planning (1992) suggest that such methods

must be:

robust and technically acceptable;

have institutional acceptability;

have public acceptability;

be user-friendly and cost-effective.

Several methods of monetary valuation have been used in

a

variety of different fields,

generally on individual projects, e.g. power stations, airports, recreation and amenity

sites. The techniques can be divided into two types, indirect and direct.

i)

Indirect Techniques

The methods use either a surrogate market or data from other sources to generate

valuations. The indirect methods are shadow pricing, dose-response, expert opinion and

surrogate market techniques: travel cost method and hedonic pricing. There are a

number of difficulties with theses methods. For example expert opinion

has

the

weakness that it

is

assumed that people like district valuers have sufficient knowledge

of factors that influence house prices to provide surrogate market prices as a function of

environmental impacts which

are

systematically varied. Hedonic pricing suffers from

the weakness that the explanatory variables are often inter-related resulting in problems

of multi-collinearity in the regression analysis. Kroes and Sheldon in Button,

1993)

state that the limitations of surrogate market methods are as follows:

b

b

difficulty in obtaining information on the

full

range of options open to the

individual;

cannot easily handle new forms of environmental impacts or impacts of existing

nuisances;

it is assumed in Revealed Preference that those involved have

full

information

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on the options available;

ii) Direct Techniques

These use market research survey techniques to gather valuations directly from

individuals. The direct technique currently most commonly used is the contingent

valuation method (CVM), which

sks

people directly for their willingness to pay for

environmental improvement in a hypothetical scenario. One of the main weaknesses of

CVM is bias which can arise from variety of sources. Johansson (1990) identified

these as follows:

can handle qualitative information, but only in a restricted fashion.

Strategic bias

- respondents

try

to bias their answers to encourage a strategy they

prefer.

This

deliberate bias or overstatement is described by SACTRA (1992),

respondentsmay state sums of money which are much greater than those which would

in truth satisfi them in the knowledge that

no

real charge is being threatened and their

answ ers may influence po licy in desired direction .

Learning bias can also affect strategic bias in that the simple nature of the CVM

bidding games make them relatively simple to learn. This learning process can allow

strategic bidding and can therefore affect the final bid.

Starting Point bias- the starting point for the bidding game affects the final bid.

Johansson (1990) suggests that the higher the starting biarange the higher the

maximum willingness to pay.

Information bias - the type and amount of information provided can affect the final

bid. There is evidence in the C VM research literature, too, that the amount and kind of

information provide d to the respondents in a CV M su we y may aflect their response to

valuation questions (Tunstall and Coker, in Coker and Richards (Ed), 1992). Baughan

and Savill(l994) describe one of the major problems in CVM to be the description of

not only the physical conditions but also their consequences, for example the volume

and traffic and its associated nuisance level.

Method of Payment bias

-

the payment medium used, e.g. taxes, cash payment, affects

the

fin l

bid. A study by Bateman et al. (1993) noted that changing from charitable

fund donation to income t x payment nearly doubled the willingness to pay value.

Respondents preferred the t x as it ensured everyone would pay (cited in Bateman,

1994).

CVM can be used to elicit both willingness to pay and willingness to accept values.

Major disparities between these two values have been revealed, although traditional

economic theory suggests that willingpess to accept and willingness to pay values

should be similar. Johanssen (1993) identifies divergences up to a factor of 10 (cited in

Bateman, 1994).

3

Stated Preference Techniques and Valuation

The term Stated Preference (SP) refers to a variety

of

individual techniques such as

trade-off analysis, transfer price analysis, and conjoint analysis. The techniques use the

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SP techniques, therefore, have all the advantages of the CVM when compared to the

indirect valuation techniques. However, they also have potentially significant

advantages over

CVM,

especially in terms of eliminating bias in response.

5

The road scheme chosen for the research was the

A428

Bedford Western By-pass, the

scheme being particularly suitable because it impacted upon a large and relatively

dense population and also because some of the population experienced an

environmental loss whilst others experienced a gain. The following section details the

design of the Stated Preference research. The basic method employed was non-adaptive

'trade off In order to concentrate on the methodological aspects of the SP technique,

the experiments concentrated on

a

few environmental attributes only. This is in contrast

to the

JMP

study that investigated

12

different policy impacts. The smaller number

of

attributes meant that the research could focus upon the SP methodology, analysis and

statistics in greater detail than is possible with a wider ranging survey. This simpler

format also allowed the SP experiments to be presented to the respondent as a pen and

paper exercise rather than using computer based methods.

The non-adaptive approach to the SP experiments requires that the SP designs have to

be tailored, so that respondents face scenarios showing the existing situation and

scenarios that they could reasonably expect in the future.

This

tailoring of the

experiment, used existing and perceived levels of attributes

so

that options could be

built around existing experience

(Ortuzar

and Willumsen,

1994).

The tailored design

ensured a more realistic choice context, and with the

im

of obtaining more reliable

results. In order to tailor the experiments in this way a range of pre-SP data collection

and analysis was required. These were included in the three main stages of the research

design:

SP Fieldwork

5 1 Pre-SP Data Collection and Analysis

Very little research has been conducted to identify people's salient attributes relating to

the impact of transport on the environment. These issues are also likely to differ

between geographical areas.

A

SP design required information that related directly to

respondents within a particular geographical area or socio-economic grouping, etc. This

ensured that the hypothetical SP choice scenarios were realistic and used existing or

perceived levels of attributes

so

that options were built around existing experience

(Ortuzar and Willumsen,

1994).

An

initial pre-SP data collection phase was necessary

to gather these base data. The initial data collection phase included discussion groups

and an attitudinal survey of residents

of

the study area.

5 1 1 Discussion Groups

Initially, a number of discussion groups were used to gain the required base

information for the

SP

scenarios. The discussion groups provided background

information,

so

that the hypothetical SP scenarios were based on realistic assumptions,

The Design of the Stated Preference Research

pre-SP data collection and analysis, and design of

SP

experiments;

analysis of SP experiments and conclusions.

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i.e. to ensure that the

SP

experiments did not contain elements that were not important

to the respondent. In order to construct a realistic set of SP choice situations it was

necessary to identify the environmental attributes that most affect or annoy people and

the levels of these impacts that affect households. It was also important to identify a

payment mechanism to which people could easily relate For this purpose, several

discussion groups were employed to discuss these issues, and to isolate the

environmental attributes for the SP survey. The discussion groups were designed to

discuss the following issues:

attitudes to the environmental consequences of transport:

which environmental impacts are most important?

how do people perceive differences

in

traffic levels and the impacts on the

environment?

attitudes to payment for environmental gain, or compensation for environmental

loss:

are people willing in theory to pay for a better environment?

do people connect payment (e.g. tax) with improvements in the environment?

what method of payment is most easily understood?

approximately how much are people willing to pay?

A secondary stage of pre-SP data collection was required to gather more detailed

information. The data from the discussion groups was used

to

design an attitudinal

survey to gain further information for the SP experiment.

5.1.2 Attitudinal

Survey

The attitudinal survey used the results of the discussion groups to define a more

structured survey,

in

order to gain more detailed information from the local population.

For example, the environmental impacts defined in the discussion groups were placed

in

a rating exercise so that the most important impacts could be identified.

The data gained from the discussion groups and attitudinal surveys were as follows:

definition of important attributes;

definition of attribute levels, particularly monetary levels;

information on how environmental impacts are perceived;

definition

of

method

of

payment.

5.2

The

Stated

Preference Survey

The survey was conducted at residences

in

the Kempston and Queens Park areas of

Bedford,

with

both areas experiencing reductions in traffic flow through the opening of

the

by-pass. The attributes included in the SP experiment were:

*

Road Safety

Air Pollution

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*

Road Tax

ir

Pollution

Road Tax

Journey Time to Bedford

*

The first

two

are environmental attributes carried forward

from

the discussioii groups

and attitudinal surveys. Journey Time was included as a control variable

in

order for

values of time obtained

from

the research to be compared with other studies for

validation purposes. Road Tax

was

included as the monetary attribute in the design.

The attribute levels are shown in Table One

Journey Time to Central Bedford

3

3

2

Table One Attribute Levels

3 50%

10% E20

4 30% 50

E50

5 30

30%

E20

6

30% 10

E100

7

1

0

50

E20

8

10%

30%

El00

10%

10%

E50

5mins

5

mins

10

mins

10 mins

10mins

5 m i n s

10

m i n s

The experimental design together

with

the associated attribute levels is shown

in

Table

Two

Table Two Experimental Design and Attribute Levels

ttribute

Respondents were asked to respond to a discrete choice experiment between the

approximate present situation, the base card (shown on an orange card) and a potential

new situation (shown on a series

of

white cards). The new situations were always better

in terms

of

environmental attributes, but had an additional cost component.

Respondents were therefore, being asked to imply a willingness to pay for an

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Journey Time

-0.016 -20.26 Yes

Air Qua lity -0.022

-11.24 Yes

Constant

-0.044

-0.30 No

The journey time attribute was included in the model to validate the results obtained.

Therefore, the non-significance of

this

attribute had a significant effect on the

interpretation of the results, in the sense that it was not possible to gain a value of time

for comparison with other studies. Therefore, it is not possible to validate the

environme ntal utility m odel values in

this

way. However an indication of the validity of

the values can be gained by comparison with the CVM results from the attitudinal

survey and also with results from the

JMP

study. Table Four shows this comparison.

E5 1.97 hou r

E l . 19 dec. in traffic

Table Four

-

Comparison with JMF and Attitudinal Study

Air Quality

Road Safety

Total

Attitudmal Study

Willingness to Pay

JMP Study

50 Decrease in Road Traffic

Value

per

Year

SP Resu lts Total Data Set:

E56

E60

E116

100

222

The results of the SP experiments compared well with the results from the attitudinal

survey willingne ss to pay questions. The total value for

ir

quality and road safety was

similar to that of the C VM result. However, the CVM result may have been expected to

be higher due to the impact of strategic bias, people may have been expected to

overstate their w illingness to pay. Also although air quality and road safety were the

most important factors

in

the attitudinal survey other important factors were also

recorded (these were not all included in the SP experiments, e.g. noise, vibration).

Therefore, it would be expected that the CVM willingness to pay value would be h igher

than the

SP

valuations.

The JMP igure was almost double that gained

in

the

SP

experiments, two possible

reasons for this are:

impacted on the results gained.

the

JMP

study was an overall figure, therefore it 'may include other attributes

than ir quality and road safety;

the difference in location, time of survey, road environment might have

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7

Conclusions

This paper has introduced SP techniques as a method for placing monetary values on

environmental impacts.

It

has shown that SP techniques are applicable to the area of

environmental valuation. Respondents were able to respond logically to a carefully

designed and controlled experiments and statistically significant monetary valuations

were gained for measurable levels of ir quality and road safety. SP has therefore been

revealed as a potentially viable method for valuation of environmental impacts of road

transport. However, before the methodology can achieve the public and institutional

acceptability that it requires, for inclusion in

an

economic appraisal process, further

research

is

required to refine the methodology.

Problems and issues have arisen from the research upon which this paper is based and

these need to be resolved before SP methods can be used as a means of including

monetary valuations of environmental costs and benefits within an economic

framework of trun road appraisal The main areas of concern that need to be addressed

in future research are:

The selection and particularly the measurement o f attributes and

attribute levels - one method may be to use attitudinal scales to relate

measurable changes in traffic levels or pollution levels to attitudes (e.g.as in the

I).

Bias

-

further research

is

required into forms of bias as a whole, but particularly

in SP experiments the bias due to the impact of method of payment and further

investigation into the impact of information bias brought about by different

forms

of representing attributes. Further research is required to identify the

pattern of this bias and why it occurs,

s

this has a significant impact on the

monetary valuations derived.

More case studies

-

finally more case studies of monetary valuation of

environmental

s

s

some of

provide a

impact via

SP

are required. Further studies, may resolve

the issues raised in this research, but also perhaps more importantly

pool of monetary values for comparison and possible future use in road

investment appraisal.

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the monetary valuation of the environmental impacts of road transport a stated

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