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Valuation methods

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This World Bank research focuses on methods and applications for assessing the economic costs of environmental degradation and the benefits of improved environmental management.

 
Contact: Hua Wang, Hwang1@worldbank.org 
 

 Research outputs  

 

Valuation methods being studied include both the stated preference approaches, such as the contingent valuation method, and the revealed preference approaches, such as the travel cost approach. Different value elicitation approaches and modeling strategies are tested and compared, and improved methodologies are recommended.

 
 Research outputs
 

“Economic Valuation of Development Projects: A Case Study of Non-Motorized Transport Project in India.” Hua Wang,  Ke Fang, Yuyan Shi,  World Bank Policy Research Working Paper 5422. 2010.     

One of the major difficulties in doing cost-benefit analysis of a development project is to estimate the total economic value of project benefits, which are usually multi-dimensional and include goods and services that are not traded in the market. Challenges also arise in aggregating the values of different benefits, which may not be mutually exclusive. This paper uses a contingent valuation approach to estimate the economic value of a non-motorized transport project in Pune, India, across beneficiaries. The heads of households which are potentially affected by the project are presented with a detailed description of the project, and then are asked to vote on whether such a project should be undertaken given different specifications of costs to the households. The total value of the project is then derived from the survey answers. Econometric analysis indicates that the survey responses provide generally reasonable valuation estimates.


“The value of statistical life: a contingent investigation in China,“ Hua Wang, Jie He, World Bank Policy Research Working Paper 5421. 2010.     

Economic analyses of development projects and policies often involve assigning an economic value to changes in the risk of loss of human life. A typical term used in the economic analyses is the value of statistical life, which reflects the aggregation of individuals' willingness to pay for fatal risk reduction and therefore the economic value to society to reduce the statistical incidence of premature death in the population by one. Studies on the value of a statistical life have been extensively conducted in the developed world; however, few such studies can be found for developing countries. This paper presents a study that estimates individuals' willingness to pay for cancer risk prevention in three provinces of China. The results imply that the mean value of willingness to pay for a cancer vaccine that is effective for one year is 759 yuan, with a much lower median value of 171 yuan. The estimated income elasticity of willingness to pay is 0.42. Using data on the incidence of cancer illness and death in the population, these willingness to pay figures imply that the marginal value of reducing the anticipated incidence of cancer mortality by one in the population is 73,000 yuan and an average value of 795,000 yuan, which are about six and 60 times average household annual income, respectively. The big difference between the marginal value and the average value of fatal risk reduction corresponds to a very low estimated elasticity of willingness to pay with respect to fatal risk reduction. This finding challenges the validity of previous studies of the value of a statistical life, which are mostly based on average willingness-to-pay values of mortality risk reduction.


“Environmental Performance Rating and Disclosure: An Empirical Investigation of China’s Green Watch Program,“ Hua Wang, Yanhong Jin, David Wheeler, World Bank Policy Research Working Paper 5420. 2010.     

Environmental performance rating and disclosure has emerged as an alternative or complementary approach to conventional pollution regulation, especially in developing countries. However, little systematic research has been conducted on the effectiveness of this emerging policy instrument. This paper investigates the impact of a Chinese performance rating and disclosure program, Green Watch, which has been operating for 10 years. To assess the impact of Green Watch, the authors use panel data on pollution emissions from rated and unrated firms, before and after implementation of the program. Controlling for the characteristics of firms and locations,
time trend, and initial level of environmental performance, the analysis finds that firms covered by Green Watch improve their environmental performance more than non-covered firms. Bad performers improve more than good performers, and moderately non-compliant firms improve more than firms that are significantly out of compliance. The reasons for these different responses seem to be that the strengths of incentives that the disclosure program provides to the polluters at different levels of compliance are different and the abatement costs of achieving desired levels of ratings are different for different firms.


"The Impact of Environmental Performance Rating and Disclosure: An Empirical Analysis of Perceptions by Polluting Firms’ Managers in China,“ Hua Wang, Yanhong Jin, David Wheeler, World Bank Policy Research Working Paper 5419. 2010.     

Environmental performance rating and disclosure has emerged as a substitute or complement for traditional pollution regulation, especially in developing countries. Using data from China's Green Watch program, this study extends previous research on performance rating and disclosure by considering firms' perceptions of public and market responses to their ratings. The results suggest that the Green Watch has significantly increased market and stakeholder pressures on managers to improve their firms’ environmental performance. More specifically, controlling for the characteristics of locations, firms, and individual managers, the analysis finds that firms with better ratings perceive positive impacts on market competitiveness, overall market value, and relationships with different stakeholders, while the firms with bad ratings are more likely to perceive deterioration. Among these factors, managers perceive a more active role for markets than for stakeholder relations.


"Measuring Individuals’ Estimating Individual Valuation Distributions with Multiple Bounded Discrete Choice Data," Hua Wang, Jie He, Applied Economics, forthcoming.

This paper presents a new modeling strategy that estimates individual valuation distributions with multiple bounded discrete choice (MBDC) data. An individual’s valuation of a commodity or service is assumed to have a distribution rather than be a single number. Likelihood responses to the MBDC questions are numerically coded and treated with a new panel technique. The proposed estimation strategy is empirically compared with previous data analysis methods.


"Welfare Measurement "Estimating Individual Valuation Distributions with Multiple Bounded Discrete Choice Data," Hua Wang, Jie He, Applied Economics, forthcoming.

This paper presents a new modeling strategy that estimates individual valuation distributions with multiple bounded discrete choice (MBDC) data. An individual’s valuation of a commodity or service is assumed to have a distribution rather than be a single number. Likelihood responses to the MBDC questions are numerically coded and treated with a new panel technique. The proposed estimation strategy is empirically compared with previous data analysis methods.


"Welfare Measurement Convergence through Bias Adjustments in General Population and On-site Surveys: an Application to Water-Based Recreation at Lake Sevan, Armenia," Craig Meisner, Hua Wang, and Benoit Laplante, Journal of Leisure Research, 2008. (Based on World Bank Policy Research Working Paper 3932, 2006)

Studies comparing household surveys with on-site interceptor surveys have typically accounted for over-sampling avid users in the on-site interceptor surveys (that is, endogenous stratification). However, these studies have typically not accounted for the possibility that the household sample may contain a large presence of zero observations. If a large proportion of the population does not recreate at the site for any value of the price vector, this inflation of zero observations leads to biased welfare estimates and an inadequate comparison with the on-site survey. In this paper, the authors estimate and compare three models which correct for these measurement issues in both the household and on-site surveys. Results from an application to recreation at Lake Sevan (Armenia) indicate that household consumers' surplus is not statistically different from that of the on-site survey once the authors account for zero-inflation in the household sample and endogenous stratification in the on-site sample.


"Measuring Individuals’ Valuation Distributions Using a Stochastic Payment Card Approach," Hua Wang and Dale Whittington, Ecological Economics 55(2): 143-54, 2005.

Instead of assuming that each individual has a single point value for a good or service in her mind, we believe that an individual's valuation of an environmental quality improvement is best viewed as a random variable with an associated distribution. To measure individuals' valuation distributions, we propose a contingent valuation elicitation procedure based on a stochastic payment card approach that presents each respondent with numerical likelihood that the respondent would agree to pay a specified amount in order to implement an environmental improvement plan. An empirical pilot study was conducted in Sofia, Bulgaria to illustrate the implementation of this stochastic payment card and to contrast it with the traditional referendum elicitation procedure. In this pilot study the results obtained using the stochastic payment card approach are significantly lower than those obtained from the referendum model.




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