Environmental Valuation Methods/Econometrics

Faculty of Graduate Studies University of Colombo Biodiversity & Conservation (PgDEM 5201) Practical and Assignment on Environmental Valuation Methods/Econometrics 1. Estimating relationship between willingness to pay (WTP) and other socio economic variables You are provided with a data set generated from a contingent valuation survey which intended to elicit WTP (in an open ended format) for a natural habitat. 1. Copy and paste the data set to MINITAB sheet. 2. Estimate basic statistics (mean, standard deviation etc) for the variables given Stat → Basic statistics →Display descriptive statistics →select all variables by double clicking 3. Estimate the WTP as a percentage of income – use either excel or CALC in minitab 4. Express WTP as a function of other socio economic variables. Use best subset tool of MINITAB (Stat → regression → best subset) to select the model with the best fit (indicated by the R square value). Then use Stat → regression → regression tool to derive the regression equation. Response variable – WTP, Predictor Variables - select from other variables 5. Interpret the results. Explain the possible reasons behind the observed signs and sizes of the coefficients. 2. Calculating consumer surplus of leopard watching by local visitors at Yala National Park using Travel Cost method (TCM) You are provided with a data set generated using a travel cost survey at the Yala National Park. 1. Derive the travel cost function - Response variable – VR (Visitation Rate) Predictor Variables –TATC (Total travel cost to arrive the site), UPF(Urban Population Fraction), AI (Average Income) 2. Using the above travel cost function, predict the VR again by substituting the values of predictor variables. 3. Increase the travel cost by Rs 200 intervals and observe the changes of VR. Derive total number of visitors using population data. 4. Repeat increase of the travel cost until total number of visitors reaches zero 5. Construct the demand curve (Total number of visitors (x) vs. the increasing entrance fee - y) 6. Calculate the recreational value= area under the demand curve 7. Area under the demand curve above the current entrance fee = Consumer surplus 1 3. Estimating Hedonic Housing Price Model Property value approach is one of the surrogate market valuation technique which can be used value environmental quality around properties. You are provided with a data set for the Boston metropolitan area (USA) to estimate the willingness to pay for air quality improvements. The data set consists of 250 census tracts in the Boston Standard Metropolitan Statistical Area for 1970. The variables in order are: CRIM per capita crime rate by town ZN proportion of residential land zoned for lots over 25,000 sq.ft. INDUS proportion of non-retail business acres per town CHAS Charles River dummy variable (= 1 if tract bounds river; 0 otherwise) NOX nitric oxides concentration (parts per 100 million) RM average number of rooms per dwelling AGE proportion of owner-occupied units built prior to 1940 DIS weighted distances to five Boston employment centres RAD index of accessibility to radial highways TAX full-value property-tax rate per $10,000 PTRATIO pupil-teacher ratio by town B 1000(Bk - 0.63)^2 where Bk is the proportion of blacks by town LSTAT % lower status of the population MEDV Median value of owner-occupied homes in dollars INC Average annual household Income in dollars 1. Use this data to estimate the following the hedonic price functions (HPF): ln(MEDV)= 1+ 2RM2+ 3AGE+ 4ln(DIS)+ 5 ln(RAD)+ 6TAX+ 7PTRATIO + 8B+ ln(LSTAT)+ 10 CRIM+ 11 ZN + 12INDUS + 13CHAS+ 14(NOX)2+ 9 ©Prof. Prasanthi Gunawardena June 2019 Compulsory Assignment (20%) 1. CVM Submit all Minitab outputs Provide an interpretation to the regression equation. 2. Travel Cost Method Plot the demand curve. Calculate the consumer surplus. Use the following entrance fees. If the last digit of your index number is 0, 1– use an entrance fee of Rs 125 4, 5 use an entrance fee of Rs 225 2,3 - use an entrance fee of Rs 175 6, 7 use an entrance fee of Rs 275 2 8, 9 - use an entrance fee of Rs 75 What is the total recreational value of the park? Submit excel outputs. Properly label all calculations done. 3. Hedonic price method Tabulate the results and discuss the signs and significance of the parameter estimates. Submit all Minitab outputs You need to submit a soft copy of your work with separate Minitab/Excel sheets for each method. 3