Tuesday, November 29, 2016

Willingness to Pay for a Highland Agricultural Restriction Policy to Improve Water Quality in South Korea: Correcting Anomalous Preference in Contingent Valuation Method

Abstract: This study examines the willingness to pay (WTP) for the highland agriculture restriction policy which aims to stabilize the water quality in the Han River basin, South Korea. To estimate the WTP, we use a double-bounded contingent valuation method and a random-effects interval-data regression. We extend contingent valuation studies by dealing with the potential preference anomalies (shift, anchoring, and inconsistent response effects). The result indicates that after the preference anomalies are corrected, the statistical precision of parameter estimates is improved. After correcting the potential preference anomalies, estimated welfare gains are on average South Korean currency (KRW) 2,861 per month per household. Based on the WTP estimate, the total benefits from the land use restriction policy are around KRW 297.73 billion and the total costs are around KRW 129.44 billion. The net benefit is, thus, around KRW 168.29 billion. This study suggests several practical solutions that would be useful for the water management. First, a priority should be given to the valid compensation for the highland farmers’ expected income loss. Second, it is necessary to increase in the unit cost of the highland purchase. Third, wasted or inefficiently used costs (e.g., overinvestment in waste treatment facilities, and temporary upstream community support) should be transferred to the program associated with high mountainous agriculture field purchase. Results of our analysis support South Korean legislators and land use policy makers with useful information for the approval and operationalization of the policy.
by Ik-Chang Choi 1, Hyun No Kim 2, Hio-Jung Shin 3,*, John Tenhunen 1 and Trung Thanh Nguyen 4
1 Bayreuth Center of Ecology and Environmental Research, University of Bayreuth, 95440 Bayreuth, Germany
2 Environmental Policy Research Group, Korea Environment Institute, 30147 Sejong, Korea
3 Department of Agricultural and Resource Economics, Kangwon National University, 24341 Chuncheon, Korea
4 Institute for Environmental Economics and Word Trade, University of Hannover, 30167 Hannover, Germany
* Correspondence: Tel.: +82-33-250-8667
2016, Volume 8, Issue 11; Received: 29 August 2016 / Accepted: 14 November 2016 / Published: 23 November 2016
Keywords: double-bounded contingent valuation method; willingness to pay; random-effects interval-data regression; potential preference anomalies; benefit-cost analysis

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