An Application of ‘Willingness to Pay’ Method as a Quantifier for Environmental Impact Assessment

Abstract

The preservation/restoration of natural environment is frequently entailing excessive cost (paid by people through taxation) while it is a source of additional income for both, the State and the people, due to tourism. Since the evaluation of this good cannot be in market terms, it is applied here in a modified version of the CVM (Contingent Valuation Method), which is used in experimental economics in order to investigate the significance that people put on this good and how much they might be WTP (Willing to Pay) for supporting activities concerning the preservation/restoration of Lake Kastoria. The WTP dependence on (i) external diseconomies; (ii) the expectations for property values’ rise as a result of the restoration; (iii) the proximity of interviewees’ residence to the lake; (iv) the opinion of the interviewee on the time and money spent to visit the lake; (v) the time and money the interviewees spent to visit the lake, as well as other dependencies (all taken as independent variables) are estimated by means of logit, probit, logistic and linear regression models. The optimal concentration Copt of a pollutant in the environment can be determined as an equilibrium point in the tradeoff between (i) environmental cost, due to impact on man/ecosystem/economy; and (ii) economic cost for environmental protection, as it can be expressed by Pigouvian tax. These two conflict variables are internalized within the same techno-economic objective function of total cost, which is minimized. In this work, the first conflict variable is represented by a WTP index. A methodology is developed for the estimation of this index by using fuzzy sets to count for uncertainty. Implementation of this methodology is presented, concerning odor pollution of air round an olive pomace oil mill.