An Opportunity Cost Approach to Valuation of the River in a City Center Retail Environment

Abstract

These days many cities in Japan are confronted with the problem of decline of city center retail environment due to motorization and location of large shopping centers at suburban area. This problem aroused the awareness that the loss of city center retail environment (CCRE) means the loss of the prerequisite of subsistence of city. Thus many cities have launched redevelopment projects to revitalize their CCRE. With this in mind, we already have proposed an evaluative framework for assessing the spatial structure of CCRE based on consumers' shop-around behaviors. Furthermore, a frequency-based shop-around Markov model was constructed to forecast how redevelopment projects at CCRE would change consumers' shop-around patterns and what changes in retail sales would follow.On the other hand, evaluating public projects in terms of money has been attracting serious concerns recently. This is required from harnessing exploding public investments, consciousness with environmental consequences of public projects, and so on. Thus much discussion has been made on valuation methods of environmental resources such as CVM (contingent valuation method), travel cost method, user benefit method, hedonic approach etc.While CCRE revitalization projects often accompanies improvement of natural environments such as parks and rivers, few research has been carried out to evaluate them in terms of money. In this paper, we aim to extend the above Markov model to valuation of the natural environment such as river at CCRE. More specifically, the purpose of this paper is to propose an opportunity cost method for valuation of natural resources at CCRE based on consumers' shop-around behavior with its actual application to the Murasaki River at CCRE of Kitakyushu City.At the CCRE of Kitakyushu City, the Murasaki River flows from south to north dividing the CCRE into east and west. Apparently, the existence of the Murasaki River decreases consumers' shop-around between east and west so that retail turnover at each side decreases. Using the above model, we have estimated the total annual amount of the decrease of retail turnovers, which is the loss of sales that would have been obtained if it were not the Murasaki River. Thus it is the opportunity cost retailers are paying annually. To change the viewpoint, this can be regarded as willingness-to-pay that retailers are willing to spend every year for leaving the Murasaki River as it is. Hence if it is discounted, we can obtain the asset value of the Murasaki River. This paper has done this.