Household’s willingness to pay for environmental improvement in van phuc traditional handicraft village ha noi using contingent valuation method cvm

DOCUMENTATION PAGE WITH ABSTRACT Thai Nguyen University of Agriculture and Forestry Degree Program Bachelor of Environmental Science and Management Student name Nguyen The Tung Student I

THAI NGUYEN UNIVERSITY UNIVERSITY OF AGRICULTURE AND FORESTRY

NGUYEN THE TUNG

Study Mode : Full-time

Major : Environmental Science and Management

Faculty : International Training and Development Center

Thai Nguyen, Sept 2015

DOCUMENTATION PAGE WITH ABSTRACT

Thai Nguyen University of Agriculture and Forestry

Degree Program Bachelor of Environmental Science and Management

Student name Nguyen The Tung

Student ID DTN1153150089

Thesis Title Household’s willingness to pay for environmental improvement

in Van Phuc traditional handicraft village – Ha Noi using Contingent Valuation Method (CVM)

Supervisor Ph.D Nguyen Nghia Bien

Abstract:

This research investigated the willingness to pay for environmental quality improvement in Van Phuc handicraft village - Ha Dong - Ha Noi using the contingent valuation method According to the survey result, Van Phuc handicraft village is affecting by the environmental pollution Moreover, the environmental pollution in Van Phuc handicraft village often contaminated by the waste, mostly comes from handicraft village activities and industrial activities However, the villagers are aware

of the environmental pollution in the locality and willing to pay money for environmental improvement On average, 88.3% of the households are willing to pay

for improved environmental quality and the average of willingness to pay is 227.641

VND/household/year The willingness to pay of villager affected by education level, income, occupation and the amount of household members In particular, amount of household member has the clearest impact to the willingness to pay of people living in Van Phuc handicraft village

CONTENTS

LIST OF FIGURES 1

LIST OF TABLES 2

LIST OF ABBREVIATIONS 3

ACKNOWLEDGEMENT 4

INTRODUCTIONNTRODUCTION 5

1 Rationale 5

2 Aim and Objectives 7

3 Scope and limitation 8

4 Research structure 8

CHAPTER I: LITERATURE REVIEW 10

1.1 Environment 10

1.2 The total economic value of environmental resources 12

1.3 The methods for valuation of environmental resources 14

1.4 Consumer surplus 15

1.5 Willingness to Pay 17

1.6 Contingent Valuation Method 19

CHAPTER II: RESEARCH METHODS 28

2.1 Methods of data collection 28

2.1.1 Secondary data collection 28

2.1.2 Primary data collection 28

2.2 methods for data analysis 29

2.2.1 Descriptive statistical method 29

2.2.2 Comparative statistical method 29

2.2.3 Contingent Valuation Method 30

2.2.4 WTP regression model 32

CHAPTER III: RESEARCH RESULTS AND DISCUSSION 35

3.1 Basic information about Van Phuc Handicraft village 35

3.1.1 Location, physical and socio-economic condition 35

3.1.2 Major economic features 36

3.1.3 Current environmental status 38

3.2 sample household reated information 40

3.2.1 Income 40

3.2.2 Age and educational level 41

3.2.3 Number of household members 41

3.2.4 Gender 41

3.2.5 Occupation 42

3.3 The information related to household willingness to pay for environmental improvement status: 42

3.3.1 Current environmental situation 42

3.3.2 The awareness of responder 44

3.3 estimation of The household willingness to pay for environmental improvement 48 3.4 analysis of factors affecting people’s WTP in van phuc handicraft village 52

3.5 Analyzing the statistical significance 55

3.5.1 Education Level 55

3.5.2 Income 56

3.5.3 Amount of household member 57

3.5.4 Occupation 57

3.5.6 Improving the education and raising the awareness of the people 60

3.5.7 Increasing people income and their living standards 61

3.5.8 Strengthening the population - family planning 62

3.5.9 Propagating measures in various forms to people 62

CONCLUSION 63

REFERENCES 66

environment 38 Figure 3.3 Silk making process 40 Figure 3.4 The rating of interviewees about the environmental situation (Unit:

percentage) 42 Figure 3.5 Responder’s awareness of environmental services and payments for

environmental services (Unit: people) 44 Figure 3.6 Proportion of people were participate in training in environmental

services and payments for environmental services (Unit: percentage) 46 Figure 3.7 Result of the Regression Analysis using 53

LIST OF TABLES

Table 3.1 The information related to the interviewees 41

Table 3.2 Source of pollution 43

Table 3.3 Impact of environmental pollution 44

Table 3.4 Some environmental services has been known 45

Table 3.5 Incoming source of information about environmental services 46

Table 3.6 Awareness of interviewees on paying the fee for environmental services 47

Table 3.7 Forms of benefit from environmental services 47

Table 3.8 Number of agree and disagree for payments for environmental services 48

Table 3.9 Reason for not willingness to pay 48

Table 3.10 The reasons for the willingness to pay for environmental services 49

Table 3.11 The level of willingness to pay of household 49

Table 3.12 The reason for the chosen level of WTP 51

Table 3.13 Forms of payment for environmental improvement 51

Table 3.14 Correlation matrix between the independent variables 52

Table 3.15 Summarized result of the Regression Analysis using STATA 11.0 54

LIST OF ABBREVIATIONS

BV : Bequest Value

BOD : Biological oxygen demand

CS : Consumer Surplus

CVM : Contigent Valuation Method

COD : Chemical oxygen demand

DUV : Direct Use Value

IUV : Indirect Use Value

EV : Existence Value

MP : Market Price

MoF : Ministry of Finance

MoST : Ministry of Science and Technology

MARD : Ministry of Agriculture and Rural Development NUV : Non Use Value

OV : Option Value

PFES : Payment for Enviroment Services

TEV : Total Economics Value

TUV : Total Use Value

UV : Use Value

IUV : Indirect Use Value

WTP : Willingness To Pay

ACKNOWLEDGEMENTS

First and foremost, I wish to express our sincere thanks to the boards of Thai Nguyen University of Agriculture and Forestry, Dean of Advanced Education Program for providing us all the necessary facilities and all the teachers who built us the scientific knowledge to complete the research

In particular, I would like to thank my principal supervisor Ph.D Nguyen Nghia Bien, Director of Forest Inventory and Planning Institute, who guided me wholeheartedly when I implement this research project

I would like to thank the leaders of People's Committee of Van Phuc ward and people of Van Phuc handicraft village for help and provide valuable information to me

in the process of the project implementation

Last but not least, I take this opportunity to express my deepest thank to my family and my friends Due to the limitations of the time and experience, so my own thesis inevitably have shortcomings I would like to receive the comments of the teachers and all of you for the excellent thesis I sincerely thank you

Thai Nguyen, June 30, 2015

Nguyễn Thế Tùng

INTRODUCTION

1 RATIONALE

Van Phuc handicraft village has a long tradition of weaving, with over 700 establishments involved in the silk production Moreover, there are more than 22 establishments have responsibility for bleaching and dyeing for the entire village every day In the early years of the 90s, traditional looms crafts were replaced by industrial looms, making the production increased several times in comparison with the textile craft Along with to the immediate benefits, it also has long-term effects on the health

of people Typical of these are rancid noise pollution

In the past, the artists often use dyes or bleaches made of plants, leaves, flowers

or fruits Today, villagers are using chemical materials instead of folk materials The main materials are silk ranked by category and woven fabric Specifically, polyester, cotton and fibers mixed with PE/Co are used for weaving coarse, towel, gauze… In the process of weaving, dyeing and printing, villagers use a lot of chemicals, dyes such as: Javen, CH3COOH, H2S, acid dyes, sulfur dyes (rock, Na2S), direct dyes and a lot of water The hazardous waste is being discharged into the environment directly without going through any remedial measures, including the use of rudimentary filtering tank The BOD and COD in the effluent discharged from Van Phuc village hundreds of times higher than the standard allow The amount of untreated wastewater production and domestic wastewater directly flows into Nhue River Another factor that contributes to environmental pollution as components in silk, by the stage of bleaching which emit 25% impurities, 1 meter of silk with the weight of 80 grams discharges 20 grams of water contaminants… It is evidenced that, in the village of weaving, dyeing

the common diseases of the respiratory tract is 10 - 20%, 10-20% of eye diseases, 10- 30% of gynecological diseases, and 10- 20% of diseases of the gastrointestinal tract The noise pollutant also is a big problem in Van Phuc village, the observation noise results measured at Van Phuc is 100 dB The noise mainly generated by operating textile and strand machines, the collision of the wheel spindle and fiber to fiber tube The need of improving environmental conditions in Van Phuc handicraft village has become essential and critical

In this regard, the concept of willingness to pay (WTP) and contingent valuation method (CVM) are used WTP is an important concept of economic valuation in environmental goods The concept is “if good is worth having, then it is the maximum amount that a person state they are willing to pay for a good (DFID, 1997)” This principle is conceptually simple and intuitive, even if not always easy to undertake, and its theoretical foundations can be located in conventional economic theory As WTP values benefits in monetary terms, outcomes are comparable across all principles and are directly commensurate with costs By way of precedent, environmental economists have already found the approach helpful in quantifying gains and losses in circumstances where, for whatever reason, market prices cannot be assigned to economic activities (Emma J Frew, et al 2005) The concept extends to environmental resources like water quality and natural resources like trees The key assumption is that environmental values are anthropogenic Whatever people evaluate the environment is worth is what it is worth Economic methods can be used to attach estimates of willingness to pay to changes in the level of environmental quality and natural resource use The use of the willingness-to-pay (WTP) technique as a means of

evaluating health care technologies and environment has been increasing WTP is now used in interdisciplinary studies for multi-purposes

CVM is used to estimate economic values for all kinds of ecosystem and environmental services It can be used to estimate both use and non-use values, and it

is the most widely used method for estimating non-use values It is also the most controversial of the non-market valuation methods CNM involves directly asking people, in a survey, how much they would be willing to pay for specific environmental services In some cases, people are asked for the amount of compensation they would

be willing to accept to give up specific environmental services It is called

“contingent” valuation, because people are asked to state their willingness to pay, contingent on a specific hypothetical scenario and description of the environmental service The contingent valuation method is referred to as a “stated preference” method, because it asks people to directly state their values, rather than inferring values from actual choices, as the “revealed preference” methods do The fact that CV

is based on what people say they would do, as opposed to what people are observed to

do, and is the source of its greatest strengths and its greatest weaknesses

The study “Household’s willingness to pay for environmental improvement in Van Phuc handicraft village – Ha Noi using Contingent Valuation Method (CVM)” is carried out to understand people’s perception and attitude towards prevailing environmental problem and improvement of environmental quality in this area

2 AIM AND OBJECTIVES

The purpose of this research is to understand the household’s willingness to pay for environmental improvement in Van Phuc handicraft village – Ha Noi

Specific objectives are:

a) To identify environmental issues emerging in Van Phuc handicraft village –

Ha Noi

b) To estimate household’s willingness to pay for environmental improvement in Van Phuc handicraft village – Ha Noi

c) To analyses factors affecting the level of WTP

d) To draw recommendations for environmental improvement in traditional handicraft village

3 SCOPE AND LIMITATION

The study takes place in Van Phuc ward – Ha Dong district– Hanoi It focuses on understanding the issues related to the environmental situation in the locality and on the WTP estimates of local people for improving the environmental quality using CMV approach; and analysis of the impact of various factors on WTP On the other hand, refers to not only those directly involved in the silk weaving, but also the people who are not extraneous

Prepared questionnaires were used to interview directly people live in Van Phuc handicraft village during the period from March to early May 30/2015

4 RESEARCH STRUCTURE

Besides the introduction and conclusion, this thesis includes 3 chapters:

Chapter I: Literature review

The contents of chapter I are about the fundamental issues in the valuation of environmental resources Providing some methods of valuation of environmental resources The last part of the chapter will go into contingent valuation method (CVM)

Chapter II: research methods

Chapter II mainly focuses on the methods of data collection and analysis In this chapter, we will express the method need to be used in this study and the regression model

Chapter III: research results and discussion

This chapter begins with the natural, socioeconomic characteristics of Van Phuc handicraft village The next past focuses on the analysis of survey results and analyze the factors affecting household’s WTP At the end of chapter III, we give some recommendations to management and better protection of environmental resource

CHAPTER I: LITERATURE REVIEW

Similarly, Joe Whitenney (1993) expresses that environment is everything outside the body have closely related and influenced the survival of humans as soil, water, air, sunlight, forest, sea, stories ozone, biodiversity

Environment is a combination of conditions and external influences impact on the life and evolution of living organisms Life is manifested through the process of metabolism, energy, information, processes and genetic variation, the adaptation, development and destruction

For more broadly, the natural environment is one of the group gathers natural elements, including: a space with the material factors that fluctuate in space, one or more sources of energy to control these factors and time The volatile elements in space and time are: soil, water, air, biological, geological and climatic conditions Environment includes three spheres, as follows:

- Atmosphere: the air layer envelops the earth, divided into several levels according to difference height and temperature Atmosphere protects organisms from being influenced by solar radiation and maintain the thermal balance of the earth, transports the water in the global hydrological cycle, provides oxygen for life, CO2 for photosynthesis and reserves the nitrogen

- Hydrosphere: the surface area of the entire earth including oceans, seas, rivers, streams, ponds and lakes

- Geospatial: the hard outer rocky crust of the earth

The environment also is a special commodity which provides many services for the economy, such as water supply for drinking, production and irrigation ; But in many cases, the environment is a public good, everyone can use it without affecting other individuals, such as the atmosphere, everyone has the right to breathe but cannot prevent other people breathe Currently, environmental is providing a lot of services without cost or much lower than the real value, so it leads to overuse or intentionally

or unintentionally hurt the environment Following to the law of environmental protection of Viet Nam government, Article 4 - 55/2014/QH13 Organizations, households and individuals are obliged to contribute financially to environmental protection if they use components of the environment or to be benefited from the environment Thus, the pricing environment has an important role to allocate and use resources rationally and protect the environment

Environmental valuation is assigned a monetary value for the goods or services

or the effects of environmental change due to environmental quality Valuing the environment helps us to identify and quantify impacts that not quantified in benefit

analysis - cost or value can be provided with money and not provided money The main objective of the valuation of environmental resources is to find the money that individuals or society willing to pay for goods, resources and the environment To get

a better understanding in the valuation of environmental resources, we will discuss the following sections:

1.2 THE TOTAL ECONOMIC VALUE OF ENVIRONMENTAL RESOURCES

Incorporating environmental concerns into economic decisions involves two basic steps First, the “with” and “without” project scenarios are compared to identify the physical impacts (broadly defined to include also ecological and social effects) of a given economic activity Engineers, biologists, social scientists, and other experts are required to determine such impacts Economically valuing such physical impacts constitutes the second step in the environment-economic analysis, and described below

Conceptually, the total economic value (TEV) of a resource consists of its (i) use value (UV) and (ii) non-use value (NUV) Use values may be broken down further into the direct use value (DUV), the indirect use value (IUV) and the option value (OV) (potential use value) One needs to be careful not to double count both the value

of indirect supporting functions and the value of the resulting direct use We may write:

TEV = UV + NUV

Or TEV = [DUV + IUV + OV] + [NUV]

Figure 1.1 Categories of economic values attributed to environmental assets

(Source: Munasinghe 1992)

Figure 1.1 shows the disaggregation of TEV in schematic form A short description of each valuation concept and a few typical examples of the underlying environmental resources, are provided:

•direct use value is the contribution to current production/consumption;

•indirect use value includes benefits from functional services that the environment provides to support current production/consumption (e.g., ecological functions like nutrient recycling);

•option value is the willingness to pay for an unutilized asset, simply to avoid the risk of not having it available in the future; and

•non-use value is the willingness to pay for perceived benefits not related to use value, e.g., existence value, which is based on the satisfaction of merely knowing that

an asset exists, even without intending to use it

The economic theory clearly defines TUV but there is considerable overlap and ambiguity in the breakdown categories, especially with regard to non-use values Thus, option values and non-use values are shaded in the figure These categories are useful

as an indicative guide, but the goal of practical estimation to measure TUV rather than its components

The distinction between use and non-use values is not always clear The latter tend to be linked to more altruistic motives Differing forms of altruism include intergenerational altruism, or the bequest motive; interpersonal altruism or the gift motive; stewardship (which has more ethical than utilitarian origins); and “q” altruism, which states that the resource has an intrinsic right to exist This final definition is outside conventional economic theory, and incorporates the notion that the welfare function should be derived from something more than purely human utility

Through the willingness to pay of individuals will represent a valuable part of the total economic value that they assess the environmental resources.However, the component values also greatly depend on the questions: “how much they would be willing to pay?

1.3 THE METHODS FOR VALUATION OF ENVIRONMENTAL RESOURCES

Environment has a lot of basic functions including: providing of resources, absorb waste, the living space, landscaping… and these functions always have value However, the economic function as providing valuable resources is already in the market price but the waste absorption function, the living space, landscaping and other functions have no market price Because these functions not been fully evaluated which lead to excessive exploitation, natural resources depletion, environmental pollution Because of this reason, a lot of value assessment method of environmental resources has been made in order to exploit and use them sparingly and effectively such as:

* The concept of analyzing the benefit - cost

* Travel cost method

* Random classification method

* Benefit transfer method

* Contigent Valuation Method

The main method to estimate the “Household’s willingness to pay for

environmental improvement in Van Phuc handicraft village – Ha Noi” is the Contigent Valuation Method

1.4 CONSUMER SURPLUS

Economist Paul A Baran introduced the concept of "economic surplus" to deal with novel complexities raised by the dominance of monopoly capital With Paul Sweezy, Baran elaborated the importance of this innovation, its consistency with Marx's labor concept of value, and supplementary relation to Marx's category of surplus value

On a standard supply and demand diagram, consumer surplus is the area (triangular if the supply and demand curves are linear) above the equilibrium price of the good and below the demand curve This reflects the fact that consumers would have been willing to buy a single unit of the good at a price higher than the equilibrium price, a second unit at a price below that but still above the equilibrium price, etc., yet they in fact pay just the equilibrium price for each unit they buy

Likewise, in the supply-demand diagram, producer surplus is the area below the equilibrium price but above the supply curve This reflects the fact that producers would have been willing to supply the first unit at a price lower than the equilibrium

price, the second unit at a price above that but still below the equilibrium price, etc., yet they in fact receive the equilibrium price for all the units they sell

Figure 1.2 Consumer surplus illustrating consumer (red) and producer (blue)

surpluses on a supply and demand chart

Consumer surplus is the difference between the maximum price a consumer is willing to pay and the actual price they do pay If a consumer would be willing to pay more than the current asking price, then they are getting more benefit from the purchased product than they initially paid An example of a good with generally high consumer surplus is drinking water People would pay very high prices for drinking water, as they need it to survive The difference in the price that they would pay, if they had to, and the amount that they pay now is their consumer surplus Note that the utility of the first few liters of drinking water is very high (as it prevents death), so the first few litres would likely have more consumer surplus than subsequent liters

The maximum amount a consumer would be willing to pay for a given quantity

of a good is the sum of the maximum price they would pay for the first unit, the (lower) maximum price they would be willing to pay for the second unit, etc

Typically these prices are decreasing; they are given by the individual demand curve For a given price the consumer buys the amount for which the consumer surplus is highest, where consumer surplus is the sum, over all units, of the excess of the maximum willingness to pay over the equilibrium (market) price The consumer's surplus is highest at the largest number of units for which, even for the last unit, the maximum willingness to pay is not below the market price/

The aggregate consumers' surplus is the sum of the consumer's surplus for all individual consumers This can be represented graphically as shown in the above

graph of the market demand and supply curves

1.5 WILLINGNESS TO PAY

Willingness (and ability) to pay is the foundation of the economic theory of value The idea is, if something is worth having, then it is worth paying for The idea extends to environmental resources like water quality and natural resources like trees The key assumption is that environmental values are anthropogenic Whatever people think the environment is worth is what it is worth Economic methods can be used to attach estimates of willingness to pay to changes in the level of environmental quality and natural resource use

Typically, an individual often pays for goods and services that they consume by the market price (MP) But there are some individual voluntary/ willing to pay higher the price of goods/services than the market price and there are some different in price they are voluntary/willing to pay The willingness to pay is a measure of satisfaction or the satisfaction of consumer about the goods/service So the demand is described as the line "willingness to pay" The demand line (D) also provide the foundation for the determination of social benefits from the given consumption or purchase a

commodity/service The area below the demand line from value 0 to amount consumed Q* represents the sum of willingness to pay (WTP) and that relationship is reflected in the following expression:

WTP = MP + CS With: WTP: The willingness to pay

Figure 1.3 The willingness to pay and consumer surplus

Figure 1.3 shows that the market price at the balance towards to a service/commodity X is P* and it is applicable to everyone However an individual A may be willing to pay at a price Pa, also higher than the P* In fact, the general benefits that person A received here are the entire area (a) and (b) The area (a) is the consumer surplus, the area (b) the total cost of individual A pay for using merchandise

X

Consumers shall be entitled to consumer surplus mainly because of they have to pay an equal amount for each unit of goods The value of every goods unit are equal the value of last unit But according to the basic law of diminishing marginal utility, the utility level for consumer goods is reduced from the first to the last unit Thus, consumers would enjoy a surplus amount of utility for every goods unit standing before their last unit purchased (Samuelson and Nordhaus 2002)

However the willingness of an individual to pay for environmental goods will not

be affected by the market price Since most of the environmental goods are entirely or not completely public goods so there are no market price Thus, in order to assess the willingness of individuals to pay for the goods mentioned above, there is no measure

of particular value available at the moment, it means that to learn the monetary measure of the value that individuals associated with commodity market, we must use many different facilities

1.6 CONTINGENT VALUATION METHOD

Today, the CVM is one of the most used techniques for valuation of environmental benefits, widely used by academic institutions as well as by governmental agencies as a crucial tool in cost-benefit analysis and damage cost assessment This is partly due to the advantages of CVM compared to other valuation methods First, the CVM gives immediately a monetary assessment of respondents’ preferences Second, the CVM is the only valuation technique that is capable of shedding light on the monetary valuation of the non-use values, i.e., the benefit value component of the environmental commodity that is not directly associated with its direct use or consumption These values are characterized by having no behavioral market trace Therefore, economists cannot glean information about these values

relying on market-based valuation approaches For environmental resources such as the protection of natural parks or biodiversity-sensitive areas, which play an important role in guaranteeing the protection of local wildlife diversity, the non-use value component may account for the major part of the conservation benefits Ignoring such values will be responsible for a systematic bias in the estimation (an underestimation)

of the total economic value of the related environment Third, CVM brings with it the advantage that environmental quality changes may be valued even if they have not yet occurred This implies that the CVM can be a useful advisory tool for policy decision-making Furthermore, the constructed nature of the CVM permits to value environmental changes even if they have not yet occurred Therefore, CVM offers a greater potential scope and flexibility than the revealed preference methods since it is possible to specify different states of nature (policy scenarios) that may even lie outside the current institutional arrangements or levels of provision

Unlike traditional methods, CVM is not a real market through a hypothetical market in which individuals in the sample is regarded as the actors in that market This method applies to public goods for use value and value in use The value of WTP depends on the quality of goods describes the environment, when and how to pay (under the skill of the interviewer) and the elements belonging to the interviewee as income, the age, level of All the information collected are purely accidental

In the market, we are assuming situations (Scenarios - Scenario) Typically, there are two assumptions about changes in environmental quality goods If the environment

is improved, the individual will be asked if they are willing to pay to get the improvements, and if so how much they WTP for this assumption And vice versa, if

the environmental damage, the individual will be asked if they are willing to pay to avoid damage to the environment or not, and their WTP if they agree to pay

The establishments of CVM is the theory of random utility (RUT).According to the theory, the probability of an individual choosing a commodity in the commodity group depends on the utility of these good with the utility of other goods (Morrison et

al 1996) In other words, individuals “q” will choose the alternatives “i” instead of the alternatives “j” if and only if Uiq> Ujq (i, j Є A; A is a set of choices) The utility of a commodity is seems to depend on the elements observed as a vector of attributes of goods (x), personal characteristics (s), as well as the elements are unobservable (e).The component (e) is treated as random variables and assumed to follow a certain distribution law

The utility level of commodity “i” can represented this way:

Uiq = V(siq, ciq) + eiq With: Uiq: The utility level of commodity “i” of individual q

V: The function of indirect utility

siq : The characteristics vectors of

ciq: The properties vector of the goods in embodiment i

eiq: The unobserved components

The probability of choosing alternatives “i":

P (i\i, j Є A) = P[(Viq + eiq) > (Vjq + ejq) ] With: P: Probability

P (i \ i, j Є A) is the probability of choosing alternatives “i” instead of “j” in the set A

As the information has been shown above, the probability that an individual choose “i” instead “j” corresponding to the probability of the utility (V) has plus with the random utility (e) for “i” larger “j” it means that: the random probability of an individual will chooses the alternatives “i” equivalent to the probability that the difference betweenthe utility of “i” and “j” is smaller than the difference between the intended utility of “i” and “j”; i.e :

P(i\i, j Є A) = P[(Viq – Vjq) > (ejq – eiq) ]

WTP of respondents may be influenced by factors or different variables such as socioeconomic characteristics and some variables measuring the "quantity" of environmental quality Thus, WTP can be expressed as a function of these variables as follows:

WTP = f (w i , a i , e i , q i , )

Where: i: index of observed or investigated

f: The function of the WTP depends on variables

w: Income variable

a: Age variable

e: Education variable

q: measuring "quantity" of environmental quality variable

Implementation process of the CVM:

To understand the individual's WTP for a change in environmental goods/services, we need to perform the following requirements:

(1) Describe and explain the perspective influenced by changes in the supplying of environmental goods and services

(2) The interviewees will be asked to examine the given circumstances, including the choices related to environmental goods and services

(3) Based on the information that the respondents provided above, the respondents may provide the comments that related to their WTP, which can be deduced from the value associated with changes in supplying of goods and services

Implementation process of the CVM consists of 5 steps:

Step 1: Identify specific goals

+ Identify objects goods, environmental services need to be priced (landscapes, water, soil, air )

+ Set the capacity to estimate the value and unit of measure

+ Determine the period investigated

+ Identify the respondents

Step 2: Design a questionnaire interview

+ Introduction thread name, general information and location studies

+ Socioeconomic of research sites

+ Provide the perspective

+ Techniques to learn WTP

+ Payment mechanism

Step 3: Sampling and surveying

+ Deciding the sample size

+ Deciding how to investigate? When and where?

+ Investigating Test

+ surveying

Step 4: Processing and analyzing of data

+ Collecting and checking data

+ Select the WTP model

+ Estimates of annual average WTP of individuals

+ Calculating the annual net profit

+ Determining the total value of goods and environmental services

Advantages and Disadvantages of Contingent Valuation Method:

Advantages:

+ The main strengths of CVM is the flexibility CVM can be used in any situation, then it can be applied to many environmental goods, including the use values and non-use values

+ Another advantage is that in the comparison with other analytical methods, CVM does not need a large sample size Data can be collected in various ways and under different angles depending on the time and resources The type of interview used

in the CVM such as direct interviews; send mail; calling In this subject, the direct interviews were used as the primary way to collect data

+ In addition, CVM also be used to assess and confirm the hypothesis of the influence of factors that are willing to pay for the improvement of environmental

resources Since it launched the solution, appropriate policies to manage and use natural resources rationally and effectively

Disadvantages:

+ Usually, the willingness to pay of the interviewees are often lower because they think they have the right to be benefited and use of environmental goods for free without having to pay or they feel they do not use the resource So they do not give or offer lower pay rates consent for the use of environmental resources

+ In addition, the survey questions are generally based on hypothetical situations, so the applicability will depend very much on perceptions, behaviors, attitudes, opinions, behaviors of environmental resources valuated by the interviewee

Practical application of CVM

In the world

Currently in the world, CVM is applied to the valuation of environmental goods and services Such as the value of the existing plant and animal species at risk of extinction, or the value of the forests and national parks This method applies quite common in countries around the world for commodity pricing, environmental services, such as:

CVM's applicable of Whittington and his colleagues (1991), studies on the WTP to improve water supply systems in Onitsha, Nigeria showed that water rates given by the vendor are limited on the effectiveness of the money that of respondents agree to pay One of the studies of Dixon and his colleagues (1993) also used CVM to find out the general awareness of tourists and WTP for Bonaire Marine Park in the Caribbean The average WTP was $ 27.4 and consumer surplus is $ 325,000

Kramer and Mercer (1997) apply this approach to environmental goods with global nature (such as tropical forests in a national survey) to assess the valuation value of the American citizens for the tropical rainforest protection.On average, each person interviewed are willing to pay from 21 USD to 31 USD in prepaid mode once

to protect a further 5% of tropical forests

Shultz et al (1998) used CVM to estimate WTP for the admission in future to improve infrastructure and services in the Poas volcano and the parks located in Manuel Antonio, Costa Rica.The WTP results obtained from citizens live in this zone

is in the range from 11 USD to 13 USD, 9 times higher than the actual price of the entrance ticket at that time; for the foreigners, the average WTP is about 2.5 times the actual price of the entrance ticket

White and Lovett (1999) estimated WTP for nature conservation in North York Moors National Park, England in 1996 by CVM Results showed that the average WTP of a person for 1 year to conserve resources in this is £ 3.10

CVM's book of Mitchell and Carson (1989) has launched a list of more than 100

US researches that uses CVM.26 British studies applies CVM are also mentioned by Green et al (1990) in a previous survey

In Viet Nam

Environment Projects and Investments - VIE / 97/007 have applied to study CVM established the Environment Fund in Quang Ninh The survey was conducted for the hotel to get their opinions on the potential contributions and activities of the Fund Most of the interviewees said that we should spend on protecting the natural heritage in Ha Long Bay

Lê Thanh An (2006) used CVM to find out the household willingness to pay for improved water quality in Duong Lieu - Hoai Duc - Ha Tay The average WTP of people is 108.327 VND annual contributions and the factors affecting the level of WTP are the income, living area and education levels

Nguyen Thi Hai and Tran Duc Thanh (1999) used CVM to explore the Traveler WTP for improved roads and protected areas for wildlife of Cuc Phuong National Park Results showed that the average WTP of international visitors was 119,167; of domestic tourists was 13,270 VND and the factors affecting the level of WTP are the income and education levels

Nguyen Thi Nhung (2005) was initially learned the value of conserving species

of languor in Cat Ba National Park by means of CVM and the average WTP of 210 tourists is 46 685 VND These factors have been identified as affecting the WTP include income, occupation and education level variables

Nguyen Minh Hai (2004) used CVM to learn the conservation value of

average level WTP of 200 visitors is 39 750 VND with two variables as income and education levels affect the level of WTP

Pham Khanh Nam and Tran Vo Hung Son (2001) explored the WTP for the establishment of a marine area protection in Nha Trang, Hon Mun island, the WTP level of each Vietnam customer is 17 956 VND and foreign guest is 26 786 Total marine protection area’s WTP in Hon Mun island is 6 041 571 008 VND

…

CHAPTER II: RESEARCH METHODS

2.1 METHODS OF DATA COLLECTION

2.1.1 Secondary data collection

The data on the eco-social characteristics of the study area were taken from the report of municipal government and the documents related to the study

2.1.2 Primary data collection

Primary data were collected through the field observations and interviews to individuals through questionnaires, sampling The interviewees were selected randomly, ensuring a condition that the person has an income.A contingent valuation survey should include a detailed description of a good or service being valued and the hypothetical change regarding the good or service, questions about willingness to pay for a good or service being valued and questions about respondents’ characteristics (age, income, education, etc.) and preferably also their preferences regarding the good

or service The willingness-to-pay question should also define a way in which payment would be made (a general tax, a voluntary donation or an entrance fee) For example, a question can be formulated in the following way: ‘‘Are you willing to pay money for the previously described improvement of the environmental quality in your living area?’’ The valuation question is usually followed by a question which identifies the motivation of those respondents who state that they are not willing to pay anything This enables distinguishing between the so-called protest votes (respondents who are not willing to pay anything, because they protest against a scenario presented or a payment method) and the people for whom the good indeed has no value Protest votes are in most cases excluded from the statistical analysis, as they do not reveal people’s real economic value for the good

Object of study of 120 random people lives (representing for 120 households) in the Van Phuc handicraft village – Ha Noi (Appendix 1)

2.2 METHODS FOR DATA ANALYSIS

2.2.1 Descriptive statistical method

Descriptive statistics were used to describe the basic features of the data collected from experimental studies Descriptive statistics provide simple summaries about the sample and the measurement Along with simple graphics analysis, we create the foundation for quantitative analysis of data To understand the phenomenon and the right decisions, we need to grasp the basic methods of describing data For example, if

we had the results of 100 pieces of students' coursework, we may be interested in the overall performance of those students We would also be interested in the distribution

or spread of the marks Descriptive statistics allow us to do this When we use descriptive statistics it is useful to summarize our group of data using a combination of tabulated description (i.e., tables), graphical description (i.e., graphs and charts) and statistical commentary (i.e., a discussion of the results)

This method is used to describe the study criteria such as average values, assessment of the interviewees about the research problem, the willingness to pay of the person being interviewed which statistics the tables for ease of analysis

2.2.2 Comparative statistical method

Compare is a fundamental tool of analysis It sharpens our power of description, and plays a central role in concept-formation by bringing into focus suggestive similarities and contrasts among cases The comparison is routinely used in testing hypotheses, and it can contribute to the inductive discovery of new hypotheses and to theory-building

This method allows us to determine the speed of economic and social development between years, compare growth between year to year and from there make predictions by the collected data

2.2.3 Contingent Valuation Method

CVM is used to estimate economic values for all kinds of ecosystem and environmental services It can be used to estimate both use and non-use values, and it

is the most widely used method for estimating non-use values It is also the most controversial of the non-market valuation methods The contingent valuation method involves directly asking people, in a survey, how much they would be willing to pay for specific environmental services In some cases, people are asked for the amount of compensation they would be willing to accept to give up specific environmental services It is called “contingent” valuation, because people are asked to state their willingness to pay, contingent on a specific hypothetical scenario and description of the environmental service CVM is referred to as a “stated preference” method, because it asks people to directly state their values, rather than inferring values from actual choices, as the “revealed preference” methods do The fact that CV is based on what people say they would do, as opposed to what people are observed to do, and is the source of its greatest strengths and its greatest weaknesses

Contingent valuation is one of the only ways to assign dollar values to non-use values of the environment—values that do not involve market purchases and may not involve direct participation These values are sometimes referred to as “passive use” values They include everything from the basic life support functions associated with ecosystem health or biodiversity, to the enjoyment of a scenic vista or a wilderness experience, to appreciating the option to fish or bird watch in the future, or the right to

bequest those options to your grandchildren It also includes the value people place on simply knowing that giant pandas or whales exist

It is clear that people are willing to pay for non-use, or passive use, environmental benefits However, these benefits are likely to be implicitly treated as zero unless their dollar value is somehow estimated So, how much are they worth? Since people do not reveal their willingness to pay for them through their purchases or

by their behavior, the only option for estimating a value is by asking them questions

In this study, our CVM survey consists of three sections

The first section is characterized by the description of the environmental change as conveyed by the policy formulation and the description of the contingent market The policy formulation involves describing the availability (or quality) of the environmental commodity in both the ‘reference state’ (usually the status quo) and

‘target state’ (usually depicting the policy action) Since all monetary transactions occur in a social context, it is also crucial to define the contingent market - most of the time rather unfamiliar to the respondents - by stating to the respondent both the rules specifying the conditions that would lead to policy implementation as well the payment to be exacted from the respondent’s household in the event of policy implementation

The second section is where the respondent is asked to state her monetary valuation for the described policy formulation This part is the core of the questionnaire The major objective of this section is to obtain a monetary measure of the maximum Willingness to Pay that the individual consumers are willing to pay for the described environmental policy action

The third section of the CVM instrument is a set of questions that collect socio-demographic information about the respondents The answers to these questions help to better characterize the respondent’s profile and are used to understand the respondent’s stated WTP responses The third section finishes with follow-up questions The follow-up questions are answered by the interviewers The goal is to assess whether the respondents have (well) understood the CVM survey in general, and the valuation question in particular

2.2.4 WTP regression model

The method used to evaluate the factors affecting WTP for environmental services by people such as age, income, education, occupation, gender, number of household members, influence How come the willingness to pay of the local population

The model used is the model of multiple linear regression of the form:

wtp i = b o + b 1 X 1 + b 2 X 2 + b 3 X 3 + b 4 X 4 + b 5 D 1 + b 6 D 2 + + u i

With: X1: Age of the interviewees (years)

X2: The education level of the interviewees (years of schooling)

X3: The income of households (million/household/year)

X4: The number of household members (person)

D1 and D2 are dummies variables of gender and occupation

D1

D2

b0 is the freedom factor

b1, b2, b3, b4, b5 and b6 are regression coefficients of the variables included in the model

Ui is random error

*note: each interviewee was representing for a household

In the study of factors that affecting the WTP, 4 quantitative variables (age, income, education level, number of household members) and 2 qualitative variables (gender, occupation) are selected The reason for choosing these variables is to explicit the following relationships:

+ Age: with many generations living together in society, the higher the age, the more they saw of environmental change as many (often negative trend) so the rate of their willingness to pay will usually higher Or as the young people, their perceptions

of the change in environmental quality less so they tend to pay less willing to fix or protect the environment

+ Income: usually proportional to the WTP, as consumers have higher incomes, they tend to think more for themselves health, want their quality of life will increase and they will be willing to pay much more to get it compared to those who has lower income, who often weigh more than they are required to pay additional fees

+ Education: Related to the perception of the people, the higher level educated, the more they see the harmful effects of environmental degradation

+ The number of household members: The more member of the family, the less they will pay for the additional fees

+ Gender also affects WTP with the assumption that there is a differences between men and women in payments Men are very generous so they will pay more than women

+ Occupation: There is a difference in the WTP between occupations, such as civil servants are often closer to the guidelines and policies of the State so their consciousness is higher than other parts so they will be available willing to pay more The consideration of these factors influence to WTP will tell us what factors are most affected, less affected factors and does not affect Since then can analyze and assess the current status and issues research proposals launched in attracting people to participate in environmental service payments in Van Phuc handicraft village – Ha Noi The primary data collected from the survey were analyzed by computer using

STATA 11.0 software to estimate the WTP and establish the factors that influence the likelihood of the WTP responses The secondary data were used in the simulation

model and was analyzed using Excel software