The document summarizes two case studies that used contingent valuation methods to assess the economic value of watershed protection. Case study 1 assessed the costs and benefits of riparian protection in an eastern Canadian watershed. Households' willingness to pay for four protection programs ranged from $4.13 to $42.85 annually. Case study 2 examined an ongoing payment for watershed protection initiative in Colombia. Smallholder peasants and recreational house owners were asked their preferences for different payment structures. Results found heterogeneity in preferences between user groups.

1. 2013
Adhitya Wirayasa
38806, Locker 005
ES-EPM
Watershed Services and Assesses the
Cost of Its Protection Using Contingent
Valuation Method

2. Watershed Services and Assesses the Cost of Its Protection Using Contingent Valuation Method
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INTRODUCTION
TEEB Foundations (2010) describes Ecosystem Services as the direct and indirect contributions of
ecosystems to human well-being. The Millennium Ecosystem Assessment (MEA, 2005) classifying
ecosystem services into four parts, including supporting services (e.g. nutrient cycling, soil formation,
primary production), provisioning services (e.g. food, fresh water, wood), regulating services (e.g.
climate regulation, flood regulation, water purification), and cultural services (e.g. aesthetic,
recreational and other non-material benefits). These services have been provided by a different
ecosystem such as forests, wetlands, seas, and many others.
As an ecosystem, forest has provided humans with different ecosystem services. According to FAO
study (1997), forest produced various raw materials for industries including timber, rubber, and fruit.
There's a considerable number of forest have high cultural values and also provide beautiful scenery
valuable for ecotourism. A forest also provide humans with a wide range of ecological services such
as maintenance soil quality and the provision of organic materials, preventive erosion, modulate
climate, being part of biodiversity and habitat for other species, and regulate water cycle and
regulating its flow through the hydrological system like in the watershed.
Watershed services had been affected by changes of forest cover especially in tropical regions. Lélé
(2009) argues these effects illustrate in different forms and results in multidimensional changes in
watershed processes such as: soil erosion rates, peak and low-flow levels, groundwater recharge
rates, and water quality (Table 1). Several studies have been conducted to shown the importance of
ecosystem services and to find out the relationship between forest cover and watershed process.
The Millennium Ecosystem Assessment (2003) indicates there are at least three value domains to
express the importance of ecosystem and their services including ecological, socio-cultural and
economic value.
Various instruments and methods had been developed by ecologists and environmental economists
to quantify the value of ecosystem services into monetary unit. Use values and non use values are
used to distinguish between each ecosystem services. Use values encompass direct use values such
as the provisioning services (e.g. seafood and timber) and indirect use values such as such as air- and
water-purification, erosion prevention and pollination of crops, which usually called regulating and
supporting services (Jones-Walter, 2009, Turner et al., 2003 in de Groot et al., 2010, and TEEB
Foudation, 2010). In the other hands, non use values are those related to cultural services such as
recreation and aesthetic appreciation. The sum total of use and non-use values associated with a
resource or an aspect of the environment is called Total Economic Value (TEV).
This essay has been designed with a main objective to identify recent evaluation process of the
watershed ecosystem. The specific objectives of this study are as follow:
1. To briefly explain ecosystem valuation methods.
2. To observe and compare two different cases on watershed valuation using contingent
valuation method (CVM).

3. Watershed Services and Assesses the Cost of Its Protection Using Contingent Valuation Method
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Table 1. Forest Watershed processes and impacts: a framework
Source: Lélé, S., Venkatachalam L (2006) in Lélé (2009)
This paper will be divided into several sections start with introduction, measuring the benefits of
environmental protection, how much people willing to pay for the protection of watershed,
discussion, and conclusion.
MEASURING THE BENEFITS OF ENVIRONMENTAL PROTECTION
Humans' activity and decision has altered the ecosystem into biodiversity losses and social cost due
to overuse and poor management of natural resources (Michel Salles, 2011). The links between
ecosystem and the factors that contribute to human well-being were emphasized in the Millennium
Ecosystem Assessment synthesis report. These constituents of well-being were indicated through
various level of security, basic material for good life, health, good social relations, and freedom of
choice and action (Figure 1) that defined as the ‘opportunity to be able to achieve what an individual
values doing and being’ (MEA synthesis report, 2005).
Figure 1. Linkages between Ecosystem Services and Human Well-being
Source: Millennium Ecosystem Assessment synthesis report (2005)

4. Watershed Services and Assesses the Cost of Its Protection Using Contingent Valuation Method
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The motivation to develop a better and more comprehensive informational base for the policy
formulation and decision making process is driven the significant number of research in areas of
environmental and ecological economics in the last 30 years or so (R.K. Turner et.al, 2003 in Michel
Salles, 2011). These so called valuation methods for non-market goods and services (Table 2) can be
distinguish between the methods for expressing preferences ranked by columns (direct and
indirect) and type of observation according ranked by rows (revealed and stated).
Table 2. Valuation Methods for non-market goods and services
Source: Michel Salles, J (2011), Adapted from B. Chevassus-au-Louis et.al (2009)
Turner et.al (1994) and Goodstein (2011) is used to explain the definition of Contingent valuation
method, travel cost method, and hedonic prices as can be seen below.
Contingent valuation method often referred to as an expressed preference method. It's derived from
assessing the benefits or consumption of environmental goods or environmental protection through
willingness to pay (WTP) or willingness to accept (WTA). This called contingent valuations because
the values stated by the respondent are "contingent" upon research questions asked.
The Travel Cost method which is a revealed preferences method is used to determine the benefits of
protecting the recreational sites by estimate travel costs. Basically sum of travel cost per trip is
compare to the number of visit per year per person. A statistical method such as multiple regression
analysis is used to control undesired factors such as level of welfare, distance to recreational sites
and the presence of alternative sites.
Hedonic prices method which is a revealed preferences method is used to assess the existence of
environmental services which leads to affects certain market prices. Property for example, is the
most common market that using this method. This method uses the prices alteration of related
(complementary) goods to infer a willingness to pay for a good environmental quality such as less
pollution to the air, water, and sound.
HOW MUCH PEOPLE WILLING TO PAY FOR THE PROTECTION OF
WATERSHED?
Case Study 1: Cost-benefit analysis of riparian protection in an eastern
Canadian watershed (Trenholm et.al, 2013)1*
The Canaan-Washademoak watershed located in Southern New Brunswick, Canada part of the Saint
John River sytem and covers an area of 2,160 km2
(Jenkins, 2003 in 1*). There are 91 tributaries of
the river and lake forming approximately 12 major sub-watershed (Dalton and Weatherley, 2005 in
1*).

5. Watershed Services and Assesses the Cost of Its Protection Using Contingent Valuation Method
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Changes in economy activities along with the transformation of land use believed to cause
degradation on its ecosystem services. Land use in the watershed has altered over time due to
shifting from traditional industry toward service industry whilst the traditional economic activities
such as forestry, agriculture and fisheries still important for economy development. The watershed
mostly forested despite of harvesting wood practices on private forestland has lead to increased
number of young trees (Dalton and Weatherley, 2005 in 1*). Research has discovered about 7.2%
(8.2 km2
) of the riparian area of Washademoak Lake has been degraded along with the erosion
which has been reducing the water quality (Dalton and Weatherley, 2005 and Washademoak
Environmentalists, 2002 in 1*). In the other hand the riparian area of the Canaan River is fairly intact.
To quantify the benefits associated with the changes in ecosystem services, non-market valuation
was used.
Contingent valuation method (CVM) was used as a non-market valuation of three main ecosystem
services in the study area such as water filtration, fish and wildlife habitat and aesthetics. The CVM
scenario was developed which included four scenario of riparian protection program which provide
the respondent with a possible impact on water quality, fish and wildlife habitat, and forest scenery
to last for 10 years with the possibility of renewal as shown in Table 3. To conveying CVM, a
questionnaire was prepared to obtaining the estimation value of opportunity benefits, opportunity
costs, and estimating the NPV.
Table 3. The Valuation scenarios (programs) presented in the household survey
Source: Trenholm et.al (2013)
Several methods were used to construct a good questionnaire for estimating benefits. A questions
was made to obtained WTP for each program by using a double bounded dichotomous choice
format which closely to a real market situation such as 'take it or leave' aspect that lead to a higher
confidence intervals, although there are some weaknesses about its validity (Boyle, 2003a,
Hanemann et al., 1991 and Carson and Groves, 2007 in 1*). A cheap talk defined as extra texts
provided in the instrument before WTP questions and the level of certainty for each following
answer were applied to reduce hypothetical bias in WTP responses(List, 2001; Lusk, 2005 in 1*). The
parameterized model included variables representing the highest bid values that represent WTP in
each scenario and also applied three rating scales variables and summed the whole score for each
ecosystem services. To estimate total annual WTP for each riparian protection program, the affected
population was multiplied by the mean benefit estimate (Trenholm et.al, 2013).
A set of specific land use area were chose to estimate the opportunity cost of protecting riparian
area. After that, about 30 m and 60 m riparian buffer were delineated for preservation purposes. In
addition, per acre of opportunity cost for conducting the buffers was determined using wood supply
model for forested areas, register the values of agricultural land and rental values, and conducted an
assessment for the value of residential property. After that, a land use was evaluated by acquired
the relative area of each type of land use by grouping the land into four specification such as
forested area, agricultural area, residential area, other and then forest growth was forecasted using

6. Watershed Services and Assesses the Cost of Its Protection Using Contingent Valuation Method
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baseline information and the delineated buffer areas. The purposes of doing so were to optimize the
NPV of timber harvested in the watershed for 80 years. To estimate the total opportunity cost of
preserving riparian on residential land, the value of land per acre were calculated (Trenholm et.al,
2013).
After the result of opportunity benefits and opportunity costs obtained, the last step of calculation
was estimating the value of net present value. A number of assumptions along with different
scenarios were selected. A discount rate of 5% was used for each program and then continued with
sensitivity analysis.
The result of CVM was shown in the household WTP for riparian buffer with annual values ranging
from - $4.13 to $42.85 2007 CAD. A previous study found that the highest WTP was $441.59 in 2007
CAD by Loomis et al. (2000) while the smallest value was $0.96 in 2007 CAD by Holmes et al. (2004)
and Amigues et al. (2002). However, the most comparable study reported a range of - $4.40 to
$91.46 in 2007 CAD for a 50 m buffer along 70 km of river.
In despite of issues during data collection and results interpretation, the outcomes of this research
have important policy implications for riparian preservation in the Canaan-Washademoak watershed
and throughout New Brunswick. First, the policy makers should continue to protecting and
improving riparian areas in form of educating landowner about the benefits and also further
restricting development along undeveloped areas.
Case Study 2: Heterogeneous users and willingness to pay in an ongoing
payment for watershed protection initiative in the Colombian Andes
(Moreno-Sanchez et al, 2012)2*
The Chaina micro-watershed is located in Colombia's eastern Andes region, in the municipalities of
Villa de Leyva and Chiquiza (Boyacá Department) is strategic not only for providing drinking water
supply, but also for conserving biodiversity (Borda et al, 2010). It's the home for 4,300 people (880
household), and habitat for at least 135 plants, 155 insects, and 30 bird species. About 198 ha out of
444 ha is part of the Iguaque Flora and Fauna Sanctuary, a national park created in 1997 (Borda et al,
2010 in 2*).
Communal water management boards (WMBs) is responsible for operate and distribute the water to
880 households by using 1000 water connections. Fees are collected for operation and a
maintenance (O&M) purposes which is varies among the five WMBs. Implicit subsidies is received by
the peasant household from three WMBs (Borda et al, 2010 in 2*).
The expansion of agricultural and high rate of harvesting timber has contributed to the changes in
the ecosystem especially to water quality and quantity. During dry season water scarcity leads to
conflicts among water user. In addition, erosion and high sedimentation lead to increasing water
turbidity and during high rain season, landslide increases the sedimentation (Borda et al, 2010 in 2*).
Payment for Environmental Services (PES) scheme is introduced to protect watershed services as
well as for conflict resolution in downstream-upstream landowner. The 'flat environmental service
fee' of US$ 0.50/household/month also has been introduced by WMBs in addition to the fees
collected for O&M of water system.

7. Watershed Services and Assesses the Cost of Its Protection Using Contingent Valuation Method
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DISCUSSION
To answer the objective about observing and comparing, this section will be presented using a
matrix. Based on analysis on both case studies, a matrix of comparison is used to study and answer
the essay objective (Table 4).
Table 4. Matrix of Study Comparison
Aspects
Case 1:
Cost-benefit analysis of riparian
protection in an eastern
Canadian watershed
Case 2:
Heterogeneous users and willingness to
pay in an ongoing payment for
watershed protection initiative in the
Colombian Andes
Background of
study
Changes in economy activities
along with the transformation of
land use from traditional industry
toward service industry.
The watershed mostly forested
despite of harvesting wood
practices on private forestland
has lead to increased number of
young trees (Dalton and
Weatherley, 2005 in 1*).
The expansion of agricultural and high
rate of harvesting timber has contributed
to the changes in the ecosystem
especially to water quality and quantity
and also increased turbidity especially
due to landslide. (Borda et al, 2010 in 2*).
The 'flat environmental service fee' of
US$ 0.50/household/month also has
been introduced by WMBs in addition to
the fees collected for O&M of water
system.
Valuation method Contingent valuation method
(CVM) by using Cost-Benefit
analysis performed for four
different scenarios. The NPV
calculated with a discount rate of
5% for 80 years.
Initial development of the CVM
questionnaire took place over
several months and involved
consulting the literature and
individuals, as well as focus group
meeting. The questionnaire was
sent to households by mail,
stratified among three groups of
respondent.
Payment for Environmental Services
(PES) scheme is introduced to protect
watershed services as well as for conflict
resolution in downstream-upstream
landowner by applying CVM through
Willingness to Pay study.
Two types of respondents (smallholder
peasants and owners of recreational
houses) were asked about their
preference whether they would prefer an
ES fee differentiated by income, water
consumption, or both criteria.
Face-to-face interviews were conducted
to 218 households after pre-tested the
questionnaire with 12 households.
In addition to the descriptive statistics, a
referendum analysis using a probit model
(2 scenarios) to explain variations in WTP
was performed.
Improving method
weaknesses
A cheap talk, parameterized
model, and three rating scales
variables for calculating the
benefits during constructing the
N/A

8. Watershed Services and Assesses the Cost of Its Protection Using Contingent Valuation Method
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Aspects
Case 1:
Cost-benefit analysis of riparian
protection in an eastern
Canadian watershed
Case 2:
Heterogeneous users and willingness to
pay in an ongoing payment for
watershed protection initiative in the
Colombian Andes
questionnaire.
Study Results The result of CVM was shown in
the household WTP for riparian
buffer with annual values ranging
from - $4.13 to $42.85 2007 CAD.
A previous study found that the
highest WTP was $441.59 in 2007
CAD by Loomis et al. (2000) while
the smallest value was $0.96 in
2007 CAD by Holmes et al. (2004)
and Amigues et al. (2002).
However, the most comparable
study reported a range of - $4.40
to $91.46 in 2007 CAD for a 50 m
buffer along 70 km of river.
The WTP significantly affected by socio-
economic heterogeneity. Both groups of
respondents feel the positive impacts
from implementing the PES program, and
they were willing to pay a significant
amount above the current fee: US$1.39
compared to the current US$0.50
monthly.
Most of the respondents agreed on
differentiation on ES fee by consumption
rate, and also by income levels.
Policy implication The outcomes of this research
have important policy
implications for riparian
preservation in the Canaan-
Washademoak watershed and
throughout New Brunswick. First,
the policy makers should continue
to protecting and improving
riparian areas in form of
educating landowner about the
benefits and also further
restricting development along
undeveloped areas.
The article has been prepared for the
framework of the CIFOR project “Making
Nature Count: enhancing payments for
environmental service initiatives in
Ecuador and Colombia”. There is no
additional information about the
possibility of using the study result for
policy implementation.
Source: Analysis, 2013
CONCLUSION
As part of the forest ecosystem, watershed services had been affected by changes of forest cover
especially in tropical regions. Lélé (2009) argues these effects illustrate in different forms and results
in multidimensional changes in watershed processes such as: soil erosion rates, peak and low-flow
levels, groundwater recharge rates, and water quality. To show the importance of protecting the
environment, the Millennium Ecosystem Assessment (2003) indicates there are at least three value
domains to express the importance of ecosystem and their services including ecological, socio-
cultural and economic (monetary) value.
Contingent valuation method (CVM) is a direct and stated preference method to quantify the value
of ecosystem services into monetary unit. It's derived from assessing the benefits or consumption of
environmental goods or environmental protection through willingness to pay (WTP) or willingness to

9. Watershed Services and Assesses the Cost of Its Protection Using Contingent Valuation Method
8
accept (WTA). This called contingent valuations because the values stated by the respondent are
"contingent" upon research questions asked.
Based on comparison of two studies, some facts have been found as follows. The two studies on
watershed using Contingent valuation method. The households are using both use values and non
use values that come from ecosystem services. They are willing to pay for an amount of money to
protect the environment so that as the result, they can receive better services such as a better water
quality and quantity and low erosion rates. Basically both study using a willingness to pay approach.
However the first case using both WTP and WTA (Cost-Benefit Analysis), while the second case only
using the benefit approach. The first case shown that values ranging from - $4.13 to $42.85 2007
CAD annually while the second case shown a value of US$1.39 monthly (US$ 16.68 annually).
This essay also found that the outcomes of first case have important policy implication, while the
second case has been prepared for the framework of the CIFOR project. This is a good indication
since Michel Salles (2011) argue that "biodiversity and ecosystem services valuation would remain
meaningless if it does not aim at making better practical choices and actions". He also believes that
"Indeed, valuation is not an end in itself, but rather a conceptual and methodological framework for
organizing information as a guide for decision making".

10. Watershed Services and Assesses the Cost of Its Protection Using Contingent Valuation Method
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