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CitySpeak X: Green City. Cool City: Fiona Waters - There is money in public open space: Contingency valuation techniques



City Speak X: A Green City, A Cool City

Speaker: Fiona Water
There is money in public open space: Contingency valuation techniques

Hong Kong is surrounded by so much water and has so many green mountains, so does it really need more urban open space? How do we respond to the threats of global warming and air pollution? What is the meaning of “the urban heat island effect”? What is an “air ventilation assessment”? What value doesthe community place on open space? Is the demand for recreation and sport changing? Do we need a landscape vision and master plan? Is “green infrastructure” becoming more important than roads and railway lines in securing a sustainable built environment in Hong Kong?

Join experts, academics, planners, government officials and landscape architects in a discussion about how to stay cool in our city.

Designing Hong Kong is a not-for-profit organisation focused on sustainable urban planning. See:

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CitySpeak X: Green City. Cool City: Fiona Waters - There is money in public open space: Contingency valuation techniques

  1. 1. There is Value in Public Open Space The Economic Approach Fiona Waters Director, GHK (Hong Kong) Ltd January 2010
  2. 2. <ul><li>The World’s Best Airport </li></ul><ul><li>- AETRA Survey / Skytrax Global Survey </li></ul>
  3. 3. <ul><li>The World’s Best Skyline </li></ul><ul><li>- Emporis Annual Skyline Ranking </li></ul>
  4. 4. <ul><li>The World’s Freest Economy </li></ul><ul><li>The Heritage Foundation, 2010 </li></ul>
  5. 6. Rapid Economic Growth & Structural Change <ul><li>So where are we now? </li></ul><ul><li>Services dominated economy </li></ul><ul><li>GDP per capita now exceeds OECD Average, 8 th in world </li></ul><ul><li>International finance centre, global leader for market sophistication </li></ul><ul><li>Regional headquarters up 55% from 1997 </li></ul><ul><li>Third most popular destination in Asia & Pacific </li></ul>- 100 200 300 400 500 600 700 800 900 1,000 1960 1970 1980 1990 2000 Hong Kong GDP per capita, US$, 1961 = 100 3,000 30,000
  6. 7. So what is the problem? <ul><li>Hong Kong’s International Ranking for Infrastructure: </li></ul><ul><li>Quality of road infrastructure 5 th </li></ul><ul><li>Quality of railroad infrastructure 5 th </li></ul><ul><li>Quality of port infrastructure 2 nd </li></ul><ul><li>Quality of air transport infrastrucutre 2 nd </li></ul><ul><li>Overall Rank 5 th / 134 </li></ul>- Global Competitiveness Report, 2008-09 70 Hong Kong 15 69 Omuta 14 64 Yokkaichi 13 58 Tsukuba 12 54 Nagoya 11 44 Osaka 10 40 Kobe 9 38 Yokohama 8 35 Tokyo 7 34 Brisbane 6 32 Singapore 5 29 Adelaide 4 21 Perth 3 17 Melbourne 2 10 Sydney 1 Top Asian Cities <ul><li>Hong Kong’s International Ranking for Quality of Life: </li></ul><ul><li>Ranking for Quality of Life 70 th / 215 </li></ul><ul><li>Ranking out of Asia-Pacific Countries 15 th </li></ul>- Mercer Quality of Life Index, 2008
  7. 8. … Potential benefits of economic analysis not well used or understood in Hong Kong <ul><li>Value for money, valuing intangibles – still immature concepts </li></ul><ul><li>Sustainability Assessment is weak </li></ul><ul><li>Economics used to endorse rather than guide decision-making </li></ul><ul><li>Analysis of alternatives limited to alignment/design </li></ul>
  8. 9. What is the Value of Open Space? “ What would the land premium be for an urban area of open space for public enjoyment i.e. an area of land with no development rights whatsoever?” Financial Value = Negative Economic Value = Positive
  9. 10. Using economic analysis to make the most of our comparative advantage: Victoria Harbour
  10. 11. Using economic analysis to make the most of our comparative advantage: Victoria Harbour
  11. 12. Objective of Harbour Values Study “ Put a Dollar Value on Improving the Planning and Development of Hong Kong’s Harbour!” First Contingent Value Study in Hong Kong of this Scale
  12. 13. Total economic value Use value Non-use value Actual use Option value For others Existence Residents Visitors Altruism Bequest Look at the market But what if no market? Hypothetical Market Contingent Valuation (Stated Preference) How to measure?
  13. 14. International Use of Contingent Valuation <ul><li>Contingent Valuation is not new </li></ul><ul><li>It has been used the world over and is now a subject in its own right </li></ul><ul><li>Common applications include: </li></ul><ul><ul><li>Cost Benefit Analysis </li></ul></ul><ul><ul><li>Demonstration of Importance </li></ul></ul><ul><ul><li>Priority Setting </li></ul></ul><ul><ul><li>Design of Economic Instruments and Pricing </li></ul></ul><ul><ul><li>Legal Damage Assessment </li></ul></ul>
  14. 15. A Famous Example Exxon Valdez Oil Spill, 1989 11 million gallons of crude oil Killed: 250,000 seabirds, 2,800 sea otters, 300 harbour seals, 250 bald eagles, up to 22 killer whales and an unknown number of salmon & herring CV estimated value of preventing a similar accident: US$2.8bn Out of court settlement in excess of US$1 billion Nobel Prize winning economists led review, in favour of CV CV now accepted evidence for assessing legal damage claims
  15. 16. Preparing the Survey Public Opinion Survey Focus Group Discussions Visual Stimuli Face to Face Interviews EFTEC Survey Design Two Pilot Surveys
  16. 17. The Survey Sample <ul><li>1,034 Interviews, each lasting 20 minutes on average </li></ul>Perceptions of the Harbour Usage of the Harbour Ideal Future of the Harbour Willingness to Pay for Ideal Scenario
  17. 18. Selecting an ideal harbour… 1. Green areas 5. Promenade 12. Ground level access to the harbour 9. Covered walkways 11. Recreational places 6. Water activities 7. Roads and highways 8. Open-air eating places 10. Commercial 2. Residential 4. Cultural facilities 3. Parks and open-air plazas
  18. 19. Selecting an ideal harbour… 89% 91% 91% 36% 34% 36% 2 1 3 Least Popular: 2 1 3 Most Popular: 7. Roads and highways 2. Residential 5. Promenade 11. Recreational places 1. Green areas 10. Commercial
  19. 20. Willingness to Pay… <ul><li>In order to understand how valuable your selected slides are to you, we would like you to imagine how much you would be willing to pay for them on a monthly basis out of your own income? </li></ul>For example , given how much you spend each month on things like your mobile phone and eating out, how much would you be willing to pay? How much for your ideal harbour?
  20. 21. Willingness to Pay Results How much for your ideal harbour? Why not willing to pay? <ul><li>Gov should pay </li></ul><ul><li>Already paying in taxes </li></ul>WTP not necessarily zero, just not revealed! Median monthly WTP: $68 Average monthly WTP: $222
  21. 22. Willingness to Pay Results <ul><li>Average length of time willing to pay for: 5.8 years </li></ul><ul><li>Average individual contingent valuation: $12,573 (NPV) </li></ul>How much for your ideal harbour? $73 billion
  22. 23. $73 billion in context <ul><li>Government spending in 2005: </li></ul><ul><ul><li>Capital Projects </li></ul></ul><ul><ul><li>Expenditure on Health </li></ul></ul><ul><ul><li>Expenditure on Education </li></ul></ul><ul><li>Fixed assets of HK Airport Authority </li></ul><ul><li>Fixed assets of MTR Corporation </li></ul>= $48 billion = $103 billion = $34 billion = $28 billion = $26 billion
  23. 24. Key Messages World’s most efficient economy but only 70 th on Quality of Life 90% want a harbour featuring green spaces, recreational areas and promenades $73 billion Improved harbour planning and development is valued at $73bn – high and cannot be ignored
  24. 25. Moving Forward – Public Policy Implications Useful techniques for better public policy decision making Provides powerful evidence of the need for public policy change Parks and recreational areas should be a policy priority Realising Potential is Key to Competitiveness!! From a Better Harbour… … To a Better Hong Kong A better harbour is affordable because it is valued by the public and will contribute to Hong Kong as an attractive place to live, work k and visit
  25. 26. Thank you. Fiona Waters, Director, GHK (Hong Kong) Ltd [email_address]
  26. 27. Using economic analysis to make the most of our comparative advantage: Victoria Harbour Source: Integrated Harbour Vision & Delivery Plan – The Business Case Harbour Business Forum / GHK

Editor's Notes

  • We have the Worlds best airport -
  • The best skyline
  • Hong Kong is… The World’s most efficient economy – according to the latest World Economic Forum, Global Competitiveness Report
  • We market ourselves as Asia’s World City
  • Over the past 40 years our GDP has grown ten fold.
  • Still immature concepts – ie, least cost solutions still selected SA is weak – too environmental! Remember Sustainable Development Division sits under Environment Bureau
  • The objective of the study was simple… Put a dollar value on improving the harbour So how did we go about it?
  • First we addressed the theory – what makes up total economic value? Don’t worry I’ll run through this bit quickly!! The harbour has a value in use but also in non-use.. In use, this is made up of actual use and having the option of doing so. For non-use, it has value through others, in deriving pleasure from your families enjoyment for example or through the knowledge that your unborn grandson will also gain benefit from the harbour Finally the harbour has a value for simply existing.. A value say to someone who knows that they have the potential to visit Hong Kong one day.. So how do we measure this? Normally we measure value by looking at prices determined in the market but what if there is no market? There are two ways of getting round this problem, observe people’s behaviour to extract a value – known as revealed preference or alternatively Create a hypothetical market.. And ask people.. This is what we did Contingent valuation simulate a market. An interviewer acts as a seller and the respondent acts as a buyer; they negotiate until they agree a price for a particular intangible good Respondents are asked to state preferences and their willingness to pay for them. The value/ or worth is simply what people are WTP. WTP techniques provide a money value that can be compared to goods already priced in the market One final point on theory .. These different types of values – use values and non-use values - can apply to residents and visitors alike.. A visitor can have a use value and a resident not if he or she so chooses.. The harbour values study only assesses the value to residents
  • Contingent valuation methods were developed in the 1960’s and several thousand have been undertaken worldwide Although in number, the US and Europe dominate, many have been undertaken in Asia, including in China CV is used by international agencies including the World Bank with 184 member countries and the Asian Development Bank with 65 Used for different purposes, cost benefit analysis of policies projects and programmes design of economic instruments and pricing in legal damage assessment Huge Range of Subjects: Protecting Rainforests, Noise, Air and Water Pollution, Endangered Species, Open Space in Urban Areas, Parks, Greenbelt Land More Recently Culture and Heritage Assets as well as the Environment. A CV study was undertaken in the UK to look at the London bid for the Olympics
  • Perhaps the most famous case of the application of CV was in the US in Alaska On the night of 24 th March, 1989, the oil tanker Exxon Valdez ran aground spilling 11 million gallons of crude oil into an area of pristine wilderness The effects were devastating Contingent Valuation Conducted Estimated Value of Preventing a Similar Future Accident Estimated at US$2.8 billion Court Settlement over US$1 billion, Exxon Estimated Clean Up Costs US$2 billion Prompted National Oceanic and Atmospheric Administration to Review Use of Contingent Valuation, Expert Panel concluded that it provides Useful Information provided that Guidelines are met More recent industry attempts to discredit it have failed CV is now accepted as evidence in assessing legal damage claims under the Oil Pollution Act CV, like any research technique has its limitations and its critics. In particular care must be taken in the survey design to mitigate any bias as far as possible. However, the evidence for its validity as a relevant technique for this Study is well founded.
  • The survey design is critical We were guided by the HBF Public Opinion Survey which provided helpful insight into the use, perceptions and preferences about the Harbour We undertook 10 focus group discussions with different age and employment profiles, representing different sections of the community One of the key findings of the focus groups was the importance of the stimuli in asking people what their preferences were about the harbour and how they valued them The team searched literally hundreds of photos to find appropriate pictures to represent different aspects of the harbour (come onto this in a minute) It also revealed that people found it easier to respond to questions about WTP if asked on a monthly basis so that they could more easily relate to other bills they have to pay Given the need for visual stimuls, face to face interviews were critical, this required a simple and focused questionnaire The survey design was reviewed by leading academics in the field through Economics For the Environment Consultancy – this team based in London specialises wholly on CV and its application and undertook the recent analysis for the London Olympics as well as being authors of leading text books on the subject Finally the questionnaire was tested in two pilot surveys, each refining the final version
  • Face to face interviews with 1,034 HK residents Each interview lasted 20 minutes on average Area sampling system based on tertiary planning unit/street block system Scaled and weighted to give a sample close to the true HK pop The survey covered four main aspects, the first two usage and perceptions were used mainly as “warm up” to get respondents thinking about the Harbour and leading up to the critical WTP question The latter two were the key to Study, selection of aspects of an ideal future harbour scenario and willingness to pay
  • So how did we go about getting respondents to tell us their preferences? We used 12 pictures, selected from literally hundreds – to represent different aspects of the Harbour Respondents were presented with a board containing all 12 pictures. The pictures aimed to be easily related to Hong Kong conditions but were, wherever possible, not easily recognisable as Hong Kong or any other city. Also the presentation of the pictures was rotated to reduce any bias from ordering.
  • Participants were asked to select their own ideal scenario by choosing those pictures from amongst the 12 shown that represented their ‘ideal state’ for the Harbour. They could choose as many or as few as they liked. The most popular selections mirrored the outcome of the Public Opinion survey where 88% of respondents wanted a greener harbour. In our survey, the call for a green areas and recreational places was more than 90% Least popular were more infrastructure and buildings
  • In order to encourage people to be as realistic as possible about what they would be willing to pay for Harbour improvements, questions were drafted to emphasise the need for respondents to carefully consider the answers that they gave. The questions incorporated references to other payments that that respondents might make on a regular monthly basis. Respondents were asked to state the monthly amount, and the length of time over which they would be willing to pay the monthly amount. If respondents were not able to give a response, then they were shown a card with a series of value ranges including zero to assist them
  • About one quarter of respondents (24%) were unwilling to pay and a few (2%) were not able say what they would pay for improvements to the Harbour. Those unwilling to pay anything were asked why, and provided reasons. More than 60% of those who said they were not willing to pay believed that the Government or others should pay or that they were already paying though taxes and thus their value was not necessarily zero, just not revealed. However, in order to be conservative in analysing results, these responses were treated as zeros. This result suggests the survey was not biased in encouraging people to say they were willing to pay Of all responses, the median value was $68 and the average $222. Positive correlation with personal income and other characteristics associated with income such as education level. Males tended to have slightly higher values than females
  • We also asked respondents how long they would be willing to pay. Some CV’s assume that the regular payment continues forever. This approach was not used, some people said only one or a few months, some for years. The average was 5.8 years. Taking monthly WTP, length of time WTP as a cash flow, and applying a discount rate, the individual capital amount was calculated at some $12,500 Grossing up to the population gives us… $73 billion
  • How does this compare with other values and expenditures? To set $73 in context. Here are some examples of Government spending, some 34 billion on capital works through the CWRF Fixed assets of the AA and of MTR, some $48 billion and $103 billion; The exact value of $73 billion doesn’t matter. It could be slightly more or slightly less but the message would not change; improvements to the Harbour are valuable to the people of Hong Kong and is in this broad order of magnitude
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