Estimating Willingness to Pay for a Cleaner Lake Menomin: A Contingent Valuation Study

Abstract

Economics at St. Mary’s CollegeThe purpose of this project was to understand how much people in and around Menomonie, WI value a cleaner Lake Menomin and to discover which variables significantly influence that value. Determining an individual’s value for something bought on sold in a market (e.g. an iPod) is easy—you just look at the price and see if an individual purchases the good at that price! But for things not bought or sold in a market (e.g. a natural resource like Lake Menomin), valuation is more difficult. To get at people’s value for Lake Menomin, I used a process called “contingent valuation,” whereby I distributed surveys that asked whether people would be willing to pay for three different policies—a 0.1% additional sales tax, a $10 monthly water bill addition, and a$120 annual property tax addition. Through these willingness to pay questions, I essentially imposed a “price” on a cleaner Lake Menomin. If a respondent stated he or she would vote for a cleanup policy at that price, I know he or she values a cleaner lake at at least that price. I found that a sales tax addition of 0.1% was by far the most popular of the three proposed policy solutions, with 89% support compared to 43% support for property tax and 52% for water bill. Using econometric modeling (a random effects logit regression), I found that the average respondent was actually willing to pay more than an additional 0.1% sales tax, and would in fact be willing to pay annually $65.31 in additional sales tax (roughly a 0.4$65.31 annually on a cleaner Lake Menomin (this dollar value changes if you look at how much the average respondent would be willing to pay in property tax or water bill additions). I also found that a respondent is 146% (about 2.5 times) more likely to support a 0.1% sales tax if he or she believes agricultural runoff to be a major source of lake pollution, and 295% (almost 4 times) more likely to support the tax if it keeps the Lake clean for the entire summer (as opposed to an extra month). These results are especially relevant for policymakers concerned with Lake Menomin, as I show that a 0.1% sales ax addition designated to cleaning the Lake would pass with an overwhelming majority of the popular vote (89%), and even a tax as high as 0.3% would pass with 50% of the vote. If a 0.1% sales tax addition were implemented in Dunn County (where Menomonie is located), around $380,000 in annual revenue could be generated