Willingness to pay for water quality improvement: Differences between contingent valuation and averting expenditure methods

Abstract

Water quality improvement benefits for Nebraska were estimated using both contingent valuation (CV) and averting expenditures (AE) methods. Willingness to pay (WTP) and averting expenditures were measured based on a mail survey of 4,000 randomly selected Nebraska households that was conducted in mid October 1997. The response rate for the Dillman mail survey procedure was 35 percent, resulting in 1416 useable responses. Willingness to pay for improving water quality was estimated from the double bounded CV results, using censored logistic regression. The estimated mean WTP was at $9.50 per month per household for a nitrate program and \$9.72 per month per household for reducing all contaminants. The households with the highest WTP were young, with high income, who perceived significant risk, did not use a private well, and were more likely to have taken some averting action. Averting expenditures were analyzed as a check on the validity of the CV approach using a two stage Heckman model. When averting expenditures were averaged across all respondents, mean averting costs were much lower than the CV results at$6.00 and \$8.20 per month per household for nitrates and all contaminants, respectively. A comparison of the CV and averting expenditure results suggested that the true WTP for improved water quality lies somewhere between the lower bound established by the averting expenditures approach and the upper bound established by the CV analysis. Based on this premise, Nebraska citizens were willing to pay between$45 and \$72 million per year for programs to reduce nitrate contamination and from$62 to \$74 million to address water quality problems from all contaminants. The major policy implications from the study were that there was considerable total financial support for drinking water quality programs; that policy officials should consider financing alternatives for both utility fees and taxes which are more closely linked to ability to pay; and that there was a need for testing and education programs to reduce the discrepancies between perceived and actual water quality risk