Applying Stated Preference Methods to the Valuation of Noise: Some Lessons to Date Mark Wardmana, Abigail Bristowb, Elisabete Arsenioc a b Institute for Transport Studies, University of Leeds, Leeds, LS2 9JT, UK Transport Studies Group, Department of Civil and Building Engineering, Loughborough University, Leicestershire, LE11 3TU, UK c LNEC, Lisbon, Portugal a [email protected]; [email protected]; [email protected] Abstract Few studies have applied stated preference methods to the valuation of noise. This paper draws upon the experiences of three studies which have estimated willingness to pay for reductions in road traffic and aircraft noise. Such valuations can be used in the economic appraisal of infrastructure and operating decisions using social cost benefit analysis. The emphasis is upon methodological issues. In particular, this papers covers: the insights obtained by the three studies into the presentation of noise in a survey setting; whether marginal valuations depend on the size and sign of the change in noise levels and the noise level from which variations occur; the impact of socio-economic variables on valuations; and the comparison of the valuations obtained using stated preference methods with those derived using the contingent valuation method. 1. INTRODUCTION There have been few applications of stated preference (SP) methods to the valuation of environmental externalities. The purpose of this paper is to report the experiences obtained from three novel but quite disparate studies which have used the SP method to estimate the monetary valuations individuals and households place upon transport related noise. Two of the studies related to road traffic noise and one to aircraft noise and they were conducted between 1995 and 2003. The structure of the paper is as follows. Section 2 explains briefly what SP is and how it compares with other valuation methodologies. The three SP exercises and the data collection are described in section 3. Section 4 covers the experiences and insights gained from these studies, with an emphasis on methodological issues. In particular, it covers: issues involved in presenting noise to individuals in survey contexts; what are termed size, sign and reference effects; the impacts of a range of socio-economic variables on the monetary valuations of noise; and within study comparisons of SP based valuations with those derived using the contingent valuation method. 2. WHAT IS STATED PREFERENCE? SP has its roots in marketing research and mathematical psychology, where it is commonly termed conjoint analysis [1]. It offers individuals a series of situations to evaluate, typically a choice between two alternatives, with the alternatives characterised by a range of relevant attributes which influence choice and are of interest to the analyst. The responses supplied indicate the importance attached to each of the attributes and are therefore important for product design, policy appraisal and forecasting behaviour. SP has a number of advantages, not least for environmental valuation that it can create a hypothetical market in which these attributes can be traded where no real market exists. Other advantages include the ability to control the attributes and the attribute levels offered to respondents, thereby obtaining more ‘ideal’ trade-offs with lower inter-attribute correlations than would occur in the real world. The experimental design can ensure there is sufficient variation in attributes, so as to allow precise estimates to be obtained and to support specific analysis such as the investigation of non-linear effects, whilst multiple observations are obtained per person and variables which are not of primary interest can be ‘designed out’. The main drawback is that the weights estimated to each attribute do not reflect individuals’ true weights due to response bias made possible because respondents are not committed to behave in line with their statements. Chief amongst these concerns are the incentives to register protest responses or to bias answers in a strategic fashion to influence policy makers. Applications of SP to environmental valuation in general and noise valuation in particular are comparatively recent but growing [2]. Its chief rivals are the hedonic pricing approach and the contingent valuation method (CVM). The hedonic pricing approach has been widely used to value noise from the impact on willingness to pay in the surrogate housing market [3]. However, the method has been questioned on several counts, including imperfect knowledge of the attributes of each location and other market imperfections, correlation of explanatory variables, and the difficulty of measuring intangible influences and individuals’ perceptions of them. In addition, there is only a single observation per person whilst there can be problems of selfselectivity since those who have high valuations of noise will tend to live in quieter locations. CVM has for many years been used to obtain valuations particularly of goods not traded in the market-place [4]. Respondents are given information about the contingent market and are asked to provide a willingness to pay for the good or service in question. The CVM can take two forms, either open-ended which asks for a maximum willingness to pay or iterative bidding where the respondent is asked whether a series of payments would be accepted. The SP approach has a number of advantages over CVM. The iterative bidding form of CVM is a special case of SP with only one variable in addition to the monetary term and where the (environmental) variable to be valued takes only two levels. SP tends to examine several attributes and each tend to have more levels than is typical on CVM. The SP approach therefore supports the analysis of non-linear and interaction effects whilst it places less emphasis on any specific attribute which it is often felt reduces incentives to bias since the purpose of the exercise is less transparent and the study does not ‘fixate’ on a single variable. Open-ended CVM asks for the strength of preference whilst SP tends to ask for the order of preference. Whilst the strength of preference contains more information and involves only a single question rather than a whole series, SP responses can be expected to be more reliable than this form of CVM response for two principal reasons. Firstly, it is simpler to indicate the order than the strength of preference. Secondly, individuals routinely make choices but are rarely required to establish the strength of preference in real life decision-making. 3. THE THREE STATED PREFERENCE EXERCISES The first of our SP exercises was conducted in Edinburgh in 1996 as one of the first applications of SP to value traffic related noise [2]. Households were offered choices between two housing options differing in terms of indoor noise levels, neighbourhood air quality, accessibility levels by bus and car, and local council tax. Noise was presented as a percentage change from the existing situation. A sample of 398 households yielded 4175 choices. The second SP study covered here built upon the Edinburgh experience in terms of its presentation of noise [5]. It was based upon residents’ choice of apartments in Lisbon but instead asked them to consider noise levels as they would be in different apartments in their block with different exposures to traffic. The different apartments were characterised in terms of traffic noise, view, exposure to sunlight and housing service charge. The survey was conducted in 1999 and obtained a sample of 412 households and 4944 SP choices. The third study was instead aimed at valuing aircraft noise [6]. Residents around the airports of Manchester, Lyon and Bucharest were interviewed in a ‘group hall test’ and completed two SP exercises. The first SP couched aircraft movements within a broader quality of life dimension, alongside factors such a local school quality, neighbourhood crime levels, local road congestion, air quality, road traffic noise, and local health and recreation facilities. A range of improvements and subsequently a range of deteriorations were ranked in order of preference. The aim of this exercise was to mask the purpose of the study and thereby reduce the incentive to response bias. The second SP took a more conventional form, and offered choices between two alternatives differing in terms of movements of three types of aircraft and local tax levels. Around 200 interviews were completed at each of the three locations. 4. LESSONS FROM OUR EXPERIENCES The logit model has been used to estimate the parameters of each variable in the SP exercises. A variant upon this, the ordered logit model, was used to analyse the ranking data of the quality of life SP exercise. The Alogit package has been used throughout [7], with its jack-knife procedure correcting for the repeated observations nature of the SP data. 4.1 Presentation of Noise One of the main challenges facing the valuation of noise within a survey context is that of presenting it in what respondents take to be a realistic and understandable fashion. Unlike SP exercises based around market goods and services, where the attributes can generally be presented in their natural units, noise cannot be sensibly presented in the units in which it is usually measured. There are several means of introducing noise into an SP exercise. A simple approach is to use categorical scales, such as ‘very noisy’, ‘noisy’, ‘quite noisy’ and so on. The main problem is to relate these scales to actual levels of noise and to be able to know when an actual change causes an individual to experience one category of the variable instead of another. Specifying proportionate changes is a common approach, although disadvantages are respondents’ difficulties in understanding percentage changes and translating these changes into an objective measure. Respondents can experience noise at different levels under experimental ‘laboratory controlled’ conditions. However, noise simulation tends to be an expensive approach whilst respondents may be affected by the artificial and usually limited exposure. What is termed the location method is an attractive approach. It can take a spatial dimension, whereby the respondent is asked to compare different locations with different noise levels, or else a temporal dimension, where at the same location there is variation in exposure over time. Ideally, the respondent would be familiar with the different levels of noise. Finally, we can use a proxy measure, such as traffic or aircraft movements, and variations in movements are used to imply variations in noise. Physical noise measures are then taken or estimated for the different movements. The Edinburgh study wanted to use the location method on the grounds of realism. However, it was felt that households would be familiar only with outside noise levels in other homes and these would not be consistent with indoor noise levels at their home. The proportionate change method was instead used. However, as part of the study, both the proportionate change and location methods were used to present variations in air quality. There were significant differences in the valuations obtained by each method which were taken to confirm a preference for the location method over the proportionate change method. In the Lisbon study respondents evaluated different apartments in the same block with which they would be familiar. These different noise levels were then used in the SP exercise. An advantage of this approach is that we can relate valuations to actual noise levels as measured by Leq since respondents will have experienced the different physical noise levels. Separate models were estimated to perceived noise levels, as rated on a 1-100 scale, and measured noise levels in Leq. The model based on perceived levels performed better, in terms of goodness of fit and precision of parameter estimates, than the model based on indoor Leq which in turn was better than the model based on outdoor Leq. Whilst the value of noise on the rating scale was €1.96 with a 95% confidence interval of ±0.81, the value based on indoor Leq was €9.44 but with a very large 95% confidence interval of ±15.7. An interesting feature of this study was the estimation of the relationship between perceived and measured noise. Such a relationship is necessary to operationalise a model calibrated to perceived measures as represented by the ratings. It estimated a model of the form: DR = α ( Leq C − Leq i ) + β d I ( Leq C − Leq i ) + γ ( Leq C − Leq i ) 2 + δLeq C ( Leq C − Leq i ) DR is the difference in the rating of perceived noise between the current (c) and some alternative (i) apartment which is regressed on the difference in the measured indoor noise levels. The dummy term dI denotes an increase in noise on the current situation and thus β indicates whether any sign effect is present. The squared term indicates whether there is any support for a size effect whilst the final term specifies an interaction with the noise level at the current apartment and tests for the presence of reference effects. The results are reported in Table 1. There was no statistical support for a size effect but it emerged that an increase in noise had a larger impact on the ratings than an equivalent reduction and that a given change in Leq implied a larger change in ratings when the current apartment was noisier. The magnitude of the variation is apparent in Table 3 below where we subsequently make use of these results to derive monetary valuations expressed in Leq units Table 1: Regression Model of Ratings on Leq Indoor Measures α β (Sign Effect) δ (Reference Effect)) Adj R2 Obs n.s. -0.8904 (4.88) -0.0576 (18.35) 0.460 824 The aircraft study used variations in aircraft movements as the means of introducing noise level variations. The conventional study offered variations in three types of aircraft and, in order to assist in the discrimination between the noise associated with different aircraft type, half the sample were played simulations of aircraft noise prior to undertaking the SP exercise. Table 2 reports the results of the analysis in terms of money values and associated t ratios. Table 2: Impact of Noise Simulations (€) 4 Engined-Simulation 2 Engined-Simulation Propeller-Simulation 4 Engined-None 2 Engined-None Propeller-None Manchester 2.58 (1.5) 1.01 (2.1) 1.13 (1.0) -0.18 (0.1) -0.24 (0.8) 2.53 (2.0) Lyon 1.78 (1.9) 2.02 (2.6) 1.97 (1.1) 4.84 (2.6) 0.40 (0.5) -0.56 (0.4) Bucharest 0.28 (1.0) 0.10 (0.9) 0.20 (1.3) 0.16 (0.5) 0.33 (1.6) 0.08 (0.5) In Manchester, the noise simulation did have an impact. When there was no simulation, it is only the smallest and least noisy aircraft which had a significant effect and indeed the other two aircraft had wrong sign values. For those who heard the noise simulation, all three values are correct sign and the four engined jets are disliked most as expected. Although only one value is statistically significant, the t ratios for the other two are reasonably respectable. The noise simulation also impacted upon the Lyon SP responses. All three values are correct sign and two are significant for those who heard the noise simulation prior to completing the SP exercise, although the values are similar to each other. On the other hand, two of the values where noise simulation was not heard are far from statistically significant and the value of a unit changed in four engined planes does seem rather high at €4.84. In the case of Bucharest, all six values are correct sign. On balance, the t statistics are better where the simulation was played but there is little to choose between the two sets of results. 4.2 Size, Sign and Reference Effects The utility function most commonly adopted in practical discrete choice modelling is linearadditive and this constrains the marginal monetary valuations to be constant as the ratio of the constant marginal utility (coefficient) for the variable of interest and the constant marginal utility (coefficient) for cost. Some studies have explored for what are termed sign, size and level effects. The sign effect denotes an asymmetry between the valuations of gains and losses in the level of an attribute. A size effect is present where the unit value of a change in an attribute depends upon how large the change is. The level or reference effect indicates that the sensitivity to a change in an attribute depends on the level from which it varies. There are a number of reasons why we might expect size, sign and level effects but it is essentially a matter for empirical testing. Where noise is a continuous variable, we can specify the utility function as say: U = α 1 d G X λ + α 2 d L X λ + β 1 d G ( X − X base ) 2 + β 2 d L ( X − X base ) 2 dG and dL are dummy variables denoting whether X is a gain on the current situation or a loss. The expressions for the marginal utility of X for gains (MUXG) and losses (MUXL) are: MU XG = ∂U = α1λX λ −1 + 2 β1 ( X − X base ) ∂X MU XL = ∂U = α 2 λX λ −1 + 2 β 2 ( X − X base ) ∂X Comparison of these marginal utilities indicates the extent to which there is a sign effect. The parameter λ allows the sensitivity to changes in X to depend upon the level of X whilst β1 and β2 denote size effects. Where a noise measure is unavailable or unreliable, we use a dummy variable specification. For example, in the Edinburgh study noise entered at three levels of proportionate change and the current situation. The utility function was therefore specified as: U = γ 1 d +50 + γ 2 d +100 + γ 3 d −50 where dummy variables are specified for a 50% increase in noise (d+50), a 100% increase (d+100) and a 50% reduction (d-50). Comparison of γ1 and γ3 provides a test of sign effects whilst comparison of γ1 and γ2 indicates whether a size effect is present. By definition, we cannot here examine level effects. The Edinburgh study found that the unit valuation of noise did not vary between a 50% and 100% increase. Whilst there was some evidence to support noise valuations being larger for increases in noise than reductions, it was not particularly convincing and it was concluded that “for most of the population, gains and losses in noise would be valued the same”. The Lisbon study explored whether sign, size and level effects were present in the model based on ratings of perceived noise. It found noise valuations to be higher for increases than equivalent reductions but only by 10% and the difference was not statistically significant. There no support for size or level effects. However, matters are different when actual noise measures are brought into the equation. In order to operationalise the model, it is necessary to relate perceived noise levels to indoor levels of Leq as reported in section 4.1 and Table 1. That model recovered sign and reference effects. The extent of these effects are illustrated in Table 3, and they are quite pronounced. Table 3: Household Monthly Valuations for a unit change in Leq (€) Change in Leq Deterioration 40 to 41 40 to 42 40 to 43 Improvement 40 to 39 40 to 38 40 to 37 Change in ratings Unit Value 3.19 6.39 9.58 6.80 6.80 6.80 2.30 4.61 6.91 4.91 4.91 4.91 Change in Leq Levels 30 to 31 35 to 36 40 to 41 45 to 46 50 to 51 Change in ratings Unit Value 2.62 2.91 3.19 3.48 3.77 5.58 6.20 6.79 7.41 8.03 The aircraft noise models estimated in the quality of life SP exercise estimated separate models for improvements and deteriorations. For Manchester, significant parameters could not be recovered for deterioration in evening noise and for Bucharest it was not possible to discern significant effects for either of the evening values. The results do not provide any convincing evidence for a sign effect. Table 4: Marginal Monetary Values (€ per Household per Week) Manchester Lyon Bucharest Improvements Daytime Evening 1.08 ±0.60 0.41 ±0.41 0.91 ±0.32 1.31 ±0.28 0.48 ±0.20 n.s. Deteriorations Daytime Evening 0.81 ±0.35 n.s. 1.28 ±0.45 1.20 ±0.41 0.03 ±0.02 n.s. The results here are not as clear-cut as we would like. On balance, we would have to conclude that there is little support for size, sign and reference effects as far as perceived values are concerned. However, we can tentatively point to sign and reference effects when we are dealing in units of Leq. This may stem from the non-linear nature of the index. 4.3 Socio-Economic Impacts on Valuations A feature of each of the studies has been an attempt to discern the impact of a range of socioeconomic variables on the valuation of noise. A key variable is the influence of income on monetary valuations. We expect that as households become wealthier and therefore less sensitive to cost variations, the amount that they are prepared to pay for improvements in noise will increase. There is also the issue of whether income per household member or overall household income provides a better account of households’ willingness to pay. Cost can be entered into the utility function along with some measure of income (Y) as: U =γ C Yλ The marginal utility of money will fall and monetary values will increase as income increases, and λ denotes the elasticity of the marginal value of noise with respect to income. In the Lisbon study, it emerged that adjusted household income per person provided a better fit than household income or unweighted household income per person. The search process across different λ’s identified the best fitting model to be for an income elasticity of 0.5. The Edinburgh study found a somewhat similar income elasticity of 0.7, although in contrast household income provided a somewhat better fit than household income per person. In the study of aircraft valuations, the quality of life SP exercise found the income elasticity to be 0.5 for household income per person in both the Manchester improvements and deteriorations models. For Lyon, no effect was discerned in the improvements model and the elasticity was 0.3 for income per person for the deteriorations model. For Bucharest, there was no income effect for improvements but it was 0.6 for deteriorations. In the more conventional aircraft noise SP exercise, the income elasticity for Manchester was 0.7 and household income provided a better fit than income per person whilst in Lyon it was 0.9 based on adjusted income. No income effect could be found in Bucharest but this might be due to the limited variation in incomes. Not only is there an encouraging degree of consensus across our studies that income does affect valuations and the extent to which it impacts, but the results are very much in line with other evidence that environmental externalities have an income elasticity greater than zero but less than one. A value around 0.5 seems to be the central estimate. We might expect household size to impact on values since larger households will have more people affected by noise. The presence of children might also raise concerns about and hence valuations of noise. In Edinburgh, two adult households with children had values around 50% higher than those without children whilst two adult households had much higher values than single adult households, in some instances more than twice as large. However, the other two studies failed to detect variations in values according to household size. In the Edinburgh study, those who had undertaken alleviation measures, such as the installation of double glazing, had higher valuations. This is consistent with the selfselectivity effect found in Lisbon whereupon those who lived at the quieter side of the apartment block had appreciably higher values. The other consistent finding that emerges across our studies is that the number of factors that influence the valuation of noise appears to be limited. In the Lisbon study, despite exhaustive testing of a wide range of socio-economic and residential variables, only income and the household’s location relative to noise had any impact. This is not to say that values do not vary widely across individuals, just that they cannot be systematically related to observed factors. The mixed logit model estimated revealed the random variation in preferences across households to be considerable. What does emerge across our studies is that estimating significant and theoretically consistent incremental effects is challenging 4.4 SP versus CVM The CVM was used in the Edinburgh study to elicit willingness to pay values for 50% improvements to noise levels. Table 5 contains weekly household valuations and associated 95% confidence intervals for the entire sample except those who stated that noise levels could not be improved in this way (CVM1) whilst the other sample (CVM2) additionally removes those who are not prepared to pay more council tax. It can be seen that the CVM values for both samples are considerably lower than the SP value, even though the SP sample does not remove those with a genuine reason for providing a zero response. Table 5: Edinburgh Noise Valuations for 50% Improvements Noise CVM 1 £1.48 (±0.34) CVM 2 £2.55 (±0.54) SP £3.17 (±1.94) In the aircraft study, respondents were asked how much they would pay per week to halve the number of daytime and evening flights. Table 6 reports the CVM and SP values and 95% confidence intervals. The former include the entire sample (CVM1) and also the sample (CVM2) which excludes those who stated they did not think any change would occur or they had a right to peace and quiet. The results are more mixed here. However, it must be borne in mind that the SP models contain those who have been removed from the CVM2 sample. It therefore seems reasonable to conclude that open-ended CVM tends to produce lower values. Table 6: Aircraft Noise Willingness to Pay Values in € CVM1 CVM2 SP Manchester Day Evening 1.96 (±0.6) 1.99 (±0.7) 3.26 (±1.1) 3.41 (±1.2) 7.95 (±4.4) 2.71 (±2.7) Lyon Day Evening 5.31 (±2.7) 5.97 (±3.0) 9.90 (±5.4) 11.75 (±6.2) 5.02 (±1.8) 8.80 (±1.9) Bucharest Day Evening 0.05 (±0.03) 0.04 (±0.02) 0.079 (±0.05) 0.06 (±0.03) 0.72 (±0.3) 0.0 Two further issues concern us about the CVM results. First is the high proportion of zero responses. This reduces the Manchester, Lyon and Bucharest data sets by 53%, 52% and 30% respectively. We have doubts as to whether these are genuine zero valuations. Secondly, the correlations between the daytime and evening values were extraordinarily high, at around 0.9, indicating a lack of discrimination in responses which raises concerns about their quality. 5. CONCLUSIONS In this paper, we have attempted to demonstrate some important lessons learnt in three studies that we have recently been involved in which have estimated the monetary valuation that residents place on noise. As far as presentation is concerned, we have a preference for the location method both on the grounds of realism and because it allows valuations to be linked to physical noise measures since the noise has actually been experienced. Simulation does seem to have a useful role to play whilst models based on perceived levels of noise are superior. Our experiences of exploring size, sign and level effects are mixed. On balance there is no strong support for them as far as values based on perceived noise is concerned but there is some evidence that they are more likely to be present when physical noise indices are used. Our studies have examined a wide range of socio-economic and residential impacts on estimated valuations. It is clear that values increase with income and there is a high degree of consistency in the income elasticity around a figure of 0.5. The other noticeable feature of the study findings is that few other significant incremental effects can be discerned. It seems that open-ended CVM values are lower than equivalent SP values. The results here confirm evidence from environmental studies in general that open-ended CVM provides lower values than SP, even when the large proportion of protest zeros common with the former are removed. Our view is that the reduced emphasis on increased taxes means that there is a lesser incentive to bias willingness to pay in SP studies. Our experiences and the limited amount of research in this area lead us to recommend a number of areas for further research. Firstly, there is a need for further testing of different means of presenting noise, and within this the contribution that noise simulation can make should be explored. Secondly, the relationship between perceived and physical noise measures requires more attention, and as part of this the most appropriate index of physical noise measurement must be identified. Thirdly, the values of noise estimated are not trivial. If they are an accurate reflection of true preferences their influence ought to be detected in relevant real-world markets, such as in the choice between different houses. Corroboration of SP values from revealed preferences is urgently required. Fourthly, the evidence relating to sign, size and reference effects is not conclusive, and further work should be backed up with appropriate in-depth qualitative research. Fifthly, we are often dealing with household impacts and household decision making but the SP exercise is based around individual responses. The dynamics of group decision making and distinguishing between individual and household values requires further research. This may lie behind the failure to detect more than a limited impact from household characteristics on valuations. Finally, although we have doubts about open-ended CVM, it does provide the basis for probing the reasons for certain types of response which is valuable information that could be used to enhance SP modelling. REFERENCES [1] Wittink, D.R. and Cattin, P. (1989) Commercial Use of Conjoint Analysis: An Update. Journal of Marketing 53 (July), pp.91-6. [2] Wardman, M and Bristow, A.L. (2004) Traffic Related Noise and Air Quality Valuations: Evidence from Stated Preference Residential Choice Models. Transportation Research D, 19(1), pp.1-27. [3] Bateman, I., Day, B., Lake, I. and Lovett, A. (2001) The Effect of Road Traffic on Residential Property Values: A Literature Review and Hedonic Pricing Study. Report to the Scottish Executive, Edinburgh. [4] Bateman, I.J. and Willis, K.G. (1999) Valuing Environmental Preference: Theory and Practice of the Contingent Valuation Methods in the US, EU and Developing Countries. Oxford University Press. [5] Arsenio, E. (2002) The Valuation of Environmental Externalities: A Stated Preference Case Study on Traffic Noise in Lisbon. PhD Thesis, Institute for Transport Studies, University of Leeds. [6] Bristow, A.L. and Wardman, M. (2003) Attitudes Towards and Values of Aircraft Annoyance and Noise Nuisance. Prepared for EUROCONTROL Experimental Centre, France. [7] Hague Consulting Group (2000) ALOGIT 4.0EC, The Hague.
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