An overview of methodologies used to value “green

space”
POSTED ON APRIL 1, 2014 · POSTED IN BLOG

From time to time, we will public a blog post on a specific environmental

economics topic. Today’s is brought to you by Economist at Large, William Li,
who put together this excellent summary of methodologies used to value ‘green
space’. We did some work with William on this in 2013 and thought this might be
a handy resource for anybody working in the area.

It is not difficult to see that green spaces are valuable in highly urbanised
settings. There are numerous benefits in being able to access green spaces
including recreational opportunities, aesthetic enjoyment, environmental and
agricultural functions, as well as value from preserving open spaces for future
generations (Brander and Koetse, 2011).

However, as green spaces typically have public good characteristics, they tend
to be underprovided in the absence of policy intervention (Kotchen and Powers,
2006; Smith et al, 2002), due to an inability to calculate exactly how much we
value these types of assets.

Economists have developed a number of techniques to evaluate the value of

environmental assets, but the values produced by each technique can vary
noticeably. The most commonly used techniques employed by economists in the
literature are hedonic pricing models (HPM), contingent valuation studies (CVM)
and travel cost analyses (TCM).

Hedonic pricing model

What is it?
A hedonic pricing model(HPM) estimates the impact of economic value that
parks and environmental variables to market prices. This is most commonly seen
in housing prices, where it is assumed the price of houses reflect the
characteristics of that house, including its access to particular environmental
assets.

Unlike other valuation methods such as the travel cost method and the
contingent valuation method, hedonic pricing does not rely on survey data, and
instead uses property data, which is typically more robust.
Examples
Although there have been many studies using HPMs, the studies display wide
variation in their characteristics with respect to model specification, sample
size, study area and time period. Brander and Koetse (2011) collected more than
52 hedonic pricing studies on open space, and performed a meta-analysis on the
results of 12 of those studies. They found that house prices demonstrated an
average increase in house price of 0.1% when they are 10 m closer to open
space. However, they found this relationship is non-linear; increases in house
prices are stronger the closer the house is to the green space. These findings
reveal that the further a house is located from open space, the smaller the price
effect of moving closer to the open space. This implies that HPMs largely
capture personal consumption values, and that aspects such as preservation for
future generations are not as significant a factor.

Other papers have looked at more specific questions using hedonic pricing
models, such as the value of tree cover (McPherson et al, 2011), the value of
bodies of water (Kerstens et al, 2004) and the value of farmland (Johnston et al,
2001), all of which have found positive relationships between sale price and
greater accessibility to the environmental asset.

 Method
As with all regressions, the first step is to collect data. In the case of a hedonic
pricing model, this would be the selling price and location of residential
properties in the area, as well as the details of the qualities of each house that
would affect the selling price, including a number of property and neighbourhood
characteristics. Included in this would be the accessibility and proximity to an
environmental asset.

This data is then regressed against the house price, and the relationship
between housing price and the key environmental attributes is defined.

Potential issues
 Hedonic pricing will only capture benefits from environmental assets
insofar as they affect housing prices.
 The results depend heavily on the model specification.
 Hedonic pricing is generally more suited to general questions as opposed
to a more specific valuation. The value of parks on housing prices in general
would be easier for the model to identify as opposed to the value of a
particular park, as there would be less pertinent data.
Travel cost method
What is it?
The travel cost method (TCM) aims to value assets such as ecosystems or parks
by inferring the demand and economic surplus for these assets through visitor
travel costs. As travel costs and time increase with distance from the location,
each zone of travel is treated as a different “price” at which visitors are willing
to pay to visit the site.
Once calculated, this demand is compared to the cost of operating and
maintaining the asset, and when combined, these two values provide the total
economic surplus that the asset provides.
The travel cost method is most appropriate when the environmental asset is in
itself a destination that attracts visitors, and so is best suited for valuation of
assets such as national parks and/or wildlife reserves.

Examples
In most cases, the travel cost method has been used in the economic literature
to value national parks or particular tourists attractions (Loomis et al, 2000;
Twerefou and Adjei-Ababio, 2012). Ultimately, comparison across these different
studies is fairly arbitrary, as each site will have its own particulars and context
that will differ from each other site, and so it is difficult to say whether these
values are high or low. However, a meta-analysis by Shrestha and Loomis (2003)
of outdoor recreation over the past 30 years in the USA predicted an average
consumer surplus of $47.10 USD per day per person. Other meta-analyses have
also been undertaken for studies in other locations (Zanderson and Tol, 2009;
Johnston et al, 2005).

Method
The TCM uses survey data taken from a sample of visitors to the site. Firstly,
zones are defined by their distance from the location. The exact number and
definition of the zones is largely arbitrary, and more zones will result in greater
differentiation, but will typically be more work and may require more data.

Visitors are then grouped into “zones”, determined by the distance they travelled
to get to the location, and the total visits per zone is calculated. The visitation
rate is then determined by dividing the total visits per zone by the zone’s
population in thousands.

The average round trip travel costs is then calculated for each zone, assuming
that people in the closest zone (Zone 0) have a zero cost of travel to get to the
location. This will involve the average cost of travel (petrol/plane tickets) as well
as the average cost of time (usually the average hourly wage). Any additional
admission fees are also included in determining the average WTP of visitors.

These figures are then used (with a number of other variables) to produce a
regression model, which can then be used to derive the demand curve for the
asset. The area under this curve is thus the total estimate of the economic
benefits of the asset.

Potential issues
 The TCM assumes that the visitation or usage of the site is the primary
reason for the individual’s trip. If there are other reasons that an individual
has travelled to the location, that visitor’s travel cost will be overestimated.
 The TCM does not capture non-use values of the asset, as it would only
survey individuals who have come to visit the site. This could also (and
would likely) introduce sampling bias to the results and is likely to
underestimate the value of the asset.
 There could be individuals who live near the site and thus have low travel
costs to the location but nonetheless value the asset highly.
 

Contingent valuation method

What is it?
The contingent valuation method (CVM) involves directly asking individuals how
much they would be willing to pay to use a particular asset or the amount of
compensation they would require to give up the asset. The name of the method
derives from the fact that individuals are asked for their willingness to
pay contingent on a specific hypothetical scenario.
CVM is quite flexible in being able to value more or less anything, and also
captures individual’s valuations for both use and non-use purposes.

Examples
While there are many questions regarding how accurately stated preferences
translate into actual behaviour, CVM remains a widely used technique in the
literature. Brander and Koetse (2011) performed a meta-analysis of 20 CVM
studies, finding the value of open space in an area with ‘average characteristics’
(average hectare size, GDP per capita and population density) has a value of
approximately $1,550 USD/ha/year.

They also found recreation was much more highly valued (322% higher value per
hectare) than environmental/agricultural benefits, which contrasted with
previous results found by Kline and Wilchelns (1998) and Kotchen and Powers
(2006), who found evidence of stronger preference for agricultural land over
other types of open space. Brander and Koetse (2011) also observed a
significant and positive relationship between the value of open space and
population density.

There have also been a number of papers that have found no significant income
effect for the value of open space (Romero and Lieserio, 2002; Kline and
Wilchens, 1994) although Brander and Koetse (2011) suggest this may be the
case people prefer to consume private open space (e.g, private gardens) rather
than public open space as their income increases.

Method
More so than any other technique, the design of the survey for the CVM is the
most important part of the method, as it deals with a high level of subjectivity
and conjecture that arises from using non-observational data. A number of
different aspects of the survey must be considered when designing the
questions:

 Who is the asset valuable/relevant to?

 How large will the sample space be?
 What method of survey distribution and collection will be used?
Further to this, the questions and survey must be tested and refined to ensure
that all the relevant information is provided and there are no ambiguities in the
phrasing of questions. This ensures the data is as accurate and representational
as possible, although the reality is it is highly unlikely to remove all biases from
the survey.

Potential issues
 Of the methods used to evaluate non-use goods, CVM is one of the most
controversial, as the valuation data is based on what respondents say they
would do rather than observing their actions. For any number of reasons,
individuals may overstate or understate their valuation of an asset and this
may bias the result. This is a major criticism of CVM, and while proper
survey design and effective complementing analysis can help minimize this
issue, it is unlikely to remove its impact entirely.
 CVM relies on responses to a hypothetical situation, and it can be
reasonably argued that what people say they will do in a hypothetical
situation will differ to when they are required to pay the amount.
 The design of the survey and questions can heavily influence the results.
Other methods of valuation
While not as analytically rigorous as the above three methods, the values below
should not be ignored, as they may provide complementary or supporting
valuation of environmental assets.
 

Land value (simple)

What is it?
Land value looks at the prices of the land of the asset in question. This usually
reflects the total commercial value of the land.

Potential issues
 Land value primarily takes into account market-based and commercial
benefits of the land, and will usually fail to incorporate all of its non-market
and non-use benefits.

Investment or development value (in the case of a

park)
What is it?
The development value of a park represents the potential commercial gains due
to the increased tourism/jobs that could be realised if amenities and facilities
such as houses, hotel and restaurants were built in the area.

Method
The development value will typically be a function of the number of individuals
that visit a location multiplied by the average amount of money a visitor would
spend at the location.

Potential issues
 Like land value, development value primarily deals with commercial
benefits, and would ignore the potential damage that development could
have on the non-market benefits of the asset, such as congestion, additional
waste etc…
Urban heat island effects
What is it?
An urban heat island is a metropolitan area that is significantly warmer than its
surrounding area due to human activities. This leads to increased rainfall in
these areas, as well as a decrease in local air and water quality. Green space
can be valuable for its contribution in mitigating the urban heat island effect.

Method
The effect of green spaces in mitigating urban heat islands can be seen in
measuring the air temperature around the green spaces, typically several years
after their setup.

Potential issues
 While the mitigation of urban heat islands is a positive aspect of green
space, it is difficult to value the benefits of the impact of the green space,
given how little consumers are likely to feel the impacts. Ultimately, it may
be implicitly captured in other models, but it would be difficult to capture
this value in its entirety.