Economic Analysis of Policy Change to Improve Dagu River Water Quality in Qingdao, China

다국어 초록 (Multilingual Abstract)

Agricultural non-point source pollution has become a main source of water pollution. Improving river water quality is one of the critical initiatives to ensure sustainability drinking water. With scientific awareness of main source of water pollution from conventional agriculture along the Dagu river basins, Qingdao, China, this study aims to identify economic efficiency in introducing environment friendly agricultural policy instrument. For more exact economic analysis, considered were benefits obtained by residents and farmers from water quality improvement as well as conversion cost from conventional to organic farming. Bivariate probit model was used to estimate mean WTP for improving water quality of the river and identify determinants affecting WTP. Then, this study attempted to create an economic valuation framework, specifically for conducting economic analysis as well as the financial feasibility.
Contingent valuation method is developed to elicit WTP for improving river quality. A double-bounded dichotomous choice format (DBDC) and open-ended (OE) format are used to in survey. Empirical results show that the DBDC mean WTP for first bid is CNY 6.58 (USD 0.95) and means WTP for second bid is CNY 5.72 (USD 0.83) per month per household. OE mean WTP is CNY 26.47 (USD 3.84) per month per household. Opportunity cost of volunteering activity hours is CNY 227.20 (USD 32.93) per month per household. Total mean WTP is CNY 228.49 ~ CNY 249.24 per month per household. Application to the residents of Qingdao would obtain aggregated total benefits from improving river water quality of CNY 7.54 billion (USD 1.09 billion) ~ CNY 8.23 billion (USD 1.19 billion) per year. In addition, determinants analysis indicated that income, satisfaction with government and necessity for water quality improvement have significantly positive relationship with the probability of residents’ WTP. Current water quality is negative related to the probability of residents’ WTP.
According to the previous survey data, farmers’ profit obtained by value transfer and price index adjustment is CNY 46.61 billion (USD 6.75 billion) from organic farming. The total cost to implement organic farming would spend CNY 38.15 billion (USD 5.53 billion) per year during its conversion. After the implementation of organic farming policy, therefore, the total benefits of farmers and residents are much higher than total cost of conversion to organic farming. The study results could provide a preponderant economic indicator to policy decision makers for water quality improvement projects.

목차 (Table of Contents)

• I. Introduction 1
• 1. Background 1
• 2. Problem Statement 3
• 3. Objectives of This Study 6
• 4. Organization of This Study 6
• II. Literature Review 7
• 1. Contingent Valuation Method Studies on Water Quality Improvement 7
• 2. Water Quality Improvement in China 9
• 3. Summary of Key Findings 12
• III. Theoretical Background 14
• 1. Economic Value of Water. 14
• 2. Theoretical Application 15
• 2.1 Utility Maximization 15
• 2.2 Compensating Surplus 17
• 3. Non-Market Valuation 18
• 4. Contingent Valuation Method 20
• 5. Willingness to Pay (WTP) Elicitation Formats 22
• IV. Empirical Method 24
• 1. Study Area 24
• 2. Research Design 25
• 3. Data Collection 27
• 4. Elicitation of Mean WTP 28
• V. Results. 31
• 1. Data Description 31
• 1.1 Socio-Economic Characteristics 31
• 1.2 Awareness Toward Water Quality 33
• 2. Willingness to Pay 36
• 2.1 WTP Response 36
• 2.2 Estimation Results 38
• 2.3 Comparison of Mean WTPs 40
• 2.4 Aggregate Benefit 42
• 3. Cost-benefit Analysis 43
• VI. Conclusion 45
• 1. Findings 45
• 2. Policy Implication 45
• 3. Limitations and Suggestions for Future Research 46
• Appendix 48
• References 49
• Questionnaire survey 59
• Abstract in Korean Language 64