Hedonic costs and travel cost methods of pricing

The overall target of socio-economic diagnosis is to maximize the benefits of future investment in an organization in a sound and sustainable way. This section provides a overview of various techniques which may have been developed overtime for analyzing socio-economic advantages of non tradable good and services and ends with a dialogue how one of the techniques was employed in assessing the socio-economic benefits of cattle in the present study. The chapter comprises of three parts. The first section features various approaches for assessing socio-economic benefits, situations under which each of the techniques are utilized, their advantages and disadvantages. The second portion of the chapter offers a review of past studies which may have attempted to examine non-marketed benefits of livestock. It also explains the method each one of the study applied, the conclusions and conclusion. The third and final section of this chapter concludes with how the present review differs from previous studies and its likely contribution to books.

2. 1 Socio-economic valuation techniques

Overtime economists are suffering from ways to determine the value of goods and services that aren't tradable. These techniques have been classified broadly into revealed preference techniques, stated preference techniques and ex girlfriend or boyfriend ante diagnosis (Dofonsou et. al. , 2008). Revealed preference techniques rely on worth being inferred from people's tendencies in market segments that are in some way linked to the socio-economic value. Revealed-preference methods exploit the partnership between some types of individual behavior and associated environmental attributes to estimate value. Their main example includes hedonic costs (HPM) and travel cost method (TCM). Ex-ante diagnosis measure the trade-offs caused by a change to a preexisting management of any tool (Campbell et. al. , 2003). A good example of ex-ante assessment strategy is the price benefit analysis (CBA).

Revealed preference methods

The HPM is employed in estimating economic values of your ecosystem or environmental services that straight influence market prices. It is often applied to calculate variations in real estate prices that echo the worthiness of local environmental features (Taylor, 2003). HPM may be used to estimate monetary benefits and costs associated with environmental quality (polluting of the environment, water pollution, noise), or environmental amenities (visual views, proximity to recreational sites). The basis of HPM is that the price tag on a advertised good is a function of its characteristics. To use HPM, the next information must be collected: a strategy or index of environmentally friendly amenity of interest; data on property principles and home characteristics for a well-defined market area for example distance to an environmental amenity, like a view of the ocean.

HPM has several advantages which include; it is useful in estimating worth based on revealed preferences, property marketplaces can be good indicators of value because they act in response sensibly well to information, property details are reliable, and data on property sales and characteristics are easily available and the method is versatile and can be modified to consider possible connections between market goods and environmental quality. The disadvantages of HPM includes: the scope of environmental benefits that may be valued are limited to capabilities related to real estate prices, it only captures people's WTP for identified variations in environmental qualities and their direct consequences, data need are substantial, takes a high degree of statistical expertise and its results rely upon model standards.

The travel cost method (TCM) can be used to estimate the worthiness of recreational benefits produced from ecosystems (Parsons, 2003). It assumes the value of the site, or its recreational services, is a function of peoples' WTP to get to the website. It uses real behavior (revealed alternatives) to infer beliefs. The travel cost method pays to in estimating monetary benefits or costs produced by changes in access costs for recreational sites, removal of existing recreational sites, addition of new recreational sites, or changes in environmental quality at recreational sites. The foundation of the travel cost method is that point and travel expenditures incurred by guests is the "price" of accessing the site. The WTP to go to the website is then approximated from the number of travels made at different travel costs (analogous to estimating their WTP for promoted goods predicated on the number demanded at different prices).

However, to apply the TCM information must be collected about: amount of goes to from each origins area; demographic information about people from each area; round-trip distance from each area; travel costs per kilometer; the worthiness of time put in travelling or the ability cost of travel time. Using various review methods, more information can be collected in conditions of other sites been to or substitute sites; other possible known reasons for making a trip to the site; characteristics of the website, and quality of experience at the website. Probably the most challenging elements of applying the TCM relate to accounting for the opportunity cost of travel time for a vacation designed to achieve more than just a purposes of browsing the entertainment site for example a vacation made by a person to meet an enterprise partner at the recreation site, and the fact that travel time is probably not a cost to some people, but might become a part of recreational experience.

The benefits of TCM includes: it is dependant on actual rather-what people actually do-rather than mentioned willingness to pay-what people say they would do in a hypothetical situation; it is relatively cheap to apply since people are usually prepared to participate in on-site surveys instead of telephone or email interviews, and this provide opportunities for large test sizes, as visitor have a tendency to be enthusiastic about participating; it meticulously mimics the more typical empirical techniques used by economist to calculate economic values predicated on market prices and it is relatively inexpensive to make an application for example in comparison with hedonic charges method.

The negatives of TCM includes: it assumes people react to changes associated with travel costs in the same way they react to changes in entrance price to the recreation site; The easiest types of TCM assumes that folks vacation for solitary purpose-to go to a specific site. Thus is a trip had more than one purpose, the worthiness of the site may be overestimated; defining and calculating the chance cost of time put in travelling can be problematic, because enough time spent travelling might have been used in other ways, it has an "opportunity cost". This will be put into the travel cost, or the value of the site will be underestimated; interviewing visitor on the website can expose sampling biases to the analysis; measuring recreational quality, and relating recreational quality to environmental quality can be difficult.

Stated inclination methods

Stated choice techniques are a family of general market trends tools that allow researcher to discover how consumers value different products and service features. They derive from intended patterns and involve questioning of folks in a study setting (Dofonsou et. al. , 2008). Stated preferences methods are very flexible and relies on respondent's statement of value in a non-market based environment. They include contingent valuation method (CVM) and contingent choice method (CM) (Bennett, 1996). The CVM pays to in estimating use and non-use financial values for a wide range of non-market goods and services, including ecosystem and environmental (Boyle, 2003b).

CVM is conducted through survey and the term "contingent" is dependant on a respondent's determination to pay (WTP) or willingness to simply accept (WTA) for a good or services subject to the posed hypothetical situation (Freeman, 1993). Determination to pay is the utmost amount a person is inclined to pay in order to avoid undesired outcome. Willingness to simply accept is the minimum amount an individual is willing to receive to accept unwanted outcome. Study questions in CVM can be either wide open or close concluded. In the open-ended study, the respondents are presented with a hypothetical but plausible situation and are asked the maximum sum of money they might be WTP for amelioration from the status quo (thing as they are) or the least amount of compensation they would be WTA for deterioration from the position quo. Close-ended method involves requesting a respondent if they would be WTP a specified amount for a particular good or service. Although, CVM uses hypothetical alternatively than actual markets in so doing offering the respondent an opportunity to behave in a tactical manner, it assumes that the expressed WTP in a hypothetical situation is a measure of the worthiness in real situation (Philcox, 2007). The usage of CVM to elicit WTP, has in the past been found in a variety of situations such as: drinking water quality; healthcare services; biodiversity conservation and in estimating competitiveness of cattle production systems (Buzby et. al. , 1995; Echessah et. al. , 1997; Klose, 1999; Ouma et. al. , 2003; Kimenju et. al. , 2005; Mogas et. al. , 2006).

The features of CVM includes: it offers sensible basis in welfare theory of economics since it includes potential for tracing the WTP distribution among a people of economic providers for a suggested change in a good or service (Carson et. al. , 2000); it is adaptable, and may be used to value almost any ecosystem or environmental good or service; it's the most prevalent method for estimating total economical values associated with an ecosystem; its results are relatively easy to analyze and identify (as a average value per capita per household, or as an aggregated value for the influenced society); it is widely applied and ongoing research carries on to offer new applications and improvements to the CVM methods.

The disadvantages of CVM are: its ability to accurately assess respondents WTP is questionable, due to the important difference of decision made in hypothetical circumstance versus real/real market, it assumes that the respondent has an obvious understanding of what's being valued and they make rational decisions about their choices in a hypothetical scenario as they might in the actual market, the difference between WTP and WTA for non-marketed goods and services can be significant (Horowitz and McConnell, 2002), and respondents may respond to the circumstance posed including the method of repayment and description of environmentally friendly good or services.

In addition, policymakers and the legal system do not necessarily recognize CVM results; it can be expensive and time-consuming; it is difficult to validate estimates of non-use ideals since it uses hypothetical cases rather than real options; it is vunerable to a number of response biases. The response biases include: hypothetical market bias, where reactions are damaged by the market being hypothetical alternatively than real; Strategic bias, in which a respondent attempts to influence the outcome for personal reasons; Design bias, where the information provided to respondents influence their replies; Information bias, where respondents have limited understanding of the nice or service in question and part-whole bias, where specific offers the same WTP for one component of property, as they might for the whole system.

The contingent choice method is strongly related to CVM. However, unlike CVM which is widely recognized as a standalone method for estimating value that straight asks respondents to state their WTP, Contingent choice methods are not well established, and are differentiated from CVM through their indirect reference to WTP in hypothetical choice situations that contain more than one attribute. Contingent choice methods (CM) generally known as conjoint evaluation or attribute-based methods, are being used in estimating monetary values for a wide range of non-market environmental goods and services, by requesting respondents to make selections based on hypothetical cases (Holmes and Adamowicz, 2003). The WTP is then inferred from the choices made with value to the posed scenarios. Therefore, CM targets tradeoffs among situations with different characteristics, and it is suited to policy decisions where a group of possible activities might result in different impacts on natural resources or environmental services (Adamowicz et al. , 1994). For instance it could be used for valuing improvements in water, given improvement in its quality may influence several services across the beach such as swimming, angling, and biodiversity.

The features of CM includes: it could be used to value final results of your action all together, as well as the many features, it allows respondents to think in terms of tradeoffs which might be easier than immediately expressing dollar values and make it better to check for reliability of replies, the respondents are more comfortable providing qualitative ranking of feature bundles that include prices rather than expressing dollars value straight, it is useful in valuing impact of large-scale change, it is best in estimating comparative rather than complete values of a good or service, it reduces lots of the biases that can come up within an open-ended CVM studies where respondents are presented with an activity of placing prices on non-marketed good and services (Alpizar, Carlson and Martinsson, 2001).

The down sides of CM includes: respondents could find it difficult to evaluate certain trade-offs particularly if they are unfamiliar with the process in so doing introducing bias, if the quantity or levels of attribute are increased the sample size must also be increased, the respondents when presented with many choice packages may wrap up losing curiosity about the exercise, by only providing limited amount of options it may power the respondents into making selections they otherwise wouldn't normally have made, it may extract preferences by means of attitudes instead of behavior intentions, it requires sophisticated statistical ways to calculate WTP, translating the answers into dollars values can lead to greater doubt in the actual value that is put on the good or service of interest.

Stated choice methods are commonly criticized because the habit they depict is not discovered as they depend on hypothetical scenarios somewhat than real market (Cumming et al. , 1996; Mitchell and Carson, 1989; Louviere et al. , 2000). Therefore, it has been argued that they cause a problem in that the validity of the value estimates obtained cannot be evaluated (Adamowicz et. al. , 1998). Among mentioned inclination methods, CVM in particular has received extensive attention from economists seeking to either build its validity to deliver reliable and exact WTP estimations or discredit it. However, Mogas et. al. , (2006) review which compared the welfare methods believed from CM and CVM from substitute afforestation programs in the Northeast of Spain discovered that the two methods yield welfare estimates that were not statistically different for a change in afforestation programs. Moreover, CM and CVM supply the only means for estimating the value of goods and services which have no related market segments (IFPRI, 2006).

In today's study, CVM will be used to assess the contribution of socio-economic advantages of cattle to homes' livelihood in Mabalane district of Mozambique. This is because CVM has acoustics basis in the idea of welfare economics. Welfare economics, looks for to reveal whether the utility caused by a change in an economic variable such as a commodity's price is positive. It takes individual preferences as given and stipulates a noticable difference in Pareto efficiency (a big change to a new allocation which makes at least one individual better off without making some other individual worse off) conditions from for example from a cultural state level to another (Just et. al. , 1982). The change in welfare are often expressed in terms of change in an index, usually the financial amount which would need to be taken from or given to the agent to keep carefully the agent's overall level of utility continuous (Freeman, 1993). At the level of an individual economic agent, these monetary measures take a particular form: for a desired upsurge in the good, the utmost amount the agent would be WTP to get the improvement, and then for a decrease, the minimum amount the agent would be voluntarily WTA in compensation in trade for accepting the cut down (Carson et al. , 2000). Within this study, CVM will offer the chance to trace the determination to cover the socioeconomic advantage derived from cattle among for a suggested change. The expressed willingness to pay for the socioeconomic benefits when the circumstance is posed will be assumed to be the worthiness produced from cattle.

Ex-ante diagnosis technique

The final group of valuation methods for valuing non-marketed good and services, is the cost benefit research (CBA). Cost profit analysis make reference to the use of neo-classical monetary calculus to the domains of general public decision-making. It is therefore predicated on micro-economic examination theory and on the general concept of expressing costs and benefits in financial terms. It therefore suggests the addition not only of all financial factors but also the financial equivalents of all other features of the project being evaluated (Dupuis, 1985). The CBA method is known as an ex-ante evaluation technique because it considers exactly what will happen in the foreseeable future. For example when a community assignments (a non marketed good) are established, it totals up the equivalent money value of the huge benefits and cost of the task to the community and establish whether they are advantageous. By so doing CBA assesses the expense of a variety of measures that could ensure maintenance of the power provided by the non-marketed good being respected. These costs are then used as proxies for the benefits such as those which would be derived from the community dam.

The main principle behind a CBA is to find, quantify and gives all the positive benefits. Then it recognizes, quantifies and subtracts all the negatives, the cost. The difference between the two indicates whether the organized action is wise. The main restriction of CBA is that, since it is dependant on the assumption that the expense of preserving a non-marketed good or service is a reasonable estimation of its value. Thus, it is normally easier to gauge the costs involved when they consist of traded good and services. However, it is very difficult to estimate the huge benefits themselves being that they are non-tradable (Campbell et. al. , 2003). The main program of the CBA is standing of project to find the best suited option, predicated on the expected economical costs and benefits. Areas where CBA has been applied include: education, health, enclosure, natural resources, move and recreation.

2. 1 Review of empirical studies

In an effort to quantify the huge benefits produced by the homeowners from goat keeping in Southwestern Nigeria. Bosman et al. , (1997), used a cost benefit research; their main goal was to evaluate benefits associated with goat keeping in a tropical farming system. The worth of marketed benefits were believed by evaluating both input and end result resources that had been found in the goat farming. The outputs were evaluated through biological production indices for flock such as duplication (range of beginning in a time) production (weaning weight per individual doe or ewe) relating total inflow and outflow to the flock weighted average. The ability to use part or all the flock of goat as so when required also add benefits to the goat-keeping homeowners that are not captured in the output in the productivity indices, particularly the non-marketed benefits of insurance, funding and cost savings. To measure the non-marketed benefits (saving, financing and insurance), outflows were used, because the role of goat in providing non-marketed benefits take place both through inflow and outflow. The inflow means committing capital (or keeping), while outflow means spending capital invested. In their analysis only outflow, was used to avoid the condition of double keeping track of also since it represented the part of the flock that possessed remaining the flock after for sale to meet household expenditure.

Thus Bosman et. al. , (1997) analysis, confirmed that in a farming system context biological creation indices covering a whole flock had the ability to measure animal development in conditions of financial value. The ability to measure performance of the farming system in economic terms pays to for determining the relative performance in various farming systems for the livestock companies. However, Bosman et. al. , (1997) remarked that an exclusive give attention to creation and income derived from livestock farming system have a tendency to leave out other non-marketed benefits that home derive from livestock keeping. Their study concluded that plans aimed at improving livestock production and productivity should also consider even non-marketed benefits derives from livestock, since they impact decision-making in a household. Therefore, research and improvement programs also needs to incorporate non-marketed benefits associated with livestock in their goals.

Although, Bosman et. al. , (1997) review is similar to the present research in that it recognizes quite contribution of non-marketed great things about livestock to farming systems; their research did not attempt to quantify the contribution of non-marketed benefits to household livelihoods. Nonetheless, the addition of the foregone cost by Bosman et al. , (1997) as identified benefit that may be put into the development value has since gained support. For instance, Slingerlands (2000) argues that, since farmers consider foregone costs through the decision-making process, they may be real even though they don't entail attainable income. Therefore, the present study target at assessing the value mounted on socio-economic benefits associated with cattle by firmly taking the understanding of livestock keepers under consideration, by deciding their willingness to cover the socio-economic benefits also to determine the factors that impact the reliance them.

In an effort to incorporate conception of livestock keepers while considering the socio-economic benefits associated with cattle, Ouma et al. , (2003) used CVM to calculate and compare the competitiveness of three livestock development systems. CVM was carried out in two steps, in the first rung on the ladder the farmers were asked how much these were willing to cover the cattle. Subsequently, a hypothetical situation supposing that a new government insurance policy restricting activity and sale of the cattle was posed to farmers, such that the capability to dispose cattle and by inference the capability to derive benefits such as insurance, money and repayment of dowry were lost.

To present the scenario original perceived value was used as the bottom and the respondents were asked to convey their 'new' perceived value after the loss of socio-economic benefits associated with cattle. The difference between your original and the new recognized value was used as the value mounted on the socio-economic benefits. Their research concluded that socio-economic benefits indeed comprised around 20 percent of canine total financial value in extensive, semi intensive and considerable systems. However, socio-economic advantages of cattle were found to be inspired by institution, home and animal related parameters. Nevertheless, this research concentrated mainly on the socio-economic need for cattle but not on the contribution of socio-economic advantages of cattle to home livelihoods.

Unlike the previous examined by Bosman et. al. , (1997) and Ouma et. al. , 2003, this review explicitly recognizes the socio-economic benefits associated with cattle, assesses their contribution to the household livelihoods and attempt to identify the primary factors that effect household to depend on socio-economic benefits of cattle. Today's study try to contribute to the socio-economic benefits of livestock books as well as providing some key recommendation that could help enhance the livelihood of the households in Mabalane area of Mozambique and other areas within SSA Africa where agro-pastoral creation is the main system of cattle keeping. It is also expected that the existing empirical effort will contribute to improved knowledge of the benefits produced from cattle not only among agro-pastoral household in Mozambique but also in Sub-Saharan Africa


In posing a hypothetical situation to respondent to elicit WTP, closed ended procedure was utilized. Shut down ended approach ensures that proper biases are reduced. By posing a hypothetical situation respondent tastes are kept certain throughout the study since they answer "Yes" or "No" to a WTP question (Kimenju et. al. , 2006). This certainty exhibited by respondent makes it is simpler to use and design the study using CVM. Therefore, the resulting data that may be directly analyzed using conceptual methods (- zdemiroglu et. al. , 2002).

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