1# RECORD fdf3432efb95e96e6e45a3ba105603f17a38d3662# TITLE: HEDONIC VALUATION OF MARGINAL WILLINGNESS TO PAY FOR AIR QUALITY IMPROVEMENT3# YEAR: 2012.0 VENUE: nan DOI: 10.20885/ejem.v4i2.33184# AUTHORS: Endah Saptutyningsih; A. Basuki5# PAGES: 10 CANDIDATE TABLE PAGES (1-based): [6, 7, 8]6# ABSTRACT: Abstract This study aims to identify the highest air pollution areas and to estimate household marginal willingness to pay for air quality improvement. The result of Kriging technique indicates that six sub districts in Yogyakarta City and one sub district in Gunungkidul have highest concentration of particle pollution (PM10). The result of hedonic price method conclude that by adopting a two-stage estimation procedure an 1% increase in the level of PM10 reduced property prices in the study area by 0.32%. Marginal implicit price for reducing PM10 is Rp 957,900.00. The households are willing to pay an additional amount of 1.34 percent for a reduction in PM10 by 1%. Keywords: Air pollution, marginal willingness to pay, hedonic price, implicit price JEL classification numbers: D12, Q53 Abstrak Penelitian ini bertujuan mengidentifikasi daerah polusi udara tertinggi dan untuk memperkirakan kesediaan marginal rumah tangga untuk membayar untuk perbaikan kualitas udara. Dengan menggunakan teknik Kriging, hasil penelitian menunjukkan bahwa enam kecamatan di Kota Yogyakarta dan satu kecamatan di Gunungkidul memiliki konsentrasi tertinggi partikel polusi (PM10). Sementara itu, dengan metode harga hedonik yang mengadopsi prosedur dua tahap, paper ini menyimpulkan bahwa setiap peningkatan PM10 sebesar 1% akan menurunkan harga properti di daerah penelitian sebesar 0.32 persen. Harga implisit marjinal untuk mengurangi PM10 adalah Rp 957,900. Rumah tangga bersedia membayar tambahan 1,34 persen untuk pengurangan PM10 sebesar 1%. Kata kunci: Polusi udara, keinginan membayar marjinal, harga hedonik, SIG, harga implisit JEL classification numbers: D12, Q53789===== PAGE 1 (score 7, numeric-paren 0, table-words 0, var-words 7) =====1011ECONOMIC JOURNAL OF EMERGING MARKETS12October 2012 4(2) 163-17213HEDONIC VALUATION14HEDONIC VALUATION15HEDONIC VALUATION16HEDONIC VALUATION OF MARGINAL WILLINGNESS 17OF MARGINAL WILLINGNESS 18OF MARGINAL WILLINGNESS 19OF MARGINAL WILLINGNESS 20TO PAY21TO PAY22TO PAY23TO PAY FOR AIR QUALITY IMPROVEMENT 24FOR AIR QUALITY IMPROVEMENT 25FOR AIR QUALITY IMPROVEMENT 26FOR AIR QUALITY IMPROVEMENT 27Endah Saptutyningsih 28Universitas Muhammadiyah Yogyakarta 29end_naufal@yahoo.com 30 31Agus Tri Basuki 32Universitas Muhammadiyah Yogyakarta 33 34Abstract 35 36This study aims to identify the highest air pollution areas and to estimate household marginal will-37ingness to pay for air quality improvement. The result of Kriging technique indicates that six sub 38districts in Yogyakarta City and one sub district in Gunungkidul have highest concentration of particle 39pollution (PM10). The result of hedonic price method conclude that by adopting a two-stage estimation 40procedure an 1% increase in the level of PM10 reduced property prices in the study area by 0.32%. 41Marginal implicit price for reducing PM10 is Rp 957,900.00. The households are willing to pay an 42additional amount of 1.34 percent for a reduction in PM10 by 1%. 43 44Keywords: Air pollution, marginal willingness to pay, hedonic price, implicit price 45JEL classification n umbers: D12, Q53 46 47 48Abstrak 49 50Penelitian ini bertujuan mengidentifikasi daerah polusi udara tertinggi dan untuk memperkirakan 51kesediaan marginal rumah tangga untuk membayar untuk perbaikan kualitas udara. Dengan 52menggunakan teknik Kriging, hasil penelitian menunjukkan bahwa enam kecamatan di Kota 53Yogyakarta dan satu kecamatan di Gunungkidul memiliki konsentrasi tertinggi partikel polusi 54(PM10). Sementara itu, dengan metode harga hedonik yang mengadopsi prosedur dua tahap, paper 55ini menyimpulkan bahwa setiap peningkatan PM10 sebesar 1% akan menurunkan harga properti di 56daerah penelitian sebesar 0.32 persen. Harga implisit marjinal untuk mengurangi PM10 adalah Rp 57957,900. Rumah tangga bersedia membayar tambahan 1,34 persen untuk pengurangan PM10 58sebesar 1%. 59 60Kata kunci: Polusi udara, keinginan membayar marjinal, harga hedonik, SIG, harga implisit 61JEL classification n umbers: D12, Q53 62 63INTRODUCTION 64The increase in per capita income, which 65has been evidenced in Indonesia in the last 66few decades, is one of the achievements of 67Indonesia as a society. This has, as a result, 68increased the demand for various goods 69and services, including motor vehicles as 70means of transportation. 71The demand for motor vehicle has 72been so massive that the urban air pollution 73caused by it has become serious health 74problems due to the effects on morbidity 75and mortality and also the loss of environ-76mental comfort due to visibility reduction. 77Therefore, loss assessment caused by air 78pollution is important in assessing the costs 79to overcome the pollution. 80Various 81types 82of 83transportation 84equipments, especially motor vehicle, every 85day thronged the streets in cities as centres 86of economic activities (central business dis-87trict). This phenomenon also occurred in 88Yogyakarta Special Territory (YST) where 89there are many centres of commerce and 909192===== PAGE 6 (score 20, numeric-paren 0, table-words 2, var-words 13) =====9394168 95ECONOMIC JOURNAL OF EMERGING MARKETS October 2012 4(2) 163-1729697Table 2: Description and Statistic Summary of Variables 98Variable 99Description 100Mean 101Stand.Deviation 102PPRICE 103Sales price of house(Rupiahs) 1043E+008 105243,617,628.2 106LANDSIZE 107Plot area (m2) 108206.05 109198.288 110BUILDSIZE 111Building area (m2) 112124.28 113111.246 114NUMROOM 115Number of rooms (units) 1164.00 1174.614 118WSTRUCTDUM 119Dummy structure of wall 1201.15 1210.497 122DISSCHOOL 123Distance from school (m) 124512.94 125555.328 126DISHPITAL 127Distance from hospital (m) 128956.26 129802.810 130DISSPMARKET 131Distance from supermarket (m) 132990.68 133867.411 134DISREST 135Distance from restaurant (m) 136642.64 137785.568 138DISCITY 139Distance from city (m) 1402,062.04 1411,592.980 142DISMSTREET 143Distance from main- street (m) 144192.01 145165.511 146GARDENDUM 147Dummy for close to garden or not 1481.79 1490.407 150INCOMEDUM 151Dummy for level of income 1521.88 1530.509 154FAMEMBER 155Number of family members (people) 1563.92 1571.356 158PM10 159Concentration of PM10 (ppm) 1601,223.12 16139.612 162 163 164 165Among the neighbourhood vari-166ables, six major ones namely distance from 167school, distance from hospital, distance 168from supermarket, distance from restaurant, 169distance from the city, distance from main 170street, are also considered for this analysis. 171The distance calculated is that from the 172residence of the household to the nearest 173location related. The average distance from 174school is 512.94 meters. The distance from 175the nearest hospital is 956.26 meters on av-176erage. The average distance from main- 177street is 192 meters. One of the ‘socioeco-178nomic variables’ is the number of family 179member. The average number of family 180member is four people. In the hedonic price 181model that we adopt in this study, the con-182centration of PM10 is taken as a measure of 183air quality. The data used comes from am-184bient air quality monitoring of Badan Ling-185kungan Hidup of YST. Ambient air quality 186for the year 2010 is 1,223.12 ppm on aver-187age. 188In the estimation of hedonic price 189equation, we assume a negative relation-190ship between environmental characteristic 191PM10 and the property price, and that the 192presence of garden near the house is as-193sumed to have a positive influence. All the 194structural parameters included in the 195model, like plot area and building area, are 196expected to have positive relations with the 197property price. Neighbourhood characteris-198tics like distance from hospital and restau-199rant are inversely related with property 200price. It is normally expected that as dis-201tance from hospital increases, property 202price decrease, where as distance from 203main-street increases property price also 204increases. Applying these assumptions on 205the model specified above, the parameters 206are estimated using the method of ordinary 207least squares and is given in table 3 below. 208The main inferences of this analysis 209are given as follows. (1) All the neighbour-210hood and structural characteristics except wall 211structure, number of rooms, distance from 212school and distance from city are statistically 213significant at 5 percent level of significance. 214(2) The environmental characteristic, PM10, 215is negatively related to house price and it sig-216nificant at 1 percent level. The results also 217confirm that as the level PM10 increases by 218one percent house price reduces by 0.32 per-219cent on the average. (3) Among the 220neighbourhood characteristics, the presence 221of garden positively related to property 222price. (4) Distance from hospital or restau-223rant are negatively related to house price, 224showing that the plots nearer the hospital or 225restaurant have high property values. (6) 226Distance from supermarket or main-street 227are positively related, showing that when 228distance increases, property price also in-229creases. (7) The plot area and building area 230are also positively related to property price. 231232233===== PAGE 7 (score 40, numeric-paren 22, table-words 5, var-words 3) =====234235Hedonic Valuation of Marginal Willingness… (Sapt utyningsih and Basuki) 236169 237Table 3: Regression Result of Hedonic Price Function 238Variable 239Full Model 240Fit Model 241(Constant) 24217.181 243(17.689)*** 24417.210 245(20.064)*** 246LnLANDSIZE 2470.397 248(4.381)*** 2490.396 250(4.432)*** 251LnBUILDSIZE 2520.353 253(3.404)*** 2540.393 255(3.915)*** 256LnNUMROOM 2570.116 258(1.121) 259- 260WSTRUCTDUM 261-0.081 262(-1.012) 263- 264LnDISSCHOOL 265-0.046 266(-0.895) 267- 268LnDISHPITAL 269-0.163 270(-2.936)*** 271-0.160 272(-3.115)*** 273LnDISSPMARKET 2740.103 275(1.918)* 2760.103 277(1.975)** 278LnDISREST 279-0.155 280(-3.606)*** 281-0.160 282(-3.999)*** 283LnDISCITY 2840.039 285(0.680) 286- 287LnDISMSTREET 2880.091 289 (3.089)*** 2900.092 291(3.153)*** 292GARDENDUM 2930.261 294(2.637)*** 2950.232 296(2.377)** 297LnPM10 298-1.355 299(-2.355)** 300-0.320 301(-2.806)*** 302No. Observation 303Adjusted R2 304250 3050.606 306250 3070.606 308 309The regression results of the hedonic price 310function shows that all the significant esti-311mated variables follow the expected rela-312tionship pattern. Hence the estimated equa-313tion could be written as: 314 315ln PPRICE =17.210 + 0.396 lnLANDSIZE + 3160.393 ln BUILDSIZE -0.160 ln DISHPITAL + 3170.103 ln DISSPMARKET -0.160 ln DISREST + 3180.092 ln DISMSTREET + 0.232 GARDENDUM 319- 0.320 ln PM10 + e 320 321The first derivative of the hedonic 322price function can be interpreted as the im-323plicit marginal price function for the envi-324ronmental goods. Descriptive statistics of 325implicit marginal prices for 250 observa-326tions is given in the table 4 below. 327 328Table 4: Descriptive Statistics of Implicit 329Marginal Price 330Descriptive Statis-331tics 332Implicit Marginal 333Price (Rupiahs) 334Mean 335957912.3 336Standard error 33787071.6 338Median 339409600 340Mode 341352000 342Standar deviation 3431376723 344Minimum 34519200 346Maximum 3471E+007 348 349Hence the marginal implicit price for 350reducing PM10 is calculated as Rp 957.900. 351This result clearly identifies air quality as an 352important factor, along with structural and 353neighbourhood characteristics, in determin-354ing demand for property transaction in 355Yogyakarta Special Territory. 356357358===== PAGE 8 (score 48, numeric-paren 25, table-words 4, var-words 10) =====359360170 361ECONOMIC JOURNAL OF EMERGING MARKETS October 2012 4(2) 163-172362363As mentioned earlier, second stage 364estimation of inverse demand curve is done 365by regressing the implicit marginal price on 366the quantity of environmental goods pur-367chased and other socio economic features 368including income level of the individuals. 369The results are given in Table 5 below. 370The major inferences are as follows. 371(1) The first derivative of the implicit mar-372ginal price function with respect to PM10 is 373negative (-1.341) signalling decreasing 374marginal implicit prices for increasing en-375vironmental quality. It means that in the 376study area, a reduction in PM10 by one 377percent leads to 1.34 percent increase in 378property values. (2) The coefficient of 379number of family members, wall structure, 380distance from school, and distance from 381city are not significant. (3) All other vari-382ables except number of family members, 383wall structure, distance from school, and 384distance from city are significant at 5 per-385cent level of significance. It is interesting to 386note that the distance from the main-street 387increases by one percent, residential prop-388erty value enhances by 0,096 percent. (4) 389Plot area and building area are positively 390related to residential property values. 391So far we have explained the he-392donic price function estimation and its im-393plications to residential property values. 394The results indicate very clearly that the 395households are willing to pay for improved 396air quality. It is therefore necessary to esti-397mate the welfare benefits accruing to them 398through the purchase of property with re-399duced air quality. 400 401Table 5: Estimation of Inverse Demand Function 402Variable 403Full Model 404Fit Model 405(Constant) 40616.037 407(16.551)*** 40816.080 409(18.840)*** 410INCOMELEVEL 4110.101 412(1.204) 4130.143 414(1.844)* 415LnFAMEMBER 4160.098 417(0.912) 418- 419LnLANDSIZE 4200.393 421(4.337)*** 4220.391 423(4.387)*** 424LnBUILDSIZE 4250.358 426(3.452)*** 4270.381 428(3.810)*** 429WALLSTRUCTDUM 430-0.080 431(-0.996) 432- 433LnNUMROOM 4340.069 435(0.650) 436- 437LnDISSCHOOL 438-0.50 439(-0.977) 440- 441LnDISHOSPITAL 442-0.168 443(-3.025)*** 444-0.163 445(-3.195)*** 446LnDISSUPERMARKET 4470.101 448(1.873)* 4490.103 450(1.981)** 451LnDISRESTAURANT 452-0.159 453(-3.695)*** 454-0.165 455(-4.129)*** 456LnDISCITY 4570.039 458(0.689) 459- 460LnDISMAINSTREET 4610.096 462(3.199)*** 4630.100 464(3.416)*** 465GARDENDUM 4660.260 467(2.590)** 4680.221 469(2.273)** 470LnPM10 471-1.341 472(-10.932)*** 473-1.355 474(-11.784)*** 475No. Observation 476Adjusted R2 477250 4780.752 479250 4800.754 481482483===== PAGE 9 (score 15, numeric-paren 0, table-words 0, var-words 15) =====484485Hedonic Valuation of Marginal Willingness… (Sapt utyningsih and Basuki) 486171 487CONCLUSION 488The primary objective of this study was to 489establish the relationship between air qual-490ity and the residential property values in 491Yogyakarta Special Territory (YST). By 492mapping the area which has highest con-493centration of PM10 earlier and estimating 494the hedonic property value in the area, we 495can establish the relationship between air 496quality and the residential property values. 497In the constructed model, we incor-498porated a number of structural, neighbour-499hood, environmental and socioeconomic 500variables as determinants of consumer’s 501willingness to pay for reduced air quality. 502We hypothesized that the major environ-503mental variable PM10 is inversely related 504to the residential property values. Similarly, 505the presence of garden, distance from main-506street, distance from supermarket, plot area, 507and building area are positively related to 508property price while distance from hospital 509and distance from restaurant are negatively 510related. 511By adopting a two-stage estimation 512procedure to estimate these relationships, 513we found that, on the average, an increase 514in the level of PM10 reduced property 515prices in the study area by 0.32 percent. We 516estimated the marginal implicit price for 517reducing PM10 as Rp 957,900.00. Further 518estimation revealed that the households are 519willing to pay an additional amount of 1.34 520percent for a reduction in PM10. In short, 521the analysis revealed a positive response of 522households in YST, which have highest 523concentration of PM10, between air quality 524and property prices. 525 526REFERENCES 527Baby, P.K. 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