Question

8. A water management policy proposal is being discussed by City Z to preserve Lake Pearl in its territory. This policy allows City Z to upgrade its water infrastructure and to establish a water quality monitoring program. The goal is to improve water quality of Lake Pearl from Level II (water quality index=50) to Level I (water quality index=100). 1) A stated preference survey among a sample of residents (100 people out of 10,000 total population in City Z) was conducted to elicit people's annual willingness to pay (WTP) to improve water quality of Lake Pearl from Level II to Level I. The WTP is estimated as a function of income, education, age and environmental awareness. Income Education WTP = 20.000 + - 3 + Age Environmental Awareness + 10 The average income in the area is $60,000, average education level is 15 years of schooling, average age is 50 and average environmental awareness score is 60. Calculate the monetary value of water quality improvement for local residents (unit: $/year). 2) A hedonic pricing approach was used to estimate the policy impact on property values near the lake. The following equation was estimated using historical housing market transaction data. Explain the meaning of the estimated coefficient for water quality index. How will this policy change the price of a typical house (i.e. 3 rooms, size=2,000 sq ft) in the area? House price = 40,000 + 500 * Room + 10 * Size + 200 *Water Quality Index

Answer 1

o Answer Given that, The policy allows city 2 to upgrade as wales infrastructure and to establish a water quality monitoring poognam The goal to improve water quality of lake peast from levelse water quality index-so) to level water quality index=100) The water quality index used to identify and support the water quality issues and management by of the issues. the hedonic pricing method is used to estimate the effect of the factors index of water quality) on the house price. Given that, The house price 40.000 + 500+ Room)+(10 + size)+ (200+ water - quality index) It shows that, the water quality provides as a benefit to the houses near the lake so, the coefficient value of the index is higher means that the dependency on the quality is much higher to decide the price of housing the coefficient the house price. If the water quality index improves from 50 to 100, then the value also increased and it increases the value of house price.

Now, the given rooms are 3. size is 2,000 sq ft in the area and the water index is changed from so to 100. 50. Poevious house poice (50) = 40.000 + (500 x 3) + Co X 2000) (200x 50) - 40.000 + IS00+ 2.0000 + 10000 - 11,500) Apted house Poice coo) = 40,000 + 500X3) + (0 X 2000)+ (200 X 100) - 40.000 + 1500 + 20.000 + 20.000 (81,500 The house price increased Given that Average hously wage rate is: $15 (507. wage date = value of spare time) Reversage vehicle operating cost is $0.2 km. zone Travel time Chours) Travel distance sound trip (km) Admission Cost(s) Average time visits per visit per I spent visiting year before year after The lake (hass) the policy the policy 10.000 15.000 15.000 21.000 5.000 9.000 Travel cost [Et savel fime x wage rate)+Coistancex vahicle cost)+ Admission cost] x Average visit

2one - 1 Belore policy [10.5 x 15) + (500 2) + 10] x 10000 (7.5 +1 +10) X 10000 -1.85.000 After policy (0.5x15) + (50 2) + 10] x 15000 65+1+10)x15000 - 2,77.500 Zone-2 Before policy = [(8 x 15) + (50 x0 2) + 10) x 15,000 (5 + 10 +10) *15,000 = 35 *15.000 - 5,25,000 After policy = (11x 15) + (50x0 2+10) x 21,000 35 x 21.000 : 7.35.000 Zone-3 Before policy: (12 x 15) + ( 100 x 0 2 + 10) x 5.000 ( 30 + 20 +0)x5,000 = 60 x 5,000 = 30.000 After policy = ((2x 15) + (100 x0 2) + 6] x 9,000 60x9,000 = 5,40.000 price a Demand curve visits

Before Policy: Total visits: 30.000 Total travel cost = 10,10,000 After Policy: Total visits: 45,000 Total travel cost = 15,52,500 The increased value =(5,52,500-10.10.000) (5.42.500)