Friday, August 12, 2016

The Logic of the Lakes: Economic Research on Preferences and Perceptions

When I began my research with the economics team, I assumed that we would find answers that fit neatly into the box of questions that I had formulated. I expected to find particular trends and significant factors, and in the back of my mind this project was a way to prove my preconceived notions true. Eight weeks later, and I have more questions than answers. But, as they say, the best research often ends this way.

Personally, I was drawn to the willingness to pay questions we designed on our survey. People's perceptions and behavior fascinate me because often times they are not as rational as assumed. There is always a story behind the decisions people make, especially when it comes to environmental goods, as there is no explicit price to monitor and construct the story for us. So we need dig deeper to fill in the gaps ourselves.



 In our survey we used a contingent valuation study to measure people's willingness to pay for a hypothetical policy that would improve water quality of the lake. Typically, a contingent valuation study states a price and asks individuals to state "yes" or "no" if they would be willing to pay this amount. Our survey was more specific than this dichotomous method, as we asked participants to rank their willingness from "extremely likely" to "extremely unlikely" to pay for policy payments ranging from $1 to $500. With a 21% response rate from the combined areas of Menomonie and Chetek, we constructed a Random-Effects Probit Model to see what factors influence someone's willingness to pay. The brilliance and application of this model becomes visible when put in conversation with the responses to other questions on the survey. According to responses, if the lake was cleaner, 65% of people in Menomonie would swim more frequently, 48% of people would kayak more, and nearly 40% of people would boat and fish more. And these recreational activities would not simply be done once or twice more a year, but they would increase by significantly noticeable factors. In addition, 78% of respondents reported leaving Menomonie to travel to other lakes. That is immense. Image all of the recreation, money, and time put into fleeing this lake, and is instead pumped into other local economies. All because the water quality of this lake insufficiently meets the demand for water-related activities.

According to our results, the average person's willingness to pay decreases by 30% for each additional $10 that the policy asks for. This makes sense- the more money the policy asks for, the less likely people are to support it. While the optimistic environmentalist in me hoped that the decreased likelihood would not be 30% per each additional $10, the logical researcher in me was happy this finding made sense. Equally as significant was the fact that if you claimed to swim more in a clean lake, then you were twice as likely to vote in favor of the water policy. Great- we can target the fact that people highly value swimming when creating policies. Create beaches and public spaces for people to use, then they will be more likely to vote in favor of water improvement payments. In addition, waterfront property owners are 373% more likely to vote in favor for a water quality improvement policy, which is also logical.

Then come the surprising variables. According to the model, the amount of time that people have lived in Menomonie, as well whether or not they have children and grandchildren, are both factors that have no significant effect on an individual's likelihood to support the water policy. I also created a variable, based upon the answers to certain questions on the survey, that measured if people valued recreational growth. This was also found to be an insignificant factor on people's willingness to pay.

So, while people are clearly stating that they value lakes in terms of recreational use (they responded they would recreate more in a clean lake, after all), this preference is not reflected in their willingness to pay. So, why do people seem to value the lake one way, then behavior another? One possible explanation is the multidimensional and complex cultural factors at play. Community sentiment and attitude can have a much larger effect on a market and policy decisions than one would rationally think. But this is where I am left with more questions than answers. Why exactly is there is apparent disconnect in value of water quality, especially when explored in terms of recreation and travel? How can we use what we know about what affects willingness to pay to direct policy? In terms of recreational outflow, can we calculate the money being spent on other lakes to see the opportunity cost of revenue we are losing to other areas? These are questions to be continued in this project and ones I hope to research further. As Deepak Chopra once stated, "There is no fixed physical reality, no single perception of the world, just numerous ways of interpreting world views." To better understand these numerous perceptions and interpretations would be construct a more complete view of the economic reality of Lakes Menomin and Tainter and the communities that surround them.

1 comment:

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