03 May 2007

An Econometric Analysis of Willingness to Pay for Sustainable Development

A Case Study of the Volčji Potok Landscape Area

Miroslav Verbič / Renata Slabe Erker

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European Network of Economic Policy Research Institutes (ENEPRI) Working Paper No. 53 / 26 pages

When the market for a certain good is sufficiently competitive, economic activities can be studied through the market-pricing mechanism. Because this is usually not feasible in the case of environmental goods with an embodied natural and cultural heritage, particular methods for economic valuation of such goods have to be applied. This working paper presents the economic valuation of the Landscape Development and Protection Area of Volčji Potok, which is an important Slovenian cultural landscape with internationally recognised characteristics. For this purpose, we have chosen the method of contingent valuation and performed an econometric analysis of stated and true willingness-to-pay for targeted, sustainable development of the area. We have obtained the value of willingness-to-pay and identified its determinants. We have also attempted to control for different biases that arise in such analyses. Finally, we have used the adjusted, average individual value of willingness-to-pay to calculate the aggregate willingness-to-pay.