149 Determinants of Residents Willingness to Pay for Improved Urban Environment: Choice Modeling Approach

Abstract

This study estimates residents’ willingness to pay for improved liquid waste treatment in Addis Ababa and its determinants using data collected from 384 randomly selected households in 2011 from five Woredas of five sub cities. Basic and correlated random parameter logit model with and without interaction are applied to estimate parameters by maximum simulated likelihood technique. Delta procedure is applied to calculate implicit price of attributes. Our findings indicates that though respondents preferred improvement plans with higher quantity and quality of treated domestic liquid waste, they gave more emphasis on effluents quality than increasing only the capacity and number of sewage treatment plants. We also found that the sampled households prefer a cheaper alternatives and presence of status quo bias. We found unconditional and unobserved preference heterogeneity towards attributes and alternatives in the choices. The estimated Mean willingness to pay per month was 22.14 and 4.60 Ethiopian Birr (ETB) for high quality and additional quantity of treated liquid waste, respectively. But this figure was 15.53 ETB for medium improvement scenario. The compensating surplus for the change from the status quo to the considered scenarios increased as we move towards aggressive improvement. The result indicates as large amount of public financing is expected. Finally, the paper concludes by providing a range of policy recommendation to be considered in designing city’s environmental management strategies.