Question

Bukit Timah Nature Reserve is located 12km from the city centre, but provides a rich and diverse ecological system including a wide variety of plant, animal and insect life.

1. Use the Total Economic Value framework to describe all of the various values that the Reserve offers, providing examples specific to this Nature Reserve to illustrate the different types of values within the framework.

2. Assume the Government is considering a hypothetical proposal to enable a housing development on part of this Nature Reserve, and has asked you to advise on the benefit-cost analysis that they should undertake to determine whether the development should go ahead rather than retaining the land as a Nature Reserve.

1. Explain how you would approach this benefit-cost analysis – including briefly describing the benefits and the costs of the housing development that you would include (but not methods for valuing those costs and benefits), the time frame that may be appropriate for the analysis and how you would determine an appropriate discount rate. When you have completed the analysis how would you determine whether the development would go ahead, and what additional analysis may you wish to complete?

           

2. One cost of the housing development would be the loss of the total economic value provided by the Nature Reserve as it is today.

1. Recommend two valuation techniques that could be used to estimate the value of the Nature Reserve, and specify which value(s) within the TEV framework could be valued by each technique. For each technique described, explain why they are appropriate for use in this particular scenario, and describe whether you could use each technique in isolation to value the Nature Reserve, or would you recommend more than one technique be used?

Explain how the technique could be applied in practice for the Bukit Timah Nature Reserve, describing what data you would need to collect, how you would collect it and how this could be analysed.

Answer 1

(a). The benefits for the housing projects are follows:

*residence away from city noise and pollution, peaceful environment.

*employment opportunities for construction workers

*less congestion in city

*opportunity for people to open nearby local grocery shops

*relatively affordable housing

The cost associated with the housing projects are follows:

*long travel time for people going to job in city centre

*limited commercial shops nearby

* financial cost associated with construction

*increased noise and air pollution to the site

* cost associated with loss of the nature reserve

The time frame for this cost benefit analysis is the time taken for construction plus time taken to till full possession of the houses has been undertaken by people. Discount rate would be the rate of interest earned on money invested in this project, if this project had not been undertaken. After measuring the net benefits(benefits - costs) for this project and discounting the value obtained for the time frame, decision would be taken at the Net Present Value of the project. If this value would be greater than the minimum required rate of return then only the project will be undertaken.

(b). Technique 1 - Travel cost method

By this method the indirect use value of the nature reserve can be estimated. This technique is appropriate in this scenario as it estimates the economic benefits or costs due to changes in access cost to the nature reserve or elimination of nature reserve.

For bukit timah nature reserve, this technique can be used by estimating the time or travel costy that people incur to visit the reserve. The data can be collected by 3 approaches : i)simple zonal travel approach: using secondary data with collected from visitors, ii)individual travel; cost approach: detailed survey of visitors, iii)random utility approach: using more detailed survey and complicated statistical techniques for analyses.

Technique 2 - Contingency Choice method

By this method, both use and non-use values can be estimated. This technique is appropriate here because, people are provided a hypothetical scenario of existence of nature reserve and elimination of nature reserve and then they are asked their choice of trade-offs preferred by them, based on which the values are estimated.

For Bukit Timah Nature Reserve, this technique can be used by asking people about their preferred choice between the nature reserve and the housing project at given prices or costs. They can tell their preferences either in monetary terms or through ranking method. The data will be collected through survey method and analysed by using ranking methods.

I would recommend more than 1 technique to be used to correctly estimate the total economic value of the nature reserve.