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Applying contingent valuation method for estimating willingness to pay to control urban flooding in ho chi minh city

UNIVERSITY OF ECONOMICS

INSTITUTE OF SOCIAL STUDIES

HO CHI MINH CITY

THE HAGUE

VIETNAM

THE NETHERLANDS

VIETNAM – NETHERLANDS
PROGRAMME FOR M.A. IN DEVELOPMENT ECONOMICS

APPLYING CONTINGENT VALUATION METHOD
FOR ESTIMATING WILLINGNESS TO PAY
TO CONTROL URBAN FLOODING
IN HO CHI MINH CITY

BY


NGUYEN DUY CHINH

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

HO CHI MINH CITY, DECEMBER 2014


UNIVERSITY OF ECONOMICS

INSTITUTE OF SOCIAL STUDIES

HO CHI MINH CITY

THE HAGUE

VIETNAM

THE NETHERLANDS

VIETNAM – NETHERLANDS
PROGRAMME FOR M.A. IN DEVELOPMENT ECONOMICS

APPLYING CONTINGENT VALUATION METHOD
FOR ESTIMATING WILLINGNESS TO PAY
TO CONTROL URBAN FLOODING
IN HO CHI MINH CITY
A thesis submitted in partial fulfilment of the requirements for the degree of
MASTER OF ARTS IN DEVELOPMENT ECONOMICS

By

NGUYEN DUY CHINH

Academic Supervisor:
DR. TRUONG DANG THUY

HO CHI MINH CITY, DECEMBER 2014



ABSTRACT
Despite the implementation of many large scale projects involving in controlling
urban flooding in Ho Chi Minh City, the issue of urban flooding has been a longlasting issue for inhabitants in HCMC. There are many causes for the problem, both
objective and man-made. This study conducts a contingent valuation (CV) study to
find out the willingness to pay (WTP) for the controlling of urban flooding issue. The
CV survey was done with the direct survey instrument on 180 households in HCMC.
Double-bounded dichotomous choice question was also used. Non-parametric and
parametric estimates for mean WTP are VND 464,654 and VND 380,000 per each
household respectively. Bootstrapping procedure further solidifies these results.


LIST OF FIGURES
Figure 1 Measure of change in human welfare..................................................................... 4
Figure 2 WTP and WTA in the case of perfect substitutability............................................ 6
Figure 3 WTP and WTA in the case of imperfect substitutability ....................................... 6
Figure 4 Total economic value ............................................................................................. 8
Figure 5 Monthly mean rainfall in HCMC and mean sea water level at Vung Tau ........... 16
Figure 6 Number of flooding locations in HCMC from 2008 to 2014 ............................... 18
Figure 7 Open-bid responses from the pilot survey ............................................................ 27
Figure 8 Project 1547 overview .......................................................................................... 31
Figure 9 Protection for zone I ............................................................................................. 32
Figure 10 Protection for zone II .......................................................................................... 33
Figure 11 Distribution of age in the sample ....................................................................... 38
Figure 12 Monthly income distribution and House condition ............................................ 39
Figure 13 Income and ownership of households with ‘no’ response at VND 50,000 ........ 41
Figure 14 Survivor function of non-parametric estimation ................................................ 42
Figure 15 Monthly income classified by education groups ................................................ 49
Figure 16 Crystal Ball bootstrapping result for non-parametric WTP ............................... 67

LIST OF TABLES
Table 1 Total economic value of the project 1547 ............................................................. 10
Table 2 Three types of commonly used elicitation questions............................................. 20
Table 3 Details of 18 sets of bid used in the survey ........................................................... 27
Table 4 Distribution of observations across areas .............................................................. 28
Table 5 Main contents of the questionnaire ........................................................................ 29
Table 6 Interval distribution of WTP responses ................................................................. 34
Table 7 First bid question response statistics ..................................................................... 40
Table 8 Second bid question response statistics ................................................................. 41
Table 9 Variables specification .......................................................................................... 44
Table 10 Logistic regression result ..................................................................................... 46
Table 11 Unrestricted model and Restricted model comparison ........................................ 48


TABLE OF CONTENTS

CHAPTER 1: INTRODUCTION ............................................................................1
CHAPTER 2: LITERATURE REVIEW ................................................................3
2.1

Willingness to pay and willingness to accept ................................................3

2.2

Total Economic Value ...................................................................................7

2.3

Utility Theory and the Utility Difference Approach ...................................10

2.4

Contingent Valuation Method .....................................................................12

2.5

Some relevant CVM case studies ................................................................13

CHAPTER 3: METHODOLOGY .........................................................................15
3.1

Current flooding and flooding control state in HCMC ...............................15

3.2

The procedure of conducting a CVM study ................................................19

3.3

Survey procedure of the study .....................................................................23

3.4

Main contents of the questionnaire ..............................................................29

3.5

Description of the hypothetical project .......................................................30

3.6

Non-parametric estimation technique..........................................................33

3.7

Parametric estimation technique ..................................................................35

3.8

Confidence intervals of mean WTP ............................................................36

CHAPTER 4: ANALYSIS RESULTS ..................................................................38
4.1

Descriptive statistics ....................................................................................38

4.2

Non-parametric estimation result ................................................................42

4.3

Parametric estimation results .......................................................................43

CHAPTER 5: CONCLUSION ...............................................................................51
5.1

Main findings and policy implication..........................................................51

5.2

Limitations of the study ...............................................................................52

REFERENCES ........................................................................................................54
APPENDIX ..............................................................................................................59


CHAPTER 1: INTRODUCTION
Ho Chi Minh City (HCMC) is one of the largest city and an important economic
center in Viet Nam. With the population of 7.8 million people and density of 3,721
people per kilometer square (Wikipedia, 2011), the development of infrastructure
cannot catch up with the rapid urbanization rate of HCMC. The inconsistency in the
urban development in HCMC caused various problems, one of which is the
exceedance in capacity of the urban sewer and drainage system, one of the causes for
major urban flooding (Hoc, 2008). Moreover, the instability of the weather also
further aggravates the flooding issue through the heavy rainfall and high rainfall level.
In the effort to address the flooding circumstance, the Government has approved two
major plans. The first one is the plan of urban drainage improvement and sewer
development of HCMC, which was approved by Decision 752 in 2002. The second
is the MARD1 construction plan, which was approved by Decision 1547 in 2008.
Both projects have the same goal to help alleviate the flooding in HCMC, but they
solve in different approaches. While the former focuses on rehabilitating and
developing the inner urban drainage system, the latter seeks to build large scale
hydraulic constructs around the city. However, due to the diversity in causes of
flooding in HCMC, in order to completely solve the problem, the combination of both
projects is required.
Research problem and objectives
In summary, to deal with the urban flooding issue, not to mention other smaller
projects, there are two main projects have been approved and in the process of
implementing, which are urban drainage improvement and sewer development of
HCMC (project 752) and hydraulic construction plan (project 1547). However,
project 1547 is facing difficulties in appealing investment and cost underestimating,
which may delay the project until 2025. Although a specific number of expected
1

MARD stands for Ministry of Agriculture and Rural Development.

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outcomes of the two projects were not given, CBA of these projects expected to
relieve all the tangible damage caused by flood in 50 years, which means no heavy
flooding will be occurring in the next 50 years (Steering Centre for Urban Flood
Control Program, 2013).
Are all the aforementioned measures effective or not? Inspection of the all the
projects upon completion will be required to answer the question in the future.
Although a CBA analysis for project 1547 has already been conducted. However, the
estimating of the benefit of the project in the CBA is based on the ‘flood risk
approach’ which did not consider the demand and willingness to pay (WTP) of the
inhabitants in HCMC. In addition, the results of the study may serve as a guide for
making decisions involving potential urban flooding project implementation and fee
collection in HCMC as well as in other areas. Furthermore, potential projects
involving flood control in HCMC may also require WTP as an important indicator to
estimate the benefit of the project. Therefore, this study intents to:
 Evaluate inhabitants’ level of awareness about flood risks in HCMC
 Determine the aggregate WTP for a hypothetical anti-flooding project
 Find out the factors governing the WTP of HCMC inhabitants.
In order to answer these questions, Contingent Valuation Method (CVM) will be
applied in conjunction with the direct interview survey instrument to measure the
willingness to pay for the elimination of urban flooding in HCMC. The result in the
study may be used in policy making for deciding whether or not a project would be
feasible to be conducted in the future. It may be also helpful for the process of
inspecting the effectiveness of the project 1547 and 752.

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CHAPTER 2: LITERATURE REVIEW
Benefits and costs of a public good or an environmental good are difficult to
determine since public goods or environmental goods usually do not have a price.
Moreover, the costs and benefits are mostly dependent on individuals’ preferences.
Given a public good is provided, the individual’s benefit can be measured by
measuring how much that individual is willing to give up to obtain that public good.
On the contrary, the individual’s cost when a public good is lost is measured by the
value of something else that individual would accept to compensate for the loss.
In terms of welfare, money is usually used as a standard measure. In that case, the
measure of benefit is the willingness to pay (WTP) to obtain the benefit or willingness
to accept (WTA) to compensate for the lost. The measure of cost is WTP to avoid the
cost and WTA to tolerate the same.
Many techniques have been invented with the purpose of estimating the WTP and
WTA for the provision or decrease in public goods. Bateman et al. (2002) classified
techniques into revealed preference techniques (RP) and stated preference techniques
(SP). Contingent Valuation Method (CVM) and Choice Modelling (CM) are
commonly used SP techniques by researchers to estimate WTP and WTA. While CM
involves in inferring a value from the change in attribute levels of a public good,
CVM directly collects individuals’ stated WTP by eliciting a scenario for
respondents. This chapter will present some basic concepts of economic valuation,
which are WTP, WTA, Total Economic Value (TEV), Utility Theory, the Contingent
Valuation Method and several CVM empirical applications.
2.1 Willingness to pay and willingness to accept
Pearce (1997) defined willingness to pay is the monetary valuation that was placed
by an individual for a good or service. WTP is constrained by ability to pay so that
any people with higher income will value goods or services more highly than that
with lower income. Field (1997) and Pearce (1992) also pointed out that willingness

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to accept is not constrained by the individual’s income, as is willingness to pay. Thus,
when people are asked willingness to accept questions, their answers are usually
higher than their willingness to pay for the same item.
According to Bateman et al. (2002), the concept of WTP and WTA can be graphically
illustrated using indifferent curve. The vertical axis represents the expenditure in
money unit of an individual on the private good (y). The horizontal axis represents
the quantity of a public good (x). The indifferent curve I and I’ represent two linked
combinations which have the same level of utility of two distinct individuals, with I
has a lower level of utility than I’.

Figure 1 Measure of change in human welfare
Source: Bateman et al., 2002

If there is a change in the quantity of a public good, the value of the change can be
measured using four measures, two of which are WTP and WTA. First, suppose there
is an increase in the quantity of public goods from x0 to x1 and the individual’s initial
consumption point is at A. With the increase in the quantity of public good, the

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individual can enjoy x1 of the public good, but the private consumption is reduced by
BC, in other words, the new consumption point is now C. The amount BC is defined
as the WTP for the increase in the public good (or the compensating variation for the
increase in the public good).
Second, if the initial consumption of the individual is at B and there is a decrease in
quantity of public goods from x1 to x0, but the individual enjoys a higher level of
private consumption, y1, moving the consumption point from B to D. The amount
DA is the amount of private consumption needs to be compensated for the loss in the
public good, specifically in this case, the WTA for the reduction in the public good
is DA (or the compensating variation for the reduction in the public good).
The third and the fourth measure are equivalent variation for the increase in the public
good (equivalent gain) and equivalent variation for the decrease in public good
(equivalent loss). Theoretically, they are equal to WTA and WTP, respectively, in
value, but are distinct concepts elicited by different types of questions. Equivalent
variations are obtained by asking ‘how much would be good/bad as gaining/losing
public good X’ instead of ‘how much would pay/compensate for the gain/loss public
good X’.
In theory, WTP and WTA have to be equal or only some insignificant divergence is
allowed, but major differences between WTP and WTA have been illustrated by
many studies. Brown (2000) pointed out the difference between WTP and WTA still
exists if the following conditions are not met: (i) no income effect; (ii) no transaction
cost; (iii) perfect information about goods and prices; (iv) a market bring back a set
of truthful references. In practice, the gap between WTP and WTA always exists
because it is unrealistic to meet all the conditions in a single study case. Nas (1996),
Hanley (1997), and Hanemann (1984) stated that the divergence between WTP and
WTA originates from the substitution between private and public good, so the
equality between WTP and WTA is only achieved in the case of perfect substituted

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environmental goods and services. The substitution effect can be illustrated in the
figure below.

Figure 2 WTP and WTA in the case of perfect substitutability
Source: Hanley (1997)

Figure 3 WTP and WTA in the case of imperfect substitutability
Source: Hanley (1997)

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2.2 Total Economic Value
The net sum of all relevant WTAs and WTPs is defined as the total economic value
(TEV) of any change in welfare from a policy or a project. The TEV is commonly
classified into use and non-use value. Use value is classified into actual value and
option value, non-use value can be disaggregated into existence value, bequest value
and altruism value. The following figure demonstrates TEV and its categories.
First, use value consists of two components. Actual use relates to the actual use of the
good or service (for example, a visit to a park, the prevention of potential damage of
an urban flooding prevention project). Option value refers to the willingness to pay
to preserve the good for using it in the future. Amongst stated and revealed preference
techniques, there are two commonly used techniques to value the use value of an
environmental good, Travel cost method and Hedonic pricing method.
Travel cost method is traditionally used to evaluate the recreational value for
recreational sites, park, hunting sites by estimating the cost of related prerequisites
for the trip such as gasoline costs, the opportunity cost of travelling, entry fee, service
fee in the site, or in general, ‘travel cost’. This travel cost is heavily dependent on the
distance to the site. Specifically, the demand curve of total visits to the site with
respect to added travel cost is derived from the survey data of visiting rate from
different zones from the site, zonal population and travel cost from the zones. After
having obtained the demand curve, the value of the site can be inferred by calculating
the consumer surplus of the curve. Since the heavy dependence of TCM on the ‘travel
cost’, which can be regarded as a directly revealed preference for an individual’s
recreation value. Moreover, total welfare of a site does not consist only recreational
value, TCM is concluded to have the ability to measure use value, or more specific,
actual use value, of TEV only.
Another popular method of valuing the use value of an environmental good is the
Hedonic Pricing Method (HPM). HPM based on the concept that the price on the
market for a good comprise the price of associated amenity. For instance, the price of

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a specific house on the market could have the value of the beautiful surroundings
internalized in. HPM attempts to modelize the price of a market good (for example,
house price) against related characteristics, in which have the amenity of interest.
From the function, the marginal value of the amenity, in other words, the ‘implicit
price’ of the amenity, can be inferred. A demand curve for that specific amenity is
then constructed, and consequently, the economic value of the amenity. However,
HPM was not developed to capture the total economic value of an environmental
good, since the implicit values internalized in a market good may not include nonuse value. For example, the value of preserving the existence of surroundings without
being benefited from it (existence value) could not be implied in any market good
price. Therefore, it can be concluded that HPM and TCM are only suitable for
evaluating use value only. AnaAnAnAnAnAnjhuhuhuhuAnAnAnAnAnAnAnAn
Total economic value

Non-use value

Use value

Actual use

Option value

For others

Altruism

Existence

Bequest

Figure 4 Total economic value
Source: Bateman et al., 2002

Second, the non - use value relates to WTP to keep some good exists, though there is
no actual or possible use. The non - use value consists of existence, altruism and
bequest value. Existence value refers to the WTP to have a good exists and the
individual eliciting WTP has no use for himself or for someone else. The reasons for
maintaining the good could be the ‘feeling of responsibility’ for the good or the
‘concern’ for the existence of a good (for instance, a rare species of animal). Altruistic

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value relates to the WTP to keep the good maintained to others in the current
generation. Similarly, bequest value may come when the person concerns that the
good should be available to others in future generations.
Covering TCM and HPM weakness of not being able to measure non-use value,
Contingent Valuation Method (CVM) is one of the methods used to value the nonuse value. According to Mitchell and Carson (1989), CVM has many advantages over
other methods, one of which is the ability to capture the existence value. CVM
involves in describing a hypothetical scenario for the respondent to state their WTP
for it. Therefore, it is suitable for the valuation of environmental goods with an easyto-perceive aspect, such as the cleansing of a river or the provision of electricity in a
remote area. Due to the difficulty in capturing the actual use value of such goods, plus
respondents of a CVM study rely on their own preferences, which is ‘contingent’
upon the hypothetical good, to give out their WTP, CVM is unable to capture the use
value of the good. However, CVM can be used to measure the non-use value
effectively.
According to Steering Centre for Urban Flood Control Program (2013), the total
economic value of the project 1547 could be summarized as following.

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Table 1 Total economic value of the project 1547
Actual use

 Flood damage prevention (the damage could be cleaning
cost, infrastructure damage, loss of productive land, crops,
livestock, human lives, ecological goods…)
 Storm protection
 Shoreline stabilization
 Water transport
 Agricultural resources
 Recreation and tourism
 Educational usage

Option value

 Potential future uses

Non-use

 The feeling of safety

value

 Cultural heritage and aesthetic

2.3 Utility Theory and the Utility Difference Approach
Following economic theory, Bateman et al. (2002) defined the general form of
indirect utility function as:
V(Y, P, S, Q)
The function V(.) can be described as the utility a household can acquire from the
income (Y) with the prices of goods (P) (Higher or lower prices enable households to
have more goods and thus, raise the utility) and the level of non-market good (Q)
(Higher or lower level of non-market good represent an improvement or a decline).
The utility is also assumed to be dependent on other socioeconomic factors (S).
Assuming there is a provision of non-market good that raise the level of non-market
good from initial Q0 to Q1. The household’s utility will be pushed up to a higher level:
V(Y, P, S, Q) < V(Y, P, S, Q1 )

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With a higher level of non-market good, the household has to pay an amount to
achieve a better well-being, but the higher the amount, the less utility the household
will enjoy due to the reduction in dispensable income. So the maximum amount the
household willing to pay for the improvement can be described as the amount that
will bring the household’s utility back to the state without the improvement, or
mathematically:
V(Y, P, S, Q 0 ) = V(Y − C, P, S, Q1 )
With C is the household’s maximum WTP, or in other words, the compensating
variation for the change in the well-being. C can be written as a function of other
parameters in the model. Moreover, C is constrained by the income, which means the
maximum WTP cannot exceed income:
C = C(Q 0 , Q1 , Y, P, S) = WTP ≤ Y
Assuming a household indirect utility function has the linear form. With the
assumption of the price of market goods and socioeconomic factors of that household
fixed. The function of the household utility before the change (status quo) in the nonmarket good can be written as follows:
v0 = α0 + βy + γp + γs + γq0 + μ0
𝜇0 represents the unobservable factors that may influence the utility of the household.
With the provision of the non-market good, the new indirect utility function will be:
v1 = α1 + βy + γp + γs + γq0 + μ1
Note that the change in the utility in the latter equation due to the change in q will be
captured in 𝛼1 . As mentioned, with the improved welfare, the household is expected
to pay a monetary amount from their income that solves:
v0 = v1
βy + α0 + μ0 = β(y − C) + α1 + μ1

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C=

α1 −α0 + μ1 −μ0
β

The amount α1 −α0 + μ1 −μ0 can be interpreted as the utility difference that comes
from the provision of the non-market goods. This observable portion of the utility
difference can be further parameterized as a function of household other
socioeconomic characteristics (X1, X2,…, Xk) in a simple linear form:
α1 − α0 = β0 + β1 X1 + β2 X 2 + ⋯ + βk X k
2.4 Contingent Valuation Method
The contingent valuation method is defined by Mitchell and Carson (1989) as the
method that collects people’s WTP for an improvement using survey questions. The
first CVM study was employed by Davis (1963) to estimate the benefits of outdoor
recreation in Maine backwoods area. The CVM is based on complex surveys to obtain
information from respondents about their preferences for environmental amenities. A
hypothetical scenario or market is constructed to describe changes in goods or
services. Respondents are asked how much they are willing to pay to have the goods
or services improved or how much they are willing to accept to have the goods or
services given up. Then the data obtained from a sample of the target population are
analyzed to infer the value of the good or service.
CVM was stated as one of the four basic methods for valuing the environmental
benefits of a proposed regulation. Bateman and Willis (1999) stated that the CVM
has the ability to quantify certain types of benefits such as non-use and passive-use
benefits, which is the superiority of CVM over travel cost (TCM) and hedonic pricing
(HPM) method. By the end of 1970s, CVM was recognized officially by the US
Water Resources Council as an approved valuation technique. CVM has been applied
broadly in many countries since 1980 (Bateman and Willis, 1999), especially in
developing countries (Do and Bennett 2009; Hoa and Ly, 2009). However, through
many decades, many debates took place concerning the validity of this method. Later

12


on, Cummings et al. (1986) and Mitchell and Carson (1989) have raised the debate
into its peak through their publications.
Carson et al. (1992) conducted a well-known study to evaluate the losses from the
Exxon Valdez oil-spill disaster in Prince William Sound in Alaska, US. The validity
of the CVM used in the study has been questioned by the company which was
responsible for the disaster, Exxon Company. Numerous adjustments have been made
to the study, the result was then finally accepted by the Exxon and US Government.
The estimate for the damage of the disaster was $2.8 billion (based on median WTP
of $31 per household).
2.5 Some relevant CVM case studies
In 1988, Thunberg conducted the first major study of WTP that focused on reducing
flood risk. The objective of the study was to find out the WTP to avoid trauma or
psychological damage due to floods. 142 respondents were scheduled by telephone
and surveyed using personal interview in Virginia, US. The proposed good to be
valued in the study was the lowered probability of flooding (20% compares to 40%)
in the landowner’s house, respondents also were given a payment card format answer.
The study offers respondents with two alternatives of payment vehicles, lump-sum
payment and annual payment. A follow-up question and an opportunity to ask about
the good were also given to respondents after the proposal to ensure the respondents
had a clear understanding of the project to minimize bias. The result showed a WTP
of $ 314 of lump-sum payment for the change. However, the important contribution
of the study was the development of a WTP model for flood risk reduction.
Shabman and Stephenson (1996) did several studies based on the results of Thunberg
(1988). The authors aimed to compare HPM, CVM and the PDA (Properties damage
avoided method) estimates from various studies together and with actual WTP
choices from the authors’ own CVM survey. The elicitation question type used in the
study was the payment card question with a follow-up confirmation question to
ensure there would not be hypothetical bias in responses. The payment vehicle used

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was special assessment annual payment paid by property owners. The comparison
showed that the hedonic pricing produced a higher mean estimate ($ 1,333) than
CVM ($ 314) and the PDA method was between these two methods ($ 597). The
study also pointed out that the WTP in the hypothetical scenario ($ 124) is far lower
than the WTP when the actual choice ($ 93 each year) is faced by the respondents
Zhai et al. (2007) applied CVM to estimate WTP for flood reduction in Japan. The
study surveyed a large sample size with the payment card elicitation question to find
out the interest of people in various flood control measures. To reduce bias, the
careful survey procedure was conducted, including choosing a large sample (962
households chosen), gifts from the program and most importantly, a cover letter and
a thank letter with the signature of the Project Director, this will convince the
respondents the survey will be the actual referendum for policy making. WTP for
different anti-flooding measures (early warning systems, structural measures) ranged
from the average of ¥ 2.887 to ¥ 4.861. WTP for flood control measures may depend
on income, ‘preparedness’, acceptability of flood risk, perception of other risk and
provision of environmental information.

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CHAPTER 3: METHODOLOGY
Based on the referred literature, this chapter will present the context in which the
study is conducted, the application of CVM in the context of valuing the WTP for
controlling urban flooding, some justifications about selecting the appropriate
elements in CVM, the main contents of the questionnaire, description of the
hypothetical scenario, and lastly, the estimation and bootstrap techniques used in the
study will also be introduced.
3.1 Current flooding and flooding control state in HCMC
Recently, flood controlling has been one of the biggest issues of Ho Chi Minh City
authorities. Not only in low ground areas, but also in the central districts, inhabitants
have to face frequent flooding during the rainy season (Dung, 2011). Causes of
flooding are tides, high discharges from Saigon and Dong Nai rivers, flooding from
the Mekong Delta, heavy raining or a combination of these factors. Moreover, the
insufficient capacity and inefficiency of the drainage system, elevations of the city
and land subsidence, inadequate spatial planning, policies and regulations, lack of
public awareness and participation has aggravated the flooding problem (Steering
Centre for Urban Flood Control Program, 2013).
Current flooding situation in Ho Chi Minh City has caused significant economic
damage and impacted the health of HCM City inhabitants. The estimated amount of
economic damage caused by flooding every year is ranged from six thousand billion
VND to 22 billion VND (Steering Centre for Urban Flood Control Program, 2013).
The situation is getting worse by three factors which are partly man-made: i) sealevels and rainfall instability which are affected by the climate change ii) landsubsidence resulted from numerous high-rise buildings and underground water
exhaustion and iii) Sewer rehabilitation and flood protection is falling behind the
rapid urbanization process (Truong, 2010).

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Figure 5 Monthly mean rainfall in HCMC and mean sea water level at Vung Tau
Source: Steering Centre for Urban Flood Control Program (2013)
Figure 5 shows the average rainfall in HCMC and sea level at Vung Tau2. The rainfall
stays consistently high from May to October but the sea water level is only at its peak
in October and November. The occurrence of flooding is often lies within May and
October, which is appropriate to the high rainfall season. However, the peak of the
flooding is in September and October, which is the months with highest sea level.
Therefore, the flooding problem can be concluded to have the high rainfall as the
main cause while the high sea level, although may not be the directly influencing
factor, further aggravates the long lasting flooding problem (Phi, 2009).
In 2001, plan of urban drainage improvement and sewer development of HCMC was
approved (JICA 1999) by the Decision 7523 of the Government. This is a big scale
project involving in improving of 186 drainage routes, 132 of which have the support

2
3

Due to the lack of sea level tracking stations in HCMC. Measurements from the Vung Tau station were used.
This project have been renamed after Decision 752, to Project 752.

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from ODA sources from Japan and the rest of them funded by the city budget. The
total investment cost is approximated to be 40,380 billion VND (Decision 752/QĐTTg, 2001). The implementation of the project will take at least 20 years to complete
with the target year at 2020. The completion of this project will drastically help the
city in reducing the flooding caused by rain by enhancing water circulation from
urban areas to canals, increasing hydraulic capacity of the urban drainage system,
therefore help alleviating the inundation in the city when heavy rains occurred.
Apart from sewer rehabilitation and improvement of urban drainage system, which
was also essential for the urban flood controlling and urban development. In order to
deal with the high rainfall and the tidal level, which are the main cause for the
flooding problem in HCMC, there have been many hydraulic plans proposed to the
People’s Committee of HCMC and the Government. Three of which are
recommended by the Steering Center of The Urban Flood Control Program: The Soai
Rap barrier, the MARD plan and a variant of the original MARD plan.
In 2008, the Government issued Decision 1547 regarding planning and
implementation of the MARD plan. Due to the enormous scale of the project 1547,
which is named after Decision 1547, this hydraulic construction project4 is split into
46 items. Accordingly, main items consist of 12 sluice gates and 172 kilometers of
dykes, will be built, enclosing entire HCMC and some area of Long An Province.
The project also involved in building 8 bridges and rehabilitating 27 small canals with
the total estimated total investment cost of 11,531 billion VND. However, the project
only serves as a tidal controller role and gives better water discharges from city canal
to the Sai Gon river, while controlling urban flooding, especially flooding caused by
heavy rains, also relies on the capacity and efficiency of the urban drainage and sewer
system in the city, which has been constantly being done by the city since 2001 with
the project 752. Without the enhanced sewer and drainage system, the system itself

The term ‘Hydraulic construction project’ is the name for projects involving in construction of large-scale
structures like big dykes, dams… It is distinguished from ‘Irrigation’ or ‘Sewer and drainage rehab’ projects.
4

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only functions as an anti-tidal-flooding measure. Currently, due to the lack of fund,
only one sluice and 33 kilometers of dykes have been built (Decision 1547/QĐ-TTg,
2008).
In 2012, the city conducted the project aiming to rehabilitate the Tham Luong – Ben
Cat – Rach Nuoc Len canal route, one of the most important canal routes in HCMC.
This is one item in the project 1547. The project focuses on improving the inundation
condition of the Go Vap, Binh Thanh, Tan Binh, Tan Phu, Binh Tan districts and
Binh Chanh by dredging the whole canal, building various sluices, sewers and water
processors along the canal.

Figure 6 Number of flooding locations in HCMC from 2008 to 2014
Source: Steering Centre for Urban Flood Control Program (2013)

Figure 6 shows the number of flooding locations in HCMC from 2008 to 2014 which
reflects the effort of HCMC to reduce the urban flooding over 5 years. A significant
amount of flooding locations has been reduced, from 126 locations in 2008 to 11
locations in 2013. Currently, the central area of HCMC is almost alleviated from
flooding. However, the remaining 10 locations are still impaired heavily with
flooding caused by rain and require complete improvement of the drainage system of
that area.

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3.2 The procedure of conducting a CVM study
According to Bateman et al. (2002). A typical CVM work procedure follows the
steps:
 Initial research
 Choosing survey method
 Sampling
 Questionnaire design
 Testing the questionnaire and conducting the main survey
 Econometric analysis
 Validity and reliability testing
 Aggregation and reporting
First, the research question must be specified and a hypothetical market or scenario
is established. The plausibility of the hypothetical market or scenario have to be
ensured.
Second, a choice is made from different types of survey: face-to-face survey,
telephone survey or mail survey. The face-to-face survey is the most preferred and
proves to be the most efficient method, however, it may be a costly method in terms
of time and money (Bateman et al., 2002)
Third, we need to determine how many observations need to be collected, where and
when the data must be collected and what method should be used in order to have a
good sample.
Fourth, the most important part of the procedure is to design the questionnaire. This
involves in eliciting the scenario used for asking the valuation question, choosing
what kind of valuation question (such as single-bounded dichotomous choice, doublebounded dichotomous choice or open-ended choice question, the payment vehicle for

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the hypothetical market or scenario and how the questions will be elicited to the
respondents. The table below presents three popular types of valuation question and
its details.
Table 2 Three types of commonly used elicitation questions

Open-ended question

Single-bounded
dichotomous choice
question

Description

Respondents are asked to Respondents are asked to
state a single amount of give a discrete choice
WTP for the scenario
(yes or no) to a prespecified amount of
WTP

WTP obtained

Continuous WTP data

Advantages

The exact value from
respondent, accurate if
the respondents know
their WTP well.
Straightforward
to
respondents
Simplicity in
WTP
aggregating

Disadvantages Too difficult for most
respondents
(NOAA,
1993)
High non-response rate
High possibility of WTP
understating due to the
lack of knowledge about
proposed
scenario
(Mitchell & Carson,
1989)

Double-bounded
dichotomous choice
question

Respondents are asked to
give a discrete choice to
a specified amount, then
another higher (lower)
amount will be given if
the respondent answer
yes (no) to the initial
question
choice WTP Interval WTP data

Discrete
data
Easier for respondent to
answer since only a
single yes-no question
involved.
Incentives compatible
(Carson & Groves, 2007)

Easier for respondents
since
it
requires
respondents to give the
yes-no answer twice.
Higher
statistical
efficiency than singlebounded question
Incentives compatible
(Carson & Groves, 2007)
Possibility of yea-saying First bid question may
and nay-saying
impact the answer on the
Large sample required
following question.
More
complicated
econometric techniques
required.

Other than these elicitation methods, there are also other methods such as bidding
game format or payment card. Bidding game is the format that the respondents will

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