Marginal Willingness to Pay for Public Investment Under Urban Environmental Risk: The Case of Municipal Water Use
Marginal willingness to pay for public investment under urban environmental risk is considered in this chapter. In particular, we show a model that takes into account a bounded rationality on the ability of risk perception, information situation, and people’s threshold acceptance of risk. Then, as one case study of urban environmental risk, the evaluation of risk in municipal water use is shown. In order to investigate the information situation and risk perception of people, a survey is conducted using questionnaires. The survey reveals that risk awareness is a factor in drinking water, and that people change their choice based on risk information. Then, the effects of information on risk and public investment are considered. From some numerical examples, marginal willingness to pay is found to be low in the case of high risk, because of consumers’ self-defensive activities. In other words, marginal willingness to pay for public investment is high when there is no or little averting behaviour. Moreover, it is shown that consumers’ perception of risk is largely dependent on information on risk, countermeasures taken by public authorities, and overconfidence in private averting goods.
KeywordsMarginal willingness to pay Environmental risk Municipalwateruse Public investment Bounded rationality
This paper has originally presented at the second DPRI-IIASA International Symposium on Integrated Disaster Risk Management : Megacity Vulnerability and Resilience, IIASA, Laxenburg, Austria, July 2002. We have benefited from discussion with especially Professor Norio Okada on earlier drafts.
This paper has originally published in Environment and Planning C: Government and Policy 2004, volume 22, pages 349–362, Pion LTD, London; www.pion.co.uk and www.envplan.com. We would like to thank the publishers for their permission to use the material here.
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