willingness to pay

Brainstorming some "green" tourism research

Following the “green race” paper we have been thinking about green tourism research and I am happy to share a few ideas here. I have also had the opportunity to get feedback from David McKenzie and Berk Ozler at the Work Bank (I’m a big fan of their Development Impact blog). If anyone out there has more ideas, or want to involve us in some interesting work (particularly if you have a huge budget to spend and plan to do the work on a tropical island), please send me a mail.

carbon footprint, climate change, mitigation, Two Oceans Marathon, willingness to pay

Marathons, carbon footprints and willingness to pay

Recently Prof Melville Saayman and I have been involved in some tourism research about the willingness to pay for conservation. Saying that your willingness to pay (or not) will save the world may be overstating the significance of our research a bit, but it is almost that important.
There exists a large international academic literature on aspects of the environment, climate change and tourism. An analysis of the links between tourism and climate change can be grouped into four categories (Fisher, 2007), namely i) the impact of tourism on climate change, ii) the impact of climate change on tourism, iii) adaptation to climate change, and iv) mitigation of climate change. In this last category, studies of the mitigation of climate change, specifically of willingness to pay, have focussed on air travellers’ willingness to pay for carbon offsets (see Brouwer et al., 2008), or tourists’ willingness to contribute to funds for the management and conservation of a particular natural resource (see Casey et al., 2010). Our paper falls in the last category and takes the question of the environment and climate change to a sports event to ask: Are Two Oceans Marathon runners willing to pay for a “greener” race and what are their characteristics?
Most of the participants fly or drive significant distances to participate and spend a number of days in and around Cape Town as tourists. Based on their characteristics, an online carbon calculator shows that the carbon footprint of the average participant is approximately 480kg of CO2, which can be offset with approximately 2.2 trees at a cost of more or less R90 (www.trees.co.za). In order to examine whether the runners are willing to pay to reduce their carbon footprint in the race, a survey was conducted at the marathon. In total, 502 athletes participated in the survey and data were collected about their demographics, spending and the key question: “Would you be willing to pay more for a more environmentally friendly marathon?”
The papergoes on to provide an overview of the literature, describe the survey, specifically the willingness to pay question and describe the sample characteristics. For the purposes of the blog we can jump to the results.
Of the 502 respondents, 11 per cent skipped the willingness to pay question. Another 27 per cent indicated that they were not willing to pay an additional fee and 62 per cent said that they would. Respondents who were willing to pay in principle were subsequently asked whether they were willing to pay a specific amount of money. Approximately 22 per cent of runners indicated that they were willing to pay R10, 12 per cent were willing to pay R30 and 19 per cent were willing to pay R50. The runners were also asked to name the maximum amount that they were willing to pay over and above the race registration fee. Almost 40 per cent did not answer the question and, for the remaining 60 per cent, the mean amount was R83.
So, who were these green runners?

  • 69 per cent of women said that they were willing to pay, compared to 58 per cent of men.
  • In the age groups 18 to 30 years, 31 to 40 years and 41 to 50 years between 62 per cent and 66 per cent were willing to pay.
  • There is little variation in willingness to pay between the differences in marital status.
  • A greater percentage of Afrikaans speakers (64%) than English speakers (61%) were willing to pay.
  • More of the athletes who had a degree or diploma (69%) or post-graduate qualification (66%) were willing to pay.
  • 72 per cent of the self-employed runners were willing to contribute.
  • Those who travelled further may be more cost sensitive and less likely to make a contribution to mitigation of their emissions.
  • When asked why they would be willing to pay the additional fee the reasons cited most were that they felt responsible for climate change and that they care about the environment in general.
  • The main reason given for not being willing to pay was that people believed that the mitigation programme will have no real impact. This was followed by reasons such as having too little income and not believing in climate change.
The conclusion is that this research presents an opportunity: If people are willing to pay for “greener” and more sustainable tourism experiences, the suppliers of leisure activities and organisers of major sports and cultural events should provide it. It also presents a challenge: segmenting the market and profiling “green” runners, visitors and tourists will require further research.
This leads this paper to make a recommendation for future research. Surveys need to go beyond simple demographics and ask questions about people’s knowledge of and concern about the environment, climate change and mitigation. People may be “green”, independent of their age, education or income. Beliefs and attitudes as predictors of willingness to pay should be explored further in greater detail. There is an interesting research agenda open in this field.
Brouwer, R., Brander, L. and Beukering, P. 2008. A convenient truth: air travel passengers willingness to pay to offset their CO2 emissions. Climatic Change, 90:299-313.

Casey, J.F., Brown, C.B, and Schumann, P. 2010. Are tourists willing to pay additional fees to protect corals in Mexico? Journal of Sustainable Tourism, 18(4): 557-573.

Fisher, J.  2007.  Current issues in the interdisciplinary field of climate change and tourism: A meta-study of articles from 2006 and 2007.  Paper presented at the European Tourism and the Environment Conference: Promotion and Protection, Achieving the Balance. Dublin, Ireland, 11-12 September.
Budget speech, industrial policy

Support of manufacturing

Yesterday I wrote that the Budget 2012 is noteworthy for its focus on the drivers of growth and support of business. It feels like there is a plan and the Minister has promised funding for a manufacturing competitiveness enhancement programme, industrial development incentives, special economic zones and a lot of infrastructure.

Internationally, specifically in the US, there is a significant debate about whether manufacturing matters and deserves special treatment. I’m slowly starting to read up on this to prepare a SA paper. In the meantime I’ll be posting links following the story:

It makes for interesting reading.

Finance, industrial policy, SME. SMME

Industrial policy – identifying causal effects

Following up on the industrial policy story, I have come across an excellent blog post that sets the bar for research in this field. John van Reenen writes on the VoxEU blog about a recent CEPR paper by himself and co-authors (Criscuolo et al. 2012) on industrial policy in the U.K.

To evaluate the impact of providing incentives or subsidies to firms is difficult, since such programmes might finance activities that the firm would have undertaken anyway. In addition, looking at what happened to recipients relative to non-recipients, does not tell you what would have happened in the absence of government support. In their paper  they try to identify the causal impact of a ‘Regional Selective Assistance’-programme in the U.K. This programme offers investment subsidies to firms in depressed areas on condition they “create or safeguard employment”. The beauty is that they are able to examine every grant and manufacturing plant over a 20-year period and the experimental variation comes from EU-wide rules changes about state aid laws.

Their find that the scheme was successful at increasing investment.

 Manufacturing employment rose and these jobs seemed to come from lower unemployment rather than being “stolen” from unaffected regions and firms. A 10% investment subsidy causes about a 7% increase in employment, with about half of this arising from growth in existing plants and half from higher net entry.

Government grants to smaller firms (fewer than 150 workers) were effective in increasing investment and employment, but money given to larger firms had effectively zero effect. An explanation is that grants help remove the financial constraints faced by smaller firms, whereas larger firms have deeper pockets.

A possible downside of the scheme was lower aggregate productivity as the grants tended to go to less productive firms and had no impact on improving their productivity.

In South Africa, research like this is limited by the availability of data. Work by myself and Marianne Matthee (forthcoming in JEFS) found that access to finance matters for productivity:

Firms that indicate that access to finance is a constraint to their operations are typically small and less established. They are not able to allow their clients to pay after delivery and they have to pay for their purchases before or on delivery. These firms also hold a smaller stock of inventory. The firms that are constrained by access to finance are less likely to own a generator or use own transport to make shipments. These firms are also less likely to pay for security or to provide formal training. They have lower capacity utilisation and are unlikely to be exporters or to introduce new products in response to competition. All this indicate that they may be more vulnerable to shocks and competition as well as being weaker contributors to employment creation and growth.

The SBP also produces interesting SME research, but at the moment there is still too much talk about industrial policy, subsidies, incentives and the importance of SMEs and too little analysis.

Economics, industrial policy

Industrial policy on my mind

For the last few weeks I have thought about writing a blog post on industrial policy. I am working a report that that interprets the Industrial Policy Action Plan (IPAP-2) for the North West Province, and it seems that we are in fashion. As a preface to the North West Province posts, here is a short primer on the ideas and things I have been reading.
Recently The Economist ran a special report on State Capitalism, entitled The visible hand, The Mail & Guardian argued that South Africa should follow the Chinese model and Johan Fourie commented on both of these. President Zuma’s State of the Nation address focussed on infrastructure investment with specific sectoral and spatial implications (and Johan and I also commented on SONA).

Internationally, Dani Rodrik has written that industrial policy is back, in fact, it never really went away. He writes that

“…industrial policy never went out of fashion. Economists enamored of the neo-liberal Washington Consensus may have written it off, but successful economies have always relied on government policies that promote growth by accelerating structural transformation”.

Rodrik argues that it is not a question of whether one should have industrial policy, but how it should be practiced. He goes on to outline three principles:
  • Industrial policy is a state of mind, built on collaboration between government and the private sector.
  • Incentives should be temporary and based on performance.
  • Policies need to be transparent and open to new entrants – policymakers should be accountable.
He concludes that the argument should not be about government’s ability to pick winners, but about whether they are trying different approaches and letting the losers go.

An example of success comes from the latest edition of The Economist and an article about manufacturers in the British Midlands. Different factors have allowed them to survive and some to thrive, but from a policy point of view:

“…local firms credit two helpful outfits. One is Made in the Midlands, a business network that supports its 250 member firms by putting them in touch, largely online, to help solve mutual problems and share market intelligence. Another prop is the Manufacturing Advisory Service, run through regional development agencies, which provides expert help to small and medium-sized enterprises”.

The manufacturers described in the article link to a recent NBER paper by Richard Baldwin. The title is Trade And Industrialisation After Globalisation’s 2nd Unbundling: How Building And Joining
A Supply Chain Are Different And Why It Matters
. He aruges that multinationals and global supply chains have killed import substitution and this requires a rethink of 20th century industrial policies.

All together it makes for interesting reading. More details on SA policies to follow.

PhD, research

Geographical economics insights for your post-grad studies

Last week I wrote about how post-grads can come to think like researchers. It involves thinking, reading, writing and analysis, followed by more of each until your supervisor says you can stop. There are steps in this process. The thinking and reading is especially important for figuring out the paradigm, approach and methodology steps. Applying the method and using the instruments is the analysis part of the process, but will also involve more reading and learning. Of course everything needs to be written up with crystal clarity.
Few people are likely to be complete naturals at all this, which means that there is a demand for mentoring and coaching and a supply of books, blogs and “how to” guides. At last week’s seminar Prof Trafford also proposed some stepping stones to developing episteme:


But how would a university, a supervisor or a student go about creating and participating in an environment in which these things happen? Thinking about all this, I wondered whether there might not be some insights from geographical economics:

Geographical economics
Your post-grad studies
Economic activity occurs in agglomerations.
Your research has to take place in an academic agglomeration of the supervisor, other Profs, post-docs, fellow post-grad students and the friendly staff at the library.
You cannot disappear for six months and expect to come back with answers.
Growth is driven by external economies of scale from four sources:
To do more and better research requires:
Infrastructure – lowers the cost of production.
You will need basic hardware to do the work.
A Department or School can upgrade the PCs and software in the post-grad lab. For students this means using your scholarship money to buy a laptop instead of a PS3.
Diversity of intermediate inputs – there are benefits from scale and specialisation.
The literature that you are reading and data for your analysis are the raw materials. The intermediate inputs are the interactions with and feedback from anyone and everyone.
This means having regular scheduled meetings between supervisor and student, attending workshops and seminars. A post-grad can never be too busy for this and when you attend, you need to participate – remember that a good question is a compliment to the speaker and a complement to agglomeration-driven research!
Matching in the labour market – better matching between employers and employees increases efficiency and lowers cost.
Students and supervisors can be matched by interest and by skills. Diversity or specialization can be beneficial, depending on the agglomeration. Students often have a better idea about who they want to work with than supervisors do!
Matching with peers is also important. Get to know the post-doc who has been there and did it, or make friends with the Stata programming whizz.
Knowledge spillovers – ideas and innovations are in the air and drive growth in agglomerations.
These are the spillovers that occur aside from the intermediate inputs and improved matching. It happens when you go for a coffee or a beer and someone mentions the cool new article in AER that they have been reading. This is about research culture and its spillovers.

So, in research agglomerations you find lots of people busy reading, writing, analyzing, presenting their results and providing inputs for one another. But what if you are the only PhD in the village, whose supervisor is busy teaching or managing, if there are no seminars or anyone to have an AER-related beer with? I believe that there are things you can and should do to get closer to the action:

  • Library resources are great for tracking down the peer-reviewed published work, also sign up for a RSS reader and start following blogs. You may not have been at the seminar but the blogs are where the fresh new work is reported and you can make comments as well.

  • Many researchers and academics also tweet. These are the bits of conversations and references to resources that you might otherwise be missing by sitting out in the sticks. Join the conversation.

  • You should actually blog and tweet about your work. Very few people have speaker’s block, buy many post-grads complain about writer’s block. Writing blogs will provide practice in expressing your ideas. You do not have to share great insights yet – write about and interpret the articles you have been reading, or post the code that you have been struggling to program. If someone ever asks what you have been up to, you will have something to show.

  • If you are tweeting and blogging, following other researchers and sending your comments, make sure that you manage your online profile – put up the privacy settings on those undergrad party photos on Facebook and rather start using LinkedIn and SlideShare to promote yourself and your work.

  • Journals may not publish the work that you have right now, but maybe someone will be interested in a book review or even letting you review an article. You are reading anyway so send an e-mail to a few editors and ask if they would keep you in mind.

  • Finally, keep your ears open for workshops or conferences that are close by and inexpensive. That conference in Istanbul sounds nice, but you are more likely to get good feedback at UCT. When you do get the opportunity, make the most of it: make an excellent presentation, have your business card, v card, QR code to your webpage ready, do not disappear from sessions to explore the town, participate, make comments, ask questions and do not skip the conference dinner, network with the young guns and the legends.

PhD, research

Some words to do research by

This week on the World Bank’s Development Impact Blog David McKenzie and Berk Olzler report on a Q&A session with the editors of the World Bank Economic Review (WBER) Alain de Janvry and Elisabeth Sadoulet. There are number of interesting points about managing the publication, rejection rates, reviewers and reviews, but there is two bits of advice that everyone can keep in mind (yes post-grads, I’m looking at you):
The first on identification:

Our main two criteria in selecting papers for publication are rigorous identification and policy relevance. The two go together as we cannot have credible policy recommendations without strong causal inference. Too many of the submitted papers offer simple “determinants” that are partial correlates with no causal value, and yet are the basis for bold policy recommendations, sometimes of first order of importance for development practice. This includes a large number of cross-country panel regressions with only mechanical, and hence not credible, identification, and yet eventually huge claims of policy implications.

The second on how hard you need to work:

The main peeve about submissions is receiving papers with insufficient work, and hence insufficiently solid results. Many authors believe that one regression makes a scientific paper. Good papers need more work. They sometimes take years to polish and numerous presentations to peer audiences before they reach maturity. Typically we want to see solid robustness checks to guarantee that the results are indeed trustworthy and can serve for policy purposes. Recommendation here would be to submit less, but better. Fewer good papers with solid work would be more likely to get your research published and subsequently noted and cited.