Valuing water quality improvement in China : a case study of lake Puzhehei in Yunnan province

While polluted surface water is encountered across most of China, few economic valuation studies have been conducted on water quality changes. Limited information about the economic values associated with those potential water quality improvements or deteriorations is a disadvantage for making proper choices in water pollution control and clean-up activities. This paper reports an economic valuation study conducted in Yunnan, China, which aims to estimate the total value of a real investment project to improve the water quality of Lake Puzhehei by one grade level. Located in Qiubei County, which is far from large cities, the lake has been experiencing fast water quality deterioration in the past years. A conservative estimation strategy shows that on average a household located in Qiubei County is willing to pay about 30 yuan per month continuously for 5 years for water quality improvement, equivalent roughly to 3 percent of household income. The elasticity of willingness-to-pay with respect to income is estimated to be 0.21. The economic rate of return of the proposed project is estimated to be 18 percent, indicating a strong demand and high efficiency of investment in water quality improvement in China. This study also demonstrates that previous knowledge about water quality changes and the project may have a significant positive impact on people's valuation, and that the interviewer effect on valuation can be negative.