THE JOURNAL OF ENERGY

AND DEVELOPMENT

Ali Bouchrika, Fakhri Issaoui, and Slah Slimani,

“Environmental Good Valuation:
The Case of Drinking Water in Tunisia,”
Volume 47, Number 2

Copyright 2022
 ENVIRONMENTAL GOOD VALUATION: THE CASE
OF DRINKING WATER IN TUNISIA

Ali Bouchrika, Fakhri Issaoui, AND Slah Slimani*

Introduction

I n sustainability and economic development circles, the issue of how to accu-

rately value environment goods and their external effects has been an ongoing
subject of tremendous interest for numerous stakeholders. With climate change
and a growing global population putting tremendous pressures upon our natural
resources and the environment, addressing this issue of proper valuation is critical

*Ali Bouchrika, Assistant Professor at the Institut Sup
erieure de Gestion de Gabes (University of
Gabes), received his Ph.D. in economics from the University of Tunis El Manar. His research interests
include the economics of natural resources, economic development, economic justice, macroeconomics,
and growth in transitioning economies. The author has published more than 20 papers in various
journals such as Empirical Economics, International Journal of Sustainable Economies Management,
Journal of Reviews on Global Economics, Journal of Management Research, and Journal of
Environmental Sciences & Natural Resources, as a sampling.
Fakhri Issaoui, Full Professor of Economics and Management in the College of Business- King
Khalid University Saudi Arabia Asir – Abha (P.O. Box: 960 - Postal Code: 61421). The author is an
affiliate in the research laboratory of Prospective, Strat
egies et D
eveloppement Durable PS2D
(University of Tunis El Manar), he received his Ph.D. in economics from the University of Tunis El
Manar. His research interests include public and labor economics, economic development, economic
justice, macroeconomics, and growth in transitioning economies. The author has published more than
50 articles in journals such as Panoeconomicus, The Journal of Energy and Development, Journal
of Cyber Warfare and Terrorism, Journal of the Knowledge Economy, International Journal of
Computational Economics and Econometrics, African Sociological Review, International Journal of
Green Computing, Economic Research Guardian, and International Journal of Sustainable Economies
Management, as a sampling. (continued)

The Journal of Energy and Development, Vol. 47, Nos. 1-2

Copyright # 2022 by the International Research Center for Energy and Economic Development
(ICEED). All rights reserved.
177
178 THE JOURNAL OF ENERGY AND DEVELOPMENT

to governments, policy makers, multi-national organizations, academics, NGOs,

communities, and at the individual level. This is leading us to ask how we can bet-
ter comprehend the externalities associated with environmental goods from both a
qualitative and quantitative standpoint. In economic terms, an externality or exter-
nal cost is an indirect cost or benefit to an uninvolved third party that arises as an
effect of another party’s (or parties’) activity. Externalities can be considered
as unpriced goods involved in either consumer or producer market transactions.
This lack of a market to signal prices is at the crux of the challenge for all external-
ities but is particularly problematic for environmental goods. Thus, economic pol-
icy based on a sustainable development framework is required to value the scarcity
of natural and environmental resources with the objective of preserving them for
the well-being of present and future generations. This involves, for example, an
improvement in environment quality or an assessment of damage linked to envi-
ronmental degradation.
Given that economic modeling of an environmental good shows that the con-
struction of a market to determine a price from the supply and demand side is not
applicable, we thus find that for the majority of these goods there is no market and
therefore no price system. As a result, natural resources, such as water, are offered
outside of the traditional market structure. The absence of a price system does not
mean that the assets were worthless; to the contrary, we intuitively value environ-
mental goods and natural resources such as water, air, soil, and vegetation. How-
ever, a lack of market cues can lead to sub-optimal outcomes including overuse of
environmental goods or their under provision. This is why we have chosen to value
the globally important provision of water and have selected Tunisia as our case
study. To begin, we pose the following question: how do we assess the benefits or
costs of environmental assets given that these assets do not pass through a tradi-
tional market structure? Therefore, it is necessary to measure all the benefits gener-
ated by a natural resource or environmental good.
Natural resources exist outside of a market structure. Therefore, the absence of
a price hinders identifying the priorities for improving the environment. Since pro-
ject evaluation has an impact on urban and rural settings, environmental goods pro-
vide many services to individuals such as consumption, protection, and regulation.
In the absence of the traditional signaling instrument of price, it would be useful to

Slah Slimani is an Assistant Professor in the College of Business - King Khalid University Saudi
Arabia Asir – Abha (P.O. Box : 960 - Postal Code : 61421). He received his Ph.D. in economics from
the University of Tunis El Manar. His research topics include economic policy analysis and growth,
macroeconomics, behavioral finance, health economics, and environmental economics. The author has
published several articles in journals such as the International Journal of Sustainable Economies
Management, International Journal of Sustainable Economy, International Journal of Computational
Economics and Econometrics, International Journal of Cyber Behaviour, Psychology and Learning,
and International Journal of Social Ecology and Sustainable Development.
 DRINKING WATER: ENVIRONMENTAL GOOD VALUATION 179

have a form of valuation that measures both the environment and environmental
goods. This seems strategic to avoid any type of possible natural resource overuse
and waste and to strive to be on the path of sustainable development.
From an economic context, the environment appears to be one of the common
interfaces between consumers and producers. For environmental economics it is nec-
essary to provide forms of valuation for environmental goods and natural resources
through a variety of methods. Hence, economic theory has developed a methods
panel for evaluating consumer preferences in the case of market absence. Among
these methods, we can cite the contingent valuation method (CVM), which measures
all environmental goods values. Thus, CVM is an ex-ante evaluation method based
on the realization of a survey by which we seek to assess the amount that the con-
sumer would be willing to pay.
Although CVM has been widely used in cost-benefit analysis and environmen-
tal externality assessments for decades, it has been subject to a number of
criticisms. The main concern is that the validity of the results can be biased due to
a number of errors including overestimation of WTP (willingness to pay) since it
is hypothetical, the survey can be structured incorrectly, respondents can provide
untrue answers, and non-response bias. Despite the challenges of this method in
obtaining unbiased information on an economic agent’s preferences through sur-
veys, it still is a vital estimation tool for a public good. This information can then
be used in a cost-benefit analysis for a natural resource or environmental good,
which assesses the impacts of key government projects, policies, and public-sector
priorities. As B. Desaigues and P. Point highlight “it is necessary to attempt a mea-
sure, even if it is not perfect, of all the advantages of natural goods protection.”1
Indeed, the authors propose the careful evaluation of key factors and conditions to
allow for a more accurate valuation by defining and understanding the key varia-
bles of the population, the natural resource under study, and additional information
on households’ socio-economic characteristics to provide more robust results.
To determine the optimal amount of a public good, economic theory offers a
number of models. Based on individual utilities, two methods are used to calculate
this amount, namely, the indirect method is based on actions and the direct method
based on individual statements. If the indirect method consists of recording the util-
ities from the observed behavior, the direct method consists of asking the agents
by a survey. This last method can be implemented if the actions are difficult to
observe. Therefore, the direct valuation of an environmental good, widely applied
in environmental and health fields, is made in this case of contingent valuation.
Thus, the major objective of this study is to present a methodology to value an
environmental good, which is drinking water, in Tunisia. To do this, our paper is
organized as follows. The next section will deal with the economic valuation of an
environmental good followed by an econometric formalization of WTP models.
We will then present the empirical methodology followed by an estimation of the
WTP for the environment good of drinking water in Tunisia using the Logit and
180 THE JOURNAL OF ENERGY AND DEVELOPMENT

Tobit qualitative models. Last, we will present our conclusions and their implica-
tions for environmental good valuation within the Tunisian context.

Environmental Good Valuation

According to I. Dialga, environmental good valuation is based on hypothetical

markets since many environmental goods and services do not have a market for
their monetary valuation.2 For these types of environmental goods and services,
researchers observe the behavior of economic agents with respect to the identified
goods and services and deduce a price corresponding to the value allowed for envi-
ronmental goods and services. This is the case with the CVM. The CVM is applied
through conducting a survey in which people are directly asked how much they
would be willing to pay (WTP) for a change in a specific environmental good or
service. The approach is called “contingent valuation” because people are asked to
state their willingness to pay, contingent on a particular scenario and the environ-
mental good or service described to the survey participant. In the CVM survey, the
first step is to define a change in an environmental good or service being valued.
Then decisions about the survey itself are made, such as whether it will be con-
ducted by mail, phone, virtually, or in person, how large the sample size will be,
and who will be surveyed. Survey method and sample size depend mainly on the
size of the research budget and logistics. The choice of subjects will depend upon
two factors. First, whether one decides to estimate only use or both use and
non-use values of the environmental good or service. Second, the researchers will
assess the uniqueness of the environmental goods or services being valued as
resources with unique characteristics are likely to have higher non-use values and
would require a larger survey scope. A CVM survey should include a detailed
description of the environmental good or service being valued and the hypothetical
change, questions about willingness to pay for the good being valued, questions
about respondents’ characteristics (age, income, education, etc.), and the respond-
ents’ preferences and priorities regarding the good or service. The WTP question
should also define a way in which payment would be made and how individuals
would allocate a budget to acquire them. The method allows these implicit prices
to be revealed by asking individuals to express the amount that they are willing to
pay to continue to benefit from a particular good and service offered by the envi-
ronment. Disclosure of preferences can be done by voting. In such case, individu-
als are asked to express themselves on a project that would impact their living
environment. This approach, at first glance, seems to be able to assess the accept-
ability or rejection of the proposed project. However, it can reveal implicit prefer-
ences of concerned populations when we link this vote to financial motivations.3
To value an environmental good, we assume that the economy includes m
consumers and n environmental goods. Let xih ðph Þ denote the demand of
 DRINKING WATER: ENVIRONMENTAL GOOD VALUATION 181

consumer i for an environmental good h. The surplus of consumer i on market h is

expressed as:
ð 11
Shi 5 xih ðtÞdt
ph

Let Sbi be the sum of these surpluses for consumer i who benefits from an envi-
ronmental good.

X
n

Sbi 5 Sih
h:1

Let us assign to each consumer i a weighting coefficient ai, which measures the
greater or lesser importance given by the consumer to an environmental good.4 Thus,
ai is called consumer’s preference value for an environmental good. The weighted
collective surplus is then:

X
m
b5
W /i b
S 1 p where p is the monopoly profit:
i51

X
m X
n X
n
b 5
W ai Shi 1 Ph ðYh Þ2CT ðY1 ::: Yn Þ
i51 h51 h51

where Yh is the quantity of good h and Ph is the price of good h.

Willingness to Pay (WTP) Econometric Formalization

After choosing the scenario and the valuation question, we proceed to a series of
pre-tests which will have to validate the methodological choice and the valuation
question. In addition to this valuation question, the survey must present questions
relating to individuals’ socio-economic characteristics and questions relating to the
uses of the environmental good. Thus, from these different questions, explanatory
variables relating to WTP were created.
The objective of econometric analysis is to estimate a WTP model taking into
account explanatory factors from the survey. In the case of an open question,
econometric specification is a model in which the explained variable, consent to
pay (WTP), is continuous. In addition, in the case of a referendum technique, the
obtained econometric specification is a binary choice model.5 Thus, the dependent
variable (WTP) is qualitative with two modalities (yes and no). Therefore, econo-
metric analysis in contingent valuation method (CVM) can deal with many
182 THE JOURNAL OF ENERGY AND DEVELOPMENT

problems, such as zero or extreme values and the choice of the model functional
form. The specific econometric model of WTP must be compatible with economic
theorem hypothesis. D. Fadden and G. Leonard proposed a model which pro-
ceeds to a Box-Cox type transformation.6 In addition, B. Desaigues and P. Point
proposed a systematic bias correction (lack of experience of respondents) by a
Box-Cox transformation.7
Thus, the evaluation model is written as the following form:

WTP 5 X b 1 «

where WTP is respondents’ consent to pay, X is an independent variables matrix,

and « is an identically distributed error vector term.
The Box-Cox transformation of WTP and X is defined by the model:

WTPðlÞ 5 X ðlÞ b 1 «

With WTPðlÞ 5 ðWTPl 21Þ= l if lÞ0

5 logðWTPÞ if l 5 0
and X ðlÞ 5 ðX l 21Þ =l if lÞ0
5 logðX Þ if l 5 0

This model is estimated using the two-step maximum likelihood method. The
first step consists of determining a l estimator from an iterative algorithm. The sec-
ond step consists of estimating the b vector of parameters from the l estimation.
On the other hand, according to D. Fadden and G. Leonard, for an individual i, the
WTP model is written as follows:8

GðCTPi , Yi , aÞ 5 ZðXi , «i , gÞ

with CTPi denoting the consent to pay of the individual i; Yi is the income of individual
i; (a, gÞ is the parameter vector; and «i is the error term associated with individual i.
Additionally, the G (.) function is defined by:
8
>
> CTPi if a 5 0
> 12a
< Yi 2ðYi 2CTPi Þ12a
GðCTPi , Yi , aÞ 5 if aÞ0
>
> 12a  
>
: 2log 12CTP if a 5 1
Yi

This Box-Cox transformation of the dependent variable allows great flexibility in

the relationship between income and WTP. If a 5 0, the econometric model becomes
a simple linear model, while if the value of a 5 1, then a logarithmic model is
obtained. Therefore, the a parameter is interpreted as the total WTP relative to
 DRINKING WATER: ENVIRONMENTAL GOOD VALUATION 183

household income. In addition, the function captures individual heterogeneity based on

individuals’ observable characteristics. Thus, in this case, we simply deduce the CTPi .
Indeed:

Yi12a 2ðYi 2CTPi Þ12a

Zi 5 Z ðXi , «i , gÞ 5 GðCTPi , Yi , aÞ 5
12a
! CTPi 5 Yi 2½Yi12a 2ð12aÞZi 12a
1

Moreover, if the consent to pay (WTP) of individual i is strictly positive, then,

the CTPi has the following density:

fZ ðGðCTPi , Yi , aÞ, gÞ
fCTPi ðCTPi , Yi , a, gÞ 5
ðYi 2CTPi Þa

This density is used to estimate the WTP model by the maximum likelihood
method, making assumptions about the error term law based on this density.
In the case of a continuous discrete choice question, the WTP distribution is
processed using a skillful censored model. Thus, if individual i declares a null
WTP, then the distribution function will be Fz(G(0, Yi, a), g) and if individual i
accepts an offer M, the likelihood contribution is 12 Fz(G(M, Yi, a), g).
The Logit Model: A dichotomous model is a statistical model in which the
dependent variable can only take two modalities. It is a question of explaining the
occurrence or not of an event. Therefore, the objective of dichotomous models is
to explain the occurrence of the considered event based on a characteristics number
related to the individuals who form the sample. In this type of model, we try to
specify the probability of the event’s occurrence. Indeed, the Logit model is one of
these types of models, using a 0 and 1 coding for the explained variable. This cod-
ing associated with the event occurrence and its probability is conditioned by the
exogenous variables. Thus, the models are constructed as follows:
 
1
Pi 5 P Yi 5 5 Fðxi bÞ
xi
where F (.) is the distribution function of the logistic law. Yi is the household WTP
and represents the explanatory variables. The maximum likelihood estimator
parameter in a dichotomous model is obtained by maximizing the likelihood func-
tion LogL(Yi , b) with:

LðYi bÞ 5 pNi21 ½Fðxi bÞy ½Fðxi bÞ12y

The Tobit Model: In the case of a Tobit model, individuals may or may not
agree to pay an amount to benefit from a quality and quantity improvement of a
184 THE JOURNAL OF ENERGY AND DEVELOPMENT

natural asset. Thus, we obtain a positive or zero WTP. Indeed, to model this evalu-
ation type, J. Tobin proposed a model composed of two parts;9 a continuous part
corresponding to a linear regression model and a discrete part related to the censor-
ship point assumed to be equal to zero.
In addition, the model structure is then:

CTPi 5 Xi b 1 «i .0
CTPi 5
0 if not

The Tobit model is also a censored regression model. It provides a better estima-
tor of the explained variable, but it does not solve the hypothetical bias problem.
Well-Being Measurement: L. J
udez et al. suggested that the well-being mea-
surement can be obtained by the truncated mean, with the following expression:10

ðT
mT 5 ð12F ðbÞÞdb
0

with b being the value offered; F(b) is the WTP distribution function; and T is the
truncation point.
This well-being measurement has been used in contingent valuation work with
dichotomous choices.11 The research of J. Duffield and D. Patterson indicates that
the expression for measuring well-being corresponds to the mean of the truncated
distribution of WTP for the values 0 and T.12 Indeed, to provide a well-being mea-
surement, the truncated mean must have three characteristics: theoretical consis-
tency, statistical efficiency, and aggregation properties.
b
To estimate the WTP distribution function, i.e., (F(b)), the Logit models are evalu-
ated in both their standard and logarithmic forms. The explanatory variable was the
offered value bi, and the explained variable was dichotomous with a 0 or 1 value.

Empirical Methodology

In Logit models, we try to model the microeconomic agents’ behavior. The

explained variable is a binary variable that can take the value of 0 or 1. In general,
in a binary choice model, we consider individuals who have the choice between
two alternatives, and we try to model the probability that an individual chooses
one of them. Thus, this type of dichotomous Logit model admits, as an explained
variable, the event occurrence probability yi 5 1 conditional on the exogenous var-
iables xi. The objective of this dichotomous model is then to explain the event
occurrence yi 5 1 as a function of a certain characteristics number related to indi-
viduals retained in the sample.
 DRINKING WATER: ENVIRONMENTAL GOOD VALUATION 185

The estimated parameters values have no direct economic interpretation. The

only usable information is the parameters’ signs indicating whether the associated
variable influences, upward or downward, the probability of the considered event.
However, we can calculate the marginal effects, which measure the sensitivity of
the event probability yi 5 1 according to the variation of explanatory variables xi.
Thus, for purposes of results interpretations, we calculate an average marginal
effect of a variable. We note that the calculation method of marginal effects differs
depending on whether the explanatory variable is continuous or qualitative.
To measure the variation effect of an explanatory variable on the probability Pi,
in presence of continuous explanatory variables, we calculate:

­pi
5 f ðxi bÞbj
­xji

with f (.) being the residuals’ density function. Since, by definition, f (.). 0, the
sign of this derivative is therefore identical to that of bj.13
If the explanatory variables are qualitative, we first measure the probability P1
of the first modality that an individual agrees to pay. In second step, we calculate
the probability P2 for an individual selecting the other modality. In this case, the
marginal effect is measured by the difference P12 P2.14
In addition, elasticity is defined as the percentage change in the probability Pi
of event occurrence yi 5 1 following a change in the explanatory variable. This
elasticity is calculated according to the type of explanatory variable (continuous or
qualitative).
A Tobit model can satisfactorily handle responses equal to zero. In this paper,
all null responses were considered equivalent to zero consent to pay (WTP). In the
case where the null responses are numerous, the application of the OLS method is
no longer valid because we cannot have a linear form. Thus, the most widely used
estimation procedure is that of maximum likelihood. In addition, the marginal
effects, in a censored regression model, correspond to the forecast distortions on a
continuous variable generated by a unit variation of one of the explanatory varia-
bles. In Tobit models, there are several possible predictions depending on whether
we are interested in the censored variable yi or the latent variable yi*. In addition,
the elasticities are calculated depending on whether we are interested in the latent
variable or the censored variable. In this paper, we are interested in the calculation
of the marginal effects and elasticities on the latent variable forecast.
WTP Estimation (Case of Drinking Water in Tunisia): To enhance the
“drinking water” value, which is considered an environmental good, we are inter-
ested in discovering the maximum amount that consumers are willing to pay (WTP)
to ensure the sustainable management, usage, and provision of “drinking water” as
resource. The respondent’s consent to pay (WTP) is linked to several conditions
such as revenue, appreciation of the available water quality, and households’
186 THE JOURNAL OF ENERGY AND DEVELOPMENT

socio-economic characteristics. For our study, the Logit and Tobit regression estima-
tion procedures were performed on a sample size of 750 households, constructed
from a consumer survey that covers part of the Tunisian population.
Data processing from the statistical survey first provides us with a structural break-
out of the diversity of households that consume our studied environmental good—
drinking water. The existence of alternative water sources available to the household,
household size, water quality appreciation, education level, and income variables have
a significant effect on consumer behavior. In addition, the aim of econometric analysis
is to identify the significant variables, based upon appropriate econometric methods
that can estimate the evaluation functions, in order to have highly significant results,
which can be consistent with the economic hypotheses and would be useful in the
design and implementation of appropriate policies for the sustainable management of
a resource (drinking water) that is becoming increasingly scarce.
The major goal of econometric estimation is to determine the relevant variables
that influence consumer behavior. To properly value the environmental good
“drinking water,” the following six variables have been selected for econometric
regressions and analysis in our study: (1) SAE 5 alternative sources available for
the household’s water; (2) WTP 5 willingness to pay; (3) Size 5 household size;
(4) Nivist 5 interviewee education level; (5) Income 5 household income level;
and (6) Quality 5 appreciation of water quality.
On the basis of these estimates, the objective will then be to seek an appropriate
pricing policy, which would be a consensus price reconciling the consumers’ pur-
chasing power levels with the operating water service providers’ return rates. This
price must depend upon the level of service quality and the households’ socio-
economic characteristics. This specific price can cover the water service providers’
operating costs and limit waste to ensure the resource is sustainably managed and
guarantee environment stewardship of this critical good.
Logit Model Estimation: On the basis of 750 households in our survey, the
WTP estimation results from our logistics function to enhance the provision of
“drinking water” (the environmental good) in Tunisia, are presented in table 1.
In this estimated Logit model, only the coefficients’ signs are interpretable. The
estimation results show that all variable coefficients are significant. In addition,
the coefficient for the household size variable (Size) is negative, which means that
the consent to pay (WTP) probability for large families is lower. The income varia-
ble’s coefficient is positive, which implies that the WTP probability increases with
household income as one would anticipate.
The alternative source variable (SAE) has a negative coefficient, implying that
households with this type of water consumption pattern have a lower consent to
pay (WTP) probability. This result is expected given that the existence of this alter-
native source forms a substitute for drinking water. The educational level variable
(Nivist) of the respondent has a positive coefficient. This result is expected
because, presumably, agents who have a high educational level have a higher
 DRINKING WATER: ENVIRONMENTAL GOOD VALUATION 187

Table 1
ESTIMATION RESULTS OF THE LOGIT MODELa
Variables Coefficients t-statistics
Constant 224.13 211.92
Size 20.41 25.32**
Income 5.34 12.31***
SAE 20.94 22.75**
Nivist 0.37 3.12**
Quality 20.75 22.93**
chi-square (5) 5 572

a
*** 5 significance at 1-percent level; ** 5 significance at 5-percent level; * 5 significance at
10-percent level; Size 5 household size; Income 5 household income level; SAE 5 alternative sources
available for the household’s water; Nivist 5 interviewee education level; and Quality 5 appreciation
of water quality.

paying probability than the other agents. This variable can explain the conscious-
ness level of the interviewed agent. In addition, the negative coefficient of the qual-
ity variable shows that consent to pay (WTP) probability of the respondent is
higher if they consider the water quality to be poor.
The calculated chi-square statistic is much higher than the critical value given
by the chi-square table at 5 degrees of freedom with a 1-percent error risk, which
can reject, with a 99-percent confidence level, the null hypothesis that all the coef-
ficients are zero.
Marginal Effects and Elasticities: Thus far, only the signs of the variables can
be interpreted. Therefore, to study the sensitivities of an explained variable probability
according to variations in the explanatory variables, we proceed with calculating the
marginal effects and elasticities. For the purposes of results interpretation, we calcu-
lated the marginal effects on the explanatory variables’ mean values; the results are
given in table 2.

Table 2
MARGINAL EFFECTS OF THE LOGIT MODELa
Variables dy/dx t-statistics
Size 20.06 25.37
Income 1.03 12.21
SAE 20.25 22.56
Nivist 0.07 3.08
Quality 20.14 22.94

a
Size 5 household size; Income 5 household income level; SAE 5 alternative sources available
for the household’s water; Nivist 5 interviewee education level; and Quality 5 appreciation of water
quality.
188 THE JOURNAL OF ENERGY AND DEVELOPMENT

Therefore, the increase of a variable associated with a positive coefficient

increases the occurrence probability of the considered event, which means the
acceptance to pay. Conversely, the increase in a variable associated with a negative
coefficient decreases the event’s occurrence probability.
Changes in the household income (Income) and interviewee education level (Niv-
ist) variables have positive effects on the sensitivity of the “consent to pay” event
probability. Thus, these variables are affected by a positive realization of consent to
pay (WTP). Indeed, increases in household income and interviewee education level
are factors that lead to an improvement in the consent to pay probability.
On the contrary, the variables for household size (SAE) and appreciation for
water quality (Quality) show negative variations in the consent to pay probability.
That is, the existence of these variables presents negative effects for an individual’s
willingness to pay. The presence of an alternative source of water (SAE) for house-
holds remains an obstacle to payment. Thus, the existence of alternative types of
drinking water resources for households has an important effect on the individual’s
choice by decreasing the acceptance probability. Quality always remains a very
complicated and fundamental problem in drinking water consumption. Thus,
households that consider their drinking water quality to be poor or sub-optimal
have a higher probability of willingness to pay than others. This probability is
reduced by those householders that participate in a drinking water quality improve-
ment program. The calculations of the average elasticities over the entire sample
are provided in table 3.
The elasticity value is defined as the percentage change in the probability pi of
the occurrence of the “consent to pay” event following a change in one of the
explanatory variables. In this context, the elasticity value of household size (Size)
variable indicates that if the family size increases by 10 percent, then the probabil-
ity of an acceptance to pay decreases by 0.5 percent, while the consent to pay
increases with household income (Income) level. Indeed, a 1-percent variation in
household income increases the probability of individuals who are willing to pay

Table 3
LOGIT MODEL ELASTICITIESa
Variables ey/ex t-statistics
Size 20.51 25.12
Income 9.12 9.71
SAE 20.07 22.71
Nivist 0.25 2.95
Quality 20.09 22.94

a
Size 5 household size; Income 5 household income level; SAE 5 alternative sources available
for the household’s water; Nivist 5 interviewee education level; and Quality 5 appreciation of water
quality.
 DRINKING WATER: ENVIRONMENTAL GOOD VALUATION 189

by 9 percent. The variation of alternative sources available for the household’s

water (SAE) and the appreciation of the water quality level (Quality) decreases the
acceptance to pay probability, respectively, by 0.7 percent and 0.9 percent.
The interviewee education level variable (Nivist) has a significant and positive
effect on households’ willingness to pay. Thus, a 1-percent variation of this vari-
able increases the consent to pay probability by 0.25 percent.
Tobit Model Estimation: The simple Tobit model can satisfactorily handle
null responses (CAP equal to zero). On the basis of 750 observations, the maxi-
mum likelihood estimation method of this model, where the WTP is considered as
a dependent variable, provided the results in table 4.
All variables significantly influence the interviewee consent to pay (WTP). The
coefficients for household size (Size), household income (Income), alternative
sources available for the household’s water (SAE), and appreciation of the water
quality (Quality) variables are all significant at the 1-percent level of error risk.
The interviewee education level (Nivist) variable coefficient is significant at the
95-percent confidence level. Thus, household WTP depends positively on some
socio-economic variables such as household income (Income) and interviewee edu-
cation level (Nivist). In addition, a negative dependency relationship also exists
between WTP and other variables such as household size (Size) and alternative
sources available for the household’s water (SAE).
Indeed, households’ consent to pay (WTP) is an increasing function of household
income (Income) and education level (Nivist). In addition, consent to pay is a
decreasing function of household size (Size) and alternative sources available for the
household’s water (SAE) variables, but with a smaller effect. This result is perfectly
logical given that larger households (big size), that benefit from an available

Table 4
RESULTS OF THE TOBIT MODEL ESTIMATIONa
Variables Coefficients t-statistics
Constant 24.43 29.84
Size 20.06 23.15***
Income 1.15 13.85***
SAE 20.45 24.43***
Quality 20.61 29.05***
Nivist 0.09 2.54**
Khi – square (5) 5 418 R 5 0.19
2

a
*** 5 significance at 1-percent level; ** 5 significance at 5-percent level; * 5 significance at
10-percent level; Size 5 household size; Income 5 household income level; SAE 5 alternative sources
available for the household’s water; Nivist 5 interviewee education level; and Quality 5 appreciation
of water quality.
190 THE JOURNAL OF ENERGY AND DEVELOPMENT

alternative drinking water source, are able to substitute the offered drinking water
consumption and would not agree to participate in a program to enhance an environ-
mental good. The appreciation of water quality (Quality) variable coefficient is nega-
tive, which means that as much as the drinking water quality is deemed as poor by
the consumer, the more the consumer is willing to pay in order to have access to a
better quality good.
What also emerges from this table and the above-mentioned interpretations is
that consent to pay (WTP) is mainly determined by two major variables: the house-
hold income (Income) variable (with a coefficient equal to 1.5) and the apprecia-
tion of water quality (Quality) variable (with a negative coefficient equal to
20.61). This clearly shows that Tunisian households WTP, even in the case of an
environmental good such as drinking water, remains dependent on classic demand
variables, which are income and quality. The highest coefficient attributed to
income describes the rational logic underlying households where the decision to
pay more depends mainly on their income (thus, ability to pay) and, to a lesser
degree, on water quality. A priori, a quality variable is considered as a conditioned
variable and a satellite of the income variable. In other words, even if the quality is
poor, the household cannot hope to pay money unless a precondition of ensured
income is met. It turns out that the Income variable is the necessary condition,
while Quality is intended as the sufficiency condition.
The fit quality of this model remains good for this type of contingent valuation
models. Indeed, the R2 value is equal to 0.19 and allows us to observe a certain
explanatory power. The chi-square test concluded that the hypothesis of simulta-
neous nullity of all coefficients was rejected, such a result being justified by the
calculated value of this test which is much higher than the theoretical value with
5 degrees of freedom.
Marginal Effects and Elasticities: In the case of a simple Tobit model, the
prediction of the latent variable is obtained by the marginal effect measured by
the partial derivative of the conditional expectation according to any component of
the explanatory variables vector.
Indeed, the marginal effect of a unit variation in the kth explanatory variable on
the latent variable forecast (WTP*) is measured by the quantity:
 
CTP
­E xi i
ðkÞ
5 bk
­xi

The results show that variations in household income (Income) and education
level of the interviewee (Nivist) have a significant effect on the latent variable pre-
diction (WTP*). Thus, these different variables can be considered as determining
factors in the realization of a valuation program of the “drinking water” good. On
the other hand, the variables for the household size (Size) and alternative sources
 DRINKING WATER: ENVIRONMENTAL GOOD VALUATION 191

available for the household’s water (SAE) have a negative effect on the latent vari-
able forecast. In addition, the coefficient of the appreciation of water quality (Qual-
ity) variable is negative, but it has a positive effect on the latent variable
prediction. Therefore, this quality variable can be considered as a fundamental fac-
tor for a certain program to ameliorate environmental quality.
Otherwise, a 1-percent variation of the kth explanatory variable for the ith individ-
ual changes the latent variable prediction (WTP*), for these same individuals, by
«CTPi =Xik percent:
Therefore, the average elasticity over the entire sample is given by the follow-
ing equation with the Tobit model elasticities provided in table 5:

1X N
1X N
Xik bk
« CTPi =Xik 5 «CTPi =Xik 5 :
N i51 N i 5 1 Xi b

Thus, a 1-percent variation of the household income (Income) increases the latent
variable forecast (CAP*) by 6 percent. Also, the household size (Size) variable
causes a 3-percent decrease in the latent variable forecast following a 10-percent
increase of this variable. The education level of the interviewee (Nivist) variable
exhibits a positive effect on the latent variable prediction. Indeed, any variation of
this variable by 1 percent modifies the latent variable forecast by 0.19 percent in the
desired direction. The variation in the availability of alternative water sources for
households (SAE) modifies the latent variable forecast in the opposite direction.
That means that the existence of available alternative drinking water sources for
households presents a constraint on the household’s consent to pay (WTP).
Finally, appreciation for the drinking water quality (Quality) variable constitutes
a good indicator that acts on the latent variable forecast. Indeed, a 1-percent varia-
tion of this variable reduces the latent variable forecast by 0.23 percent. House-
holds that consider the “drinking water” quality as important are more likely to

Table 5
TOBIT MODEL ELASTICITIESa
Variables ey/ex t-statistics
Size 20.32 23.15
Income 6.03 13.17
SAE 20.09 24.63
Quality 20.23 28.38
Nivist 0.19 2.64

a
Size 5 household size; Income 5 household income level; SAE 5 alternative sources available
for the household’s water; Nivist 5 interviewee education level; and Quality 5 appreciation of water
quality.
192 THE JOURNAL OF ENERGY AND DEVELOPMENT

consent to pay or to participate in a regulation program of drinking water resource

management in Tunisia.

Conclusion

The purpose of valuing environmental goods is to facilitate and rationalize

political decision-making in natural resource management. This is justified by esti-
mating the benefits that come from carrying out environmental projects or increas-
ing social well-being. From this perspective, the contingent valuation method
(CVM) has the possibility of estimating the economic value of an environmental
good or project for which there is no price determined by a market.
We remind the reader that CVM is based on carrying out a survey by which we
seek to assess the amount that the interviewee would be willing to pay. That means,
the WTP which allows the preservation or restoration of an environmental good.
The development and the organization of the survey were the determining phases of
the contingent valuation methodology. The reliability of the results depends on the
understanding and acceptance of hypothetical scenarios proposed to households. The
effectiveness of the results is based on the sample size and the households’ represen-
tativeness in terms of the underlying natural good that is being valued.
The theoretical and practical foundations of the CVM highlight the method’s sin-
gularity in economic analysis. Indeed, this approach must overcome two challenges:
the evaluation of public goods that are not generally priced and the availability of
information on the preferences of economic agents through surveys in order to
observe actions in the market. Although there can be drawbacks to this approach,
overall CVM methodology can provide significant insights into pricing natural and
environmental goods and its use is essential in the absence of market price signals.
For our research study utilizing CVM within the Tunisian context, the consent
to pay (WTP) estimation of households showed that the household income
(Income) variable has a positive effect, and it constitutes the basis of any decision
to participate in program development to enhance the current drinking water man-
agement situation in Tunisia. The educational level variable (Nivist) is positively
correlated with consent to pay. For this variable, WTP is higher for people who
have completed, at least, the second cycle of secondary education. In addition,
household income (Income), household size (Size), alternative sources available
for the household’s water (SAE), educational level (Nivist), and appreciation of the
drinking water quality (Quality) variables present determining factors in consum-
ers’ choice since these variables significantly influence the Tunisian households’
consent to pay (WTP). Hence, policy makers must carefully consider these varia-
bles when establishing programs to improve access to and quality of drinking
water. Thus, even though there may be some theoretical problems with CVM, it
remains an important tool for assessing the current situation of drinking water
 DRINKING WATER: ENVIRONMENTAL GOOD VALUATION 193

policies and management in Tunisia. In addition, it is useful for providing valua-

tion inputs for the optimal management of drinking water, which is a vital public
and environmental good.

NOTES
1
B. Desaigues and P. Point, Economie de patrimoine naturel. La valorisation des actifs du pat-
rimoine naturel (Paris: Economica, 1993).

I. Dialga, “Methodes d’
evaluation
economique des biens et services environnementaux et

2

impacts cumulatifs,” HAL Open Science, 2016, hal-01308755.

3
A. Bouchrika, F, Issaoui, and H. Jouber, “Evaluation of the Utility Function of an Environ-
mental Asset: Contingent Valuation Method,” The IUP Journal of Applied Economics, vol. 14, no.
2 (2015), pp. 29–42.
4
A. Bouchrika, C. Tarzi, K. Mhedhbi, and F. Issaoui, “Theoretical Analysis of the Relationship
between Monopoly’s Optimal Tariffs and Consumer Utility,” International Journal of Sustainable
Economies Management, vol. 8, no. 1 (2019), pp. 39–50.
5
W. Hanemann, “Welfare Evaluation in Contingent Valuation Experiments with Discrete
Responses,” American Journal of Agricultural Economics, no. 66 (1984), pp. 332–41, and D.
MacFadden and G. Leonard, Issues in the Contingent Valuation of Environmental Goods: Method-
ologies for Data Collection and Analysis, Volume Contingent Valuation: A Critical Assessment
(New York: North-Holland Hausman, 1993), pp. 165–215.
6
D. MacFadden and G. Leonard, op. cit.
7
B. Desaigues and P. Point, op. cit.
8
D. MacFadden and G. Leonard, op. cit.
9
J. Tobin, “Estimation of Relationships for Limited Dependant Variables,” Econometrica, vol.
26 (1958), pp. 24–36.
10
~ez, “Evaluation contin-
L. J
udez, R. de Andr
es, C. P
erez Hugalde, E. Urzainqui, and M. Ib
an
gente de l’usage r
ecreatif d’une r
eserve naturelle humide,” Cahiers d’
economie se et sociologie
rurales, no. 48 (1998), pp. 38–56.

R. C. Bishop and T. A. Heberlein, “Measuring Values of Extra-Market Goods: Are Indirect

11

Measures Biased?” American Journal of Agricultural Economics, no. 61 (1979), pp. 926–30.
12
J. Duffield and D. Patterson, “Inference and Optimal Design for a Welfare Measure in
Dichotomous Choice Contingent Valuation,” Land Economics, vol. 67, no. 2 (1991), pp. 225–39.
13

C. Hurlin, Econom

etrie des variables qualitatives (Orl
eans: Universit
e d’Orl
eans, 2003).
14
I. Cadoret and C. Benjamin, Econom
etrie appliqu
ee (Paris: Dunode, 2004).