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Annex 3: Analysis of Willingness to Pay Results

Obtaining consumer surplus from the survey

An analysis has been conducted in parallel with the cost benefit analysis to estimate if there are direct consumer benefits associated with recycling. The direct consumer benefits are measured as consumer surpluses from the willingness to spend time or money recycling above the time actually spent (Figure 26).

Figure 26: Consumer surplus from recycling

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A survey was undertaken by AC Nielsen. It was conducted using the Nielsen Online Omnibus that covers 1,000 interviews with people aged 18 and over; it used a “payment card” approach. A national sample is selected and results are weighted (by age, gender, region, internet access and frequency) to reflect the New Zealand population. Interviews were completed online between 23 and 30 January 2007. It asked respondents about the time they currently spend and are willing to spend. It also asked how much it was worth to respondents to have their waste recycled (their willingness to pay), for four different forms of waste – plastics, paper and glass (PP&G), garden and kitchen waste (organics), car tyres, and car oil.

There is some overlap between the willingness to pay (WTP) questions and the willingness to spend time (WTST) questions. For PP&G, the WTP question implies a cost on top of the time taken to organise it. However, the WTST question suggests the extra time might be spent on further sorting and organising. While the WTP seems largely on top of current time spent, it is possible that respondents considered extra payment and extra time as substitutes. The organics question supposes that households cannot do their own composting. For those that compost, this then implies a payment instead of time spent. But for those that don’t compost, it implies a cost on top of sorting this waste. Car tyres and oil were not the type of item implied in the time questions, and so these questions imply a cost without any time spent (indeed, most people do not spend any time recycling their tyres and oil).

Therefore, we must be careful not to interpret total surplus as the sum of the two channels. Some respondents may have considered extra time and extra money spent as substitutes (at least to some degree), and if this is the case then total surplus will be less than the sum of surplus from time and money. Usefully this means that the money question might also be used to estimate the value of time spent recycling.

In what follows we investigate the consumer surplus derived from time saved.

Survey figures

Time

For analysis, where results were stated as “less than 3 minutes” in survey questions 2 and 3, we have assumed a value of 1.5 minutes.

On average respondents estimate that they spend 13.6 minutes per week recycling, but would be willing to spend 23.4 minutes.

Females spend more time and are more willing to spend time than males. These differences are both statistically significant (at the 10 per cent level). 40–54-year-olds are willing to spend more time recycling than those younger, with 25–39-year-olds also more willing than their juniors (all statistically significant).

There is no significant difference between the four regions of the country with regard to time spent or willingness to spend time, or between those working full- and part-time. Any difference with regard to income levels is unclear. There is evidence that those earning $20,000–$39,000 are more willing to spend time than those earning $40,000–$59,000 and $80,000+, but this is not the case for $60,000–$79,000.

Willingness to pay

On average people state that they would be willing to spend $1.68 per week to recycle their PP&G, $1.50 per week to recycle their organics, $2.22 to recycle one car tyre, and $2.10 to recycle their car oil each time it gets changed.

Those aged 25–39 are least willing to pay to recycle PP&G and organics. Those aged 55 and above are willing to pay the most for organics and car tyres, but this is not the case for PP&G. There are no significant differences with regard to oil.

There are no significant regional variations in willingness-to-pay for PP&G or oil, but some evidence for the other two categories. The ‘North’ region is willing to pay more for organics than the ‘South’ or ‘Central’ regions, while ‘North’ and Auckland are willing to pay more to recycle tyres than the ‘South’ region (significance at 10 per cent level).

There is no evidence of differences between full-time, part-time workers or those without a job.

There are no significant income differences for recycling PP&G. For car tyres and oil, those earning $20,000–$39,000 and those on $80,000+ are willing to pay more than those earning other amounts, while there is similar (but weaker) evidence for this with organics.

Value of time

As outlined above, the average respondent was willing to spend longer recycling than they did currently. To convert this time into monetary equivalent requires an estimate of the value of a person’s time.

We estimate that when a person spends time recycling (the time spent sorting waste and placing in the correct bin or similar, over and above that which would be spent if all waste was just put in the rubbish) the value of that time is $5.20 per hour. This estimate is based on the Land Transport New Zealand’s Economic Evaluation Manual. Table 33 shows the values outlined in the manual which has estimates of the value of reduced travel time.

The values for non-work purposes are most applicable to the analysis. When people recycle they are using time which they would otherwise spend doing things around their home, and generally people do not work less because they spend a short period of time recycling. A value of $5.20 is used as a reasonable intermediate value from the different transport types.

Table 33: Value of travel time saved – base values for vehicle occupant time in $/hour

Vehicle occupant

Work travel purpose

Commuting to/from work

Other non-work travel purposes

Car, motorcycle driver

23.85

7.80

6.90

Car, motorcycle passenger

21.70

5.85

5.20

Light commercial driver

23.45

7.80

6.90

Light commercial passenger

21.70

5.85

5.20

Medium/heavy commercial driver

20.10

7.80

6.90

Medium/heavy commercial passenger

20.10

5.85

5.20

Seated bus and train passenger

21.70

4.70

3.05

Standing bus and train passenger

21.70

6.60

4.25

Pedestrian and cyclist

21.70

6.60

4.25

Source: Land Transport New Zealand, 2006. Economic Evaluation Manual – Volume 1.

Calculating consumer surplus

Household inorganic recycling

The survey shows that, on average, people are willing to spend more time recycling than they already spend. This implies that people are receiving a net benefit from recycling – a consumer surplus. This surplus varies between people.

Willingness to spend time

To calculate the consumer surplus for each individual, we subtract the time currently spent recycling from that which they are willing to spend.

Some people stated that they are willing to spend a period of time recycling which is less than they currently spend, implying a negative surplus. These responses might be explained by people recycling not because they gain direct utility from it, but because they wish to avoid disutility in the form of guilt and scorn from neighbours etc. We have used a value of zero for these surpluses (rather than negative); there is no requirement to recycle but these people are willing to spend time (they currently do), to avoid disutility.

The average consumer surplus is 10.1 minutes per week,70 which translates into $0.88 per household per week (using the value-of-time factor of $5.20/hour).

In estimating a willingness to pay per tonne of waste, one of the key issues is the appropriate denominator. There are a number of possibilities (Table 34). The mid-value ($183/tonne) assumes that the willingness to pay or spend additional time relates to the existing volume of collected material. The high value assumes that an additional amount (2.3 kg) was collected but would take no additional time. The low value assumes that the willingness to pay/spend time relates to the total inorganic recyclable volume but that collecting the additional quantity (2.3 kg) takes proportionally the same amount of time as collecting the existing volume.

Table 34: Value of household recycling

Categories of waste

Kg/household/week

a) Inorganic waste currently recycled by households with weekly collections

4.8

b) Inorganic waste not currently recycled but could be

2.3

Denominator

$/tonne

Low (a + b = 7.1)

44

Medium (a)

183

High (b)

383

The resulting range of values is $44–383/tonne as a direct value to consumers of recycling, with a medium value of $183/tonne based on 4.8 kg. The survey also found that people were willing to pay $1.68/week to recycle PP&G, which implied a surplus of $350/tonne (based on 4.8 kg per week),71 thus the values used above are likely to be conservative.

Figure 26 drew each line sloping in one direction as if each person had their time ranked. But the person (or kg) with the highest willingness to pay is not necessarily the same person who spends the least – thus the first kg in Figure 1 is not necessarily the same person on each line. In order to model the surplus from survey respondents we have to calculate the surplus for each person and show this as a single (net) line.

The survey had 1004 respondents. We discarded those who responded “Don’t know” for any question which we needed a value for, which left us with a sample size of 961 people. At 4.8 kg/week this meant about 4613 kg. Figure 27 shows the consumer surplus for the individuals in our sample. The area between the line and the horizontal axis is the total consumer surplus for these respondents.

Figure 27: Consumer surplus of surveyed respondents

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Willingness to pay

On average, respondents said they were willing to pay $1.68 per household per week to recycle their PP&G. People do not currently pay directly to recycle these items, but do so through their rates, if they pay at all. Also, it is unclear whether respondents interpreted the question as implying money spent in addition to any current spending, or inclusive of. We have assumed that current spending is zero, and so the whole willingness to pay is consumer surplus.

Using the same estimate of household recycling at 4.8 kg per week, this willingness to pay generates a consumer surplus value of $350 per tonne; in analysis we use the values derived from WTST, while noting that the high end of our range used in analysis is similar to that derived from WTP.

It is unclear whether respondents considered the WTP and WTST time as substitutes or as additive. We have assumed these are substitutes and therefore have not added the two together. This may underestimate total surplus.

Organic recycling

On average people are willing to pay $1.50 per household per week to dispose of their organic waste (if they were unable to compost themselves). Very few people pay to have their organic waste recycled currently, and we have assumed that average current spend is zero. So to derive a surplus requires that an estimate of actual time that would be spent is subtracted from the willingness to pay. We have no such estimates of actual time or actual spend that would be required.

In the absence of these data, we assume that the consumer surplus is the same as for PP&G waste.

Car tyre and oil recycling

On average, people are willing to pay $2.22 to ensure one car tyre is recycled and $2.10 for one oil change. Some people pay for these services already through the total cost of buying a new tyre and getting a lube and oil change. However we believe that it is reasonable to consider willingness to pay as additional to what people may currently spend, largely on account of the small monetary value of the WTP and people’s lack of knowledge about what happens to their end-of-life tyres and used oil. It must be noted that these surpluses would be lower if respondents considered this as including any amount already spent.

With a surplus of $2.22 for each tyre, assuming that an average tyre weighs 8 kg, the consumer surplus from recycling car tyres is $278 per tonne.

With a surplus of $2.10 for each oil change, we have assumed that 5 litres of oil are used in each change, and also that 1 litre of oil weighs 0.8 kg. Thus the consumer surplus for car oil is $0.42 per litre, or $525 per tonne.

Have we misinterpreted avoided cost as consumer surplus?

It could be argued that people are willing to spend time and money recycling above what they are currently spending, not because there is some present consumer surplus, but because this allows them to avoid the costs of waste disposal.

Many people pay for their waste to be collected per volume, in the form of rubbish bags official labels or contracts with collection companies for rubbish bins. These people would be expected to be willing to pay up to the cost of waste disposal in order to get their waste recycled, as this is simply a cost-minimisation choice.

However, these benefits of avoided landfill disposal and collection costs have already been taken into account in analysis. To net these off the consumer surplus would be double counting.

In addition, we tested the extent to which respondents took account of their costs of disposal in suggesting a willingness to pay. We used tests for the difference of two means to ascertain whether the results for WTP and WTST differed by waste collection method. We found no significant difference between the willingness to spend time or to pay between any of the groups of people based on the way they pay for their rubbish collection. Any weak evidence from one question was not repeated for any other questions. It seems that respondents did not consider the savings on waste disposal when answering the WTP or WTST questions.


70 Note that this is not equal to the difference of the average time spent and time willing to be spent as quoted earlier. This figure considers those with negative surplus to have zero surplus, and also only calculates surplus values for respondents who gave numerical answers for both questions (many only gave one). 10.1 minutes is the average surplus (difference between time willing to be spent and time currently spent) for those who gave numerical answers to both questions, assuming zero surplus for those who stated they have negative surplus.

71 If we use this stated willingness to pay as a substitute for time, then the suggested value of time in recycling is $9.98/hour.


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