An economic valuation of a beach on the island of Malta : Pretty Bay, B'Bugia

Abstract

Island states have a strong dependency on their natural resources. Their coastal resources are particularly valuable, since most economic activities are coastal in nature. Beaches provide important revenues in the form of tourism activities as well as providing their local population with recreational and cultural value. Further activities in coastal areas include the provision of potable water, aquaculture, bunkering, ship repair, building and fishing. This intensive use of coastal areas often results in conflicting demands on the coastline, which need to be efficiently managed using strategies that effectively sustain long term economic and environmental productivity. Placing economic value on natural resources represents an additional incentive for preserving and managing these resources, at the same time it provides good guidance on balancing economic, social and environmental needs. Since natural resources have no market value it is difficult to estimate their values. However, environmental economists have come up with a number of approaches that can be used for valuation of non-market resources, including the Travel Cost Method, the Hedonic Pricing Method and the Contingent Valuation Method. Each approach has its own specific uses and limitations. This dissertation uses the contingent valuation method to estimate the value of Pretty Bay, B'Bugia. In spite of some serious limitations, including strategic, hypothetical and embedding bias, this method is a transparent method, which provides accountability to its users. Furthermore it also provides an existence value for the natural resource. A demand curve is also obtained from which a total value of the environmental good can be calculated, together with information on consumer surplus and welfare measures. These measures could be used by decision-makers and other stakeholders such that sustainable decisions with respect to the viability of projects and development related to natural resources can be taken. Further economic analysis can yield equations that provide information about the relationship between people's willingness to pay and other variables such as income, travel costs and spending.