Economic analysis of ubiquitous city operation using parametric and non-parametric estimation of the contingent valuation method

Abstract

Local governments, which are responsible for ubiquitous city (u-city) operation in Korea, often have difficulties in bearing their operating costs. As an alternative income source, we examine the usage fees that are charged to households in u-city service regions. We measure the amounts that residents are willing to pay and analyze whether it is possible to cover the operating costs. Willingness to Pay (WTP) is measured by the Contingent Valuation Method (CVM), the survey of which is accomplished in Eunpyeong New Town in Seoul. The mean WTPs are estimated by parametric methods with and without covariates and non-parametric methods to find a lower bound, an intermediate, and an upper bound. The household's monthly WTP ranges from KRW 3971 to KRW 7186, and the yearly WTP of total households ranges from KRW 771 million to KRW 1395 million. All WTPs are not sufficient to cover the operating cost of Eunpyeong u-city, and consequently, an annual shortage is estimated from KRW 85 million to KRW 710 million. This means that it is not feasible to use the usage fee as the only income source for u-city operation; however, it is rational to use in addition to other reliable income sources.