PROPOSAL DRAFT

ECONOMIC VALUATION OF COASTAL NATURAL RESOURCES IN PULO DUA TOURISM

AREA, BANGGAI REGENCY, CENTRAL SULAWESI PROVINCE

ANTONIUS VICTOR

P022191019

POSTGRADUATE PROGRAM

REGIONAL PLANNING AND DEVELOPMENT STUDY

HASANUDDIN UNIVERSITY

MAKASSAR

2019
Table of Contents
CHAPTER I ................................................................................................................................................. 1
INTRODUCTION ........................................................................................................................................ 1
A. Background .................................................................................................................................. 1
B. Research Questions ................................................................................................................... 3
C. Research Aims ............................................................................................................................. 3
D. Research Objectives .................................................................................................................. 3
E. Research Scope........................................................................................................................... 4
F. Structure of the Research Proposal....................................................................................... 4
CHAPTER II ................................................................................................................................................ 5
LITERATURE REVIEW ............................................................................................................................ 5
A. Use of Coral Reefs ...................................................................................................................... 5
B. Economic value ........................................................................................................................... 6
C. The General Valuation Framework ......................................................................................... 7
CHAPTER III ............................................................................................................................................. 10
RESEARCH METHODOLOGY ............................................................................................................. 10
A. Research Framework ............................................................................................................... 10
B. Research Design ....................................................................................................................... 10
C. Research Instruments .............................................................................................................. 11
References ............................................................................................................................................... 16
 CHAPTER I
INTRODUCTION

A. Background

Indonesia is a country that has abundant and diverse natural resources both biological
and non-biological natural resources. Economically, it can be seen in the role of natural resources
in the Indonesian economy which accounts for more than 25% of national GDP. The multiplier
effect for fisheries and mining is also quite large at 2.6 and 2 respectively. Moreover labor
absorption is relatively large, about 35% for agriculture. (Fauzi 2014). This all shows how great
the potential of Indonesia's natural resources.

Specifically regarding coastal resources, Indonesia is the largest archipelago country

with a number of large and small islands estimated at 17,504 islands and the longest coastline
after Canada, which is 81,000 km (Dahuri, 1997). If calculated with its potential biodiversity, while
Canada's coastline is dominated by Green Island which is an ice island, Indonesia is the country
with the longest productive coastline in the world.

However, this advantage is not without challenges. Climate change, global competition,
increasing economic complexity, and social problems such as population growth, unemployment
and poverty are challenges that can interfere with the natural resources management. In coastal
area, rapid population growth in the coastal region, waste disposal in coastal areas and significant
growth in the marine tourism industry and other coastal industries can be serious problems and
threaten coastal ecosystems both ecologically and economically.

In the field of fisheries, to meet their economic needs, often encourages fisher to utilize
excessive fishery resources and threaten the ecosystem. Utilization of natural resources using
destructive methods and using tools that are not environmentally friendly can result in
environmental damage that will be very detrimental to the sustainability of natural resources.
Using bombs rather than fishing rods to catch fish for example, even though it can catch a large
number of fish in a short time, it damages the coral reef ecosystem, which will ultimately have an
impact on the fish population itself.

pemanfaatan sumber daya alam dalam skala besar juga terjadi di industri pariwisata
bahari. One of marine tourism industry which significantly growth in recent years is Pulo Dua
tourism area, in Banggai Regency. The local government held a festival which this year was
included in the “100 calendar of events” of the tourism ministry to attract more people from all

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over the world to come visit. Although this has a positive impact on the economy of the Pulo Dua
coastal community, it must also be carefully managed so that its benefits can be sustainable.
Potential problems related to the excessive use of natural resources must be addressed wisely
by making regulations and policies that can maximize the potential of these natural resources,
without having to damage the existing ecosystem.

In order to produce comprehensive policies, the right input from various sources is
needed, not only input from ecology and environment, but also economics. One important source
of input in natural resource management policies is the economic valuation of natural resources.
Economic valuation can estimate the optimal efficiency of the allocation of natural resource
utilization while taking into account the value of the ecological function. Therefore, a
comprehensive research needs to be done to identify the economic value of natural resources,
especially in the Pulo Dua area.

As a non-marketed goods, most of the economic value of natural resources, does not
have a market price because these goods are not traded massively and freely on the market. For
example the economic value of the existence of mangrove ecosystems as coastal protectors and
existing value coral reefs as a source of biodiversity. To assess the economic value of natural
resources for the value of indirect use as in the previous example, the method and approach that
is often used is to measure the willingness to pay from the community to maintain a sustainable
natural resource concession.

However, willingness to pay from the community is influenced by the socioeconomic

factors of each individual. For example, the higher a person's education, the higher his level of
awareness in terms of protecting the environment, so that the willingness to pay is also high.
Other factors that can affect a person's willingness to pay to maintain a sustainable environment
include age, income level, and number of family members. To get the economic value of natural
resources in Pulo Dua, a measurement of the willingness to pay for coastal communities and
users of environmental services is needed. this includes measuring the extent of socioeconomic
influences on a person's willingness to pay.

Furthermore, the results of the economic valuation of Pulo Dua natural resources are
expected to provide a comprehensive picture of the condition of Pulo Dua natural resources from
an economic perspective. By taking into account the results of this economic valuation and input
from various parties, it can develop a development strategy proposed to the government related
to the Pulo Dua area development plan.

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B. Research Questions
This research is aimed to answer these research questions:

1) What is the total economic value of coastal natural resources in the tourism area in Pulo Dua?
2) To what extent socioeconomic condition influence the willingness to pay to maintain the
condition of the coastal environment in the Pulo Dua area?
a). Does age have a significant effect on the willingness to pay to maintain Pulo Dua's
environmental conditions? (hypothesis: age variable has a significant effect on
willingness to pay).
b). Does the level of education have a significant effect on the willingness to pay to
maintain Pulo Dua's environmental conditions? (hypothesis: the level of education
variable has a significant effect on willingness to pay)
c) . Does the income level significantly influence the willingness to pay to maintain the Pulo
Dua environmental conditions? (hypothesis: the income level has a significant effect
on willingness to pay)
3) What is the proposed strategy for developing the Pulo Dua tourism area?

C. Research Aims
The aims of this research are:

1. To identify the economic value of coastal natural resources in the tourism area in Pulo
Dua.
2. To identify factors that significantly influence the willingness to pay to maintain the
condition of the coastal environment in the Pulo Dua area
3. To create proposed strategies for developing Pulo Dua tourism area

D. Research Objectives
The objectives of this research are:

1. The economic valuation of coastal natural resources in the tourism area in Pulo Dua can
provide the empirical data of the economic value as input for the local government policies
regarding to the coastal area and natural resources management.
2. The identification of factors that significantly influence the willingness to pay to maintain
the condition of the coastal environment in the Pulo Dua area.

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 3. The proposed strategies for developing Pulo Dua tourism area can be a basis policy to
develop Pulo Dua tourism area.

E. Research Scope

The research scope will be limited to the economic valuation of coastal natural
resources in Pulo Dua tourism area, Banggai district, Central Sulawesi province.

F. Structure of the Research Proposal.

This research proposal consists of three chapter, such as:

 Chapter I Introduction

This chapter consists of a general introduction to the thesis, including the research question,
research aims, research objectives, research scope, and structure of the research proposal.

 Chapter II Literature Review

This chapter will discussed all related literatures including studies which regard to the theoretical
framework of coral reefs economic valuation that will be used in the study.

 Chapter III Research Methodology

This chapter will explain how the research will be carried out especially in the data collection and
processing section.

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 CHAPTER II

LITERATURE REVIEW

A. Use of Coral Reefs

Coral reefs are one of the most biologically diverse shallow water marine habitats in
the world, and are host to an extraordinary variety of marine plants and animals. Coral reefs
provide essential fish habitats, support endangered and threatened species, and serve as nursery
and spawning areas for a variety of species. They are a significant source of food, provide income
and employment through tourism and marine recreation, and offer countless other benefits to
humans, including supplying compounds for pharmaceuticals (Spalding et al 2001). The uses of
coral reefs can be categorized into four kinds of uses: direct uses (extractive and non-extractive
uses), environmental services, biological diversity services, and social/cultural significance.

Coastal communities have directly extracted materials and resources from coral reefs
for generations. The hermatypic corals themselves are used as building materials and for making
quicklime, a practice which is now less prevalent than in the past. An important aspect of coral
reefs from the perspective of coastal communities is their contribution to capture fisheries. Reef
systems provide shelter to smaller fish and invertebrates and habitat essential as nursery and
breeding grounds. Some pelagic fish species such as the “jacks” are found as juveniles in the
vicinity of coral reefs.

Indirect uses of coral reefs include tourism and recreation, education and research, and
mariculture which is often practiced in sheltered lagoonal areas of reef systems. Reef-based
tourism is essentially a non-extractive industry that attracts millions of divers and snorkelers to
Southeast Asia each year, and contributes significantly to the economies of countries such as
Thailand, the Philippines, Malaysia and Indonesia. Coral reefs provide scientists and researchers
with a coastal habitat that has high biological diversity, and coral formations can be used to
reconstruct past climates and storm patterns. The also serve as a source of natural products
which are in high demand from the international pharmaceutical companies for testing as
bioactive compounds.

Coral reefs provide significant “sinks” of biological diversity and support numerous
species restricted to such habitats. The reef structure itself is important as a buffer against wave
action thus providing protection to beaches on the coast, and as sources of the “white sand” that
is so attractive to tourists.

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 B. Economic value

Economic value refers to quantification of the net benefits humans derive from a good
or service, whether or not there is a market and monetary transaction for it. The measurement of
economic value is rooted in the neoclassical microeconomic concepts of consumer and producer
surplus. Consumer surplus and producer surplus are net measures; they measure the difference
between the benefits and the costs of a particular good or service. Consumer surplus is the benefit
received by individuals who consume a good or service; producer surplus is the benefit received
by businesses, firms, or individuals who sell a good or service.

Consumer surplus is the difference between consumers’ maximum willingness to pay

(WTP) for a service and what they actually pay, i.e. their net benefit from the transaction.
Consumer WTP can be represented graphically as a demand curve, which shows the relationship
between price and the quantity that consumers want to buy; consumers will demand a good or
service if the benefit is at least as high as the price they pay.

Producer surplus is the difference between producers’ revenue from selling a service
and the cost of producing it, i.e., their net benefit from the transaction. The costs of producing a
good or service can be represented graphically as a supply curve, which illustrates the
relationship between price and the quantity that producers will supply; producers will supply goods
and services if they at least cover their costs.

Figure 1 shows the supply (costs) and demand (willingness-to-pay) curves for a
hypothetical good or service. The point where the supply and demand curves intersect (D) sets
the price (B) and quantity purchased at that price (E). At point E, the benefit to consumers of an
additional unit of the good is equal to the cost for producers to provide that next unit, and any
additional transactions would not be mutually beneficial. The societal benefit or value of this good
or service is the sum of the area that lies below the demand curve and above the supply curve;
the sum of consumer and producer surplus. Although estimating demand and supply curves for
ecosystem services is rarely simple, this explanation of the economic theory of value illustrates
the concept of economic value and the process by which the benefits of ecosystem services are
quantified.

In the case of many ecosystem services, the quantity available is not determined by
‘producers’, it is supplied by nature. The quantity of ecosystem service that is ‘supplied’ is not
determined through a market but by decisions regarding ecosystem protection, land use,
management, access, etc. The ecosystem service does not have a supply curve in the

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conventional sense that it represents the quantity of the service that producers are willing to
supply at each price. Also, the beneficiaries of many ecosystem services pay nothing. In this case
WTP and consumer surplus are equal (i.e. total benefit and net benefit are the same); and there
is no producer surplus.

Figure (1). Supply and demand curves for a hypothetical good or services (Rittenberg,2009)

C. The General Valuation Framework

 Total Economic Value

The total economic value (TEV) is the sum of all the benefits that are attributable to the
specific resource or ecosystem being valued. The total economic value is composed of (i) use
value (UV) and (ii) non-use value (NUV). Use value can be further broken down into direct use
value (DUV), indirect use (IUV), and option value (OV). Non-Use Value, on the other hand can be
further broken down into quasi-option, bequest, and existence value

 Use Values

Direct Use: The direct use values of a resource or a system are the tangible or physical
aspects of such resources, which can either undergo physical processing or provide direct
(personal) utility or satisfaction and which have direct market prices for quantification. According
to Bann (1997), these are the “values derived from the direct use or interaction with a (for
example) mangrove’s resources and services”. These direct use values are further categorized

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as extractive or consumptive, and non-extractive or non-consumptive (Ebarvia, 1999). Examples
of extractive or consumptive use values are the use of Nipa fronds and poles from mangroves.
Examples of non-extractive or non-consumptive values are the recreational or tourist values of
wetlands or coral reef areas.

Indirect Use: Indirect use values consist of the various functions that a natural system
may provide, such as shoreline protection functions, carbon sequestration, and nutrient or
contaminant retention. These values have no direct market prices but equivalent values can be
derived through the use of different valuation methods. The indirect use value of an environmental
function is related to the change in the value of production or consumption of the activity or
property that it is protecting or supporting (Ebarvia, 1999).

Option Use: Option Use or option value is a special category of value, which arises
because of an individual’s uncertainty about his or her future demand for a specific resource, or
the availability of this resource in the future. It is still considered as a “use” value since it still
relates to future direct or indirect use of the resource (Barbier 1997). This concept may be termed
or understood as the potential direct and indirect uses of a natural system and the “additional
amount that an individual would be willing to pay above the actual current price to maintain the
natural resource and to avoid irreversible damage that would inhibit possible future use of the
resource” (Ebarvia, 1999).

 Non-Use Values

Quasi-Option Value: This non-use value is related to option value such that there is still
willingness to pay by the individual for the preservation of the resource, but instead of worrying
about its future use, the preservation is for the value that it can presently provide.

Bequest Value: This is an important subset of non-use value that results from an
individuals’ willingness to pay for the preservation or conservation of a resource so that future
generations will still be able to reap its benefits. This may be particularly high among those who
are currently enjoying the rights to use the resource because they may want their heirs and future
generations to be able to derive the same benefits from the system.

Existence Value: Existence value can be related to aesthetic, cultural, and moral
aspects that a resource may have in that it is the value that an individual places on the resource
because of the satisfaction that he or she derives from merely knowing that the resource,
ecosystem or species exists, regardless of whether it will be used or not. This is a form of non-

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use value which is difficult to measure since it involves subjective valuations by individuals
unrelated to their own or others’ use. What for example is the monetary value of a “species”, whilst
many individuals might place a high existence value on whales or turtles, few would place high
existence values on worms or microorganisms, yet from a genetic perspective the values of
worms or micro-organisms could potentially be of far greater than the intrinsic value of whales
and turtles.

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 CHAPTER III
RESEARCH METHODOLOGY

A. Research Framework
The research framework of this proposal is as follow :

Figure (2) : Research framework

B. Research Design

This research is a quantitative study using statistical methods to look at the relationships
between socio-economic backgrounds to the willingness to pay for good ecosystem conditions.
willingness to pay from the respondent will be calculated using a statistical function to calculate
the total economic value of the natural resource being assessed.

The data used in this study are primary data obtained through direct interviews with user
respondents by using questionnaire and observation in the field (observation). Sampling was
done purposively random sampling by community category coral reef users or people living on
the coast with livelihood as fishermen. Determination of the number of respondents based on the
nature of the population and consideration of researchers' data needs.

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 C. Research Instruments

The Instruments used to calculate the total economic value is by using three approaches,
namely Effect on Production (EOP) to calculate the direct benefits of fisheries, Travel Cost Method
(TCM) to calculate the direct benefits of tourism and the Contingent Valuation Method (CVM) to
calculate the value of the existence of coral reefs.

 Effect on Production (EOP)

• Calculating Direct Benefits for fisheries is calculated using the Effect on Production (EOP)
method with the steps developed by Adrianto (2005) as follows:

• Step (1).

Build demand functions for the use of a resource

Q  0 X1 1 X 2 2 X 3 3 X 4 4 X 5
    5

Where;

Q = the amount of resources demanded during the year

X1 = Price

X2 = Age of respondent

X3 = education level of the respondent

X4 = income level per respondent

X5 = the amount of the respondent's family size

• Step (2).

Transforms the demand function into a form of linear price equation

• Step (3).

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 Transforms the demand function back to the original equation (Step 1)

or

• Step (4).

Estimating Total Willingness to Pay

Where;

U = Utilities or Total Willingness to Pay for Resource Utilization

F(Q) = Demand function

α = = Average amount of resource usage

• step (5).

Measure the value of resources that must be paid

• step (6).

calculating the value of Consumer Surplus (CS)

• step (7).

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 The economic value is calculated by multiplying CS by the total number of user population
(N)

And to find out the economic value per ha, by dividing the area of coral reefs.

 Travel Cost Method (TCM)

Calculating Direct Benefits for tourism is calculated using the Travel Cost Method
(TCM) with the following steps:

• Step (1).

Build demand functions for the use of a resource

V   0 TC 1 X 2 2 ... X n
 n

where;

V = the number of visits for a year

TC = travel costs incurred to visit attractions

X2,…n = Variables that reflect the respondent's socioeconomic conditions

step (2).

Transforms the demand function into a form of linear price equation

ln V   0   1 ln TC   2 ln X 2 ...   3 ln X n

ln V   0   1 ln TC   2 ln X 2 ...   3 ln X n

ln V     1 ln TC
• step (3).

Transforms the demand function back to the original equation (step 1)

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 V  exp  TC 1
or
V   TC 1
• step (4).

Transforms into a non-linear travel cost equation

V
TC 1


or

f V   TC   
1
V  1

 
• step (5).

Estimating Total Willingness to Pay

U   f V dV
V

0
• step (6).

Calculating the value of Consumer Surplus (CS)

CS  U  WTP
WTP  V * f V 
• step (7).

The economic value is calculated by multiplying CS by the total number of user population
(N)

And to find out the economic value per ha, by dividing the area of coral reefs.

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  Contingent Value Method (CVM)

Calculate indirect benefits for the existence of coral reefs with the Contingent
Value Method with the following steps:

• step (1).

Calculates WTP Per Individual by calculating the middle value using the formula

where;

n = the size or number of samples

yi = the amount of WTP given by the i respondent

• step (2).

Estimates WTPi by guessing the relationship between WTP and the characteristics of
respondents that reflect the level of user appreciation for the resources that have been
utilized, can be calculated with the following formula:

WTP = ability to pay users for resources;

Xi = i measurement parameter (such as income, age, education, etc.)

• Step (3).

After knowing the level of WTP produced per individual (WTPi) produced from equation
(2), then the total economic value of resources based on preferences can simply be done
using a formula :

Where :

TB = Total benefit,

WTPi = WTP value per individual

P = total population in the t-year

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 References

Adrianto, L. 2006. Penilaian ekonomi sumberdaya pesisir dan laut. Bogor: PKSPL-IPB Press

Fauzi, A. 2004. Ekonomi Sumberdaya Alam dan Lingkungan. Jakarta: Penerbit PT. Gramedia
Pustaka Utama.

Salcone J, L Brander, A Seidl 2016 Guidance manual on economic valuation of marine and
coastal ecosystem services in the Pacific. Report to the MACBIO Project (GIZ, IUCN, SPREP):
Suva, Fiji.

Mira, Subhechanis Saptanto dan Hikmah. 2017 Valuasi Nilai Ekonomi Terumbu Karang Di Banda
Neira. Jakarta: Balai Besar Riset Sosial Ekonomi Kelautan dan Perikanan

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