8. Marginal Willingness to Pay for Public Investment Under Urban Environmental Risk: The Case of Municipal Water Use

Marginal willingness to pay for public investment under urban environmental risk is considered in this chapter. In particular, we show a model that takes into account a bounded rationality on the ability of risk perception, information situation, and people’s threshold acceptance of risk. Then, as one case study of urban environmental risk, the evaluation of risk in municipal water use is shown. In order to investigate the information situation and risk perception of people, a survey is conducted using questionnaires. The survey reveals that risk awareness is a factor in drinking water, and that people change their choice based on risk information. Then, the effects of information on risk and public investment are considered. From some numerical examples, marginal willingness to pay is found to be low in the case of high risk, because of consumers’ self-defensive activities. In other words, marginal willingness to pay for public investment is high when there is no or little averting behaviour. Moreover, it is shown that consumers’ perception of risk is largely dependent on information on risk, countermeasures taken by public authorities, and overconfidence in private averting goods.