Contingent Valuation Essay ⋆ Environment Essay Examples ⋆ EssayEmpire

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Contingent Valuation (CV ) is a method used to estimate an economic value for goods and services that aren’t typically bought and sold in the market. Most commonly, CV has been used to estimate values for environmental goods and services, such as endangered species, improved air and water quality, open space provision, wilderness areas, outdoor recreation opportunities, and other types of environmental amenities. To a lesser extent, CV has been applied to estimate values for cultural heritage, health care, and public education. During the last 25 years, CV has been used by many agencies with environmental responsibilities, including state and federal agencies in the United States and over 50 foreign governments and international organizations. The majority of the studies have been conducted to facilitate policy analyses, though more prominent applications have included natural resource damage assessment cases such as the Exxon Valdez oil spill.

The primary goal of the CV method is to create a hypothetical market for a good or service and elicit, via a survey, people’s economic value for that good or service. In the survey, different states of the world are described to a respondent, and they are then asked about their preferences for one or more of the states described. As a simple example, a survey might describe a treatment to improve air quality, and then ask respondents how much they would be willing to pay for this air quality improvement. If respondents are truthful, their answers reflect their economic value for the described change. This value is often referred to as willingness-to-pay, or WTP. Conversely, the survey may ask respondents how much monetary compensation they would require in order to accept a decrease in air quality. This measure is referred to as willingness-to-accept, or WTA. Though asking respondents open-ended questions about their WTP or WTA is a straightforward approach, it is not the approach favored by most survey researchers working in the CV field. More often, respondents are given a choice question to elicit their preference for the good. Generally, in CV studies the choice question asks respondents to either (a) say yes or no to paying a specified dollar amount for a proposed change, (b) vote for or against a referendum that would bring about the proposed change at some additional cost to the respondent, or (c) support or not support a program that would bring about the proposed change at some additional cost to the respondent.

The CV method has been in use for over 20 years, and more than 2,000 papers have been written on the topic, though not without debate. Much of the criticism stems from the hypothetical nature of the survey and the potential bias this may induce. Some evidence has shown that what respondents state they are willing to pay in a CV survey may be considerably larger than what they actually pay, while other studies have shown that values produced from CV studies compare favorably with actual donations. Debate has also ensued as to whether respondents get moral satisfaction from paying for an environmental good, independent of the characteristics of the good itself, a concept referred to as a warm-glow effect. Other criticism focuses on strategic behavior on the part of the respondent by either yea-saying (saying yes in order to please the interviewer), or nay-saying (saying no even though the respondent has a positive value for the good in question).

The controversy surrounding CV use has led to a more thorough understanding of both the limitations and the appropriate uses of the method. In 1993, a panel of experts sponsored by the National Oceanic and Atmospheric Administration and chaired by Nobel Prize winners Kenneth Arrow and Robert Solow convened to review the CV method. The panel determined a set of guidelines to help ensure the reliability of CV surveys, and ultimately concluded that, when guidelines are followed, CV studies can produce reliable estimates of economic value.

Bibliography:

Richard T. Carson, “Contingent Valuation: A User’s Guide,” Environmental Science and Technology (v.34, 2000);
Myrick Freeman, The Measurement of Environmental and Resource Values: Theory and Methods (Resources for the Future, 1993);
Michael Hanemann, “Valuing the Environment Through Contingent Valuation,” Journal of Economic Perspectives (v.8, 1994);
Jerry Hausman, Contingent Valuation: A Critical Assessment (Elsevier, 1993);
Roger Perman, Yue Ma, and James McGilvray, Natural Resource and Environmental Economics (Longman Publishing, 1996).