Contingent valuation
Contingent valuation is a survey-based method used to estimate the value of nonmarket resources, such as environmental features, renewable energy, and open spaces. This technique is particularly beneficial in cost-benefit assessments and environmental impact evaluations, allowing researchers to gauge how much individuals are willing to pay (WTP) to preserve an environmental asset or, conversely, how much compensation they would accept for its loss (WTA). The concept traces its roots back to the 1940s, with significant advancements throughout the 1960s and 1970s that solidified its application in the U.S. and beyond.
Despite its utility, contingent valuation has faced criticism regarding its validity, prompting expert panels to emphasize the importance of careful survey design. Recommendations for effective implementation include conducting in-person interviews, utilizing referendum-style questions, and ensuring respondents fully understand the scenarios presented. The goal is to capture accurate representations of public values for nonmarket goods, acknowledging the complexities involved in translating personal valuation into market-like terms. This method remains an influential tool in environmental economics, driving discussions on the valuation of resources that lack formal market prices.
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Contingent valuation
DEFINITION: Survey method used to estimate the value of nonmarket resources
Contingent valuation surveys are widely used to estimate the value of nonmarket resources. They are often used in cost-benefit assessment and environmental impact assessment.
Contingent valuation is used to assign value to nonmarket resources, such as renewable energy, open space, and sustainable development. While these resources provide utility, certain components of each do not have market prices; for example, renewable energy may reduce human-caused climate change or preserve fossil fuels for future generations. A contingent valuation survey is used to estimate a market price as a stated preference. The fundamental mechanism of the contingent valuation survey is asking people about their willingness to pay (WTP) to maintain an environmental feature or their willingness to accept (WTA) compensation for its loss.
Agricultural economist Siegfried von Ciriacy-Wantrup suggested the use of a direct interview method to measure the value of natural resources as early as 1947. Perhaps the first practical application was completed during the 1960s by economist Robert K. Davis, who measured the value of a specific wilderness area to hunters and recreationalists. Davis’s contingent valuation results compared well with inferred value from cost associated with traveling to the wilderness area.
The method gained popularity during the 1970s in the United States as it was granted official recognition. Large numbers of studies were completed during the 1980s, with applications expanding to Europe and developing countries. However, criticism of the method also multiplied. Twenty-two expert economists on a panel convened in 1993 concluded that contingent valuation surveys must be carefully designed and controlled to ensure that valid results are obtained. They noted that individuals and organizations planning to employ contingent valuation should carefully review best practices before applying the method.
The panel offered specific recommendations concerning how contingent valuation surveys should be conducted, including the following. If possible, the survey interviews should be conducted in person; telephone surveys may be acceptable, but mail surveys should be avoided. A referendum format should be used in the questions; for example, “Would you be willing to contribute (or be taxed) D dollars to cover the cost of avoiding or repairing environmental damage X?” The results obtained from questions of this kind are considered to be more accurate than those gleaned from answers to open-ended questions, which are more likely to elicit strategic behavior, protest responses, biased answers, and incomplete consideration of personal income limits. The interviewers should ensure that respondents understand and accept the scenario they are asked to value. Respondents who do not accept the accuracy of the information concerning a particular scenario are in fact answering a question that is different from the one asked. Respondents should be reminded that their WTP for the specific scenario will reduce their ability to pay for other private or public goods.
Bibliography
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Arrow, Kenneth, et al. “Report of the NOAA Panel on Contingent Valuation.” Federal Register 58 (1993): 4601–614. Print.
Bowman, Troy, Jan Thompson, and Joe Colletti. “Valuation of Open Space and Conservation Features in Residential Subdivisions.” Journal of Environmental Management 90 (2009): 321–30. Print.
Davis, Robert K. “Recreation Planning as an Economic Problem.” Natural Resources Journal 3 (1963): 239–49. Print.
Haab, Tim, et al. "State of the Art of Contingent Valuation." Environmental Science, 30 Jan. 2020, oxfordre.com/environmentalscience/display/10.1093/acrefore/9780199389414.001.0001/acrefore-9780199389414-e-450. Accessed 15 July 2024.
La Riccia, Luigi, et al. "A Contingent Valuation-Based Method to Valuate Ecosystem Services for a Proactive Planning and Management of Cork Oak Forests in Sardinia (Italy)." Sustainability, 2023, www.mdpi.com/2071-1050/15/10/7986. Accessed 15 July 2024.
Mitchell, Robert Cameron, and Richard T. Carson. Using Surveys to Value Public Goods: The Contingent Valuation Method. 1989. Reprint. Washington, DC: Resources for the Future, 1993. Print.
Venkatachalam, L. “The Contingent Valuation Method: A Review.” Environmental Impact Assessment Review 24 (2004): 89–124. Print.
Wiser, Ryan H. “Using Contingent Valuation to Explore Willingness to Pay for Renewable Energy: A Comparison of Collective and Voluntary Payment Vehicles.” Ecological Economics 62 (2007): 419–32. Print.