Contingent valuation
Contingent valuation is a
History
Contingent valuation surveys were first proposed in theory by
The method rose to high prominence in the USA in the 1980s when government agencies were given the power to sue for damage to environmental resources which they were trustees over. Following Ohio v Department of the Interior, the types of damages which they were able to recover included non-use or existence values. Existence values are unable to be assessed through market pricing mechanisms, so contingent valuation surveys were suggested to assess them. During this time, the EPA convened an important conference with an aim to recommend guidelines for survey design. The Exxon Valdez oil spill in Prince William Sound was the first case where contingent valuation surveys were used in a quantitative assessment of damages. Use of the technique has spread from there.
Past controversies
Many economists question the use of stated preference to determine willingness to pay for a good, preferring to rely on people's revealed preferences in binding market transactions. Early contingent valuation surveys were often open-ended questions of the form "how much compensation would you demand for the destruction of X area" or "how much would you pay to preserve X". Such surveys potentially suffer from a number of shortcomings; strategic behaviour, protest answers, response bias and respondents ignoring income constraints.[3] Early surveys used in environmental valuation seemed to indicate people were expressing a general preference for environmental spending in their answers, described as the embedding effect by detractors of the method.
In response to criticisms of contingent valuation surveys, a panel of high profile economists (chaired by Nobel Prize laureates Kenneth Arrow and Robert Solow) was convened under the auspices of the United States National Oceanic and Atmospheric Administration (NOAA).[4][5][6] The panel heard evidence from 22 expert economists and published its results in 1993.[4][6][5] The recommendations of the NOAA panel were that contingent valuation surveys should be carefully designed and controlled due to the inherent difficulties in eliciting accurate economic values through survey methods.
The most important recommendations of the NOAA panel were that:
- Personal interviews be used to conduct the survey, as opposed to telephone or mall-stop methods.
- Surveys be designed in a yes or no referendum format put to the respondent as a vote on a specific tax to protect a specified resource.
- Respondents be given detailed information on the resource in question and on the protection measure they were voting on. This information should include threats to the resource (best and worst-case scenarios), scientific evaluation of its ecological importance and possible outcomes of protection measures.
- Income effects be carefully explained to ensure respondents understood that they were to express their willingness to pay to protect the particular resource in question, not the environment generally.
- Subsidiary questions be asked to ensure respondents understood the question posed.
- "[CVM] produces estimates reliable enough to be the starting point of a judicial process of damage assessment, including passive-use values"[5] and has been successfully used in such high profile cases as the Exxon Valdez oil spill.[4][6]
The guiding principle behind these recommendations was that the survey operator has a high
As a result, current contingent valuation methodology corrects for these shortcomings, and current empirical testing indicates that such bias and inconsistency has been successfully addressed.[7]
Current status
As shown by Mundy and McLean (1998), contingent valuation is now widely accepted as a real estate appraisal technique, particularly in contaminated property or other situations where revealed preference models (i.e. transaction pricing) fail due to disequilibrium in the market.[8] McLean, Mundy, and Kilpatrick (1999) demonstrate the acceptability of contingent valuation in real estate expert testimony,[9] and the current standards for use of contingent valuation in litigation situations is described by Diamond (2000).[10]
The technique has been widely used by government departments in the US when performing
See also
References
- ^ Davis, Robert (1963). "Recreation planning as an economic problem".
- ISBN 9781315060569.
- JSTOR 2138338.
- ^ LCCN 2009942849.
- ^ ISBN 978 1 78639 369 2.
- ^ LCCN 2007921526..
- ^ See, for example, Robert Simons and Kimberly Winson-Geideman, Determining Market Perceptions On Contaminated Residential Property Buyers Using Contingent Valuation Surveys, Journal of Real Estate Research 27-2, 2005, pgs 193-220
- ^ See, for example, Bill Mundy and Dave McLean, The Addition of Contingent Valuation and Conjoint Analysis to the Required Body of Knowledge for the Estimation of Environmental Damage to Real Estate, The Journal of Real Estate Practice and Education, 1998, "Archived copy" (PDF). Archived from the original (PDF) on 2007-10-10. Retrieved 2007-06-30.
{{cite web}}
: CS1 maint: archived copy as title (link) - ^ Dave McLean, Bill Mundy, and John A. Kilpatrick, Summation of Evidentiary Rules for Real Estate Experts Mandated by Daubert v. Merrill Dow Pharmaceuticals, Real Estate Issues, 1999, "Archived copy" (PDF). Archived from the original (PDF) on 2007-04-13. Retrieved 2007-06-30.
{{cite web}}
: CS1 maint: archived copy as title (link) - ^ Shari S. Diamond, Reference Guide on Survey Research (2nd), Reference Manual on Scientific Evidence, Federal Judicial Center, 2000
- JSTOR 2663496.
- Lexis-NexisMatthew Bender's Brownfield Law and Practice, 2007
- W. Michael Hanemann, 'Valuing the Environment Through Contingent Valuation' The Journal of Economic Perspectives, Vol. 8, No. 4. (Autumn, 1994), pp. 19–43
- Paul R. Portney, 'The Contingent Valuation Debate: Why Economists Should Care' The Journal of Economic Perspectives, Vol. 8, No. 4. (Autumn, 1994), pp. 3–17
External links
- NOAA report
- Ecosystem Valuation information
- Environmental Valuation and Cost-Benefit News
- Misleading Quantification: The Contingent Valuation of Environmental Quality (Robert K. Niewijk)
- Association of Environmental and Resource Economists (AERE).
- - JEEM: Journal of Environmental Economics and Management (AERE's official "technical" journal).
- - REEP: Review of Environmental Economics and Policy (AERE's official "accessible" journal).
- Economics of Natural Resource Decisions: Gardner Brown (University of Washington Office of Research)
- Curated bibliography at IDEAS/RePEc