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Contingent Valuation: A Practical Alternative When Prices Aren't Available

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  • Richard T. Carson

Abstract

A person may be willing to make an economic tradeoff to assure that a wilderness area or scenic resource is protected even if neither that person nor (perhaps) anyone else will actually visit this area. This tradeoff is commonly labeled "passive use value." Contingent valuation studies ask questions that help to reveal the monetary tradeoff each person would make concerning the value of goods or services. Such surveys are a practical alternative approach for eliciting the value of public goods, including those with passive use considerations. First I discuss the Exxon Valdez oil spill of March 1989, focusing on why it is important to measure monetary tradeoffs for goods where passive use considerations loom large. Although discussions of contingent valuation often focus on whether the method is sufficiently reliable for use in assessing natural resource damages in lawsuits, it is important to remember that most estimates from contingent valuation studies are used in benefit–cost assessments, not natural resource damage assessments. Those working on benefit–cost analysis have long recognized that goods and impacts that cannot be quantified are valued, implicitly, by giving them a limitless value when government regulations preclude certain activities, or giving them a value of zero by leaving certain consequences out of the analysis. Contingent valuation offers a practical alternative for reducing the use of either of these extreme choices. I put forward an affirmative case for contingent valuation and address a number of the concerns that have arisen.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.26.4.27
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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 26 (2012)
Issue (Month): 4 (Fall)
Pages: 27-42

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Handle: RePEc:aea:jecper:v:26:y:2012:i:4:p:27-42

Note: DOI: 10.1257/jep.26.4.27
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  1. Carson, Richard T. & Flores, Nicholas E. & Martin, Kerry M. & Wright, Jennifer L., 1995. "Contingent Valuation and Revealed Preference Methodologies: Comparing the Estimates for Quasi-Public Goods," 1995 Conference (39th), February 14-16, 1995, Perth, Australia 148793, Australian Agricultural and Resource Economics Society.
  2. Flores, Nicholas E. & Carson, Richard T., 1997. "The Relationship between the Income Elasticities of Demand and Willingness to Pay," Journal of Environmental Economics and Management, Elsevier, vol. 33(3), pages 287-295, July.
  3. Hausman, Jerry A. & Leonard, Gregory K. & McFadden, Daniel, 1995. "A utility-consistent, combined discrete choice and count data model Assessing recreational use losses due to natural resource damage," Journal of Public Economics, Elsevier, vol. 56(1), pages 1-30, January.
  4. Heberlein, Thomas A. & Wilson, Matthew A. & Bishop, Richard C. & Schaeffer, Nora Cate, 2005. "Rethinking the scope test as a criterion for validity in contingent valuation," Journal of Environmental Economics and Management, Elsevier, vol. 50(1), pages 1-22, July.
  5. S. Dellavigna., 2011. "Psychology and Economics: Evidence from the Field," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 4.
  6. Corso, Phaedra S & Hammitt, James K & Graham, John D, 2001. " Valuing Mortality-Risk Reduction: Using Visual Aids to Improve the Validity of Contingent Valuation," Journal of Risk and Uncertainty, Springer, vol. 23(2), pages 165-84, September.
  7. Bateman, Ian J, et al, 1997. "Does Part-Whole Bias Exist? An Experimental Investigation," Economic Journal, Royal Economic Society, vol. 107(441), pages 322-32, March.
  8. Hanemann, W Michael, 1991. "Willingness to Pay and Willingness to Accept: How Much Can They Differ?," American Economic Review, American Economic Association, vol. 81(3), pages 635-47, June.
  9. Ikuho Kochi & Bryan Hubbell & Randall Kramer, 2006. "An Empirical Bayes Approach to Combining and Comparing Estimates of the Value of a Statistical Life for Environmental Policy Analysis," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 34(3), pages 385-406, July.
  10. Kahneman, Daniel & Knetsch, Jack L., 1992. "Valuing public goods: The purchase of moral satisfaction," Journal of Environmental Economics and Management, Elsevier, vol. 22(1), pages 57-70, January.
  11. Richard Carson & Robert Mitchell & Michael Hanemann & Raymond Kopp & Stanley Presser & Paul Ruud, 2003. "Contingent Valuation and Lost Passive Use: Damages from the Exxon Valdez Oil Spill," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 25(3), pages 257-286, July.
  12. Carson, Richard & Flores, Nicholas E. & Hanemann, W. Michael, 1998. "Sequencing and Valuing Public Goods," Journal of Environmental Economics and Management, Elsevier, vol. 36(3), pages 314-323, November.
  13. Jiang, Yi & Jin, Leshan & Lin, Tun, 2011. "Higher water tariffs for less river pollution--Evidence from the Min River and Fuzhou City in China," China Economic Review, Elsevier, vol. 22(2), pages 183-195, June.
  14. Rollins, Kimberly & Lyke, Audrey, 1998. "The Case for Diminishing Marginal Existence Values," Journal of Environmental Economics and Management, Elsevier, vol. 36(3), pages 324-344, November.
  15. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  16. Smith, V. Kerry & Osborne, Laura L., 1996. "Do Contingent Valuation Estimates Pass a "Scope" Test? A Meta-analysis," Journal of Environmental Economics and Management, Elsevier, vol. 31(3), pages 287-301, November.
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  1. > Environmental and Natural Resource Economics > Environmental Economics > Valuation > Contingent valuation method
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Cited by:
  1. John Whitehead & Melissa S. Weddell & Pete Groothuis, 2014. "Mitigating Hypothetical Bias in Stated Preference Data: Evidence from Sports Tourism," Working Papers 14-06, Department of Economics, Appalachian State University.
  2. Ahlheim, Michael & Schneider, Friedrich, 2013. "Considering Household Size in Contingent Valuation Studies," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79974, Verein für Socialpolitik / German Economic Association.
  3. Carlsson, Fredrik & Kataria, Mitesh & Krupnick, Alan & Lampi, Elina & Löfgren, Åsa & Qin, Ping & Sterner, Thomas & Chung, Susie, 2010. "The Truth, the Whole Truth, and Nothing but the Truth - A Multiple Country Test of an Oath Script," Working Papers in Economics 473, University of Gothenburg, Department of Economics.
  4. Andreas C. Drichoutis & Jayson L. Lusk & Valentina Pappa, 2014. "Elicitation formats and the WTA/WTP gap: A study of climate neutral foods," Working Papers 2014-2, Agricultural University of Athens, Department Of Agricultural Economics.
  5. Caffey, Rex H. & Wang, Hua & Petrolia, Daniel R., 2014. "Trajectory economics: Assessing the flow of ecosystem services from coastal restoration," Ecological Economics, Elsevier, vol. 100(C), pages 74-84.
  6. Ahlheim, Michael & Börger, Tobias & Frör, Oliver, 2013. "The influence of ethnicity and culture on the valuation of environmental improvements: Results from a CVM study in Southwest China," FZID Discussion Papers 81-2013, University of Hohenheim, Center for Research on Innovation and Services (FZID).

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