Contribution of Contingent Valuation and Other Stated Preference Methods to Evaluation of Environmental Policy

Some form of stated preference method is essential for comprehensive evaluation of environmental policy options. The two most important stated preference methods are contingent valuation (CV) and choice modelling. I identify and discuss the major challenges facing CV and choice modelling researchers. Choice modelling applications to environmental valuation are comparatively recent, so the emphasis in this paper is on the more extensive body of CV research. The development of CV has been characterised by a (generally) constructive debate both within the economics profession, and between economists, philosophers, psychologists and other social scientists. As a result, much has been learnt about the nature of non‐market economic values and how they might be measured. Important issues are the extent to which existing stated preference methods accurately represent individuals' values, and provide valid and reliable measures of changes in economic welfare. I review each of these issues in the light of recent theoretical and empirical work, identify the major outstanding problems, and indicate areas where progress is being made. I argue that the problems are solvable, and that eventually a theoretically sound and empirically effective method will be developed.