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Labour as a utility measure in contingent valuation studies: how good is it really?

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  • Ahlheim, Michael
  • Frör, Oliver
  • Heinke, Antonia
  • Duc, Nguyen Minh
  • Dinh, Pham Van

Abstract

The Contingent Valuation Method (CVM) aims at the assessment of people's willingness to pay (WTP) for a public project. The sum of the individual WTPs is interpreted as the social benefits of the project under consideration and compared to the project costs. If the benefits exceed the costs the project is recommended for realization. In very poor societies budgets are so tight that households cannot give up any part of their income, i.e. of their market consumption, in favour of a public project, so that their WTP for that project stated in a CVM interview has to be zero or close to zero. This leads to a severe discrimination against poor regions in the decision process on the allocation of public funds. Therefore, several authors suggest to use labour contributions to the realization of a public project instead of monetary contributions as a measure of people's WTP for that project. In this paper we show theoretically and empirically, based on a CVM study conducted in Vietnam, that labour is severely flawed as a measuring rod for individual utility so that CVM based on labour contributions does not provide a reliable and meaningful decision rule for the allocation of public projects.

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  • Ahlheim, Michael & Frör, Oliver & Heinke, Antonia & Duc, Nguyen Minh & Dinh, Pham Van, 2010. "Labour as a utility measure in contingent valuation studies: how good is it really?," FZID Discussion Papers 13-2010, University of Hohenheim, Center for Research on Innovation and Services (FZID).
    • Handle: RePEc:zbw:fziddp:132010
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    3. J. M. Gibson & D. Rigby & D. A. Polya & N. Russell, 2016. "Discrete Choice Experiments in Developing Countries: Willingness to Pay Versus Willingness to Work," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 65(4), pages 697-721, December.
    4. Lankia, Tuija & Neuvonen, Marjo & Pouta, Eija & Sievänen, Tuija, 2014. "Willingness to contribute to the management of recreational quality on private lands in Finland," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 182651, European Association of Agricultural Economists.
    5. Hagedoorn, Liselotte C. & Koetse, Mark J. & van Beukering, Pieter J.H. & Brander, Luke M., 2021. "Reducing the finance gap for nature-based solutions with time contributions," Ecosystem Services, Elsevier, vol. 52(C).
    6. Diafas, Iason & Barkmann, Jan & Mburu, John, 2017. "Measurement of Bequest Value Using a Non-monetary Payment in a Choice Experiment—The Case of Improving Forest Ecosystem Services for the Benefit of Local Communities in Rural Kenya," Ecological Economics, Elsevier, vol. 140(C), pages 157-165.
    7. AHMED, Musa H. & MELESSE, Kumilachew A. & TEREFE, Aemro T., 2015. "Valuing Soil Conservation Practices Using Contingent Valuation Technique: Evidence From The Central Rift Valley Of Ethiopia," Review of Agricultural and Applied Economics (RAAE), Faculty of Economics and Management, Slovak Agricultural University in Nitra, vol. 18(2), pages 1-11, October.
    8. Kocsis, Tamás & Marjainé, Szerényi Zsuzsanna, 2018. "Gazdag szegények. Időráfordítási hajlandóság a környezeti javak értékelésében [The wealthy poor - "willingness to spend time" in evaluating environmental benefits]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(11), pages 1154-1171.
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    More about this item

    Keywords

    Cost-benefit analysis; Contingent Valuation; developing countries; public expenditures;
    All these keywords.

    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • H4 - Public Economics - - Publicly Provided Goods
    • L3 - Industrial Organization - - Nonprofit Organizations and Public Enterprise
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

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