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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.

Suggested Citation

  • 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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    Cited by:

    1. Lili Reyes Hernandez & Melissa Yepes Tafur, 2013. "Evaluacion economica de preservar el mono titi cabeciblanco: Una aplicacion del metodo de valoracion contigente," REVISTA ECONOMÍA & REGIÓN, UNIVERSIDAD TECNOLÓGICA DE BOLÍVAR, vol. 7(1), pages 69-99, June.
    2. 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.
    3. 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.
    4. repec:eee:ecolec:v:140:y:2017:i:c:p:157-165 is not listed on IDEAS

    More about this item

    Keywords

    Cost-benefit analysis; Contingent Valuation; developing countries; public expenditures;

    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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