1.
Contingent valuation method
2. The contingent valuation method (CVM) is used to estimate economic values for
all kinds of ecosystem and environmental services. It can be used to estimate
both use and non use values, and it is the most widely used method for
estimating non-use values. It is also the most controversial of the non-market
valuation methods.
3. The contingent valuation method involves directly asking people, in a survey, how
much they would be willing to pay for specific environmental services. In some
cases, people are asked for the amount of compensation they would be willing to
accept to give up specific environmental services. It is called “contingent”
valuation, because people are asked to state their willingness to
pay, contingent on a specific hypothetical scenario and description of the
environmental service.
4. The contingent valuation method is referred to as a “stated preference” method,
because it asks people to directly state their values, rather than inferring values
from actual choices, as the “revealed preference” methods do. The fact that CV
is based on what people say they would do, as opposed to what people are
observed to do, is the source of its greatest strengths and its greatest
weaknesses.
CBA
The essential theoretical foundations of CBA are: benefits are defined as increases in human wellbeing
(utility) and costs are defined as reductions in human wellbeing. For a project or policy to qualify on cost-
benefit grounds, its social benefits must exceed its social costs. “Society” is simply the sum of individuals.
The geographical boundary for CBA is usually the nation but can readily be extended to wider limits.
Revealed preference methods:
The revealed-preferences method involves determining the value that consumers hold for an
environmental good by observing their purchase of goods in the market that directly (or
indirectly) relate to environmental quality.
The hedonic pricing method is used to estimate economic values for ecosystem or
environmental services that directly affect market prices. It is most commonly applied
to variations in housing prices that reflect the value of local environmental attributes.
It can be used to estimate economic benefits or costs associated with:
environmental quality, including air pollution, water pollution, or noise
environmental amenities, such as aesthetic views or proximity to recreational
sites
The basic premise of the hedonic pricing method is that the price of a marketed good is
related to its characteristics, or the services it provides. For example, the price of a car
reflects the characteristics of that car—transportation, comfort, style, luxury, fuel
economy, etc. Therefore, we can value the individual characteristics of a car or other
good by looking at how the price people are willing to pay for it changes when the
characteristics change. The hedonic pricing method is most often used to value
environmental amenities that affect the price of residential properties.
This section continues with an example application of the hedonic pricing method,
followed by a more complete technical description of the method and its advantages
and limitations.
Hypothetical Situation:
Agency staff want to measure the benefits of an open space preservation program in a
region where open land is rapidly being developed.
Why Use the Hedonic Pricing Method?
The hedonic pricing method was selected in this case because:
1. Housing prices in the area appear to be related to proximity to open space.
2. Data on real estate transactions and open space parcels are readily available,
thus making this the least expensive and least complicated approach.
Alternative Approaches:
If the open space of concern is used mainly for recreation, the travel cost method might
be used. Alternatively, survey-based methods, like contingent valuation or contingent
choice, might be used. However, these methods would generally be more difficult and
expensive to apply.
