6.3 Environmental valuation  (Page 6/23)

• Contingent valuation : The methodology called contingent valuation (or CV) gained prominent attention when it was used by economists to estimate the damage done to society by the oil spilled by Exxon’s Valdez oil tanker in Prince William Sound in 1989 ( Carson et al., 2003 ). A CV survey gives a clear description of a single environmental amenity to be valued, such as a wetland restoration, whale populations, or improved water quality in a local lake. The description includes details about how the amenity would be created, and how the survey respondent would pay any money they claim to be willing to pay in support of the amenity. Respondents are then asked a question to elicit their WTP. This value elicitation question can be open ended (“How much would you be willing to pay in taxes to increase whale populations?) or closed ended (“Would you be willing to pay $30 to increase whale populations?). The resulting data set is analyzed to find the average WTP of people in the sample population.

• Conjoint analysis : Conjoint analysis is also referred to as choice experiment survey analysis. It was developed first by analysts in business marketing and psychology, and only later adopted by economists for environmental valuation. The main difference between conjoint analysis and CV is that CV elicits WTP for an environmental amenity with a single fixed bundle of features, or attributes. Conjoint analysis estimates separate values for each of a set of attributes of a composite environmental amenity. For example, grasslands can vary in bird species diversity, wildflower coverage, and distance from human population centers. A conjoint analysis of grassland ecosystems would construct a set of hypothetical grasslands with varied combinations of attributes (including the cost to the respondent of a chosen grassland). The survey would present respondents with several choice questions; in each choice, the respondent would be asked to pick which of several hypothetical grasslands they would prefer. The resulting data would be analyzed to find how each attribute affects the likelihood that one grassland is preferred over another. This would yield estimates of marginal values for each attribute; those values could then be used to find WTP for composite grasslands with many different combinations of features.

Both CV and conjoint analysis methods can be designed to estimate WTP for improvement or WTA degradation depending on which context is most appropriate for the problem at hand. These stated preference methods have two main strengths. First, they can capture non-use values. Second, their hypothetical nature allows analysts to estimate WTP for improvements out of the range of current experience (or WTA for degradation we have fortunately not yet experienced).

However, stated preferences approaches do have weaknesses and limitations. For example, many economists are uncomfortable using value estimates derived from hypothetical choices, worrying whether consumers would make the same choices regarding payment for public environmental goods if the payments were real. Scholars also worry about whether people give responses to stated preference surveys that are deliberately skewed from their true WTP. Understatements of value could arise to protest a government policy (“Why should I have to pay to clean up the environment when someone else made it dirty in the first place?”) or out of a desire to free ride. Finally, the hypothetical nature of stated preference surveys can mean that some respondents are not familiar with the thing being valued, and thus may have trouble giving meaningful responses to the questions. Stated preference surveys must be designed to give respondents enough information without biasing their responses.

References

Carson, R. T., Mitchell, R. C., Hanemann, M., Kopp, R. J., Presser, S., and Ruud, P. A. (2003). Contingent valuation and lost passive use: Damages from the Exxon Valdez oil spill. Environmental and Resource Economics, 25 (3), 257-286. DOI: 10.1023/A:1024486702104.

Costanza, R., d'Arge, R., de Groot, R., Farber, S., Grasso, M., Hannon, B., Limburg, K., Naeem, S., O'Neill, R. V., Paruelo, J., Raskin, R. G., Sutton, P.,&van den Bel, M. (1997). The value of the world's ecosystem services and natural capital. Nature , 387, 253–260. doi:10.1038/387253a0

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