Lecture 14

Valuing the Environment: Methods

Byeong-Hak Choe
bchoe@geneseo.edu

SUNY Geneseo

September 30, 2024

Valuing the Envrionment: Methods

Valuation Methods Overview

1. Stated Preference Methods

  • Based on surveys and questionnaires.

  • Elicit values directly from individuals.

    • Contingent Valuation Method (CVM)
      • Asks respondents their willingness to pay (WTP) for specific environmental changes.
      • Hypothetical Market Creation: Respondents consider WTP in a simulated scenario.
    • Choice Experiments
      • Respondents choose between bundles of attributes with varying levels and costs.

Valuation Methods Overview

2. Revealed Preference Methods

  • Based on observed behaviors in actual markets.

  • Infer values from related market choices.

    • Market Prices
      • Direct valuation using existing market data.
    • Travel Cost Method
      • Infers value of recreational sites by expenses incurred by visitors.
    • Hedonic Pricing
      • Uses differences in market prices (e.g., property values) to estimate environmental values.

Stated Preference Methods

Contingent Valuation Method (CVM): Potential Biases and Solutions

  1. Strategic Bias
    • Issue: Deliberate misrepresentation to influence outcomes.
    • Solution: Assure anonymity; emphasize honest responses.
  2. Information Bias
    • Issue: Lack of knowledge affecting responses.
    • Solution: Provide clear, comprehensive information.
  3. Starting-Point Bias
    • Issue: Influence of initial value suggestions.
    • Solution: Use randomized starting points; pretest surveys.

Stated Preference Methods

Contingent Valuation Method (CVM): Potential Biases and Solutions

  1. Hypothetical Bias
    • Issue: Difference between hypothetical and actual WTP.
    • Solution: Use real payment vehicles; emphasize consequentiality.
  2. Payment Vehicle Bias
    • Issue: Negative reactions to the method of payment (e.g., taxes).
    • Solution: Choose neutral, plausible payment methods.
  3. WTP vs. WTA Discrepancy
    • Issue: Willingness to accept (WTA) often exceeds WTP.
    • Solution: Understand context; use appropriate measure based on property rights.