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Techniques for Valuation of Environmental Goods

There are many different methods of acquiring the value of environmental goods likes clean air, clean water, and green space. Each method has its benefits and drawbacks. The methods are as follows:

Stated Preference Methods

Contingent Valuation Method (CVM)

  • Survey the relevant population (using the whole pop. or a random sample of it) asking either their hypothetical WTP or WTAC for a change in an environmental good's quality, quantity etc. Usually the survey question is phrased using taxes/fees as the mechanism to collect WTP or rebates for WTAC. Putting it in terms of taxes tends to weed out the free-riders and those who would overstate their WTP/WTAC in the survey.
  • The survey question should as free of bias as possible and provide respondents with sufficient background information.
  • Protest bids- those who ethically resent putting a value upon the environment- and other outlier responses should be eliminated.
  • An extra benefit of CVM is that it can measure non-use value of the environmental good, something that isn't captured in normal markets. By making it hypothetical, people are more willing to volunteer their existence valuation of say, preserving biodiversity in Central America. This is simultaneously a plus and minus of CVM.

Problems with CVM

  • Willingness to Pay isn't always ability to pay.
  • Scoping: this is where people would pay the same amount to save a redwood forest as they would to save one redwood tree. This is only one issue with individuals valuing of the environment, a concept that very few have experience or knowledge about.
  • There can be bias in the phrasing of the survey question, and bias in the type and quantity of background information respondents are given.

Choice Experiments

Give individuals in the relevant population a choice of  different scenarios having varying mixes of environment good "bundles". They choice one and their preferences are aggregated.

Contingent Ranking

Almost the same as choice experiments, but bundles are ranked instead of just choosing one scenario.

Next: Revealed Preferences
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