This document discusses methods for valuing the environment, including direct methods like contingent valuation and indirect methods like hedonic pricing. It focuses on contingent valuation, which asks people what they would pay for environmental benefits. Key steps in a contingent valuation study include defining the good, surveying a sample, and collecting willingness to pay. The document also discusses types of environmental values, advantages and criticisms of contingent valuation, and an example study valuing drinking water quality in Seoul.

2. Direct & Indirect Valuation
 Direct methods
 Constructed markets
 Contingent valuation method (CVM)
 Choice modelling
 Stated preference methods
 Indirect methods
 Surrogate market
 Hedonic pricing
 Travel cost
 Revealed preference methods

3. CVM
 CVM consists of asking people directly , via a
questionnaire or experimental techniques, what they
would be willing to pay for a benefit or what they
would be willing to receive as compensation for a
deterioration of their environment.

4. Environmental values
Environmental
Values
Use Values
Direct Use Values
(Timber, Food,
Recreation)
Indirect Use
Values
( Nutrient
Recycling)
Non-use Values
Optional Use
Values
(Gene pool)
Bequest Values
(Conservation
Rainforests)
Existence values
(Conservation of
Tiger)

5. Steps in a contingent valuation
study
 Define the good and the change in the good to be valued
 Define the geographical scope of the “market”
 Conduct focus groups on components of the survey
 Pre test the survey instrument (questionnaire)
 Administer the questionnaire to a stratified random
sample
 Test for the reliability and validity of results

6. Components of questionnaire
 Collect information on respondent’s past, present, and
expected future use of the good
 Present a hypothetical scenario describing the change
in the good to be valued
 Present the hypothetical payment mechanism and
related stipulations

7.  Elicit the respondent’s WTP (“bid elicitation
procedure”)
 Collect information on respondent’s socioeconomic
characteristics, available substitutes and complements
for good being valued
 Debrief respondent (e.g., check budget constraint)
and enumerator

8.  Trade-offs between environmental systems
 Used for use and non-use values
 Example
Wilderness or Hospital ?
Scenic beauty or Mobile network ?
 Difficult for some respondents to respond
Contingent Choice Method (CCM)

9.  Referendum method
 Ranking of environmental attributes
 Easy for the respondent
 Confusion if too many choices
Contingent Ranking Method (CRM)

10. Example: Drinking Water in Seoul
 A: Interviewer introduction
 purpose of the survey
 Indicate the time limits
 B: Background
 Opinion about current tap water quality
 Measures the household has taken in the last five years to
improve water
 Monthly household net income

11.  C: Value of water quality
 Describe pollution prevention system
 D: Socio-economic characteristics
 Age, highest level of education, number of household
members, average monthly water.

12. Advantages of CVM
 Based on economic utility theory and can
produce reliable estimates.
 Most biases can be eliminated by careful survey
design and implementation.

13.  Currently the only method available to measure
important non use values associated with natural
resources.
 Has been used successfully in a variety of
situations.
 Is being constantly improved to make the
methodology more reliable.

14. Advantages of conducting CVM studies in
developing countries
 Respondents are often quite receptive to listening
and considering questions posed
 Response rates are typically very high
 Survey costs are an order of magnitude lower
 can have larger sample sizes, which permits more split-
sample testing of survey procedures

15. Criticisms of CVM
 Respondents fail to take CVM questions seriously
because they are non-binding
 Respondents do not understand what they are being
asked to value
 Respondents strategically manipulate the process by
distorting their true WTP

16.  Respondents give answers that are inconsistent with
economic theory
 Stated intentions of willingness to pay may exceed true
feelings.
 Respondents may be unfamiliar with the good or
service being valued and not have an adequate basis
for articulating their true value