The Potential of Contingent Valuation for Public Administration Practice and Research

Abstract

Public administrators and policy analysts routinely face the task of assessing goods whose social values are not revealed in markets. Often “structured conversations” with citizens provide the only source of information for valuing of such goods. The problem of valuation is particularly great in the case of environmental amenities that may have value to people beyond their direct consumption. In response, environmental economists have developed a methodology, contingent valuation (CV), for estimating the social value of policy changes using data from questions posed to samples of survey respondents. Although contingent valuation is beginning to be applied to other policy areas, it has not yet seen general widespread use. This article provides an overview of the CV methodology and speculates on its future use by public administrators.

My thanks to Donijo Robbins and two anonymous referees for helpful comments.

Notes

My thanks to Donijo Robbins and two anonymous referees for helpful comments.

3. Hausman, J.A., Ed. Contingent Valuation: A Critical Assessment. North Holland: New York, 1993. Also see Portney, P.R. The Contingent Valuation Debate: Why Economists Should Care. Journal of Economic Perspectives, 1994, 8 (4); 3–17; Diamond, P.A.; Hausman, J.A. Contingent Valuation: Is Some Number Better than No Number? ibid; 45–64; Hanemann, M.A. Valuing the Environment Through Contingent Valuation, ibid, 19–43.

9. The approach was recently applied to a new basketball arena for the University of Kentucky and a minor league baseball stadium. See Johnson, B.K; Whitehead, J.C. Value of Public Goods from Sports Stadiums: The CVM Approach. Contemporary Economic Policy 2000, 18 (1), 48–58.

13. Most attribute the origins of CV to David, R.K. Recreation Planning as an Economic Problem. Natural Resources Journal 1963, 3 (2), 239–249. Early applications include: Ridker, R.G. Economic Costs of Air Pollution; Praeger: New York, 1967; Hammack, J.; Brown, G.M. Jr. Waterfowl and Wetlands: Toward Bioeconomic Analysis; Johns Hopkins Press: Baltimore, The Potential of Contingent Valuation 85 1974; Cicchetti, C.J.; Smith, V.K. Congestion, Quality Deterioration, and Optimal Use: Wilderness Recreation in the Spanish Peaks Primative Area. Social Science Research 1973, 2, 15–30.

21. Waters, W.G. II. Values of Travel Time Savings in Road Transport Project Evaluations; In World Transport Research, Proceedings of the 7th World Conference on Transport Research, Hensher, D. et al, Eds.; Elsevier: New York, 1996.

23. Carson, R.; Groves, T.; Machina, M. Incentive and Information Properties of Preference Questions. Plenary Address, European Association of Resource and Environmental Economists, Oslo, Norway, June, 1999.

24. Couper, N. Web Surveys: A Review of Issues and Approaches. Public Opinion Quarterly 2000, 64 (4), 464–494. For a comparison of large panel and recruited panel Internet surveys with a parallel telephone survey, see Berrens, R.; Bohara, A.; Jenkins-Smith, H.; Silva, C.; Weimer, D. The Advent of Internet Surveys for Political Research: A Comparison of Telephone and Internet Samples. Political Analysis 2003, 11 (1), 1–22.

25. For an overview, see Groves, R.M.; Couper, M.P. Nonresponse in Household Interview Surveys. John Wiley & Sons: New York, 1998.

26. Deming, W.E.; Stephan, F.F. On a Least Squares Adjustment of a Sampled Frequency Table When the Expected Marginal Totals are Known. Annals of Mathematical Statistics 1940, 11 (4), 427–444; D’Agosting, R.B. Jr.; Rubin, D.B. Estimating and Using Propensity Scores With Partially Missing Data. Journal of the American Statistical Association 2000, 95 (451), 749–759.

27. This method was introduced by Bishop, R.C.; Heberlein, T.A. Measuring Values of Extra-Market Goods: Are Indirect Measures Biased? American Journal of Agricultural Economics 1979, 61 (5), 926–930. Also see Cameron, T.A.; James, M.D. Efficient Estimation Methods for “Closed-Ended” Contingent Valuation Surveys. Review of Economics and Statistics 1987, 69 (2), 269–276.

28. For a flavor of the heated debate during the period when CV was beginning to move into the mainstream of environmental economics, see Kahneman, D.; Knetsch, J.L. Valuing Public Goods: The Purchase of Moral Satisfaction. Journal of Environmental Economics and Management 1992, 22 (1), 57–70; Kerry, V. Comment: Arbitrary Values, Good Causes, and Premature Verdicts 1992, 22 (1), 71–89.

29. Experiments providing more detailed budget reminders and discussion of substitute goods have produced mixed results. See, for example, Loomis, J. et al. Do Reminders of Substitutes and Budget Constraints Influence Contingent Valuation Estimates? Land Economics, 1994, 70 (4), 499–506 versus Bateman, I.J.; Langford, I.H. Budget-Constraint, Temporal, and Question-Ordering Effects in Contingent Valuation Studies. Environment and Planning A 1997, 29 (7), 1215–1228. Another approach is to inform respondents explicitly about the biases that commonly occur when hypothetical questions are used: Cummings, R.G.; Taylor, L.O. Unbiased Value Estimates for Environmental Goods: A Cheap Talk Design for the Contingent Valuation Method. American Economic Review 1999, 89 (3), 649–665.

31. Kahneman; Knetsch, op cit. Also, see Nunes, P.A.L.D.; Schokkaert, E. Identifying the Warm Glow Effect in Contingent Valuation. Journal of Environmental Economics and Management 2003, 45 (2), 231–245. Carson, R. et al. op cit.

32. Carson, R. et al. op cit.

35. Berrens, R.; Bohara, A.; Jenkins-Smith, H.; Silva, C.; Weimer, D. Information and Effort in Contingent Valuation Surveys: Application to Global Climate Change Using National Internet Samples. Journal of Environmental Economics and Management 2004, 47 (2), 331–363. The full survey instrument can be viewed by entering code 999 at http://www.unm.edu/instpp/gcc/. Note that the instrument includes three random splits: the actual Kyoto Protocol versus a modified protocol that would also impose emission limits on developing countries; a standard budget reminder versus questions asking respondents to estimate their disposable incomes; and basic information about the Kyoto Protocol versus access to enhanced information (27 one-page entries on global climate change and the Kyoto Protocol). Consequently, any single visit to the site will give only one combination of random splits.

36. Nyquist, Hans. Optimal Design of Discrete Response Experiments in Contingent Valuation. Review of Economics and Statistics 1992, 74 (3), 559–563.

37. See Boardman et al., op cit., 361–362 for a graphical explanation.

38. For a thorough overview of estimation issues, see Hanemann, W.M.; Kanninen, B. The Statistical Analysis of Discrete Response CV Data. In Bateman and Willis, op cit, 302–441. See also Park, T.; oomis, J.; Creel, M. Confidence Intervals for Evaluating Benefits Estimates from Dichotomous Choice Contingent Valuation Studies. Land Economics, 1991, 64–73.

39. Johannesson, M.; Blomquist, G.; Blumenschein, K.; Johansson, P.; Liljas, B.; O’Conor, R. Calibrating Hypothetical Willingness to Pay Responses. Journal of Risk and Uncertainty 1999, 18 (1), 21–32; Ready, R.; Navrud, S.; Dubdurg, W. How Do Respondents with Uncertain Willingness to Pay Answer Contingent Valuation Questions? Land Economics 2001, 77 (3), 315–26.