Contingent Valuation

Contingent valuation  is a technique aimed to measure the social willingness to pay  (for avoiding a certain damage or for using a natural resource) or the social willingness to accept a compensation (for a certain damage or for renouncing to the use of a certain natural resource). The theoretical foundations of the technique should be found in the consumers’ preferences that shape demand on existing markets. 
Contingent valuation applies the traditional market research instruments (population sampling, preliminary information  to the respondents, structure of the questionnaire in order to have consistent and  non-protest answers, etc.). The questionnaire may have different suggested structures depending on the valuation object: the restoration of a brown field, the reduction of the health effects linked to individual exposure to a certain pollution sources, the protection of a certain animal at risk of extinction. The advantage of contingent valuation as a technique is the possibility to use it for valuating assets on hypothetical markets, and not only for goods exchanged on existing markets. 
In valuing damages to natural resources contingent valuation is often the only reliable available method (Pearce and Turner, 1991). When used subsequently a systematic impact pathways  reconstruction, external costs measurement based on contingent valuation succeeds in integrating economic appraisal with detailed environmental impacts modelling (interviewed people may answer on the basis of precise impact information).
Contingent valuation is suggested for valuating environmental resources whose value includes socially diffused altruistic or intrinsic components (option value, existence value). These circumstances are typical also in “absolute subjective rights” valuation, such as human health. For example, contingent valuation of willingness to pay is particularly suggested to valuate that component of health damage known as “sufference” (both physical and psychical), which is not measurable with the traditional economic methods (medical expenses or loss of income due to illness).
The method have some critical points that may be prevented with a well structured questionnaire (and collection of answers). One point comes from the fact that results are influenced by the questionnaire structure, particularly the form of payment used to simulate the exchange.  Also the accuracy of the preliminary information on environmental impacts, or information on alternative markets in competition to the simulated one,  may influence  the results.  Some of these drawbacks may be mitigated by following valuation guidelines suggested by authors or institutions (Mitchell and Carson VEDI). Guidelines ask that the interviewed sample  should reflect the population income distribution and that the questionnaire should be structured so that the respondents take into account their income budget.
The method and its applications have been extensively reviewed in the last decade and there is a growing consensus on its use. Contingent valuation is moreover the only method available for the valuation of the non use values of natural resources, which have a growing relevance in the perspective of  a sustainable development.

© 2006 - Andrea Molocchi