Chapter 17 Contingent Valuation

Value estimates for environmental goods can be obtained by either estimating preference parameters as revealed through behavior related to some aspect of the amenity or using stated information concerning preferences for the good. In the environmental economics literature the stated preference approach has come to be known as contingent valuation as the valuation estimated obtained from preference information given the respondent is said to be contingent on the details of the constructed market for the environmental good put forth in the survey. Work on contingent valuation now typically comprises the largest single group of papers at major environmental economics conferences and in several of the leading journals in the field. As such, it is impossible to review the literature per se or even cover all of the major papers in the area in some detail. Instead, in this chapter we seek to provide a coherent overview of the main issues and how they fit together. The organization of the chapter is as follows. First, we provide an overview of the history of contingent valuation starting with its antecedents and foundational papers and then trace its subsequent development using several broad themes. Second, we put forth the theoretical foundations of contingent valuation with particular emphasis on ties to standard measures of economic welfare. Third, we look at the issue of existence/passive use considerations. Fourth, we consider the relationship of contingent valuation to information on preferences that can be obtained by observing revealed behavior and how the two sources of information might be combined. Fifth, we look at different ways in which preference information can be elicited in a CV survey, paying particular attention to the incentive structure posed by different elicitation formats. Sixth, we turn to econometric issues associated with these different elicitation formats. Seventh, we briefly consider survey design issues. Eighth, we look at issues related to survey administration and extrapolating the results obtained to the population of interest. Ninth, we describe the major controversies related to the use of contingent valuation and summarize the evidence. Finally, we provide some thoughts on where we think contingent valuation is headed in the future.