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Contingent Valuation

Contingent valuation is a survey-based method of determining the economic value of a nonmarket resource. It is used to estimate the value of resources and goods not typically traded in the economic markets. It is most commonly related to natural and environmental resources.

Contingent valuation is employed to assess environmental resources, goods, and services. Government agencies apply the technique to estimate use and nonuse values of environmental resources that it oversees and manages, and to make decisions regarding environmental policy and lawsuits, and to assess damages. For example, the government employed this methodology to estimate the environmental damage of the Exxon Valdez oil spill in 1989. Businesses use this technique to estimate cost-benefit values on environmental projects.

Contingent Valuation Survey Methods

Contingent valuation surveys are administered using a variety of methods to select respondents and to develop survey questionnaires. Respondent selection is at the discretion of the survey administrator. Respondents are always individuals and the survey samplings may range in size. In addition, they may be chosen randomly or selected using other approaches such as geographic specifications or database segmentation.

Survey questions are based on hypothetical scenarios. Respondents are asked to estimate what they would be willing to pay to sustain, improve, maintain, prevent loss, or repair natural and environmental resources. For example, the government may want to ascertain the cost-benefit value of a future project of the Bureau of Reclamation to repair water storage facilities. It may use contingent valuation to answer the question, “What would be the environmental cost of this project if it affected the water supply of nearby cities and farms and also disrupted the ecosystem of an endangered species?” Survey recipients may be asked to comment on their willingness to pay $10, $20, or $30 more in utilities per year to improve water storage and pay environmental conservation costs.

Views on Contingent Valuation

Contingent valuation is a disputed method of estimating natural and environmental impact. Opponents argue that the technique is not empirical enough to accurately estimate financial data and to encompass the complexities of natural resources management. Unlike other methods of economical valuation, survey responses are not based on an individual's behavioral choice, nor are they based on a person's actual conduct. Therefore, survey responses are subjective and uninformed, creating a high likelihood of “hypothetical bias.” There have been many attempts to improve survey controls, but opponents argue that these improvements are not sufficient to minimize the inaccuracies. Contingent valuation is also criticized for being expensive and time-consuming.

Proponents of the methodology claim that it is the most flexible option and is, therefore, suitable to environmental concerns. The technique also accounts for costs that more traditional methods do not, and it adds a critical consumer perspective. Proponents also state that the technique is reliable, as it has been refined and improved over a long period of time—it was first proposed as a theory in 1947.

Conclusion

As global environmental issues gain increased attention and concern, there is and will be more focus on the accuracy of estimating nonmarket values for natural and environmental resources. Environmental issues are extraordinarily complex and require sophisticated methods of analysis. Contingent valuation is the most widely used method for estimating nonmarket values, yet it is unclear as to whether it is an appropriate and reliable method. Contingent valuation methods present an ethical challenge to those who use them to make significant decisions about the future of the environment.

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