Environmental Valuation Techniques : a. Briefly describe the difference between
ID: 1106725 • Letter: E
Question
Environmental Valuation Techniques:
a. Briefly describe the difference between revealed preference valuation methods and
stated preference methods (feel free to provide examples if it helps).
b. Define concisely the Contingent Valuation Method.
c. Outline the Contingent Valuation guidelines identified by the NOAA Panel after the
Exxon Valdez oil spill.
d. Discuss the strengths of the Contingent Valuation Method (make sure to refer to and
define the concept of existence value).
e. Discuss possible constraints and limitations of the Contingent Valuation Method.
Explanation / Answer
Answer :- Stated preference which is also known as contingent valuation is a method which depends upon collection of data with the help of surveys for establishing valuations. The extent of value about something is asked to be explained by the subject. There may be number of factors which can impact the response and there can be a huge variation between the response and the actual behavior.
On the other hand, revealed preferences can be revealed with the help of thorough analysis of actual decisions which are taken by the individual. These can have a very different appearance from the stated preferences( if not entirely opposite)
Answer:- Contingent valuation can be seen as a method of determining the economic values which are given to a certain good by the individuals. In this method the people are asked to explain their willingness to pay (WTP) for possessing something or the willingness to accept (WTA) to sacrifice a certain product in place of deriving these conclusions from the observed behaviors in the regular scenario.
Answer:- In wake of use of CVM in Exxon Valdez oil spill, NOAA convened a blue-ribbon panel, chaired by two Nobel laureates, to assess the method.
Panel’s conclusion: “CV studies can produce estimates reliable enough to be the starting point of a judicial process of damage assessment, including lost passive use values
Some important recommendations are as below:-
• Randomly select samples of appropriate statistical size and composition
• Carefully pretest survey instrument
• Conduct personal interviews (face-to-face is best)
• Estimate WTP, not WTA
• Design conservatively (downward bias in WTP)
• Use referendum format (i.e., dichotomous choice) to elicit bids, with “no answer” option
• Include follow-up questions to explain “votes”
• Remind respondents about substitutes and budget constraint
Answer:- The main advantage of this method is that it is quite flexible and I can be used to predict the economic value of virtually anything But it is more beneficial to estimate the values of those goods and services which are easily identified. It is the most widely accepted method for determining the economic value including every kind of non-use or passive use values.
Answer:- The most important weakness of contingent validation method is that it is affected by the bias or prejudice which can be introduced by the person who have different motives other than making sure the accuracy of thee results. If the survey is done for the people against and in favor of the project, then the survey could be manipulated by these individuals to fulfill their agenda.
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