Richard T. Carson

Economic Valuation with Stated Preference Techniques

This manual offers a detailed, up-to-date explanation of how to carry out economic valuation using stated preference techniques. It is relevant for the application of these techniques to all non-market goods and services including air and water quality; provision of public open space; health care that is not sold through private markets; risk reduction policies and investments not provided privately; provision of information as with the recorded heritage, the protection of cultural assets and so on. The resulting valuations can be used for a number of purposes including, but not limited to, demonstrating the importance of a good or service; cost–benefit analysis; setting priorities for environmental policy; design of economic instruments; green national/corporate accounting, and natural resource damage assessment.

Contingent Valuation and Lost Passive Use: Damages from the Exxon Valdez Oil Spill

We report on the results of a large-scale contingent valuation (CV) study conducted after the Exxon Valdez oil spill to assess the harm caused by it. Among the issues considered are the design features of the CV survey, its administration to a national sample of U.S. households, estimation of household willingness to pay to prevent another Exxon Valdez type oil spill, and issues related to reliability and validity of the estimates obtained. Events influenced by the studys release are also briefly discussed.

The Value of clean water: The public's willingness to pay for boatable, fishable, and swimmable quality water

This paper presents the findings of a study designed to determine the national benefits of freshwater pollution control. By using data from a national contingent valuation survey, we estimate the aggregate benefits of meeting the goals of the Clean Water Act. A valuation function is estimated which depicts willingness to pay as a function of water quality, income, and other variables. Several validation checks and tests for specific biases are performed, and the benefit estimates are corrected for missing and invalid responses. The two major policy implications from our work are that the benefits and costs of water pollution control efforts are roughly equal and that many of the new policy actions necessary to ensure that all water bodies reach at least a swimmable quality level will not have positive net benefits.

The Impact of "No Opinion" Response Options on Data Quality: Non-Attitude Reduction or an Invitation to Satisfice?

According to many seasoned survey researchers, offering a no-opinion option should reduce the pressure to give substantive re- sponses felt by respondents who have no true opinions. By contrast, the survey satisficing perspective suggests that no-opinion options may dis- courage some respondents from doing the cognitive work necessary to report the true opinions they do have. We address these arguments using data from nine experiments carried out in three household surveys. Attraction to no-opinion options was found to be greatest among re- spondents lowest in cognitive skills (as measured by educational at- tainment), among respondents answering secretly instead of orally, for questions asked later in a survey, and among respondents who devoted little effort to the reporting process. The quality of attitude reports ob- tained (as measured by over-time consistency and responsiveness to a question manipulation) was not compromised by the omission of no- opinion options. These results suggest that inclusion of no-opinion op- tions in attitude measures may not enhance data quality and instead may preclude measurement of some meaningful opinions.

The Environmental Kuznets Curve: Seeking Empirical Regularity and Theoretical Structure

In the early 1990s the attention of economists was captured by empirical evidence suggesting that rising income levels in developing countries could be good rather than bad for the environment. This evidence drove a stake into the heart of those opposing growth on environmental grounds. Ultimately, the view that income growth by itself eventually will be good for the environment also appears to be wrong because a causal relationship between income and environmental quality cannot be demonstrated. The original empirical estimates appear fragile at best compared to estimates using more representative datasets, higher-quality data, and more appropriate econometric techniques. More plausible explanations for the observed data revolve around good government, effective regulation, and diffusion of technological change. These factors tend to be related in a diffuse manner with higher income and suggest it is likely, but not inevitable, that a society will choose to reduce pollution levels as it becomes wealthier.

Discrete choice experiments are not conjoint analysis

We briefly review and discuss traditional conjoint analysis (CA) and discrete choice experiments (DCEs), widely used stated preference elicitation methods in several disciplines. We pay particular attention to the origins and basis of CA, and show that it is generally inconsistent with economic demand theory, and is subject to several logical inconsistencies that make it unsuitable for use in applied economics, particularly welfare and policy assessment. We contrast this with DCEs that have a long-standing, well-tested theoretical basis in random utility theory, and we show why and how DCEs are more general and consistent with economic demand theory. Perhaps the major message, though, is that many studies that claim to be doing conjoint analysis are really doing DCE.

The relationship between air pollution emissions and income: US Data

Considerable interest has focused on the possible existence of an environmental Kuznets curve, whereby pollution first increases but later falls with increasing income. Empirical studies have concentrated on a wide spectrum of countries and run into inevitable problems of data comparability and quality. We avoid these problems by looking at seven types of air emissions across the 50 US states and find all seven pollutants decrease with increasing per capita income. We also find strong evidence of heteroscedasticity with respect to the income–emissions relationship: lower-income states display much greater variability in per capita emission levels than higher-income states. Additionally, we look at the best measured of these emissions, air toxics, for the period 1988–94. Using a simple sign test, we find support for the notion that an increase in income is associated with a decrease in per capita emissions. However, the change in emissions appears to be unrelated to the magnitude of the change in income. We do find, though, that the reduction in per capita emissions is increasing both in terms of the 1988 level of per capita emissions and income. Possible implications of these results for the development process are discussed.

Dissecting the Random Component of Utility

We illustrate and discuss several general issues associated with the random component of utility, or more generally “unobserved variability”. We posit a general conceptual framework that suggests a variance components view as an appropriate structure for unobserved variability. This framework suggests that “unobserved heterogeneity” is only one component of unobserved variability; hence, a more general view is required. We review a considerable amount of empirical research that suggests that random components are unlikely to be independent of systematic components, and random component variances are unlikely to be constant between or within individuals, time periods, locations, etc. We also review evidence that random components are functions of (elements of) systematic components. The latter suggests considerable caution in the use and interpretation of complex choice model specifications, in particular recently introduced forms of random parameter models that purport to estimate distributions of preference parameters. Several areas for future research are identified and discussed.

Contingent Valuation Surveys and Tests of Insensitivity to Scope

The central claim made by critics of contingent valuation (CV) is that respondents to a CV survey are inherently unresponsive to the characteristics of the good being valued.1In particular, it is alleged that respondents are not willing to pay more for more of a particular good; in economic jargon, respondents are insensitive to the scope of the good offered in the valuation exercise.2The focus of this debate is not whether CV results showing insensitivity to scope are obtainable, a point readily conceded by CV practitioners, but rather whether this result is generally avoidable with appropriate survey design, pretesting, and administration.

Chapter 17 Contingent Valuation

Abstract 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.