Methods for Non-market Valuation

The non-market valuation methods are derived from two basic concepts namely the willingness to pay (WTP) for improved ecosystem and the willingness to accept compensation (WTA) for decreased services.

Economic analysis deals with the estimation of these measures of value in monetary terms on the fairly realistic assumption that an individual has a set of preferences over goods and services that can be ordered in a hierarchic manner. The ranking of preference determines the manner in which an individual chooses between different consumption options and thus, allows to estimate the unmarketable environmental value, such as the benefits of improved river water quality or the costs of losing an area of wilderness to development.

Willingness to pay (WTP): People derive benefit from something which they prefer to have. Preferences, of course, differ from person to person. But there is a good degree of commonality so that an idea of average preferences for the whole community or a country can be derived. If people prefer something because they derive satisfaction from its use, then they are prepared to pay a price for it. How much a person or a nation is willing to pay for a good or a service that is preferred by them is the true measure of its value or of the benefit derived from the concerned item.

Willingness to accept compensation (WTA): Sometimes, construction of a flood management project results in the loss of income or other amenities to people. This happens in the case of those whose land or property is acquired by authorities for the construction of the project, say a reservoir. The affected people in such cases would like to receive compensation so as to induce them to part with their property. The minimum amount that they would be willing to accept as compensation is regarded as a measure of the value of loss suffered by them. WTA like WTP is dependent on the income of an individual.


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