Stated Preference Method

Contingent Valuation Method (CVM)

The method is called “contingent” valuation because it tries to get people to say how they would act if they were placed in certain contingent situations. It is essentially a method which provides values (in terms of WTP or WTA) of the concerned people for an environmental good as stated by them during a survey. For conducting the survey, details of the matter under study and issues involved are provided to the concerned people. A questionnaire is prepared and responses obtained as per the standard survey methodology. Face-to-face interviews are generally supposed to be the best method of obtaining the information. Individuals are asked to state their maximum WTP and/or minimum WTA for the increase or decrease in environmental quality, which may include “non-use” or “passive” values also. The respondents chosen for the survey must be as geographically close to the amenities in question as possible to avoid the potential for undervaluing them by those who are more or less physically removed from them. The survey must attempt to measure the true WTP for the specific resource in a specific location for the protected amenities as precisely as possible. 

    • A bidding game: higher and higher amounts of WTP or lower and lower amounts of WTA are suggested to the respondents until their maximum WTP or minimum WTA is reached.
    • A range of values is suggested from which the respondents may choose one
    • Open-ended questions are asked without suggesting any value. Respondents do not find it easy to answer such questions since they may not have prior experience of trading with the commodity in question
    • Yes or no option or take-it-or-leave-it experiment.

Data obtained from the above surveys are then used to estimate average values through the usual statistical techniques like mean or medium. Quite often attempts are also made to find out the determinants of WTP/WTA—income, education, age and some variable measuring “quantity” of environmental quality being bid for.

This method, like many other methods is, however, not perfect. It has some problems related to biases and inadequate information. Another point that should be kept in mind is that the values of WTP and WTA are always significantly different from each other. Many CVM researchers have found that WTP measures are much less than WTA for the same change in environmental quality. Hence an estimate for one should not be used in estimating other.

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