Contingent Valuation: From Dubious to Hopeless
Abstract:Approximately 20 years ago, Peter Diamond and I wrote an article for this journal analyzing contingent valuation methods. At that time Peter's view was that contingent valuation was hopeless, while I was dubious but somewhat more optimistic. But 20 years later, after millions of dollars of largely government-funded research, I have concluded that Peter's earlier position was correct and that contingent valuation is hopeless. In this paper, I selectively review the contingent valuation literature, focusing on empirical results. I find that three long-standing problems continue to exist: 1) hypothetical response bias that leads contingent valuation to overstatements of value; 2) large differences between willingness to pay and willingness to accept; and 3) the embedding problem which encompasses scope problems. The problems of embedding and scope are likely to be the most intractable. Indeed, I believe that respondents to contingent valuation surveys are often not responding out of stable or well-defined preferences, but are essentially inventing their answers on the fly, in a way which makes the resulting data useless for serious analysis. Finally, I offer a case study of a prominent contingent valuation study done by recognized experts in this approach, a study that should be only minimally affected by these concerns but in which the answers of respondents to the survey are implausible and inconsistent.
Document Type: Research Article
Publication date: 2012-09-01
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- The Journal of Economic Perspectives (JEP) attempts to fill a gap between the general interest press and most other academic economics journals. The journal aims to publish articles that will serve several goals: to synthesize and integrate lessons learned from active lines of economic research; to provide economic analysis of public policy issues; to encourage cross-fertilization of ideas among the fields of thinking; to offer readers an accessible source for state-of-the-art economic thinking; to suggest directions for future research; to provide insights and readings for classroom use; and to address issues relating to the economics profession.
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