Contingent Valuation Method CVM - PowerPoint PPT Presentation

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Contingent Valuation Method CVM

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    1. Contingent Valuation Method (CVM) is a direct method in that it involves asking a sample of the relevant population question about their WTP or WTAC. 'Contingent Valuation', because valuation is contingent on the hypothetical scenario put to respondents. Advantages: 1) it can deal with both use and non-use values 2) by answering WTP and WTAC questions it directly goes to the theoretically correct monetary measures of utility changes.

    2. Contingent Valuation STEPS 1) Creating a survey instrument for the elicitation of individuals' WTP/WTAC. (a) designing the hypothetical scenario; (b) deciding whether to ask about WTP or WTAC, (c) creating a scenario about the means of payment or compensation. 2) Using the survey instrument with a sample of the population of interest.

    3. Contingent Valuation STEPS -2 3) Analysing the responses to the survey. (a) using the sample data WTP/WTAC to estimate average WTP/WTAC for the population, (b) assessing the survey results so as to judge the accuracy of this estimate. 4) Computing total WTP/WATC for the population of interest for use in a CBA. 5) Conducting sensitivity analysis.

    4. Contingent Valuation Revealed preference methods (TCM, Hedonic Prices) can only estimate the use value of the environment, and only if that value affects behaviour in a measurable and interpretable manner For the rest, we have to use either hypothetical markets or experimental markets (together: constructed) Experimental markets have delivered little estimates (but a lot of insights), so the contingent valuation method remains this is a stated preference method.

    5. Example: A: Interviewer introduction B: Background 1. Opinion about current tap water quality 2. Measures to improve water quality C: Value of water quality Describe major pollution accident in 1991 If no action, how likely is a repetition? Describe pollution prevention system How much are you willing to pay? D: Socio-economic characteristics

    6. Define market scenario What is being valued? A day at the beach, a view of the beach? Pollution of a single beach, or all beaches? What is being valued, a policy intervention or a change in pollution these have to be plausible and comprehensible What is the payment vehicle? A tax, an entrance fee, a levy on parking note that people have opinions on these.

    7. Choose elicitation method Direct question: How much are you willing to pay? Bidding game: Are you willing to pay X? If yes, X+d? If no, X-d? Payment card: Choose from a list of numbers, including comparisons Referendum choice: Are you willing to pay X? for different X, to many people (Note: we are looking for the maximum amount of WTP, or the minimum of WTAC)

    8. Administration & Sample Mail: No feedback or clarification possible Telephone: Has to be simple and short, no graphical material In-person: Expensive, interviewer bias Are the people approached a representative sample? And those who answered? Does the survey itself induce a bias, for example, in knowledge?

    9. Experiment & Estimation If one hypothesizes a relationship between WTP and income, then the suggested values (payment card, bidding game, referendum) have to be independent of income If one hypothesizes a relationship between WTP and political colour, then one should include a question about the interviewees political opinions But sample sizes need to be small, and interviews short!

    10. Validity Content (face) validity: Does what is measured and what is supposed to be measured coincide? Criterion validity: Do the measured values correspond to other measurements of the same thing? Construct/convergent validity: Do the measured values correlate to measurements of similar things? Construct/theoretical validity: Do the measurements correspond to predictions?

    11. Reliability The more familiar people are with the good and the scale, the more reliable the measured values For public goods, referenda and taxes are perhaps best; for (quasi-)private goods, individual questions and entrance fee may be better The payment vehicle may distort the measure. Payment cards and perhaps bidding games give the most reliable results

    12. Potential Biases Incentive Strategic Compliance Implied value Starting point Range Relational Importance Position Misspecification Theoretical Amenity Context