Abstract
It is well known to economists that the contingent valuation method (CVM) fills an important gap in valuation technology with respect to managing public environmental goods and services. Currently acceptable CVM practice requires many challenging steps to be followed. One of these important steps is that of assessing the theoretical validity of the household willingness to pay (WTP) finding, but it is far from being a sufficient basis for reaching conclusions as to the credibility predicted community willingness to pay for environmental services. This paper reviews the step of testing for theoretical validity and challenges its importance relative to other more fundamental assessments of the credibility of the predicted household and societal WTP. This paper then deduces that an external ‘audit’ assessment may be necessary, in addition to an internal one, for these values to attain credibility in the determination of public choices.
Highlights
There are two main ways of valuing environmental goods with strong public good characteristics: by analysis of values revealed in actual markets and by analysis of values elicited in constructed markets (Folmer et al, 1995)
Due to the many complexities involved in the contingent valuations (CVs) questionnaire, the questionnaires are typically administered by face-to-face interviews., As this is expensive, budgets frequently constrain the sample to inadequate sizes
There is no doubt that contingent valuation method (CVM) makes a useful contribution to the valuation technology available to economists with respect to guiding public decision making on the management of environmental goods and services
Summary
There are two main ways of valuing environmental goods with strong public good characteristics: by analysis of values revealed in actual markets and by analysis of values elicited in constructed markets (Folmer et al, 1995). One of the reasons for CVM’s rise in popularity is its capacity to measure both passive use and existence values of environmental goods (Breedlove, 1999: 5). These values are not as captured using other prominent environmental goods/service valuation methods. Part of the reason for CVM’s ongoing popularity is that there have been many advances made in reducing the discretionary elements that affect it This has been achieved through adherence to procedural guidelines and the conduct of recommended tests for validity (Arrow et al, 1993; Bateman & Wallis, 1999; Carson et al, 2001). The paper is organised as follows: the stages of applying CVM that are typically most prominent in reports are described, some of the many other important aspects relating to the credibility of an application of CVM are identified and a case is advanced for incorporating external “audit” into the accreditation process
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