THE UPDATED DEVELOPMENT AND APPLICATION OF CONTINGENT VALUATION METHOD (CVM)

Abstract

The proper valuation of non-market environmental co mm odities has significant policy implications. Environmental valuation is also imp ortant in the event of natural disasters, either man-made or naturally occurrin g. The economic valuation of non-market environmental goods or ecosystem servi ces has been becoming a research frontier and hotspot field of ecological econom ics and environmental economics. Non-market valuation techniques should be appl ied to measure their economic value because of the public goods properties of mo st environmental goods or ecosystem services.Non-market valuation techniques can be broadly classified into two categories: revealed preference (RP) approaches and stated (or expressed) preference (SP) ap proaches. Stated preference methods attempt to elicit environmental values direc tly from respondents using survey techniques, hence the alternative name of “di rect approach”. Stated preference methods can be further classified into two ca tegories: contingent valuation method (CVM), and choice experiment. The CVM is t he most significant approach of non-market valuation technique and has been usi ng most widely. CVM is a direct interview approach that can be used to provide acceptable measu res of the economic value of environmental goods or ecosystem services. The CVM uses interview techniques ask individuals to place values on environmental goods or ecosystem services. The term “contingent” in CVM suggests that it is conti ngent on simulating a hypothetical market for the good in question. The most com mon approach in the CVM is to ask individuals the maximum amount of money they a re willingness to pay(WTP)to use or to preserve the given good or service. Alt ernatively, the respondents could be asked the minimum amount of money they are willingness to accept in compensation (WTA) to forgo the given environmental goo d or service. Theoretically, these two measures should be equivalent. However, s ome empirical studies have indicated that WTA estimates exceed WTP estimates, th is is maybe due to the feelings that the cost they loss the given good or servic e is more than the benefit they get the given good or service.This paper introduced the concept of CVM and the status of its development and a pplication, analyzed the significance of CVM in environmental evaluation methods and its theoretical underpinning, summarized the available elicitation techniqu es or the question formats that acquire maximum WTP, assembled together various biases and their solutions, and introduced briefly the statistical analysis meth ods of contingent valuation (CV) survey data, especially the dichotomous choices data.In recent years, increasing attention has been given to the statistical aspects of CV survey design and data analysis. The main reason for the growing interests in statistical issues is the shift in CV practice from using open-ended questi on to ask about WTP to using a close-ended question format. With the close-end ed question format, the CV responses are not money amount but answers of “yes” or “no”, and one obtains a WTP value from these responses by introducing a st atistical model that links them to the money amounts that people faced in the su rvey. The theory and practice research of CVM in China was almost equal to naught. Fin ally, the urgent research need of CVM in China was pointed out because of the ne ed of green environmental and economic accounting and sustainable development as sessment.