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A technique associated with environmental economics which seeks to determine how much consumers of a particular environment are willing to pay to protect it. Environmental economics trades on the difference between price and value, arguing that many economic activities under-value the environment by either under-pricing it or failing to price it at all. Environmental economists thus undertake a two-stage process of environmental valuation. First, theoretical prices for the full cost of environmental protection are imputed by constructing supply and demand curves. The supply curve consists of the direct costs of the measures required to protect an environment plus the indirect effects (e.g. other economic activities foregone as a result of protection). The demand curve consists of users\' \'willingness-to-pay\' for a particular level of environmental protection. Second, these imputed supply-demand prices are then turned into real life prices which will yield an appropriate level of environmental protection. Contingent valuation methods belong to the demand-side of the first stage (Bateman, 1995; see also neo-classical economics).
Demand-side valuation consists of so-called \'revealed\' and \'expressed preference methods\' (cf. revealed preference analysis). The former consists of methods which \'reveal\' user preferences for environmental protection by examining what users pay for associated goods (e.g. how much they pay in petrol costs to visit a wilderness area threatened with development). The latter, by contrast, investigates what the user would be willing to pay for environmental protection per se — it is a \'direct\' valuation method. Contingent valuations use either direct or expressed preference methods.
Contingent valuations usually take a representative sample of the relevant environmental user groups (cf. survey analysis). Those selected are asked a series of questions which reveal how much they would pay to enjoy a specific type and level of environmental amenity. Broad-based contingent evaluations base their questions upon the recognition of three kinds of environmental value: economic value, option value (the value of an environment not presently used by a given person but which might be used by them or their family in the future) and existence value (the value an individual places on preserving an environment in its own right, like a wetland or upland). This can lead to very complex contingent valuation surveys which yield expressed preferences for a complex range of possible scenarios for a given environment (see Willis and Garrod, 1993). (NC)
References Bateman, I. 1995: Environment and economic appraisal. In T. O\'Riordan, ed., Environmental science for environmental management. Harlow: Longman, 47-65. Willis, K.G. and Garrod, G.G. 1993: Valuing landscape: a contingent valuation approach. Journal of Environmental Management 37: 1-22. |
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