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2.3.5.1. Contingent Valuation

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Contingent valuation involves asking individuals about the economic values they attach to various services of the environment. These services could be those associated with actual use of the resource or they could be for anticipated use or not for any purpose related to use - just the knowledge that the resource exists.

The most commonly used approach in contingent valuation asks respondents the maximum amount that they would be willing to pay for a specific change in the environment. Assuming the answers are honest, the dollar values are an economic measure of value (termed the compensating surplus). While willingness to pay (WTP) is the most common type of question and certainly the most appropriate for evaluating environmental improvements that increase utility, willingness to accept (WTA) may be more appropriate in certain contexts such as damage assessment where individuals have suffered a loss of utility.

An alternative way of framing the valuation question offers respondents a discrete choice. Would you be willing to pay X dollars for a specific change in the environment? WTA questions also could be asked in this context. The responses offer a lower bound on actual willingness to pay for respondents who answer “yes” and an upper bound on willingness to pay for respondents who answer “no.” Many of the early studies then asked the same question at a higher price of those who responded “yes.” The questions were repeated at successively higher prices in what came to be termed a “bidding game” until there were no more positive answers. Constructing an estimate of economic value is straightforward in this case.

Through experimentation, researchers have found that it is preferable to ask the discrete choice question no more than once or twice. Otherwise, the answers tend to be unreliable. From the answers to the discrete choice question (or questions), it is possible to infer an economic measure of value.

Several concerns exist regarding the contingent valuation method. In his 1979 report to EPA, The Benefits of Air and Water Pollution Control: A Review and Synthesis of Recent Estimates, Freeman focused on two issues that were believed to be most troubling at that time: whether individuals might respond strategically in answering questions in order to influence public policy; and the lack of an incentive for respondents to try to answer hypothetical questions accurately. Both of these concerns have been shown to be minor, but new issues have arisen.

One of these other issues is termed “starting point bias,” for researchers have found that in the bidding game approach, the final estimates of value often depended on where the bidding started. Embedding is another problem. It arises when the bids for one unit of environmental improvement is valued nearly the same as many units. For example, preserving water quality in one lake may be worth an average of $25 to respondents, while preserving water quality at 10 lakes is worth just $27 and preserving water quality at 200 lakes just one dollar more. Surely diminishing marginal utility cannot be that severe, critics say.

Large differences are found in questions framed as WTA versus those framed as WTP, much larger differences than could be explained by economic theory. Hanneman has shown that large differences are to be expected only when the environmental attribute has no close substitute (e.g., endangered species, unique natural areas).

A final problem noted here is the fact that when respondents to a contingent valuation question are asked to make an actual monetary payment to demonstrate the sincerity of their previous answers, the actual payments fall very far short of what had been stated. Thus, some critics assert that the answers to CV questions do not represent real economic commitments. Recently, Cummings has reported progress in dealing with this problem.

The 1979 report entitled Methods Development for Assessing Air Pollution Control Benefits Vol IV, Studies on Partial Equilibrium Approaches to Valuation of Environmental Amenities (EE0271D) is a collection of four papers. The fourth paper, "Valuation Revealing Guesses: A Report on the Experimental Testing of a Non-Market Valuation Procedure," by William R. Porter and Berton J. Hansen describes an experiment intended to turn strategic behavior into a reinforcing factor in contingent value studies rather than an interfering factor. Subjects were asked to count how much cash they were carrying and also asked to guess the average amount carried by all subjects. Prizes were offered for accurate guesses. Self-interest then motivates subjects to reveal their true valuations of the unknown variable. A statistical analysis on the results is presented showing the number of subjects needed for various levels of confidence. The investigators then propose analogous contingent valuation studies for public goods where prizes are offered for bidding close to the mean bid.

The Effects of Framing and the Status Quo on Compensating and Equivalent Variation Measures of Value (EE0391) by McClelland, Schulze and Coursey (1988) investigates a phenomenon of asymmetry. Typically, individuals have a willingness to accept (WTA) that exceeds willingness to pay (WTP). That is, individuals are willing to sell back a lottery ticket only at much higher price than they are willing to pay for it. This seems to be the case even when the amounts involved are too small to involve noticeable wealth effects. Although not made clear in the paper, the asymmetry has a bearing on environmental economics because valuation of an environmental amenity could be based on either WTP or WTA and they differ. The investigators introduce a psychological concept, prospect theory, which argues that, unlike an economist’s utility function, the shape of a psychologist’s value function is dependent on where we are presently. Further, this value function is asymmetric as regards gains and losses.

The investigators conduct experiments on panels of subjects to confirm or refute prospect theory. The “… experiments consist of competitive auctions where (1) insurance policies protecting subjects from a $10 loss with 40 percent odds were either sold or bought back or (2) lottery tickets which paid a $10 gain with 40 percent odds were either sold or bought back.” The results are consistent with prospect theory.

Experiments that compare hypothetical WTP using a contingent valuation format and actual WTP for a private good have found no statistically significant difference. Dickie, Fisher and Gerking, Market Transactions and Hypothetical Demand Data: A Comparative Study, (1985) (EE0351) conducted such an experiment for strawberries in Laramie, Wyoming. Bishop and Heberline found that stated WTP for hunting permits differed little from amounts that hunters actually had to pay. WTA is a different matter, though, with Bishop and Heberline reporting hypothetical WTA in excess of actual WTA for goose hunting and other permits.

The 1985 report Experimental Methods for Assessing Environmental Benefits Vol IV Valuing Safety: Two Approaches (EE-0280E) by Gegax, Gerking, Schulze and Anderson is a contribution to the literature on the statistical value of a human life. This study is largely comprised of a review of the topic and the presentation of a model. Then, two parallel studies of job-related safety are offered. One is a hedonic model from which a valuation is inferred. The other, a contingent value study, derives a valuation more directly. The values are similar to each other at around $2 million per life and similar to previous studies.

Gregory’s 1985 paper Measures of Consumer’s Surplus: Interpreting the Disparity in Views (EE0058) explores the relation between willingness to pay and compensation demanded as measures of economic losses for environmental goods. As many previous studies have demonstrated, though economic theory suggests the two approaches should yield similar estimates, willingness to pay is typically much less than compensation demanded. Several experiments with subjects revealed that asking and interpreting valuation questions is quite complex. Though it has promise in the view of the author, much more additional research is urgently needed, especially to explain the persistent gaps between WTP and WTA.

The special problems of measuring nonuse values were addressed in a number of papers at the 1985 AERE Workshop on Recreation Demand Modeling (EE0137) (procedings edited by Smith, Morey, and Rowe). Those that deal with the travel cost method are reviewed elsewhere. Those that deal with non-use values are reviewed here.


An important peer-review of the contingent valuation method, held in Palo Alto California in 1986, is summarized in two volumes: Valuing Environmental Goods: A State of the Arts Assessment of the Contingent Valuation Method (EE0280A,B). The distinguished panel of reviewers included Kenneth Arrow, Daniel Kahneman, Sherwin Rosen, and Vernon Smith. The peer review basically gave a qualified approval to the the technique, making numerous recommendations for improvement.

Measuring Values: A Conceptual Framework for Interpreting Transactions with Special Reference to Contingent Valuation of Visibility (EE0385) by Fischoff and Furby (1987) is a lengthy discourse on the philosophy of the contingent valuation method. The authors state that the method has become mature enough to warrant “codification.” Further, “... for CV to achieve internal consistency, and ‘paradigm’ status, its practitioners must agree on the factors that need to be considered when creating and interpreting the transactions in CV studies. In order for CV to achieve credibility with other disciplines in the evaluation business, its critical factors must include those deemed critical by those disciplines.” The authors describe a transaction, actual or contingent, as consisting of three components: the good, the payment and the marketplace or broader social context in which the transaction is consummated. They spend the next several dozen pages analyzing each of these components for the contingent value method with special reference to visibility.

The 1987 report Reconciling Averting Behavior and Contingent Valuation Benefit Estimates of Reducing Symptoms of Ozone Exposure (EE0285G) by Dickie, Gerking, Brookshire, Coursey, Schulze, Coulson and Tashkin attempts to reconcile differences between contingent valuation and averting behavior methods for estimating the willingness to pay to avoid various symptoms of ozone exposure, including chest thghtness, throat irritation, headache, and pain on breathing deeply. Contingent valuation bids to avoid one day of these symptoms typically exceeded averting behavior estimates by a factor of five to ten. The reconciliation approach asked respondents in a cv survey to revalue their bids after their original bids were extrapolated to a monthly outlay based on frequency of occurrence. The adjustments made by respondents were surprisingly large; original bids to avoid one day of headaches averaged $178 and one day of cough $355, whereas the revised bids averaged just $1.19 for each symptom.

A often-cited problem of the contingent value method is that respondents give answers to hypothetical questions that bear little or no relationship to what they actually would pay if asked to do so. The objective of the NSF/EPA-funded research by Cummings and Osborne (1996) Valuing Environmental Damages with Stated Preference Methods: New Approaches that Yield Demonstrably Valid Values for Non-Priced Environmental Goods was to design new contingent valuation formats that yield responses to hypothetical questions that are consistent with what the individuals would pay in a real situation. That is, the answers represent real economic commitments.

One design, termed "Cheap Talk" featured informal discussions between the experimenter and the subjects concerning the behavioral strategies that subjects might employ, i.e., saying they would pay more than what they actually are willing to pay. The experimenter does not actually instruct subjects what to do, but may express the attributes of a "best" strategy. The second survey design, termed the Learning Design, had subjects first respond to a hypothetical willingness to pay question. Then the same question was asked in a real format; respondents had to pay. A different willingness to pay question then was posed in hypothetical format. Both the Cheap Talk and Learning Design approaches avoided hypothetical bias. What subjects said in response to hypothetical questions was consistent with real economic commitments. The authors expressed the view that the Cheap Talk design would be easier to implement in field studies.

Sources of Error in Contingent Valuation (EE0152) by McClelland, Schulze, Waldman, Irwin and Schenk (1990) represents an attempt to rectify four problems the authors identify in contingent valuation studies. The first problem, a tail of excessive bids, they propose to remedy by using a Box-Cox procedure. The second problem, zero bids or the refusal of some respondents to bid, they cannot resolve. The third problem, confirmed by experiment, is the perception by some respondents that their bid will be spent goods beyond the subject public good. The fourth problem, survey context, the investigators find to be insignificant.

In his 1993 review of the state of the art in measuring environmental and resource values, Freeman concluded that contingent valuation methods have seen much progress over the last several years, thanks to the efforts of many researchers from economics as well as marketing and cognitive psychology. One of the contributions from the marketing literature is Applicability of Market Research Techniques to Willingness-to-Pay Surveys - A Working Paper by Savant Associates (EE0185). Conjoint analysis and other topics are described in the Workshop on Using Contingent Valuation to Measure Non-Market Values: Transcript of Proceedings, May 19, 1994.(EE0284). Mendelsohn offers insights on Controlling Outliers in Contingent Valuation Experiments (EE0251). Mitchell and Carson provide an excellent summary of the literature up to 1989.

The NSF/EPA-funded study from 1995, “Can Contingent Valuation Measure Passive Use Values” by Schulze, Poe, Kahneman, Cameron, Brown and McClelland investigates concerns about the ability of CV to produce reliable estimates of passive-use values. The researchers took advantage of a green pricing program offered by Niagara Mohawk Power Corporation. Niagara Mohawk plans to make annual offerings using an incentive compatible public good auction mechanism (a provision point with a money back guarantee) to provide specific green projects. Five alternative CV elicitation methods, with two context variants, were employed to attempt to estimate customer values prior to implementation. This opportunity to conduct a social experiment will help answer fundamental questions concerning the validity of CV, identify which methods, if any, are most appropriate, as well as allow for development of a calibration factor, etc.

The NSF/EPA-funded study from 1997, “Citizen's Preferences for Environmental Options: Evidence on Existence and Triggering” by Russell, Gregory, MacLean, Clark and Hadley hypothesizes that, by stressing one or another of several `themes` in a multi-attribute utility (MAU) questionaire, they can trigger predictably different response patterns. The researchers test their hypothesis using a three-attribute MAU survey about preferences over management options for a forested park in Nashville, Tennessee.

The NSF/EPA-funded study from 1995, “Comparative Studies of Approaches to Eliciting Economic Values” by Carson, Groves and Machina looks at the properties of a number of different stated preference approaches to eliciting information useful for estimating the economic value of a change in an environmental amenity. The investigators believe their results will serve several distinct purposes. First, they provide a consistent basis upon which to make predictions about the optimal response to any particular survey question. This should assist in the interpretation of existing results and provide a basis upon which to develop new experiments to help test the model. Second, the model proposed should help researchers make informed decisions about what types of survey questions should be used in different contexts. Third, because the model predicts different (specific) behavior in different situations, it calls into question many claims in the literature that particular results, such as differences between valuation estimates based upon two different survey question response formats, imply that respondents have inconsistent or non-existent preferences. Fourth, the model provides a clear linkage between observable behavior in political and private markets and responses to consequential surveys.

The NSF/EPA-funded study from 1997, “Demand Revealing Mechanisms for Contingent Valuation Validity Tests: Experimental Approach Using Appropriate Populations” by Poe and Schulze has two primary objectives. The first objective is to use laboratory experiments to develop a better public goods auction mechanism that can be used as a criterion for public goods validity tests, thus enabling an accurate measure of hypothetical bias in public goods valuation. The second objective will be to provide a more realistic test of the single shot provision point mechanism in field settings with more `appropriate` populations of the type usually solicited in CV research, a more realistic commodity, and with realistic stakes of a magnitude similar to those reported in CV research. The intent of this second effort will be to evaluate mechanism effects on hypothetical as well as actual payments. This research will develop a robust mechanism for better collecting funds for public goods in a practical single shot situation. This mechanism will be directly relevant to laboratory and real world settings for testing and calibrating CV. It will also provide a better collection mechanism for land trusts, green electricity, and other public programs relying on individual contributions.

The NSF/EPA-funded study from 1992, “Development of a New Method for Valuing Environmental Resources” by Gregory seeks to provide insights that will lead to improvements in contingent-valuation (CV) methods for estimating the economic value of environmental gains and losses. Despite substantial increases in the use of CV methods, serious doubts remain concerning their validity and accuracy. The researchers believe improvement in CV methods can be made by paying closer attention to the multidimensional nature of environment values and to the constructive nature of human preferences. They propose to develop both theoretical and applied linkages between CV approaches and techniques based on the value-structuring capabilities of multiattribute utility theory and decision analysis. These improvements will result in the development of methods to integrate environmental valuations across multiple dimensions of value, including values that are not represented in monetary terms. This will result in more defensible valuation efforts and, to the extent that stakeholders regard the evaluation process as more valid, should lead to a decrease in litigation against EPA projects and programs.

The NSF/EPA-funded study from 1995, “Eliciting Environmental Values: A Constructivist Approach” by Fischoff, Loewenstein and Dowlatabadi has three foci: how to compose complex questions, how to help respondents to produce the best answers possible, and how to characterize the definitiveness of the resulting responses (so that they can be used responsibly in public policy making). One aspect of our experimental and theoretical work has been identification of the sources of embedding or magnitude insensitive valuation (the tendency to provide similar valuations to different quantities of a good). Also central to this study is methodological development of an alternative to conventional contingent valuation, suitable for situations in which people cannot be expected to produce meaningful responses within the constraints of a survey interview; and development of an experimental testbed for applying (and evaluating) the methodology.

The NSF/EPA-funded study from 1995, “Improving Willingness-to-Accept Responses Using Alternate Forms of Compensation” by Mansfield, Van Houtven and Huber includes a pilot survey to investigate why willingness-to-accept compensation surveys so often yield unreliable data and whether respondents would find alternate modes of compensation (specifically, pubic goods) more acceptable. The study will include both a theoretical discussion of why individuals may react negatively to offers of cash compensation and empirical results from the survey testing the hypothesis that individuals will prefer public goods as compensation and that the responses to public good compensation questions will be more stable than the responses to cash compensation questions. The survey will focus primarily on the problem of determining the proper level of compensation for host communities when siting noxious facilities. Information from the pilot survey will be used to try and improve willingness-to-accept surveys and the siting process for noxious facilities.

The NSF/EPA-funded study from 1995, “Preference Formation and Elicitation in Valuing Non-Market Goods” by Brookshire, Berrens, Ganderton, McKee, Jenkins-Smith and Kaplan is an interdisciplinary project to investigate the interaction between value formation and value elicitation. The basic premise is that an understanding of how individuals form environmental values (e.g., purchase versus contribution model) cannot be decoupled from the value statement problem and the choice of elicitation mechanism. The corollary premise is that social context is an important, but relatively unexplored, determinant of both value formation and value statement. The methods to be employed in this research will include a unique combination and sequencing of field surveys and laboratory experiments.

The NSF/EPA-funded study from 1995, “Social Psychology of Stated Preference” by Dietz, Guagnano and Stern will explore the social psychology of expressed willingness to pay (WTP) for environmental improvements in order to gain understanding of question-wording effects, examine whether structured value elicitation techniques can mitigate them, and explore the comparative advantage of the contingent valuation method (CVM) and more interactive and discursive methods of assessing social value. Sensitivity of CVM to question wording (e.g., embedding effects) is troublesome if WTP is presumed to directly reflect underlying preferences, but from the standpoint of a constructive theory of preferences and from knowledge gained from surveying other subjective phenomena, such phenomena are normal. They can be interpreted as reflecting framing or focus effects, in which wording influences WTP by altering the cognitive shortcuts individuals use to construct their responses. Two experiments are proposed: 1) to examine framing effects and analyze respondents cognitive processes to determine whether cognitive focusing mediates the effects, and 2) an exploration of ways to minimize focus effects in eliciting social value.

The NSF/EPA-funded study from 1993, “Subadditivity and WTP/WTA Differentials--a Test of Competing Explanations” by Horowitz considers the contingent valuation method, which is widely used in evaluations of proposals for expenditures on public goods and in natural resource damage assessment. Two frequently observed phenomena, however, pose problems for the use of contingent valuation methods in welfare analysis: the differential between willingness to pay (WTP) and willingness to accept (WTA) measures of value, and subadditivity in willingness to pay. Two competing explanations of consumer behavior are used to explain these phenomena, the demand-theoretic model and the psychological model. The key observation motivating the proposed study is that the psychological explanation implies subadditivity for both WTA and WTP, whereas the demand-theoretic explanation implies superadditivity for WTA. This permits a test of the competing hypotheses. Empirical tests of these hypotheses are proposed, the first part using the Knetsch and the second, the Kahneman-Knetsch approach.

The NSF/EPA-funded study from 1996, “Valuing Reductions in Environmental Sources of Infertility Risk Using the Efficient Household Framework” by Van Houtven and Smith notes that there has been growing concern about endocrine-disrupting chemicals in the environment affecting human health in various ways, among them increased risks of infertility. This project will develop and evaluate a methodology for applying stated preference techniques to assess the value associated with reducing infertility risks. Previous research in nonmarket valuation of health and environmental risks has focused on individual decisions; however, infertility risks clearly present a context where the household (i.e., the couple) is the relevant decisionmaking unit. This project develops a conceptual framework for linking collective (household) decisions to the preferences of the individual members. It provides a method for demonstrating how measures of economic welfare based on households' observed or stated decisions relate to the preferences of its individual members.

The investigators are developing a model of household decisions in which children are treated as a nonrival good within the household, and the household decision is whether to reduce the risks of infertility. In contrast to the more traditional "unitary" models that treat household decisions as if they were made by one individual (i.e., a benevolent preference formulation), this project's formulation is equivalent to assuming that the household maximizes a weighted sum of the members' preferences and that the members are not altruistic. This formulation, or "collective" model, is equivalent to each member maximizing his or her preference function subject to a budget constraint where a sharing function describing the income available to each member exists.

The NSF/EPA-funded study from 1994, “Verbal Protocol Analysis of Cost Valuation Responses” by Desvousages seeks to understand better how individuals interpret and respond to contingent valuation (CV) questions. The research will address three issues: the reliability of the referendum questions format, the importance of reminding respondents about substitutes, and the sensitivity of CV estimates of the scope of potential natural resource injuries. A verbal protocol methodology adapted from the field of cognitive psychology will be used to provide insights into thought processes that lead to observed CV response. These protocols involve the process of respondents "thinking aloud" while they answer the CV questions. This process yields insights on both the decision process that people use to answer questions and the information they use as part of the decision process. Protocols will follow a research design that will enable the results to be useful for both hypothesis testing and developing more general insights about people's response patterns. Surveys will be used to further test the findings of the verbal protocol research.

You can see the full list of reports corresponding to this section in the benefits analysis - valuation - stated preference - contingent valuation subview of the subject view of the Environmental Economics Report Manager (EERM) database and corresponding list of research projects in the benefits analysis - valuation - stated preference - contingent valuation subview of the subject view of the NSF/EPA Funding for Environmental Economics (FfEE) database. The remainder of this section reviews applications to specific environmental issues: air quality, surface water quality, ground water, forests, and hazardous waste sites.

Air Quality

The late 1970’s report Experimental Methods for Valuing Aesthetics and Health Effects in the South Coast Air Basin: An Overview by Brookshire, et al. (EE0067) discusses results of both a contingent valuation survey and a property value analysis in the Los Angeles area. The study found that people were willing to pay at least as much for air quality improvements through their choice of residential location as they said they would in a CV survey.

Two contingent valuations of air quality are presented in Methods Development in Measuring Benefits of Environmental Improvements, Vol. II, Experimental Approaches for Valuing Environmental Commodities by Schulze, at al. (EE0272B) One experiment concerned the value of visibility in the Grand Canyon and the second was for ozone in Los Angeles. A third contingent valuation component dealt with hazardous waste.

Tolley and Randall’s 1984 report Establishing and Valuing the Effects of Improved Visibility in Eastern United States (EE0003) develops a technique to value visibility improvements. The technique takes as input a policy to improve visibility and produces as output a dollar estimate of the benefit. Several links tie the alternative policy inputs to the benefits outputs. One link is an engineering estimation of the resultant visibility improvement. Contingent valuation is another link. It is used to develop a visibility valuation function that maps visibility changes into dollar values. The function is sensitive to the personal characteristics of the resident population and the geographic distribution and size of the visibility change. A number of illustrative policies are used to exercise the model. The investigators find, for example, that the most stringent control scenario (roughly a 50% reduction in SO2 versus 1979 status quo) produces a 3.1 mile visibility improvement (as defined) in Ohio and 1.3 miles in Georgia with projected benefits in 1990 of $1.5 billion in Ohio and $350 million in Georgia.

The Tolley et al. study “Establishing and Valuing the Effects of Improved Visibility in Eastern United States” was reviewed in 1986 by Chestnut, Rowe and Murdoch in document EE0400. The comments on that work are mostly negative focusing on problems in the contingent valuation study underlying the Tolley piece and its presentation. The review, however, notes, “… that the mean … results look quite consistent with other studies …”

Valuing Eastern Visibility: A Field Test of the Contingent Valuation Method (EE0008) a 1993 report by McClelland and Schulze attempts to remedy certain of the flaws in the Tolley et. al study (EE-0003) on the same subject. Among the shortcomings cited were, "inconsistency between photographic representation of visibility and the scenarios being evaluated; inadequate attention to perception and health versus aesthetic issues; and starting point bias." Respondents were shown photos of three pristine city scenes and two computer-degraded variants of each scene to indicate different visibility levels. Respondents were given frequency distributions of the three visibility levels to represent alternative scenarios. Probit and Box-Cox methods were used to address statistical problems. The study uses contingent valuation as did its predecessor. It attempts to correct for incomplete and missing responses using sophisticated statistical techniques. It also attempts to distinguish the value of visibility improvement from other environmental enhancements, i.e., soiling and health.

A Synthesis of Contingent Valuation Studies of the Value of Atmospheric Visibility (EE0386) by Crocker (circa 1983) models willingness to pay for atmospheric visibility in the southwestern United States. It does not offer an original empirical study. Rather, it synthesizes five such studies all of which use contingent value. The author notes that five are not replicates of each other so he has a task to meld them. He begins with a critique of each. The author’s objective is to “estimate” two coefficients in a regression equation that could be described loosely as a demand for visibility function. The dependent variable is the total annual willingness-to-pay of the representative U.S. household for a day of improved visibility. The independent variables are that household’s annual income in thousands of dollars and atmospheric visual range in miles. The equation is in log-log form. The coefficients, of course, are the factors that fall on the two dependent variables. The log-log form causes them to be elasticities. No regression is run, however; coefficients are estimated qualitatively by studying the five prior works.

As to the first coefficient, the author indicates that, “... the income elasticity of demand by outdoor recreators and tourists for atmospheric visibility is quite low. It appears to lie between 0.1 to 0.5, with the weight of evidence leaning more toward 0.1. A reasonable compromise ... is thus perhaps 0.2.” The other coefficient is the elasticity of willingness-to-pay with respect to visibility range. This appears to be an increasing function of range. However, for areas “... of the country currently experiencing median summer visual ranges in excess of 30 miles,” the author estimates a value of 0.8. Finally, he specifies a single per mile value for atmospheric visual range $.129 ($1980).

Santa Clara Criteria Air Pollutant Benefit Analysis (EE-0401) by Chestnut, Rowe and Ostro (1987) quantifies the benefits of moving from the current pollution levels to (1) Federal air standards, (2) more stringent California air standards and (3) minimum levels that have been measured in the county in recent years. Health damages are estimated by a three-stage multiplicative process. First, a damage function is specified. It maps pollution to damage. Second, a pollution decrement is specified. Third, the affected population enters as a factor. For its various estimates and inputs, the present study relied heavily on earlier works. The pollutants considered were particulates, ozone and lead. Damages consisted of deaths, various illnesses and illness measures, visibility impairment and materials damage.

Compliance with Federal standards would not save any lives but compliance with state standards would save 0 – 57 lives annually with a best estimate of 37, all from reduced particulates. The other damages were converted to dollar terms. The Federal standards would avoid $656 thousand in damages annually but the state standards would avoid $107 million of damages. About $88 million of that total derives from avoided visibility impairment and materials damages from reductions in particulates.

Valuing Gains and Losses in Visibility and Health with Contingent Valuation by Loehman and Boldt (EE0020) (1990), a contingent valuation survey of 412 individuals in the San Francisco Bay area, found a modest willingness to pay more to avoid losses than to obtain gains for combined visibility and health. The investigators found that for health alone willingness to pay to avoid losses was approximately twice as large as willingness to pay to obtain gains. The research attempted to establish relationships between willingness to pay for gains and losses of health and visibility with a number of factors. Doing so indicated that visibility and income are substitutes whereas health and income are complements. Ranking of contingent responses revealed that a tax of $5 per month to avoid a 20% deterioration in both visibility and health would receive a majority vote. However, the tax would have to be much smaller, only $1 per month, to receive a majority to improve visibility and health by 20%.

The NSF/EPA-funded study from 1997 entitled “A Comparison of Direct Methods for Valuing Environmental Policies” by Halstead, Stevens and Hill will study visibility changes that might result from electric utility deregulation in New Hampshire. The study’s objectives are: “(1) To compare and contrast two frequently used methods of valuation of nonmarket commodities such as visibility (the contingent valuation method and conjoint analysis) to provide insight into which (if either) might be the more appropriate technique to address the problem at hand; (2) To derive estimates of the impacts of visibility changes in the White Mountains region of New Hampshire on visitors to the region; and (3) To use these estimates to determine part of the potential economic impact of deregulation of the electric industry in New Hampshire.”

Surface Water Quality

The 1978 study Option Values, Preservation Values and Recreational Benefits of Improved Water Quality by Walsh et al. (EE0064) used a contingent valuation survey to derive values for the South Platte River Basin of Colorado. Published versions of the study were criticized because of skepticism over the claimed partitioning of values into separate components.

Cronin analyzed data obtained in a 1973 contingent valuation survey of willingness to pay for improvements in water quality in the Potomac River, reporting the results in the 1982 study Valuing Nonmarket Goods Through Contingent Markets (EE0186).

The Incidence of Local Water Pollution Abatement Expenditures: A Case Study of the Merrimack River Basin (EE0345), a 1974 Ph.D. dissertation by Oster, is an investigation into the political economy of water pollution abatement expenditures by local governments in Massachusetts. The author first considers the political determinants of expenditures investigating whether they reflect purely community preferences or also emphasize the preferences of decision makers.

The second part of the dissertation is an empirical investigation of the incidence of costs and benefits of water pollution abatement. The author finds that almost half of expenditures are financed through expenditure substitution particularly away from public safety and parks and recreation and the rest through local property taxes. She concludes that the financing is regressive. On the benefits side, a contingent value study was undertaken and there, too, the benefits were deemed regressively distributed. The travel cost method was reviewed, possibly as an alternative, but no study was attempted.

The Recreation Benefits of Water Quality Improvements: Analysis of Day Trips in an Urban Setting (EE0308), a 1978 report by Binkley and Hanemann, studies the demand for day trips to beaches in the Boston area. The investigators noted the mutual substitutability of beaches and attempted to capture this effect, necessary to compute consumer surplus measures. They were unable to take this last, most important step for want of resources. A survey of beach visitors implied that, “... the hypothesis that water quality perceptions are not linked to actual water quality cannot be rejected. ... this conclusion jeopardizes the search for a link between levels of water quality and demand.” Nevertheless, cleaning up the water makes opening of additional beaches possible enhancing consumer surplus.

The Use of Contingent Valuation Data for Benefit/Cost Analysis in Water Pollution Control (EE0150), a 1976 report by Mitchell and Carson, consists largely of a national contingent value study to estimate the benefits of improving water quality. After estimating a demand equation, the investigators apply it to cleaning up the Monongahela River in Pennsylvania so that they may compare results with those obtained by Desvousges, Smith and McGivney (DSM). To upgrade the river from boatable to fishable, DSM find a benefit of $24 million which corresponds closely to the investigators’ estimate of $19 million. The study concludes with a chapter on a contingent value survey the investigators undertook to predict the vote on a water bond issue on the California ballot.

In 1981, Mitchell and Carson reported on the feasibility of developing a national benefit estimate for water quality improvement with the contingent valuation technique: An Experiment in Determining Willingness to Pay for National Water Quality Improvements (EE0011). Willingness to Pay for National Freshwater Quality Improvements (EE-0219), a 1984 report by Mitchell and Carson, presents results of a contingent value study intended to estimate willingness to pay for water quality improvements. The investigators specified three levels of water quality -- boatable, fishable and swimmable -- and attempted to discern from subjects what they would pay for each. The survey technique, for which they claim origination credit, presents each subject with an “anchored payment card” that shows many amounts including “anchors,” amounts which people in the subject’s income category are paying for some public goods. The subjects indicate what they would pay for the three levels of water quality. The study found “adjusted annual household values of $99 for boatable quality water, $70 for fishable and $78 for swimmable for a total willingness to pay for national water quality improvements of $242 ....” A national figure for swimmable water is $20 - 24 billion.

Desvousges, Smith and McGivney conducted A Comparison of Alternative Approaches for Estimating Recreation and Related Benefits of Water Quality Improvement (EE0017) in 1983. The study compares travel cost with contingent valuation estimates of changes in water quality on a stretch of the Monongahela River in Pennsylvania. This study pioneered the use of a numerical water quality ladder (boatable, fishable, swimable, etc.) to describe scenarios for improving water quality. A 1985 paper by Desvousges, Smith and Fisher Option Price Estimates for Water Quality Improvements: A Contingent Valuation Study for the Monongahela River (EE0301) discusses a technique for dealing with outlying responses.

This 1983 paper Intrinsic Benefits of Improved Water Quality: Conceptual and Empirical Perspectives (EE0057) by Fisher and Raucher reviews a number of contingent valuation studies that estimate intrinsic benefits (altruistic values, option value, existence value) for water quality and compares these values to direct use values. The authors observe that in the six studies they reviewed, calculated intrinsic benefits range from 44% to 80% of direct use values. Many subsequent water quality studies that measure only use value have used this range (44% to 80%) to estimate unmeasured intrinsic benefits.

A 1986 CV study Valuing Drinking Water Risk Reductions Using the Contingent Valuation Method: A Methodological Study of Risks from THM and Giardia (EE0012), also by Mitchell and Carson, focuses on two water-borne risks: chlorinated organic substances (trihalomethanes) and the parasite giardia.

In their paper Field Testing Existence Values: An Instream Flow Trust Fund for Montana Rivers (EE0282) (1991) Duffield and Patterson used a contingent valuation survey and a simulated market with actual cash transactions to estimate use and existence values for several instream flow resources in Montana.

Ecosystems

The NSF/EPA-funded study from 1995, “Measuring Societal Perceptions, Attitudes and Economic Benefits of Ecological Integrity and Biodiversity by Extending Contingent Valuation” by Loomis, Covich and Fausch proposes to draw on interdisciplinary expertise to translate the concept and measurement of ecological integrity into the flow of services provided by maintaining intact, self-regulating ecosystems. Diagrammatic and narrative presentations will be developed to communicate these services using survey instruments. In-person interview techniques will be used to administer the survey to the general public as well as to knowledgeable groups to measure: 1) understanding of and attitude toward native versus non-native species; 2) importance of restoring a Western Great Plains aquatic ecosystem; and 3) their willingness to pay to protect more diverse, self-regulating ecosystems. A specific outcome of this project is to test the feasibility of measuring public knowledge about attitude toward and willingness to pay for restoration of ecological integrity. It will measure the direct use and public trust values of increased instream flow and water quality in terms of supporting a diversity of interconnected species, riparian vegetation, and recreation opportunities. The measurement will be accomplished using a variety of social indicators including attitudes, preferences, ordinal rankings, and willingness to pay.

The NSF/EPA-funded study from 1996, “Stated Preference Valuation Using Real Money for Real Forested Wetlands” by Swallow and Paton develops a model of public preferences for forested wetland attributes in Rhode Island by integrating methods from environmental economics with guidance from conservation biology. The project's objectives are to: (1) identify critical ecosystem attributes of forested wetlands, considering both the impact on residents' quality of life and factors identified as important by conservation biologists; (2) develop a model of public preferences for alternative attributes of forested wetlands, using Rhode Island as a case study; and (3) estimate money-measures of economic value for forested wetland attributes by conducting a survey of the public and comparing survey responses based on hypothetical dollar costs to responses based on questions that require respondents to contribute real money.

The survey method will ask respondents to review descriptions of two or more parcels of land with wetland attributes and to choose a parcel, if any, for which the respondent would be willing to pay a specified price to guarantee some level of protection of ecological services. Some of these parcel descriptions will pertain to land that belongs to private landowners who have agreed to cooperate with the research.

Groundwater

A 1992 report by McClelland, Schulze and several other contributors used the contingent valuation method to estimate willingness to pay for non-use values of groundwater: Methods for Measuring Non-Use Values: A Contingent Valuation Study of Groundwater Cleanup (EE0013A). Their response to criticism by EPA’s Science Advisory Board Economics Advisory Committee is contained in an accompanying memorandum (EE0013B).

Marine Environment

Cameron (1989) Contingent Valuation Assessment of the Economic Damages of Pollution to Marine Recreational Fishing (EE0001) uses contingent valuation methods to estimate the demand for recreational saltwater fishing in eight major bays along the Texas coast. In a survey of over 10,000 recreational anglers that they conducted between May and November 1987, the author her assistants collected data on characteristics of the individual, including home zip code and a response to a willingness to pay question, their current catch, the location and time of the interview, and several measures of water quality collected by survey personnel and separately by the Department of Natural Resources.

The apparent price elasticity of demand (assuming markets existed) was about -2.2, meaning that if access were to increase in cost by 1%, demand would fall by 2.2%. The income elasticity is less than one, suggesting that recreational fishing is somewhere between a necessity and a luxury. Water quality appeared to affect demand, though not always in a fashion consistent with prior expectations. Indeed, recreational fishing was most highly valued in areas with lower water quality, possibly the result of correlation with other regional influences on demand and water quality such as industrial activity and population density. Companion papers in this report develop WTP estimates using the travel cost method and compare contingent valuation and travel cost estimates.

Marine Recreational Fishing in the Middle and South Atlantic: A Descriptive Study (EE0036A), a 1994 report by by McConnell and Strand, estimates the value of recreational fishing opportunities along the east coast from New York to Florida. Water quality is a component of that value. The paper develops a model for catching a variety of fish species, estimates the value of access and fish, performs a contingent value study of fishing trips and estimates a random utility model. The final result is that east coast recreational fisheries have a 1988 present value of about $100 billion.

The Economic Value of Mid and South Atlantic Sportfishing (EE0036B), a companion to (EE0036A) and also by McConnell and Strand, uses both contingent valuation and travel cost models to estimate the economic value of marine recreational fishing in the Middle and South Atlantic states, from New York to Florida. There are two values of interest: one is access value, what anglers will pay to have access to the resource; the second is the value of changes in the quality of fishing, what anglers would pay for characteristics of the experience such as catch rate. Pollution and its impact are assessed through changes in the catch rate.

The authors used a contingent valuation approach to estimate willingness to pay: in this case the monetary sums that anglers said they would accept to forego the right to fish in (1) marine waters of their state and in (2) marine waters of the entire East Coast for one year. The mean willingness to sell ranged from a high of $700 for the entire East Coast for those interviewed in New York to a low of about $500 for the rights to fish in state waters of South Carolina. The aggregate values estimated for marine sport fishing access totaled $1 billion in Florida and nearly htat much in North Carolina.

Forests

Methods Development in Measuring Benefits of Environmental Improvements Vol IV Valuing Ecosystem Functions: The Effects of Air Pollution (EE0272D) by Crocker, Tschirhart, Adams, and Katz, a report from the early 1980s, attempts to develop a link between ecosystems and economies that will allow an economic evaluation of ecosystem structure and diversity.” The authors develop a model of nature in economic terms and then introduce humans and economic activity. Energy and entropy play central roles in their effort. The second part of the study is a contingent valuation exercise to determine willingness to pay to avoid air pollution damage to a forest. The final section of the study attempts to develop a method for deriving a dose-response relationship for agricultural production to air pollution and applies that method to the effect of ozone on four crops: corn, cotton, soybeans and wheat.

Peterson and Rowe (1987) describe a contingent valuation survey of willingness to pay to avoid visual (aesthetic) damages to forests in Improving Accuracy and Reducing Costs of Environmental Benefit Assessments: Valuation of Visual Forest Damages From Ozone (EE0285E). The report also compares the CV estimates with property-value-based estimates.

Hazardous Waste:

Smith, Desvousges and Freeman Valuing Changes in Hazardous Waste Risks: A Contingent Valuation Analysis, Volume I - Draft Interim Report and companion Appendices and Working Papers (EE0046A,B,C) (1985) broke new ground on several fronts. It develops methods for valuing risk reductions from hazardous waste sites, develops and uses a contingent valuation survey to elicit preferences of citizens living near Woburn MA regarding hazardous waste risks, conduct a contingent ranking study on a second sample of residents as a point of comparison with contingent valuation results, and finally to compare preliminary contingent valuation findings with a earlier hedonic property value study by David Harrison using 2,000 houses from the same general area in Massachusetts.

In the contingent valuation component of the study, the authors first used several focus groups to aid in framing questions an to pretest questionnaires. The work is based on the premise that individuals have a utility function with hazardous waste risks as one attribute. Direct questions are used to elicit the values residents have for that attribute. A possible source for concern is that approximately one-half of the respondents bid zero. Some of the possible interpretations are: (1) they understand the questions and don’t put any value on risk reductions; (2) they are confused and cautiously bid zero as a payment they are sure does not exceed what they would pay if they understood; and (3) they don’t like the line of inquiry and give a zero bid as a protest.

The authors conclude that respondents were able to understand the questions and to give meaningful valuation responses. There was a strong and significant relationship between the marginal valuation of risk and the magnitude of risk confronting the respondent. However, the authors cautioned that a number of inconsistencies between the results and what has been accepted in the literature for policy analyses involving risk, such as the high proportion of zero bids, argue for the need for additional research.

An Evaluation of Public Preferences for Superfund Site Cleanup (EE0255A,B) 1995 by Schulze, et al, derive an upper bound benefit estimate of $80 billion for the Superfund program. The estimate is based on the authors’ contingent valuation-based assessment of willingness to pay for cleaning up a hypothetical hazardous waste site and on a property value calculation. In the latter, the upper bound for benefits is based on a $10,000 average property value impact for homes located within 3 miles of a site.

Health

Valuing Changes in Morbidity: WTP Versus COI Measures (EE0262) by Rowe and Chestnut (1984) compares two methods to value morbidity, willingness to pay (WTP) to avoid illness and cost of illness (COI). The illness investigated was asthma. A contingent value study asked sufferers what they would be willing to pay in additional taxes to reduce bad asthma days by half among other questions. Illness cost data were also available. The WTP estimates were consistently higher. WTP includes the components of the disutility a patient incurs from illness. WTP/COI ratios for asthma fell in the range 1.5 - 3.0.

Tolley and Babcock, Valuation of Reductions in Human Health Symptoms and Risks (EE0092A-E), produced a series of reports in 1986 that review other literature that uses cost of illness, averting expenditures, the household production function approach, contingent valuation, and hedonic property value analysis to derive values for health effects that could be caused by criteria air pollutants. The last document in the series produces high, low and ‘medium’ ‘interim values’ for various acute and chronic effects. The ‘medium’ estimate for different acute effects range in value from $25 to $125 per day, while chronic effects range from $8,000 per day of uncomplicated angina to $60,000 per year for non-fatal cancer.

In the 1986 study Oxidants and Asthmatics in Los Angeles: A Benefits Analysis (EE0218A-C), Rowe and Chestnut compare cost of illness measures with stated willingness to pay to prevent angina symptoms. Using panel data from a sample of 82 asthmatics living in the Los Angeles area, the authors derived an estimated willingness to pay of $401 to reduce bad asthma days by one-half (37 day reduction), versus variable medical costs of $272.

The NSF/EPA-funded study from 1993, “Estimation of Health Effects and Values for Air Quality Improvements: the Cases of Taiwan and Los Angeles” by Krupnick endeavors to investigate the epidemiological links between air pollution and acute health in the United States and Taiwan, to provide the first evidence using a Contingent Valuation (CV) approach about willingness to pay for health improvements in a newly industrialized country (NIC), and to investigate problems in the transfer of epidemiological relationships between the United States and an NIC. To accomplish these goals, the researchers propose to use the results of three surveys: an epidemiological study for a panel of Los Angeles residents, the design and administration of an epidemiological survey following similar protocols in Taiwan, and the design and administration of a CV survey in Taiwan involving participants in the epidemiological survey. The researchers will use these results: (1) to estimate a model for the willingness to pay to avoid illness, using the Taiwan CV data; (2) to estimate a model for the occurrence of symptoms and symptom combinations and multiday episodes, comparing the results to the Taiwan study and exploring a model that pools the two data sets. The latter work would allow the researchers to apply the Los Angeles results to Taipei to gain insight into the prediction errors involved in transferring concentrations-response functions from U.S. cities to cities in other parts of the world.

The NSF/EPA-funded study from 1995, “Mortality Risk Valuation And Stated Preference Methods: An Exploratory Study” by Krupnick, Cropper, Alberini and Belli endeavors: (1) to improve understanding of cognitive processes involved in the valuation of mortality risk reductions that occur in an environmental pollution context, and (2) to translate this understanding into survey language appropriate for future stated preference studies. The approach is to bring the disciplines of economics and cognitive psychology together to build "mental models" of such cognitive processes, aided by the conduct of highly structured one-on-one interviews and focus groups and an extensive literature review. We propose to focus on the effect of various dimensions of risk and the risk context on willingness to pay to reduce death risks, including the perception of small probabilities, latency, confounding with morbidity, and respondent initial health status and age.

The NSF/EPA-funded study from 1996, “Valuation of Risks to Human Health: Insensitivity to Magnitude?” by Hammitt, Graham and Hanemann explores the accuracy with which contingent value (CV) studies estimate economic values because estimated values can appear to be inconsistent with economic theory. One of the most significant violations of theory is the apparently inadequate sensitivity of CV-estimated willingness to pay (WTP) to the magnitude or scope of the good offered. Such violations have been found for both environmental quality and individual health risk.

The objectives of the proposed research are to: 1) determine whether (and to what extent) insensitivity to magnitude variation is a barrier to eliciting valid estimates of WTP for reduction of risks to human health; 2) develop and test tools for the CV practitioner that enhance respondent understanding of the nature and magnitude of the health risk reduction to be offered; 3) perform rigorous, external (split sample) tests of tools designed to address the problem of insensitivity to magnitude variation; and 4) offer constructive guidance to CV practitioners, based on results from the proposed research and the existing literature, on what steps can be taken in the design of CV-health studies to reduce the problem of insensitivity to magnitude variation. The research will include development, pilot testing, administration, and analysis of two surveys, one administered by telephone, the other a mixed telephone/mail survey.




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