Topic 9: Contingent Valuation Method

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Topic 9 Contingent Valuation Method

• David Letson
• University of Miami

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Main Points

• Structure of CV interview
• Advantages, disadvantages
• Policy context
• When should CV be used?

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Contingent Valuation

• Uses surveys to elicit WTP for public goods.
• Values are contingent upon hypothetical provision
  scenario.

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Survey interviews 3 parts

• Description of good and circumstances.
• plausibility
• provision levels
• substitutes
• payment vehicle
• Questions about WTP.
• Other info about respondent.

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Example Lake Powell, Utah

• Situation A no power plant.
• Situation B plant visible but smoke is not.
• Situation C plant and smoke both visible.
• Payment vehicle is hypothetical entrance fee.

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Sampling Issues

• Representative of population.
• Design of survey instrument.
• Significant response rate.
• Incomplete responses.

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Advantages of CV

• Flexible.
• Maybe only applicable method.
• Directness.
• Existence values.

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Disadvantages

• External validation
• Embedding
• Payment vehicle.
• Protest bids.
• Extent of market issues.

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Policy Context

• CERCLA (or Superfund)
• Hazardous waste.
• Establishes cleanup responsibility.
• Government agencies as trustees.
• Lost non-use values are recoverable.
• Oil Pollution Act of 1990
• Provides for damage recovery.

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Example Benefits of CWA

• Mitchell and Carson (1992)
• How to describe the good.
• Long interviews
• visual aid
• the water quality ladder.
• from below boatable to boatable
• from boatable to fishable and
• from fishable to swimmable.
• Higher taxes and product prices.
• Benefits versus costs.

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Galveston Bay Water Quality Management Plan

• Worth of proposed mgt plan to residents.
• Uncertain economic/ecological systems.
• How reliability are mail surveys?
• How useful are visual aids?
• Disproportionate sample.

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Galveston WTP Question

• Given your current monthly income, if the plan
  cost your household X per month for five years
  as a surcharge to your water bill
• I would vote for it.
• I would vote against it.
• Im not sure.

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When to Use CV?

• Important advantages.
• Reactions to hypothetical events.
• NOAA panel.
• Damage assessment law suits.