Pick A Number: A Critique of Contingent Valuation Methodology and its Application in Public Policy

Executive Summary

How much would you be willing to pay for an untouched expanse of wilderness? The process by which this question can be answered is called Contingent Valuation (CV). CV attempts to quantify the “satisfaction” of knowing that a natural resource exists, called a “nonuse value” (NUV), regardless of any actual attempt to enjoy it. Once enumerated, NUVs could be used to impose liability for injuries to natural resources placing billions of dollars at stake.

The CV procedure involves asking people what they would pay, through increased taxes, prices, or some other mechanism, to protect a valued environmental resource. For example, CV surveys provide respondents with a selection of choices, such as a set of charities. You may be willing to give $100 to charity and there may be eight separate charities that you find appealing. It is therefore possible that in separate CV surveys, your stated willingness to donate to charity could equal $800 in total, even though $100 is all that will be given. Obviously, this approach has serious problems including the following:

• the survey process can create the very values which they purport to measure;
• answers are likely to be biased by strategic considerations regarding the uses to which the survey could be put;
• survey results are often inconsistent;
• individuals are ill-trained to evaluate the monetary value of environmental damage;
• rarely do individuals have experience in purchasing environmental assets;
• results cannot be empirically verified.

In sum, CV results are uncertain, subjective and speculative.

CV surveys are further hindered by a fundamental difference between an actual choice and a potential preference. People may state a preference for many things but in actuality choose something entirely different.

• A choice is superior to a preference because with the latter “there is no cost to being wrong, and therefore no incentive to undertake the mental effort to be accurate;”
• The only way to discover the values people place on things is through the actual choices made by individuals.

Contingent valuation is an attempt to replicate the workings of the market without a system where natural resource sites have well-defined private property rights. Markets allow people to make choices based on the amount they are willing to pay for a good or service. CV surveys bypass the workings of a true market process. The results from these surveys therefore cannot be equated with market behavior, and any use of these figures should be treated with skepticism.

Despite these problems, CV surveys are becoming more prevalent. For instance, the 1989 Supreme Court declared, in Ohio v. U.S. Department of Interior, that nonuse values can be used to measure damages in liability cases. CV surveys are likely to result in unwanted litigation, and could be presented in liability claims at considerable social cost. Because the use of surveys cannot be tested or verified empirically the valuation of natural resources through CV is simply inappropriate. The results may be interesting, but are little more than picking a number, any number.