available or when an alternative market does not exist. Examples would include
historical or cultural phenomena, unobstructed panoramic views, species preservation, etc. A possible alternative would be the contingent valuation methods (CVM),
sometimes also called hypothetical valuation.
These methods require asking direct questions to consumers to assess how they
would respond to certain circumstances. Contrary to market and substitute-market
methods, assessments do not rely on observed behaviour but, rather, by inferring
how a person would behave from the answers he or she provides in a survey
questionnaire. This method can be helpful in evaluating components of infrastructure projects which cannot be determined using other methods. Although they may
not always provide precise estimates, they do yield a valuable order-of-magnitude
estimation.
While the methods explained earlier look at the aggregated environmental quality
changes in form before putting a value on the change, the CVM methods begin with
individuals and their perceptions of change. After obtaining values from a representative sample of the population concerned, they are combined to a total value
depending directly on the quantity of affected individuals.
CVM methods rely on standard neo-classical economic principles. They measure
consumer surplus by one of the two following Hicksian measures:
1. compensating variation (CV) - the payment or income change required for an
individual to become indifferent between initial circumstances and a new situation with different prices, or
2. equivalent variation (EV) - an income change equal to a welfare increase arising
from a price change, or the minimum (maximum) payment required to induce an
individual to voluntarily relinquish a price decrease (increase).
CV establishes the initial level of utility as a reference point. In that way, it differs
from EV which assesses the change from the ex-post hoc level of utility. Ordinary
Marshallian consumer’s surplus is often taken as an estimate of the more technically
correct CV and EV.
The various contingent valuation methods currently used and their associated
problems are described below.
8.8.2 Bidding Games
Although having some common features, there are several variations in the bidding
game method. Typical in such a game, persons are asked to assess a theoretical
situation and indicate, for a given change in the supply of a service or good, his
willingness to pay (WTP), or his willingness to accept compensation (WTAC) for
such a change. This method is most usually applied to evaluate public goods such as
unobstructed panoramic views, access to parks, fresh water or clean air.
As explained in Chap. 17, when a person consumes a public good, this does not
affect another person’s enjoyment of the same good (e.g. clean air) though
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8 Analysis of Environmental Impacts of Infrastructure
historical or cultural phenomena, unobstructed panoramic views, species preservation, etc. A possible alternative would be the contingent valuation methods (CVM),
sometimes also called hypothetical valuation.
These methods require asking direct questions to consumers to assess how they
would respond to certain circumstances. Contrary to market and substitute-market
methods, assessments do not rely on observed behaviour but, rather, by inferring
how a person would behave from the answers he or she provides in a survey
questionnaire. This method can be helpful in evaluating components of infrastructure projects which cannot be determined using other methods. Although they may
not always provide precise estimates, they do yield a valuable order-of-magnitude
estimation.
While the methods explained earlier look at the aggregated environmental quality
changes in form before putting a value on the change, the CVM methods begin with
individuals and their perceptions of change. After obtaining values from a representative sample of the population concerned, they are combined to a total value
depending directly on the quantity of affected individuals.
CVM methods rely on standard neo-classical economic principles. They measure
consumer surplus by one of the two following Hicksian measures:
1. compensating variation (CV) - the payment or income change required for an
individual to become indifferent between initial circumstances and a new situation with different prices, or
2. equivalent variation (EV) - an income change equal to a welfare increase arising
from a price change, or the minimum (maximum) payment required to induce an
individual to voluntarily relinquish a price decrease (increase).
CV establishes the initial level of utility as a reference point. In that way, it differs
from EV which assesses the change from the ex-post hoc level of utility. Ordinary
Marshallian consumer’s surplus is often taken as an estimate of the more technically
correct CV and EV.
The various contingent valuation methods currently used and their associated
problems are described below.
8.8.2 Bidding Games
Although having some common features, there are several variations in the bidding
game method. Typical in such a game, persons are asked to assess a theoretical
situation and indicate, for a given change in the supply of a service or good, his
willingness to pay (WTP), or his willingness to accept compensation (WTAC) for
such a change. This method is most usually applied to evaluate public goods such as
unobstructed panoramic views, access to parks, fresh water or clean air.
As explained in Chap. 17, when a person consumes a public good, this does not
affect another person’s enjoyment of the same good (e.g. clean air) though
234
8 Analysis of Environmental Impacts of Infrastructure