16.5 Techniques to Measure Nonmarket Economic Values
ues are difficult to measure. However, the concepts
are especially significant in the case of potential
decisions that could result in ecosystem losses that
are of uncertain probability of occurring, of unknowable cost to society, and not reversible. Examples of projects that would threaten populations
of endangered species readily come to mind. The
probability that anyone decision will result in loss
may be unknowable, the potential cost to society
of this loss may be unknowable, and, once the loss
occurs, the decision is not reversible.
Nonuse (Existence) Value
Existence benefits flow to people who value the
knowledge that an ecosystem continues to exist in
a specific state into perpetuity. If the ecosystem
were to be compromised so that it was permanently
changed, then the full value of the ecosystem to society may be diminished.
16.4.2 It May Not be Necessary to
Include All Values in an
Assessment of a Proposed
Policy Change
Anyone action that affects an ecosystem could result in changes in several different categories of
values. Depending on the nature of the policy question, however, it may not be necessary to measure
all potential changes in values. For example, a policy might affect consumptive and nonconsumptive
use values, as well as existence values and option
values. Suppose that it can be determined on the
basis of a subset of use values alone that the decision would cost more than it could generate in market benefits. Then, for policy needs, the number of
goods and service changes that are valued with nonmarket valuation methods is sufficient. It is simply
not necessary to apply methods to more categories
of values.
16.5 Techniques to Measure
Nonmarket Economic Values
A number of nonmarket valuation techniques have
been developed. Since other authors, such as Smith
(1992), offer overviews and appraisals of methodologies, this section will very briefly summarize the
major categories of methods. In general, methods
are divided into two classes: stated preference approaches and revealed preference approaches.
16.5.1 Stated Preference
(Direct) Approaches
235
Stated preference approaches are also known as direct methods for nonmarket valuation. These methods allow people to state a value that directly relates to the specific environmental changes that
would be incurred by the policy in question. Because the methods are used prior to a policy action,
these methods require the use of hypothetical scenarios. The advantage of direct methods is that the
valuation study can be developed to very closely
approximate the same marginal changes that a
given policy would generate. The two basic types
of stated preference methods are contingent valuation and choice experiments. Contingent valuation
is more widely recognized and used for nonmarket
valuation. Choice experiments have evolved from
marketing tools based on conjoint analysis and
have only very recently been modified so that they
can be used to estimate willingness to pay for specific attributes of nonmarketed environmental
amenities. The new generation of choice experiments is based on random utility theory and can
provide welfare measures that may be consistent
with economic theory, although their use for this
purpose is somewhat experimental at this time.
Contingent valuation is the only method accepted
by the u.S. government for measurement of existence values.
One criticism of stated preference methods is
that it is not possible to determine whether people
really would react to a real situation in the same
manner in which they react to a hypothetical situation in an experimental context. This criticism has
been the subject of a large body of research that
appears to suggest, overall, that a well-designed
scenario, questionnaire, information materials, and
statistical procedures can minimize bias. In addition, a well-designed study can include a number
of internal consistency tests to detect biases and
other anomalies that would suggest that responses
are not consistent with economic theory (Arrow et
al., 1993; Diamond, 1996; Rollins and Lyke, 1998).
A tendency toward professional resistance
within the economics profession against stated
preference methods arises because they run counter
to the tendency of empirical economists to develop
predictive models using the notion of revealed preference. In the case of nonmarket valuation, revealed preference models are indirect models that
use observable behavior in actual markets, which
are in some way connected to the value that is the
target of valuation. Many economists counter this
argument by suggesting that revealed preferences
ues are difficult to measure. However, the concepts
are especially significant in the case of potential
decisions that could result in ecosystem losses that
are of uncertain probability of occurring, of unknowable cost to society, and not reversible. Examples of projects that would threaten populations
of endangered species readily come to mind. The
probability that anyone decision will result in loss
may be unknowable, the potential cost to society
of this loss may be unknowable, and, once the loss
occurs, the decision is not reversible.
Nonuse (Existence) Value
Existence benefits flow to people who value the
knowledge that an ecosystem continues to exist in
a specific state into perpetuity. If the ecosystem
were to be compromised so that it was permanently
changed, then the full value of the ecosystem to society may be diminished.
16.4.2 It May Not be Necessary to
Include All Values in an
Assessment of a Proposed
Policy Change
Anyone action that affects an ecosystem could result in changes in several different categories of
values. Depending on the nature of the policy question, however, it may not be necessary to measure
all potential changes in values. For example, a policy might affect consumptive and nonconsumptive
use values, as well as existence values and option
values. Suppose that it can be determined on the
basis of a subset of use values alone that the decision would cost more than it could generate in market benefits. Then, for policy needs, the number of
goods and service changes that are valued with nonmarket valuation methods is sufficient. It is simply
not necessary to apply methods to more categories
of values.
16.5 Techniques to Measure
Nonmarket Economic Values
A number of nonmarket valuation techniques have
been developed. Since other authors, such as Smith
(1992), offer overviews and appraisals of methodologies, this section will very briefly summarize the
major categories of methods. In general, methods
are divided into two classes: stated preference approaches and revealed preference approaches.
16.5.1 Stated Preference
(Direct) Approaches
235
Stated preference approaches are also known as direct methods for nonmarket valuation. These methods allow people to state a value that directly relates to the specific environmental changes that
would be incurred by the policy in question. Because the methods are used prior to a policy action,
these methods require the use of hypothetical scenarios. The advantage of direct methods is that the
valuation study can be developed to very closely
approximate the same marginal changes that a
given policy would generate. The two basic types
of stated preference methods are contingent valuation and choice experiments. Contingent valuation
is more widely recognized and used for nonmarket
valuation. Choice experiments have evolved from
marketing tools based on conjoint analysis and
have only very recently been modified so that they
can be used to estimate willingness to pay for specific attributes of nonmarketed environmental
amenities. The new generation of choice experiments is based on random utility theory and can
provide welfare measures that may be consistent
with economic theory, although their use for this
purpose is somewhat experimental at this time.
Contingent valuation is the only method accepted
by the u.S. government for measurement of existence values.
One criticism of stated preference methods is
that it is not possible to determine whether people
really would react to a real situation in the same
manner in which they react to a hypothetical situation in an experimental context. This criticism has
been the subject of a large body of research that
appears to suggest, overall, that a well-designed
scenario, questionnaire, information materials, and
statistical procedures can minimize bias. In addition, a well-designed study can include a number
of internal consistency tests to detect biases and
other anomalies that would suggest that responses
are not consistent with economic theory (Arrow et
al., 1993; Diamond, 1996; Rollins and Lyke, 1998).
A tendency toward professional resistance
within the economics profession against stated
preference methods arises because they run counter
to the tendency of empirical economists to develop
predictive models using the notion of revealed preference. In the case of nonmarket valuation, revealed preference models are indirect models that
use observable behavior in actual markets, which
are in some way connected to the value that is the
target of valuation. Many economists counter this
argument by suggesting that revealed preferences