Question

Advantages of contingent valuation method

Answer 1

The preceding is a taxonomic discussion of some reasons why contingent market methods may often be a superior means of generating data with which to value non-market commodities. We have argued that economists have erred in viewing the situations these methods posit as necessarily fictional; that the data generated by the methods may, for non-marketed goods and the activities with which they are associated, accord more closely with the conditions of received economic theory; that the methods can make it easier to remove the difficulties of estimation and interpretation introduced by confounding variables; and that they often permit one to deal more readily with phenomena that have not been in the range of historical experience. Nevertheless, whatever the advantages, a major disadvantage remains. Until detailed analytical knowledge is acquired of the manner in which expectations are formed, there exists no way to refute empirical propositions established from contingent markets. Nevertheless, the previously mentioned South Coast Air Basin experiment, where the bids obtained for clean air conformed fairly closely to the values implied in a residential property value study, suggest that contingent valuations have a basis in the real decision processes of consumers.

Answer 2

Method. The contingent valuation method is often used to assign a value to an environmental benefit, such as a national park or pollution-free river. You apply the method by defining the contingency, the willingness to pay for its existence and the compensation required for its loss.