Cost benefit analysis Lecture 9 Hedonic prices Stated preference methods · Survey-based methods for eliciting an estimate of individuals' willingness to pay (WTP) or willingness to accept (WTA). - Contingent valuation - asks individuals how much they are willing to pay for a hypothetical policy scenario - Choice experiments - individuals asked to make hypothetical choices between alternatives to reveal their valuation of a policy scenario or of an individual attribute Contingent = interviews Choice = alternatives; which do you prefer. · Possible uses - To complement RP methods when RP methods are available but limited - Where RP methods are not feasible - Can be used to obtain measures of existence value, idea that people place some value on something existing (such as the Grand Canyon or whales) even if they never use it directly. - Can make an RP estimate of the use value of a good such as the Grand Canyon through the travel cost method, but there are no RP methods for obtaining estimates of existence value Estimates from observations of the behaviour of individuals - no other option but to ask them what their preferences are. Issues with bias here. Use especially if there is no information from indirect markets. Contingent valuation 1. A sample of respondents from the population with standing is identified 2. Respondents are asked about their valuations of the changes described 3. Responses provide information that allows estimation respondent's WTP (or WTA) 4. WTP amounts for the sample are extrapolated to the entire population Ask respondents about willingness to pay; estimate WTP and WTA depending on the situation. Contingent valuation · Describe a hypothetical or possible policy scenario · It must be understandable, plausible and meaningful; the more detailed the better . Not "how much would you pay to save the whales" but describe the details of a particular policy that might reduce the risk to whales from (for example) a particular pollution and ask how much people would be prepared to pay by means of a particular payment vehicle (voluntary/ tax) Contingent on information provided to the respondents. Response depends on quality of info we provide; understandable and plausible. Meaningful - in line with what study is suggesting; prices going up or down, income elasticity depending on wealth etc.
More info = more hypothetical. Give details and be specific in your question to get a more valid answer. Example: Heritage benefits of road tunnel near Stonehenge . David Maddison and Susana Mourato (2001). "Valuing different road options for Stonehenge" Conservation and Management of Archaeological Sites 4; 203-212 · CV used to estimate the potential heritage benefits of a road tunnel near Stonehenge · Before the change - two roads pass close by on either side of Stonehenge. Both are quite busy and visitors to the site can hear the traffic and are prevented from wandering over the full site. . Proposal was to build a 2k road tunnel that would cost £125m, making the road invisible from the stones, eliminating