Contingent Valuation Method

The Contingent Valuation Method (CVM) is an economic, non-market based valuation method especially used to infer individual’s preferences for public goods, notably environmental quality. For this same reason, CVM is known in the literature by exploring the use of questionnaires and asking directly consumers, i.e. respondents, for their maximum willingness to pay (WTP) for specified improvements in the environmental quality, including protection of marine biodiversity. In short, CVM circumvents the absence of markets for public goods by presenting consumers with a survey market in which they have the opportunity to buy the good in question – protection of marine biodiversity. Because the elicited WTP values are contingent upon the market described to the respondents, this approach came to be called the contingent valuation method. The survey market is should be modelled after a political market, notably in a referendum format. In other words, respondents should be asked how they would vote (favour or against) upon a described marine environmental protection program, taking into account that its approval would imply the payment of a tax. For each if the protection program refers to the introduction of a ballast water treatment complex in the European harbours one could model the WTP question as follows: “If the total tax amount to be paid for the water treatment complex was 30 Euro per year for the next 2 years, and thus keeping European coast free from exotic algae and the beaches free from algae foams, how would you vote on the introduction this tax?” Bearing in mind the answer of the respondents to this question and the use of appropriated econometric tools, economists are able assess the individual demand for environmental quality and thus quantify in monetary terms the underlying welfare changes. The typical CVM survey consists of three sections. The first section is characterized by the description of the environmental change as conveyed by the policy formulation and the description of the contingent market. The policy formulation involves describing the availability (or quality) of the environmental commodity in both the ‘reference state’ (usually the status quo) and ‘target state’ (usually depicting the policy action). Since all monetary transactions occur in a social context, it is also crucial to define the contingent market - most of the time rather unfamiliar to the respondents - by stating to the respondent both the rules specifying the conditions that would lead to policy implementation as well the payment to be exacted from the respondent’s household in the event of policy implementation. The second section is where the respondent is asked to state her monetary valuation for the described policy formulation. This part is the core of the questionnaire. The major objective of this section is to obtain a monetary measure of the maximum willingness to pay that the individual consumers are willing to pay for the described environmental policy action. The third section of the CVM instrument is a set of questions that collect socio-demographic information about the respondents. The answers to these questions help to better characterise the respondent’s profile and are used to understand the respondent’s stated WTP responses. The third section finishes with follow-up questions. The follow-up questions are answered by the interviewers. The goal is to assess whether the respondents have (well) understood the CVM survey in general, and the valuation question in particular (see brief history for more details on the practice of this method).