Methods of environmental valuation

Abstract

Commensurate valuation of market and nonmarket public goods allows for a more valid benefit-cost analysis. Economic methods for valuing nonmarket public goods include actual behavior-based revealed preference methods, such as the hedonic property method for urban-suburban public goods and travel cost models for outdoor recreation. For valuing proposed public goods for which there is no current behavior, or valuing the existence or passive use values of public goods, economists can rely on stated preference methods. While there is skepticism among some economists for relying on what people say they will pay rather than what their actual behavior suggests they will pay, there is general acceptance of stated preference methods. These stated preference methods include the well-known contingent valuation method and choice experiments (sometimes called conjoint analysis). Lastly, in situations where there is neither time nor money to conduct an original revealed or stated preference study, economists can rely on benefit transfers from existing revealed preference and stated preference studies to provide rough estimates of the values of public goods such as water quality, air quality, wetlands, recreation, and endangered species.