Environmental valuation techniques

Question 1

Why are valuation techniques useful?

Answer 1

To uncover the monetary values of the benefits and costs that might affect individuals

Question 2

Name and explain the two Hicksian measures used to get a monetary measure of the utility change associated with a price decrease.

Answer 2

Compensating Variation (CV)
The amount of money income that, when taken away from the individual together with the price fall, leaves the individual at their initial level of utility. This therefore represents an individuals maximum amount they are WTP to have the price fall occur.

Equivalent Variation (EV)
The quantity of money income that, if given to the individual without the price fall, would give them the same level o futility they would have attained if there ha been a price fall. It is therefore the compensation that the individual would be WTA in lieu of a price fall.

Question 3

What is the total economic value (TEV)?

Answer 3

The net sum of all the relevant WTP’s and WTA’s for a project outcome or policy change.

TEV can have use and non-use value. Use value represents the actual use of the good in question. Non-use value represents the willingess to pay to maintain some good in existence despite no actual planed or possible use.

Question 4

Further define non use value.

Answer 4

As mentioned before, non use value represents the willingness to pay to maintain some good in existence despite no actual, planned or possible use.

Non use value has three possible reasons:

1. Altruistic - WTP to keep the good available to current generations
2. Existence - responsibility of the maintenance of the good
3. Bequest - Future generations should have an option to make use of the good

Question 5

What are revealed preference techniques?

Answer 5

Technique to uncover individuals values based on individual behaviours in other markets. A problem with RPT is that they cannot reveal non-use values.

1. Hedonic pricing
   Use statistical techniques to uncover the value of intangible goods from bundles, such as a quiet neighbourhood.
2. Travel cost method
   Using the cost people incur (money and time) to uncover the value of a good such as a recreational area.
3. Averting behaviour and defensive expenditure
   Estimates of individual behaviour to avoid negative intangible impacts. E.g. hard helmets and double glazing.
4. Cost of illness
   Cost of health impacts based on expenditure by individuals and social administrators.

Question 6

What are stated preference techniques?

Answer 6

Techniques to uncover individual values based on questionnaires from which it is possible to obtain the respondents WTP/WTA for changed in the provision of goods, including non-use values.

Stated preference techniques fall into two categories; contingent valuation or choice modelling.

Choice modelling consists of; choice experiments, contingent rankings, contingent rating and paired comparisons.

Question 7

What is contingent valuation?

Answer 7

A survey stated preference technique that measures both use and non-use values.

Question 8

What are the steps involved in a CV study?

Answer 8

1. Create survey instrument
2. Choosing an appropriate survey technique
3. Identify population of interest and sampling strategy
4. Analyze survey responses
5. Aggregate WTA and WTP responses over the population of interest
6. Evaluating ex-post the success (or otherwise) of the CV exercise

Question 9

What are the phases involved in step 1 of a CV study, creating a survey instrument?

Answer 9

The questionnaire intends to uncover individuals estitmates of how much having or avoiding the change in question means to them.

PHASE 1
A set of attitudinal questions about the good to be valued is asked

PHASE 2
The hypothetical scenario regarding the policy change is presented

PHASE 3 (Optional)
Deciding whether to ask about WTP/WTA

PHASE 4
Eliciting monetary values for the policy change, which means extracting WTP/WTA from respondents

Question 10

What are the three essential elements of phase 2 of step 1 of a CV study?

Answer 10

i) Description of the policy change in interest
- Improving matters or preventing deterioration
ii) Description of the constructed market
- Social context (who, when, where)
iii) Description of the method of payment
- Coercive payment vehichles and voluntary payments

Question 11

What types of questions can be asked in step 1 (creating a survey instrument) of constructing a CV study?

Answer 11

a. Open ended
b. Bidding game
c. Payment card
d. Dichotomous choice
e. Double bounded dichotomous choice

Question 12

What options are there in Step 2 of constructing a CV study, choose an appropriate survey technique?

Answer 12

1. Mail surveys
2. Telephone interviewing
3. Face to face

Question 13

Name the types of bias which may arise when using a contingent valuation questionnaire?

Answer 13

a) Part-whole bias
b) Hypothetical bias
c) Insensitivity to scope
d) Interviewer bias
e) Prominence bias
f) Strategic bias
g) Starting point bias
h) Information bias
i) Observed anomalies

Question 14

What is choice modelling?

Answer 14

A stated preference technique where respondents are presented with a number of discrete alternatives and asked to state which they prefer.

Question 15

What are choice experiments?

Answer 15

People are asked to choose between two more more alternatives (where one is the status quo)

Question 16

What is a contingent ranking?

Answer 16

Respondents have to rank a series of alternatives.

Question 17

What is a contingent rating?

Answer 17

Respondents are presented with a number of scenarios and are asked to rate them indiviually on a scale

Question 18

What is a paired comparison?

Answer 18

Respondents are asked to choose their preferred alternative out of a set of two choices and to indicate the strength of their preference on a numeric scale.

Question 19

What are the advantages of choice modelling?

Answer 19

CM is most useful as a stated preference technique when an environmental problem is complex or multidimensional.

CM is a cheaper alternative to CV.

CM generally avoids an explicit elicitation of a respondents willingness to pay by relying on ratings rankings etc to indirectly infer WTP, may minimise some of the response difficulties found in CV studies.

Question 20

What are the problems of choice modelling?

Answer 20

Main problem is the cognitive difficulty associate with making multiple complex choices. Ample empirical evidence to suggest there is a limit to how much info respondents can handle when making a decision.

The choice complexity/depth can lead to greater random errors or at least greater imprecision in responses.