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Contingent valuation methodology report (Report of the NOAA panel on contingent valuation)

Authors:
Report of the NOAA Panel on Contingent Valuation
January 11, 1993
Kenneth Arrow
Robert Solow
Paul R. Portney
Edward E. Leamer
Roy Radner
Howard Schuman
Report of the NOAA Panel on Contingent Valuation
Date: May 9, 2001
I. INTRODUCTION
Under the Oil Pollution Act of 1990, the President--acting
through the Under Secretary of Commerce for Oceans and
Atmosphere--is required to issue regulations establishing
procedures for assessing damages to or destruction of natural
resources resulting from a discharge of oil covered by the Act.
These procedures are to ensure the recovery of restoration costs
as well as the diminution in value of the affected resources and
any reasonable costs of conducting the damage assessment.
At least some of the values that might be diminished by such
a discharge are relatively straightforward to measure through
information revealed in market transactions. For instance, if
the discharge kills fish and thereby reduces the incomes of
commercial fishermen, their losses can reasonably be calculated
by the reduced catch multiplied by the market price(s) of the
fish (less, of course, any costs they would have incurred).
Similarly, if the discharge of oil discourages tourist travel to
an area, the lost incomes of those owning and/or operating
motels, cottages, or other facilities can be reasonably
represented by the difference in revenues between the affected
period and a "normal" season. Even the losses to recreational
fishermen, boaters, swimmers, hikers, and others who make active
use of the areas affected by the discharge can be included in the
estimate of diminished value, although these losses will
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generally be somewhat more difficult to value than the more
obvious out-of-pocket losses.
The losses described above have come to be known as lost
"use values" because they are experienced by those who, in a
variety of different ways, make active use of the resources
adversely affected by the discharge. But for at least the last
twenty-five years, economists have recognized the possibility
that individuals who make no active use of a particular beach,
river, bay, or other such natural resource might, nevertheless,
derive satisfaction from its mere existence, even if they never
intend to make active use of it.
This concept has come to be known as "existence value" and
it is the major element of what are now referred to as "non-use"
or "passive-use" values (the latter term is employed in the
balance of this report). In regulations promulgated by the
Department of the Interior in 1986 under the Comprehensive
Environmental Response, Compensation, and Liability Act --
regulations that also pertained to natural resource damage
assessments -- passive-use values were included among the losses
for which trustees could recover. The inclusion of passive-use
values was recently upheld by the D. C. Court of Appeals (State
of Ohio v. Department of the Interior, 880 F.2d 432 (D.C. Cir.
1989)), as long as they could be reliably measured.
This begs an interesting and important question, however.
If passive-use values are to be included among the compensable
losses for which trustees can make recovery under the Oil
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Pollution Act, how will they be estimated? Unlike losses to
commercial fishermen or recreational property owners, there are
no direct market transactions that can be observed to provide
information on which estimates can be based. Unlike losses to
boaters, swimmers, recreational fishermen and others, there exist
no indirect methods through which market data can provide at
least some clues as to lost values. In other words, there appear
to be neither obvious nor even subtle behavioral trails that can
provide information about lost passive-use values.
Some experts believe that there exists an approach that can
provide useful information about the economic significance of the
lost passive-use values individuals may suffer when oil
discharges damage natural resources. Known as the contingent
valuation (or CV) technique, this approach is based on the direct
elicitation of these values from individuals through the use of
carefully designed and administered sample surveys. Its appeal
lies in its potential to inform damage assessment in an area
(lost passive-use values) where there appear to be no behavioral
trails to be followed.
Typically, CV studies provide respondents with information
about a hypothetical government program that would reduce the
likelihood of a future adverse environmental event such as an oil
spill, chemical accident, or the like. Respondents are usually
given some specific information about the exact nature of the
damages that the program in question would prevent. And they are
also confronted in the study with a question or questions that
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provide information about the economic sacrifice they would have
to make to support the environmental program. This may take the
form of an open-ended question asking what is the maximum amount
they would be willing to pay for the program in question; it may
involve a series of questions confronting them with different
prices for the program depending on their previous answers; or it
may take the form of a hypothetical referendum (like a school
bond issue) in which respondents are told how much each would
have to pay if the measure passed and are then asked to cast a
simple "yes" or "no" vote. (The conceptually correct measure of
lost passive-use value for environmental damage that has already
occurred is the minimum amount of compensation that each affected
individual would be willing to accept. Nevertheless, because of
concern that respondents would give unrealistically high answers
to such questions, virtually all previous CV studies have
described scenarios in which respondents are asked to pay to
prevent future occurrences of similar accidents. This is the
conservative choice because willingness to accept compensation
should exceed willingness to pay, if only trivially; we say more
about other biases below.)
The CV technique has been used for twenty years or so to
estimate passive-use values. In the last five years, however,
there has been a dramatic increase in the number of academic
papers and presentations related to the CV technique. This is
due in part to the availability of comprehensive reference texts
on the subject (Mitchell and Carson (1989), for instance), and to
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the growing interest both nationally and internationally in
environmental problems and policies. But it is also attributable
to the growing use of the CV technique in estimating lost
passive-use values in litigation arising from state and federal
statutes designed to protect natural resources. Since Ohio v.
Department of the Interior admitted the concept of passive-use
values in damage assessments, this can only give added impetus to
the use of CV in such litigation.
The CV technique is the subject of great controversy. Its
detractors argue that respondents give answers that are
inconsistent with the tenets of rational choice, that these
respondents do not understand what it is they are being asked to
value (and, thus, that stated values reflect more than that which
they are being asked to value), that respondents fail to take CV
questions seriously because the results of the surveys are not
binding, and raise other objections as well. Proponents of the
CV technique acknowledge that its early (and even some current)
applications suffered from many of the problems critics have
noted, but believe that more recent and comprehensive studies
have already or soon will be able to deal with these objections.
This (sometimes acrimonious) debate has put the National
Oceanic and Atmospheric Administration (NOAA) in a very difficult
spot. NOAA must decide in promulgating the regulations under the
Oil Pollution Act whether the CV technique is capable of
providing reliable information about lost existence or other
passive-use values. Toward this end, NOAA appointed the
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Contingent Valuation Panel to consider this question and make
recommendations to it.
This report is the product of the Panel's deliberations
and is organized in the following way. Following this
introduction, the drawbacks to the CV technique are discussed in
Section II. Section III discusses several key issues concerning
the design of CV surveys, including use of the referendum format
to elicit individual values, ways of addressing the so-called
"embedding" problem, and the evaluation of damages that last for
some period but not forever. Section IV presents guidelines to
which the Panel believes any CV study should adhere if the study
is to produce information useful in natural resource damage
assessment. (These are elaborated upon in an Appendix.) In
Section V a research agenda is described; it is the Panel's
belief that future applications of the CV technique may be less
time-consuming and contentious if the research described in the
agenda is carried out. Section VI presents the Panel's
conclusions.
II. CRITICISMS OF THE CONTINGENT VALUATION METHOD
The contingent valuation method has been criticized for many
reasons and the Panel believes that a number of these criticisms
are particularly compelling. Before identifying and discussing
these problems, however, it is worth pointing out that they all
take on added importance in light of the impossibility of
validating externally the results of CV studies. It should be
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noticed, however, that this same disadvantage must inhere in any
method of assessing damages from deprivation of passive-use. It
is not special to the CV approach although, as suggested in
Section I, there are currently no other methods capable of
providing information on these values.
One way to evade this difficulty, at least partially, is to
construct experiments in which an artificial opportunity is
created to pay for environmental goods. The goods in question
can perfectly well involve passive use. Then the results of a CV
estimate of willingness to pay can be compared with the "real"
results when the opportunity is made available to the same sample
or an analogous sample.
A few such experiments have been attempted. The most
recent, due to Seip and Strand (1992), used CV to estimate
willingness to pay for membership in a Norwegian organization
devoted to environmental affairs, and compared this estimate with
actual responses when a number of the same respondents were
presented with an opportunity actually to contribute. The
finding was that self-reported willingness to pay was
significantly greater than "actual" willingness to pay. A recent
study by Duffield and Patterson (1991) took as the environmental
amenity in question the maintenance of stream flow in two Montana
rivers. The rivers in question provided spawning grounds for two
rare species of fish; passive use was believed to be the main
motivation for respondents. One of two parallel samples was
asked about hypothetical willingness to contribute to the Montana
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Nature Conservancy which would then maintain stream flow; the
other was offered an opportunity actually to contribute to the
same organization for the same purpose. It was found that
response rates and expressed willingness to contribute were
significantly higher when the contribution was hypothetical than
when "expressed willingness" meant an immediate cash
contribution. On the other hand, the size of contributions,
hypothetical in one case and actual in the other, was not much
different as between those who said they would contribute and
those who did so.
These studies suggest that the CV technique is likely to
overstate "real" willingness to pay. Duffield and Patterson,
however, hold out hope that the differences are small enough and
predictable enough that CV estimates could be discounted for
possible overstatement and then used as a conservative estimate
of willingness to pay. Clearly more such experiments would be
useful.
A less direct test of the "reality" of CV estimates of lost
passive use values is to use the technique to estimate
willingness to pay for ordinary market goods and then to compare
the results with actual purchases. This has been tried by
Dickie, Fisher, and Gerking (1987) using the demand for
strawberries. When the data were re-analyzed by Diamond,
Hausman, Leonard, and Denning (1992), it was found that the CV
approach tended systematically to overestimate quantity demanded
at each price, sometimes by as much as 50 percent. This result
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has to be qualified in two ways. First, the original CV study
seems to have been fairly casual by the standards now proposed by
practitioners; pre-testing and improvement of the survey
instrument might (perhaps) have narrowed the gap. And second, it
seems to go too far to conclude from systematic over-estimation
that the CV study, even as conducted, provides no information
about the demand for strawberries. Much of the same could be
said about a study submitted to the Panel by Cummings and
Harrison (1992) comparing hypothetical and demonstrated
willingness to pay for small household goods. (See also Bishop
and Heberlein (1979).)
External validation of the CV method remains an important
issue. A critically important contribution could come from
experiments in which state-of-the-art CV studies are employed
in contexts where they can in fact be compared with "real"
behavioral willingness to pay for goods that can actually be
bought and sold.
Of the other problems arising in CV studies, the following
are of most concern to the Panel: (i) the contingent valuation
method can produce results that appear to be inconsistent with
assumptions of rational choice; (ii) responses to CV surveys
sometimes seem implausibly large in view of the many programs for
which individuals might be asked to contribute and the existence
of both public and private goods that might be substitutes for
the resource(s) in question; (iii) relatively few previous
applications of the CV method have reminded respondents
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forcefully of the budget constraints under which all must
operate; (iv) it is difficult in CV surveys to provide adequate
information to respondents about the policy or program for which
values are being elicited and to be sure they have absorbed and
accepted this information as the basis for their responses;
(v) in generating aggregate estimates using the CV technique, it
is sometimes difficult determining the "extent of the market;"
and (vi) respondents in CV surveys may actually be expressing
feelings about public spiritedness or the "warm glow" of giving,
rather than actual willingness to pay for the program in
question. We discuss each of these briefly.
Inconsistency with Rational Choice
Some of the empirical results produced by CV studies have
been alleged to be inconsistent with the assumptions of rational
choice. This raises two questions: What requirements are
imposed by rationality? Why are they relevant to the evaluation
of the reliability of the CV method?
Rationality in its weakest form requires certain kinds of
consistency among choices made by individuals. For instance, if
an individual chooses some purchases at a given set of prices and
income, then if some prices fall and there are no other changes,
the goods that the individual would now buy would make him or her
better off. Similarly, we would expect an individual's
preferences over public goods (i.e., bridges, highways, air
quality) to reflect the same kind of consistency.
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Common notions of rationality impose other requirements
which are relevant in different contexts. Usually, though not
always, it is reasonable to suppose that more of something
regarded as good is better so long as an individual is not
satiated. This is in general translated into a willingness to
pay somewhat more for more of a good, as judged by the
individual. Also, if marginal or incremental willingness to pay
for additional amounts does decline with the amount already
available, it is usually not reasonable to assume that it
declines very abruptly.
This point assumes importance in view of some empirical
evidence from CV studies that willingness to pay does not
increase with the good. In one study, Kahneman (1986) found that
willingness to pay for the cleanup of all lakes in Ontario was
only slightly more than willingness to pay for cleaning up lakes
in just one region. Evidence of this kind has multiplied (see
Kahneman and Knetch (1992), Desvousges, et al. (1992), and
Diamond et al. (1992)). Desvousges' result is very striking; the
average willingness to pay to take measures to prevent 2,000
migratory birds (not endangered species) from dying in oil-filled
ponds was as great as that for preventing 20,000 or 200,000 birds
from dying. Diminishing marginal willingness to pay for
additional protection could be expected to result in some drop.
But a drop to zero, especially when the willingness to pay for
the first 2,000 birds is certainly not trivial, is hard to
explain as the expression of a consistent, rational set of
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choices.
It has been argued on a more technical level that the
studies finding such apparent inconsistencies are defective, that
the choices are not presented clearly to the respondents. In the
study referred to immediately above, for instance, respondents
were told that 2,000 birds was "...much less than 1%" of the
total migratory bird population while 200,000 birds was
"...about 2%" of the total. This may have led respondents to
evaluate the programs as being essentially the same. But on the
face of it, the evidence certainly raises some serious questions
about the rationality of the responses.
It could be asked whether rationality is indeed needed. Why
not take the values found as given? There are two answers. One
is that we do not know yet how to reason about values without
some assumption of rationality, if indeed it is possible as all.
Rationality requirements impose a constraint on the possible
values, without which damage judgments would be arbitrary. A
second answer is that, as discussed above, it is difficult to
find objective counterparts to verify the values obtained in
response to questionnaires. Therefore, some form of internal
consistency is the least we would need to feel some confidence
that the verbal answers corresponded to some reality.
Implausibility of Responses
The CV method is generally used to elicit values for a
specific program to prevent environmental damage, whether it be
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dead animals, spoilage of a pristine wilderness area, or loss of
visibility in some very unusually clear area. Though in each
case, individuals often express zero willingness to pay, average
willingness to pay over the whole sample is often at least a few
dollars and frequently $20 to $50. With 100,000,000 households
in the United States, these responses result in very large
totals, frequently over $1 billion. Some have argued that these
large sums are in themselves incredible and cast doubt on the CV
method. The Panel is not convinced by this argument, since it is
hard to have an intuition as to a reasonable total.
But there is a different problem with these answers. one
can envision many possible types of environmental damage -- oil
spills or groundwater contamination in many different locations,
visibility impairment in a variety of places, and so on. Would
the average individual or household really be willing to pay $50
or even $5 to prevent each one? This seems very unlikely, since
the total resulting willingness to pay for all such programs
could easily become a very large fraction of one's income or
perhaps even exceed it.
In other words, even if the willingness to pay responses to
individual environmental insults are correct if only one program
is to be considered, they may give overestimates when there are
expected to be a large number of environmental problems.
Similarly, if individuals fail to consider seriously the public
or private goods that might be substitutes for the resources in
question, their responses to questions in a CV survey may be
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unrealistically large.
Absence of a Meaningful Budget Constraint
Even if respondents in CV surveys take seriously the
hypothetical referendum (or other type of) questions being asked
them, they may respond without thinking carefully about how much
disposable income they have available to allocate to all causes,
public and private (see Kemp and Maxwell (1992), for instance).
Specifically, respondents might reveal a willingness to pay of,
say, $100 for a project that would reduce the risk of an oil
spill; but if asked what current or planned expenditures they
would forgo to pay for the program, they might instead
re-evaluate their responses and revise them downward. This is
similar to the problem identified immediately above where
individuals fail to think of the possible multiplicity of
environmental projects or policies they might be asked to
support. To date, relatively few CV surveys have reminded
respondents convincingly of the very real economic constraints
within which spending decisions must be made.
Information Provision and Acceptance
If CV surveys are to elicit useful information about
willingness to pay, respondents must understand exactly what it
is they are being asked to value (or vote upon) and must accept
the scenario in formulating their responses. Frequently, CV
surveys have provided only sketchy details about the project(s)
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being valued and this calls into question the estimates derived
therefrom.
Consider the following example. Suppose information is
desired about individuals' willingness to pay to prevent a
chemical leak into a river. Presumably, their responses would
depend importantly on how long it would take for the chemical to
degrade naturally in the river (if it would at all), what
ecological and human health damage the chemical would do until it
had degraded, and so on. Absent information about such matters,
it is unreasonable to expect even very bright and well-informed
respondents to place meaningful values on a program to prevent
leaks.
Even if detailed information were supplied, there are limits
on the ability of respondents to internalize and thus accept and
proceed from the information given. It is one thing to tell
respondents matter-of-factly that complete recovery will occur
in, say, two years. It is another thing for them to accept this
information completely and then incorporate it in their answers
to difficult questions.
To return to the example above, respondents who take a
pessimistic view of the probable consequences of a chemical leak
are likely to report relatively high willingness to pay to
prevent the contamination -- too high, in fact, if in actuality
such an event had less serious effects. On the other hand,
respondents with an exaggerated sense of the river's assimilative
capacity or regenerative power could be expected to report a
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willingness to pay that understates their "true" valuation if
provided with a more complete description of likely consequences.
To repeat, even when CV surveys provide detailed and
accurate information about the effects of the program being
valued, respondents must accept that information in making their
(hypothetical) choices. If, instead, respondents rely on a set
of heuristics ("these environmental accidents are seldom as bad
as we're led to believe," or "authorities almost always put too
good a face on these things"), in effect they will be answering
a different question from that being asked; thus, the resulting
values that are elicited will not reliably measure willingness
to pay.
Extent of the Market
Suits for environmental damages are brought by trustees on
behalf of a legally definable group. This group limits the
population that is appropriate for determining damages even
though individuals outside of this group may suffer loss of
passive and active use. Undersampling and even zero sampling of
a subgroup of the relevant population may be appropriate if the
subgroup has a predictably low valuation of the resource. For
example, the authors of the CV study conducted in connection with
the Nestucca oil spill limited their sample to households in
Washington and British Columbia possibly because the individuals
living elsewhere were presumed to have values too low to justify
examination (or possibly because the sponsors of the study were
17
agencies of the State of washington and the province of British
Columbia and so defined the legally appropriate population)
(Rowe, Shaw, and Schulze, 1992).
"Warm Glow" Effects
Some critics of the CV technique (e.g., Diamond and Hausman
(1992)) have observed that the distribution of responses to
open-ended questions about willingness to pay often is
characterized by a significant proportion of "zeros" -- people
who would pay nothing for the program -- and also a number of
sizable reports. This bi-modal distribution also characterizes
individual giving: most of us give nothing to most charities,
but give non-trivial amounts to the ones we do support (at least
$10 or $20, say). This has led these critics to conclude that
individuals' responses to CV questions serve the same function as
charitable contributions -- not only to support the organization
in question, but also to feel the "warm glow" that attends
donating to worthy causes (see Andreoni (1989)). If this is so,
CV responses should not be taken as reliable estimates of true
willingness to pay, but rather as indicative of approval for the
environmental program in question.
III. KEY ISSUES IN THE DESIGN OF CONTINGENT VALUATION
INSTRUMENTS
In the course of its deliberations, the Panel discussed many
issues surrounding the design of CV surveys. Here we provide our
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views on several issues that are especially important. In
Section IV and in an Appendix to this report, we provide much
greater detail on the characteristics of a valid application of
the CV method.
The Referendum Format
Considered as a survey, a CV instrument is descriptive
rather than explanatory. Description may be as simple as
reporting univariate averages of one kind or another, such as the
percentages of those employed, seeking work, and not seeking work
in the United States, the mean number of rooms occupied by
American households, or the proportion of "likely" voters
favoring one or another candidate in an upcoming election. A CV
study seeks to find the average willingness to pay for a specific
environmental improvement. Nevertheless, as will be seen later,
it is often desirable to ask respondents to specify the reasons
for their reported choices.
Univariate descriptive results are meaningful mainly when
the alternative responses to a question are simple and can be
well specified and there is a high consensus among both
respondents and investigators about the precise meaning of the
questions and answers. In some cases where consensus would
initially not be adequate, simple definitions can be added to a
questionnaire to attain satisfactory agreement -- e.g., in asking
people how many rooms they have in their homes, one states
whether bathrooms, basements, etc. are to be included in the
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count; most respondents will conform to this specification.
With questions about subjective phenomena, such as attitudes
and values, treating answers as simply descriptive is seldom
meaningful. Too much depends on how questions are worded, and
there is neither sufficient social consensus about precise
meaning, nor an external reference to facilitate such consensus.
There are many examples in the survey literature of how changes
in wording or context will affect results based on questions
about subjective phenomena (see Schuman and Presser (1981)). For
example, in national surveys close to a quarter of the population
will choose the "don't know" response to most attitude questions
if it is explicitly offered; yet these same people will select a
substantive alternative if "don't know" is not specifically
provided, even though accepted when asserted spontaneously. More
puzzlingly, a question about "forbidding" a particular action
tends to elicit less agreement than a question about "not
allowing" the same action, although the two questions are
logically equivalent. Beyond these examples, most attitude
objects are simply too complex to be summarized by a single
survey question, e.g., attitudes toward abortion are too
dependent on the reasons for abortion and the time in pregnancy
to be adequately captured by a single question; attitudes toward
"gun control" vary enormously depending on the exact framing of
the issue (e.g., handguns vs. all guns, registration vs. banning,
and other concrete policy distinctions).
Contingent valuation studies seek descriptive information,
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yet call for a response similar to those elicited by questions
about subjective phenomena. Thus they risk many of the same
response effects and other wording difficulties that turn up
regularly in attitude surveys. Minimizing these effects presents
a considerable challenge to anyone wishing to elicit reliable CV
estimates. The simplest way to approach the problem is to
consider a CV survey as essentially a self-contained referendum
in which respondents vote on whether to tax themselves or not for
a particular purpose. Since real referenda are exposed to most
of the response effects that occur with attitude surveys, and
since we take the result of referenda as telling us something
about "true" preferences, it is not necessary to claim they can
be eliminated completely in a CV study.
The Panel is of the opinion that open-ended CV questions --
e.g., "What is the smallest sum that would compensate you for
environmental damage X?" or, "What is the largest amount you
would be willing to pay to avoid (or repair) environmental damage
X?" -- are unlikely to provide the most reliable valuations.
There are at least two reasons for this conclusion. In the first
place, the scenario lacks realism since respondents are rarely
asked or required in the course of their everyday lives to place
a dollar value on a particular public good. Their responses to
such questions are therefore likely to be unduly sensitive to
trivial characteristics of the scenario presented. In the second
place, an open-ended request for willingness to pay or
willingness to accept compensation invites strategic
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overstatement. The more seriously the respondent takes the
question, the more likely it is that he or she will see that
reporting a large response is a costless way to make a point.
Both experience and logic suggest that responses to open-ended
questions will be erratic and biased.
However, the referendum format, especially when cast in the
willingness to pay mode -- "Would you be willing to contribute
(or be taxed) D dollars to cover the cost of avoiding or
repairing environmental damage X?" -- has many advantages. It is
realistic: referenda on the provision of public goods are not
uncommon in real life. There is no strategic reason for the
respondent to do other than answer truthfully, although a
tendency to overestimate often appears even in connection with
surveys concerning routine market goods. The fact that market
surveys continue to be used routinely suggests that this tendency
is not a insuperable obstacle. Of course, the respondent in a CV
survey understands that the referendum is hypothetical; there is
no implication that the tax will actually be levied and the
damage actually repaired or avoided. This suggests that
considerable efforts should be made to induce respondents to take
the question seriously, and that the CV instrument should contain
other questions designed to detect whether the respondent has
done so. Although Carson, et al. (1992), included a useful
question to determine whether respondents believed the survey was
biased in any direction, they did not sufficiently test whether
the completeness of, and time period for, restoration stated in
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the survey were fully accepted by respondents. But, as far as
strategic reasons go, a respondent who would not be willing to
pay D dollars has no reason to answer "Yes," and a respondent who
would be willing to pay D dollars has no reason to answer "No."
There are, however, several other reasons why one's response
to a hypothetical referendum question might be the opposite of
one's actual vote on a real ballot. On one hand, a respondent
unwilling to pay D dollars in reality might feel pressure to give
the "right" or "good" answer when responding to an in-person or
telephone interviewer. This could happen if the respondent
believes that the interviewer would herself favor a yes answer.
On the other hand, a respondent actually willing to pay the
stated amount might answer in the negative for several reasons:
(i) belief that the proposed scenarios distributed the burden
unfairly; (ii) doubt of either the feasibility of the proposed
action, so that any contribution would be wasted, or the ability
of the relevant agency to carry out the action efficiently; or
(iii) refusal to accept the hypothetical choice problem, because
of either a generalized aversion to taxes or a view that someone
else -- the "oil industry", for example -- should pay for repair
or avoidance as the responsible party. The same considerations
suggest that a CV instrument should include questions designed to
detect the presence of these sources of bias. This is in fact
often done, but we do not know how successfully.
There are two further problems that could detract from the
reliability of CV responses without producing any determinate
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bias: (i) a feeling that one's vote will have no significant
effect on the outcome of the hypothetical referendum, leading to
no reply or an unconsidered one; and (ii) poor information about
the damage being valued. Of course, either of these could occur
in real referenda.
Here we must decide on the standard of knowledgeability of
the respondents that we want to impose on a CV study. It is
clear that it should be at least as high as that which the
average voter brings to a real referendum on the provision of a
specific public good, but should it be higher? A "conservative"
CV study, i.e., one that avoids overestimating true willingness
to pay, will no doubt exceed the minimum standard of information
and will also lean over backwards to avoid providing information
in a way that might bias the response upwards. In particular, a
conservative study will provide the respondent with some
perspective concerning the overall frequency and magnitude of oil
spills, the amount of money currently being spent on preventing
and remedying them, the overall scale of their consequences, the
peculiar features of the spill in question, and similar relevant
information. Placing the choice problem in a broader context
helps the respondent to arrive at a realistic or even
conservative valuation.
Most of the provision of public goods in this country is
decided by representatives and bureaucrats rather that by direct
vote of the citizens. It is presumed that these agents are more
"expert" or at least draw on more knowledge than the citizens
24
themselves. The agents' expertise, if it really exists, is about
the means and cost of providing public goods, though elected
officials may sometimes be presumed to "represent" judgments of
ultimate value to the citizens. Nevertheless, to increase one's
confidence that a CV study is conservatively reliable, one might
want to compare its outcome with that provided by a panel of
experts. This will help check whether respondents and those
conducting the study or studies are reasonably well-informed and
well-motivated. This comparison could be made on a sample of CV
studies to give an idea of their reliability in general.
The above considerations suggest that a CV study based on
the referendum scenario can produce more reliably conservative
estimates of willingness to pay, and hence of compensation
required in the aftermath of environmental impairment, provided
that a concerted effort is made to motivate the respondents to
take the study seriously, to inform them about the context and
special circumstances of the spill or other accident, and to
minimize any bias toward high or low answers originating from
social pressure within the interview. This implies that, in the
present state of the art, a reliably conservative CV study should
be conducted with personal interviews of significant duration and
will therefore be relatively costly. If follows therefore that,
in order that the cost of the study not be disproportionately
large compared to the amount of damages, the CV approach would
likely be used only in relatively major spills, at least until
further improvements in methodology can be developed and
25
accepted. (A suggestion for doing so is offered in Section V.)
The referendum format offers one further advantage for CV.
As we have argued, external validation of elicited lost passive-
use values is usually impossible. There are however real-life
referenda. Some of them, at least, are decisions to purchase
specific public goods with defined payment mechanisms, e.g., an
increase in property taxes. The analogy with willingness to pay
for avoidance or repair of environmental damage is far from
perfect but close enough that the ability of CV-like studies to
predict the outcomes of real-world referenda would be useful
evidence on the validity of the CV method in general.
The test we envision is not an election poll of the usual
type. Instead, using the referendum format and providing the
usual information to the respondents, a study should ask whether
they are willing to pay the average amount implied by the actual
referendum. The outcome of the CV-like study should be compared
with that of the actual referendum. The Panel thinks that
studies of this kind should be pursued as a method of validating
and perhaps even calibrating applications of the CV method (see
Magleby, 1984).
Addressing the Embedding Problem
Perhaps the most important internal argument against the
reliability of the CV approach (as against general criticisms
about vagueness, lack of information, or unreality of the
scenario) is the observation of the "embedding" phenomenon (see
26
the discussion in Section II). Different but similar samples of
respondents are asked about their willingness to pay for
prevention of environmental damage scenarios that are identical
except for their scale: different numbers of seabirds saved,
different numbers of forest tracts preserved from logging, etc.
It is reported that average willingness to pay is often
substantial for the smallest scenario presented but is then
substantially independent of the size of the damage averted,
rising slightly if at all for large changes in size.
The usual interpretation proposed by critics of the CV
method is that the responses are not measuring the equivalent
dollar value of the utility of the environmental assets
preserved, because that would certainly be measurably larger for
substantially larger programs of preservation. Instead, the
fixed sum offered is the value of a feeling of having done
something praiseworthy; a "warm glow" is the phrase often used.
This is potentially a very damaging criticism of the method.
CV studies almost always seek to measure willingness to pay to
avoid a particular incident rather than compensation that would
be required for damage that has already occurred. This is
because respondents are more likely to exaggerate the
compensation they would require than their willingness to pay,
and because the latter is expected to be less than the former and
so is conservative. If reported willingness to pay accurately
reflected actual willingness to pay, then, under the "warm glow"
interpretation, willingness to pay might well exceed compensation
27
required because the former contains an element of self-
approbation. It might be real but not properly compensable.
Defenders of the CV approach reply to this criticism in
various ways. Sometimes it is argued that the evidence used to
support "embedding" simply indicates diminishing marginal utility
of the asset in question. In many cases, however, the constancy
or near-constancy of willingness to pay does not appear
consistent with the large reported amounts for the first small
increment of environmental preservation.
A second defense of CV against the embedding phenomenon is
that CV questions have to be posed carefully and in context. It
is argued that carelessly formulated CV instruments leave
respondents with the impression that they are being asked, "Would
you pay $X to avert a certain small environmental harm?" In a
very large population of birds, the death of 1,000 is not seen as
noticeably different from the death of 100,000 -- and may not
actually be very different -- so that respondents simply answer
the question just asked.
This second response leads to the obvious question: how
should a CV instrument be framed to elicit an answer that
responds to the precise scenario and not to a generalized "warm
glow" effect? We must reject one possible approach, that of
asking each respondent to express willingness to pay to avert
incidents of varying sizes; the danger is that embedding will be
forcibly avoided, still without realism. This issue is best
considered as part of the broader question: How much context
28
about the incident itself and about the respondent's
circumstances and choices should be included in the CV
instrument?
We are recommending a high standard of richness in context
to achieve a realistic background. Our proposed guidelines
regarding this issue are embodied in Section IV below.
Time Dimension of Passive Use Losses
Typically, environmental damages from oil spills or similar
accidents are severe for some period of time -- weeks, months, or
sometimes a few years -- and gradually are reduced by natural
forces and human efforts to a low or possibly even zero steady
state level. In some circumstances, passive-use losses derive
only or mostly from the steady state conditions; thus, if passive
use value derives from species diversity, even a considerable
loss of birds or mammals which does not endanger any species will
give rise to no loss. If, on the contrary, considerable passive-
use value is attached to the interim state of the natural
resource, then respondents have to do a very difficult present
value calculation properly to compute their current willingness
to pay for the difference between the fully restored state of the
resource and the actual state as the level of restoration varies
over time. CV surveys accordingly have to be carefully designed
to allow respondents to differentiate interim from steady state
passive-use loss, and, if there is interim passive-use loss, to
report its present value correctly.
29
It is reasonable to assume that interim passive-use values
are additive over time. Hence, we need a calculation of present
values of the interim losses. The discounting and the estimation
of the rate of recovery of the resource should be done by
technical experts and not by the respondents, who are unlikely to
handle these tasks adequately. Respondents should be asked only
their willingness to pay to eliminate the difference between some
partially restored level of the resource and the pristine state
for a specific period of time, say a year, on the assumption that
after that time full restoration is assured. Technical experts
would estimate how the state of the resource will vary from year
to year as the restoration takes place. The technical
information about the state of the resource, together with the
respondent's assessments of the flow valuation of the resource,
can be used to construct a time series of passive-use losses
which can be discounted to the present at an appropriate rate of
interest to determine the present value of the damages.
IV. SURVEY GUIDELINES
In this section we try to lay down a fairly complete set of
guidelines compliance with which would define an ideal CV survey.
A CV survey does not have to meet each of these guidelines fully
in order to qualify as a source of reliable information to a
damage assessment process. Many departures from the guidelines
or even a single serious deviation would, however, suggest
unreliability prima facie. To preserve continuity, we give only
30
a bald list of guidelines here. They are repeated together with
further explanatory comments in the Appendix to this Report.
GENERAL GUIDELINES
0Sample Type and Size: Probability sampling is essential for
a survey used for damage assessment.1 The choice of sample
specific design and size is a difficult, technical question
that requires the guidance of a professional sampling
statistician.
0Minimize Nonresponses: High nonresponse rates would make
the survey results unreliable.
0Personal Interview: The Panel believes it unlikely that
reliable estimates of values could be elicited with mail
surveys. Face-to-face interviews are usually preferable,
although telephone interviews have some advantages in terms
of cost and centralized supervision.
0Pretesting for Interviewer Effects: An important respect in
1 This need not preclude use of less adequate samples,
including quota or even convenience samples, for preliminary
testing of specific experimental variations, so long as order of
magnitude differences rather than univariate results are the focus.
Even then, obvious sources of bias should be avoided (e.g.,
college students are probably too different in age and education
from the heterogeneous adult population to provide a trustworthy
basis for wider generalization).
31
which CV surveys differ from actual referenda is the
presence of an interviewer (except in the case of mail
surveys). It is possible that interviewers contribute to
"social desirability" bias, since preserving the environment
is widely viewed as something positive. In order to test
this possibility, major CV studies should incorporate
experiments that assess interviewer effects.
0Reporting: Every report of a CV study should make clear the
definition of the population sampled, the sampling frame
used, the sample size, the overall sample non-response rate
and its components (e.g., refusals), and item non-response
on all important questions. The report should also
reproduce the exact wording and sequence of the
questionnaire and of other communications to respondents
(e.g., advance letters). All data from the study should be
archived and made available to interested parties (see
Carson et al. (1992), for an example of good practice in
inclusion of questionnaire and related details; as of this
date, however, the report has not been available publicly
and the data have not been archived for open use by other
scholars).
0Careful Pretesting of a CV Questionnaire: Respondents in a
CV survey are ordinarily presented with a good deal of new
and often technical information, well beyond what is typical
32
in most surveys. This requires very careful pilot work and
pretesting, plus evidence from the final survey that
respondents understood and accepted the main description and
questioning reasonably well.
GUIDELINES FOR VALUE ELICITATION SURVEYS
The following guidelines are met by the best CV surveys and
need to be present in order to assure reliability and usefulness
of the information that is obtained.
0Conservative Design: Generally, when aspects of the survey
design and the analysis of the responses are ambiguous, the
option that tends to underestimate willingness to pay is
preferred. A conservative design increases the reliability
of the estimate by eliminating extreme responses that can
enlarge estimated values wildly and implausibly.
0Elicitation Format: The willingness to pay format should be
used instead of the compensation required because the former
is the conservative choice.
0Referendum Format: The valuation question should be posed
as a vote on a referendum.
0Accurate Description of the Program or Policy: Adequate
33
information must be provided to respondents about the
environmental program that is offered. It must be defined
in a way that is relevant to damage assessment.
0Pretesting of Photographs: The effects of photographs on
subjects must be carefully explored.
0Reminder of Undamaged Substitute Commodities: Respondents
must be reminded of substitute commodities, such as other
comparable natural resources or the future state of the same
natural resource. This reminder should be introduced
forcefully and directly prior to the main valuation question
to assure that respondents have the alternatives clearly in
mind.
0Adequate Time Lapse from the Accident: The survey must be
conducted at a time sufficiently distant from the date of
the environmental insult that respondents regard the
scenario of complete restoration as plausible. Questions
should be included to determine the state of subjects'
beliefs regarding restoration probabilities.
0Temporal Averaging: Time dependent measurement noise should
be reduced by averaging across independently drawn samples
taken at different points in time. A clear and substantial
34
time trend in the responses would cast doubt on the
"reliability" of the finding.
0"No-answer" Option: A "no-answer" option should be
explicitly allowed in addition to the "yes" and "no" vote
options on the main valuation (referendum) question.
Respondents who choose the "no-answer" option should be
asked nondirectively to explain their choice. Answers
should be carefully coded to show the types of responses,
for example: (i) rough indifference between a yes and a no
vote; (ii) inability to make a decision without more time or
more information; (iii) preference for some other mechanism
for making this decision; and (iv) bored by this survey and
anxious to end it as quickly as possible.
0Yes/no Follow-ups: Yes and no responses should be followed
up by the open-ended question: "Why did you vote yes/no?"
Answers should be carefully coded to show the types of
responses, for example: (i) It is (or isn't) worth it;
(ii) Don't know; or (iii) The oil companies should pay.
0Cross-tabulations: The survey should include a variety of
other questions that help to interpret the responses to the
primary valuation question. The final report should include
summaries of willingness to pay broken down by these
categories. Among the items that would be helpful in
35
interpreting the responses are:
Income
Prior Knowledge of the Site
Prior Interest in the Site (Visitation Rates)
Attitudes Toward the Environment
Attitudes Toward Big Business
Distance to the Site
Understanding of the Task
Belief in the Scenarios
Ability/Willingness to Perform the Task
0Checks on Understanding and Acceptance: The above
guidelines must be satisfied without making the instrument
so complex that it poses tasks that are beyond the ability
or interest level of many participants.
GOALS FOR VALUE ELICITATION SURVEYS
The following items are not adequately addressed by even the
best CV surveys. In the opinion of the Panel, these issues will
need to be convincingly dealt with in order to assure the
reliability of the estimates.
0Alternative Expenditure Possibilities: Respondents must be
reminded that their willingness to pay for the environmental
program in question would reduce their expenditures for
private goods or other public goods. This reminder should
36
be more than perfunctory, but less than overwhelming. The
goal is to induce respondents to keep in mind other likely
expenditures, including those on other environmental goods,
when evaluating the main scenario.
0Deflection of Transaction Value: The survey should be
designed to deflect the general "warm-glow" of giving or the
dislike of "big business" away from the specific
environmental program that is being evaluated. It is
possible that the referendum format limits the "warm glow"
effect, but until this is clear the survey design should
explicitly address this problem.
0Steady State or Interim Losses: It should be made apparent
that respondents can distinguish interim from steady-state
losses.
0Present Value Calculations of Interim Losses: It should be
demonstrated that, in revealing values, respondents are
adequately sensitive to the timing of the restoration
process.
0Advance Approval: Since the design of the CV survey can
have a substantial effect on the responses, it is desirable
that -- if possible -- critical features be preapproved by
37
both sides in a legal action, with arbitration and/or
experiments used when disagreements cannot be resolved by
the parties themselves.
0Burden of Proof: Until such time as there is a set of
reliable reference surveys, the burden of proof of
reliability must rest on the survey designers. They must
show through pretesting or other experiments that their
survey does not suffer from the problems that these
guidelines are intended to avoid. Specifically, if a CV
survey suffered from any of the following maladies, we would
judge its findings "unreliable":
-- A high nonresponse rate to the entire survey
instrument or to the valuation question.
-- Inadequate responsiveness to the scope of the
environmental insult.
-- Lack of understanding of the task by the
respondents.
-- Lack of belief in the full restoration scenario.
-- "Yes" or "no" votes on the hypothetical referendum
that are not followed up or explained by making
38
reference to the cost and/or the value of the
program.
0Reliable Reference Surveys: In order to alleviate this
heavy burden of proof, we strongly urge the government to
undertake the task of creating a set of reliable reference
surveys that can be used to interpret the guidelines and
also to calibrate surveys that do not fully meet the
conditions.
V. RECOMMENDATIONS FOR FUTURE RESEARCH
The Panel's major research recommendation goes toward a
drastic reform of the CV procedure, extending beyond the
guidelines suggestion in Section IV.
The problem of estimating the demand for highly innovative
commercial products, including some that have not yet actually
been produced, is much like the problem faced in CV research. It
is the problem of estimating willingness to pay for a necessarily
unfamiliar product. The field of market research has developed
methods -- "conjoint analysis," for example -- that are very
similar to the CV approach. (One important difference is that a
new product may eventually reach the market, and projections of
expected sales can be checked. Survey responses are usually
found to be moderate overestimates of actual willingness to pay.)
Practitioners have found that survey methods are better at
estimating relative demand than absolute demand. There is an
39
anchoring problem, even with private goods -- that is, absolute
willingness to pay is hard to pin down. This leads to the
following suggestion.
The federal government should produce standard damage
assessments for a few specific reference oil spills, either
hypothetical or actual, ranging from small to large. These
standard valuations could be generated by any method. One
possibility would be through a jury of experts. Such a jury of
experts might wish to conduct a series of CV studies, satisfying
the guidelines laid out above. These CV studies would be inputs
into the jury process, to be combined with other information and
expert judgment. Once these benchmarks were available, they
could serve as reference points for later CV studies. When a
damage assessment is required, surveys could be used to elicit
answers to questions like: "Would you pay (much more, more,
about the same, less, much less) to prevent this spill than you
would to prevent Standard Spill A?" "Would you pay an amount to
avoid this spill that is between the amounts you would pay to
avoid Standard Spill B and Standard Spill C? If so, is the
amount much closer to B than C, closer to B than C, halfway
between B and C, closer to C than B, much closer to C than B?"
These questions presumably would not be asked so schematically.
Responses to such a study could then serve as one reliable source
of information in the damage assessment.
We recognize that this technique would require that
respondents be made familiar with the reference spills as well as
40
the particular spill whose damage is being assessed. We expect
that the additional effort would be more than offset by the
greater simplicity and reliability in estimating relative
willingness to pay.
This possibility suggests a slightly more radical extension
of the CV method. Respondents could be asked to compare their
willingness to pay to avoid a specific case of environmental
damage to their willingness to pay for a range of fairly familiar
private goods. It would no doubt be best if the private goods
were to bear some similarity to the environmental good in
question, but that is not necessary. The anchoring purpose would
be served if respondents could measure their willingness to pay
in units of articles of clothing or small household appliances
forgone.
This latter is a suggestion for research in the CV method,
not necessarily a recommendation for current practical use.
The guidelines proposed in Section IV themselves suggest
areas for further research, this time within the contingent
valuation community. In particular, we emphasize the urgency of
studying the sensitivity of willingness to pay responses to the
number and extent of budgetary substitutes mentioned in survey
instruments (that is, reminders of other things on which
respondents could spend their money). In such research it would
be helpful if parallel studies were conducted on the sensitivity
of stated intentions to buy ordinary market goods -- both
familiar and unfamiliar -- to reminders of alternative uses of
41
those resources. The point is to discover the extent to which
the valuation of environmental public goods is intrinsically more
difficult than similar exercises with respect to market goods.
A closely-related line of research is the sensitivity of
responses in CV surveys to the number and extent of undamaged
substitute commodities mentioned explicitly in the survey
instrument (miles of nearby shoreline, miles of shoreline
elsewhere, similarity for animal or bird life, alternative
recreation possibilities and so on). This could be extended to
variations in the way in which the budget constraint is presented
to respondents. Here again, comparisons with market goods would
be useful.
Finally, having urged that the availability of a no-vote
option is an important component of the ability of the CV
technique to mimic an actual referendum, we recommend further
research into alternative ways of presenting and interpreting the
no-vote option. In this respect, too, comparative studies with
familiar public and private goods (local parks, school
facilities, housing for the homeless, food distributions) would
be enlightening. Real referenda always allow the option of not
voting, in a natural way. CV studies have to achieve the same
result more deliberately, so there is a need to know if the
precise formulation matters very much to the result.
VI. CONCLUSIONS AND RECOMMENDATIONS
The Panel starts from the premise that passive-use loss --
42
interim or permanent -- is a meaningful component of the total
damage resulting from environmental accidents. A problem arises
because passive-use losses have few or no overt behavioral
consequences. The faintness of the behavioral trail means that a
well-designed and adequately sensitive measuring instrument is
needed to substitute for conventional observations of behavior.
In particular, can the CV method provide a sufficiently reliable
estimate of total loss -- including passive-use loss -- to play a
useful role in damage assessment?
It has been argued in the literature and in comments
addressed to the Panel that the results of CV studies are
variable, sensitive to details of the survey instrument used, and
vulnerable to upward bias. These arguments are plausible.
However, some antagonists of the CV approach go so far as to
suggest that there can be no useful information content to CV
results. The Panel is unpersuaded by these extreme arguments.
In Section IV above, we identify a number of stringent
guidelines for the conduct of CV studies. These require that
respondents be carefully informed about the particular
environmental damage to be valued, and about the full extent of
substitutes and undamaged alternatives available. In willingness
to pay scenarios, the payment vehicle must be presented fully and
clearly, with the relevant budget constraint emphasized. The
payment scenario should be convincingly described, preferably in
a referendum context, because most respondents will have had
experience with referendum ballots with less-than-perfect
43
background information. Where choices in formulating the CV
instrument can be made, we urge they lean in the conservative
direction, as a partial or total offset to the likely tendency to
exaggerate willingness to pay.
The Panel concludes that under those conditions (and others
specified above), CV studies convey useful information. We think
it is fair to describe such information as reliable by the
standards that seem to be implicit in similar contexts, like
market analysis for new and innovative products and the
assessment of other damages normally allowed in court
proceedings. As in all such cases, the more closely the
guidelines are followed, the more reliable the result will be.
It is not necessary, however, that every single injunction be
completely obeyed; inferences accepted in other contexts are not
perfect either.
Thus, the Panel concludes that CV studies can produce
estimates reliable enough to be the starting point of a judicial
process of damage assessment, including lost passive-use values.
To be acceptable for this purpose, such studies should follow
the guidelines described in Section IV above. The phrase "be the
starting point" is meant to emphasize that the Panel does not
suggest that CV estimates can be taken as automatically defining
the range of compensable damages within narrow limits. Rather,
we have in mind the following considerations.
The Panel is persuaded that hypothetical markets tend to
overstate willingness to pay for private as well as public goods.
44
The same bias must be expected to occur in CV studies. To the
extent that the design of CV instruments makes conservative
choices when alternatives are available, as urged in Section IV,
this intrinsic bias may be offset or even over-corrected. All
surveys of attitudes or intentions are bound to exhibit
sensitivity of response to the framing of questions and the order
in which they are asked. No automatic or mechanical calibration
of responses seems to be possible.
The judicial process must in each case come to a conclusion
about the degree to which respondents have been induced to
consider alternative uses of funds and take the proposed payment
vehicle seriously. Defendants will argue that closer attention
to substitute commodities would have yielded lower valuations.
Trustees will argue that they have already leaned over backwards
to ensure conservative responses. Judges and juries must decide
as they do in other damage cases. The Panel's conclusion is that
a well-conducted CV study provides an adequately reliable
benchmark to begin such arguments. It contains information that
judges and juries will wish to use, in combination with other
evidence, including the testimony of expert witnesses.
The Panel's second conclusion is that the appropriate
federal agencies should begin to accumulate standard damage
assessments for a range of oil spills, as described in Section V.
That process should further improve the reliability of CV
studies in damage assessment. It should thus contribute to
increasing the accuracy and reducing the cost of subsequent
45
damage assessment cases. In that sense, it can be regarded as an
investment.
The proposals for further research outlined in Section V are
an integral part of our recommendations. The Panel believes that
the suggestions put forward there could lead to more reliable and
less controversial damage assessment at reduced cost. It is not
to be expected that controversy will disappear, however. There
will always be controversy where intangible losses have to be
evaluated in monetary terms.
46
APPENDIX
GENERAL GUIDELINES
0Sample Type and Size: Probability sampling is essential for
a survey used for damage assessment.2 The choice of sample
specific design and size is a difficult, technical question
that requires the guidance of a professional sampling
statistician.
If a single dichotomous question of the yes-no type is used
to elicit valuation responses, then a total sample size of 1000
respondents will limit sampling error to about 3% plus or minus
on a single dichotomous question, assuming simple random
sampling. However, this or any other sample size needs to be
reconceptualized for three reasons. First, if face-to-face
interviewing is used, as we suggest above, clustering and
stratification must be taken into account. Second, if
dichotomous valuation questions are used (e.g., hypothetical
referenda), separate valuation amounts must be asked of random
sub-samples and these responses must be unscrambled
econometrically to estimate the underlying population mean or
median. Third, in order to incorporate experiments on
2 This need not preclude use of less adequate samples,
including quota or even convenience samples, for preliminary
testing of specific experimental variations, so long as order of
magnitude differences rather than univariate results are the focus.
Even then, obvious sources of bias should be avoided (e.g.,
college students are probably too different in age and education
from the heterogeneous adult population to provide a trustworthy
basis for wider generalization).
47
interviewer and wording effects, additional random sub-sampling
is required. For all these reasons, it will be important to
consult sampling statisticians in the design of a CV survey
intended for legal or policy-making purposes.
0Minimize Nonresponses: High nonresponse rates would make
the survey results unreliable.
To the extent that a CV study is expected to represent the
adult population of the United States or a portion of it,
minimizing both sample non-response and item non-response are
important. The former is unlikely to be below 20% even in very
high quality surveys; the latter has also been large in some CV
surveys because of the difficulty of the task respondents are
being asked to perform. These sources of potential bias can be
partially justified on the grounds that they also occur with
official referenda, in both cases with the loss especially of the
least educated parts of the population. The further reduction of
the final sample by elimination of "protest zeros," "unrealistic
high values," and other problematic responses may lead to
effective final total response rates so low as to imply that the
survey population consists of interested and specially instructed
quasi-experts. This consideration reinforces the desirability of
combining a reasonable response rate with a high but not
forbidding standard of information, as discussed in Section III
above.
48
0Personal Interview: The Panel believes it unlikely that
reliable estimates of values could be elicited with mail
surveys. Face-to-face interviews are usually preferable,
although telephone interviews have some advantages in terms
of cost and centralized supervision.
Assuming a CV survey is to represent a natural population,
such as all adults in the United States, or those in a single
urban area or a state, it is desirable that it be carried out
using either face-to-face or telephone interviews. Mail surveys
typically employ lists that cover too small a part of the
population (e.g., samples based on telephone directories omit
approximately half the U.S. population because of non-listed
numbers, incorrect numbers, and non-phone households), and then
miss another quarter or more of the remainder through non-
response. In addition, since the content of a mail questionnaire
can be reviewed by targeted respondents before deciding to return
it, those most interested in a natural resource issue or in one
side or the other can make their decision on that basis. It is
also impossible using mail surveys to guarantee random selection
within households or to confine answering to a single respondent,
and it is difficult (though not impossible) to control question-
order effects. Thus, mail surveys should be used only if another
supplementary method can be employed to cross-validate the
results on a random sub-sample of respondents.
49
The choice between telephone and face-to-face administration
is less clear. Face-to-face surveys offer practical advantages
in maintaining respondent motivation and allowing use of graphic
supplements. Both coverage and response rates are also usually
somewhat higher than with telephone surveys. However, telephone
surveys can cut interviewing costs by between a third and a half;
for CV purposes, it may be a disadvantage that most survey
investigators believe telephone interviews need to be kept
shorter in length than face-to-face interviews because respondent
attention and cooperation are more difficult to maintain. In
addition, random-digit-dial telephone surveys approximate simple
random sampling. Face-to-face surveys must be based on cluster
sampling and, therefore, the results provide less precise
estimates than do telephone surveys of the same size.
0Pretesting for Interviewer Effects: An important respect in
which CV surveys differ from actual referenda is the
presence of an interviewer (except in the case of mail
surveys). It is possible that interviewers contribute to
"social desirability" bias, since preserving the environment
is widely viewed as something positive. In order to test
this possibility, major CV studies should incorporate
experiments that assess interviewer effects.
To test for interviewer effects, two modifications might be
made to a standard face-to-face CV survey. In one variant on
50
current practice, respondents would stop when they come to the
valuation question, write their "vote" on a ballot, and fold and
deposit it in a sealed box. However, since this practice would
not mimic the complete anonymity of the voting booth, for a sub-
sample of respondents a second modification should be made.
Respondents would be allowed to mail their "ballots" in unmarked
envelopes directly to the survey organization, even though that
will preclude any but the simplest analysis of responses. Tests
of the effect of both these modifications of current practice
will indicate whether they are needed routinely or whether at
least some calibration should be introduced to compensate for
interviewer effects. (The more modest of these proposed
modifications -- a simulated ballot box, or even voting on a
portable computer -- has few if any disadvantages and might be
made standard if it shows any reliable departure at all from
answers given orally to the interviewer.)
0Reporting: Every report of a CV study should make clear the
definition of the population sampled, the sampling frame
used, the sample size, the overall sample non-response rate
and its components (e.g., refusals), and item non-response
on all important questions. The report should also
reproduce the exact wording and sequence of the
questionnaire and of other communications to respondents
(e.g., advance letters). All data from the study should be
archived and made available to interested parties (see
51
Carson et al. (1992), for an example of good practice in
inclusion of questionnaire and related details; as of this
date, however, the report has not been available publicly
and the data have not been archived for open use by other
scholars).
0Careful Pretesting of a CV Questionnaire: Respondents in a
CV survey are ordinarily presented with a good deal of new
and often technical information, well beyond what is typical
in most surveys. This requires very careful pilot work and
pretesting, plus evidence from the final survey that
respondents understood and accepted the main description and
questioning reasonably well.
Parenthetically, the claim sometimes made by CV proponents
that particular methods of piloting, such as focus groups, are
essential should be viewed with skepticism, since these claims
are unsupported by any systematic evidence. Nor is it clear that
what are called "state-of-the-art" CV surveys constitute
something entirely new or different from other types of serious
survey investigations. Thus, although evidence that
questionnaire development has been carried out carefully is
certainly important, it cannot be taken as a self-sufficient
basis of validity -- the more so because we know that many people
will answer survey questions without apparent difficulty, even
when they do not understand them well. A way of reducing
52
pressure to give answers of questionable meaningfulness would be
to provide respondents an explicit "no opinion" type of
alternative when a key valuation question is posed.
GUIDELINES FOR VALUE ELICITATION SURVEYS
The following guidelines are met by the best CV surveys and
need to be present in order to assure reliability and usefulness
of the information that is obtained.
0Conservative Design: Generally, when aspects of the survey
design and the analysis of the responses are ambiguous, the
option that tends to underestimate willingness to pay is
preferred. A conservative design increases the reliability
of the estimate by eliminating extreme responses that can
enlarge estimated values wildly and implausibly.
0Elicitation Format: The willingness to pay format should be
used instead of compensation required because the former is
the conservative choice.
In experimental settings, the gap between stated intentions
to support a particular referendum and actual behavior in the
voting booth can be very great (see Magleby, 1984). This gap
might be treated by "calibration" if there were historical data
on the relationship between such intentions and behavior.
Unfortunately, we are aware of no data that is close enough to
53
the CV context that could be used to calibrate CV responses. In
the absence of historical data that can be used to calibrate the
intentions reported in the CV surveys, the survey instrument has
to be designed with extraordinary care so that it can stand on
its own.
0Referendum Format: The valuation question should be posed
as a vote on a referendum.
As is now generally recognized by most CV proponents, asking
respondents to give a dollar valuation in response to an open-
ended question presents them with an extremely difficult task.
At the same time, CV proponents also recognize that presenting
respondents a set of dollar amounts from which they are to choose
is likely to create anchoring and other forms of bias. Thus, we
recommend as the most desirable form of CV elicitation the use of
a dichotomous question that asks respondents to vote for or
against a particular level of taxation, as occurs with most real
referenda. As already noted, such a question form also has
advantage in terms of incentive compatibility. (If a double-
bounded dichotomous choice or some other question form is used in
order to obtain more information per respondent, experiments
should be developed to investigate biases that may be
introduced.)
0Accurate Description of the Program or Policy: Adequate
54
information must be provided to respondents about the
environmental program that is offered. It must be defined
in a way that is relevant to damage assessment.
Ideally a CV survey would elicit attitudes toward three
alternative (future) recovery scenarios: (A) "immediate"
restoration, (b) accelerated restoration, and (c) natural
restoration. Damages would be the difference between (a) and (b)
on the assumption that accelerated restoration is provided by the
responsible party. Unfortunately, respondents may not find
"immediate" restoration very plausible and they may resist the
notion that they should be expected to contribute to accelerated
restoration when it is an oil company that is at fault. If
respondents are unable or unwilling to deal hypothetically with
the most relevant "clean-up" scenarios, alternative "prevention"
scenarios will have to be used in the survey instrument. For
example, respondents may be asked to vote for a referendum that
offers reduced risk of another spill for a specified period of
time.3 The weaker is the linkage between the "prevention"
scenarios and the "clean-up" scenarios, the more unreliable are
the survey results. Rhetorically: Is a decade of prevention
equal in value to the difference in value between accelerated and
immediate clean-up?
3 As in the survey actually performed by the State of Alaska
after the Valdez spill (See Carson et al. (1992)).
55
0Pretesting of Photographs: The effects of photographs on
subjects must be carefully explored.
One effective means for conveying information and holding
interest in a CV interview has been the use of large and
impressive photographs. However, this technique is a two-edged
sword because the dramatic nature of a photograph may have much
more emotional impact than the rest of the questionnaire. Thus
it is important that photographs be subjected to even more
careful assessment than verbal material if the goal is to avoid
bias in presentation.4
0Reminder of Undamaged Substitute Commodities: Respondents
must be reminded of substitute commodities, such as other
comparable natural resources or the future state of the same
natural resource. This reminder should be introduced
forcefully and directly prior to the main valuation question
to assure that respondents have the alternatives clearly in
mind.
0Adequate Time Lapse from the Accident: The survey must be
conducted at a time sufficiently distant from the date of
the environmental insult that respondents regard the
scenario of complete restoration as plausible. Questions
4 Failure to test the effects of photographs on responses is
one shortcoming of Carson et al. (1992).
56
should be included to determine the state of subjects'
beliefs regarding restoration probabilities.
Survey respondents who would not suffer interim passive-use
loss may not regard full restoration as very plausible;
therefore, they may report substantial passive-use loss even if
told that full restoration in some reasonable amount if time is
certain. Misunderstanding of the restoration probability is most
acute when the accident has recently occurred and before any
substantial restoration takes place. It would be ideal to assess
steady state passive-use loss after natural and human restoration
is complete or nearly so, since then presumably respondents would
believe in the restoration. If that is not a possibility,
surveys might be conducted over time until the reported
willingness to pay settles down (assuming that it does), as the
respondents come to believe more and more in the probable success
of the restoration effort. Alternatively, respondents might be
asked to value a menu of alternative possible scenarios, without
being told explicitly which is applicable for the environmental
insult under study. The menu should be designed to force them to
consider the difference between interim and steady-state passive-
use value.
0Temporal Averaging: Time dependent measurement noise should
be reduced by averaging across independently drawn samples
taken at different points in time. A clear and substantial
57
time trend in the responses would cast doubt on the
"reliability" of the finding.
0"No-answer" Option: A "no-answer" option should be
explicitly allowed in addition to the "yes" and "no" vote
options on the main valuation (referendum) question.
Respondents who choose the "no-answer" option should be
asked nondirectively to explain their choice. Answers
should be carefully coded to show the types of responses,
for example: (i) rough indifference between a yes and a no
vote; (ii) inability to make a decision without more time or
more information; (iii) preference for some other mechanism
for making this decision; and (iv) bored by this survey and
anxious to end it as quickly as possible.
0Yes/no Follow-ups: Yes and no responses should be followed
up by the open-ended question: "Why did you vote yes/no?"
Answers should be carefully coded to show the types of
responses, for example: (i) It is (or isn't) worth it; (ii)
Don't know; or (iii) The oil companies should pay.
0Cross-tabulations: The survey should include a variety of
other questions that help to interpret the responses to the
primary valuation question. The final report should include
summaries of willingness to pay broken down by these
categories. Among the items that would be helpful in
58
interpreting the responses are:
Income
Prior Knowledge of the Site
Prior Interest in the Site (Visitation Rates)
Attitudes Toward the Environment
Attitudes Toward Big Business
Distance to the Site
Understanding of the Task
Belief in the Scenarios
Ability/Willingness to Perform the Task
We believe that these cross tabulations will prove useful in
interpreting and lending credibility to the responses and
possibly also in forming adjustments that can enhance
reliability.
0Checks on Understanding and Acceptance: The above
guidelines must be satisfied without making the instrument
so complex that it poses tasks that are beyond the ability
or interest level of many participants.
Since CV interviews often present information that is new to
respondents, the questionnaire should attempt at the end to
determine the degree to which respondents accept as true the
descriptions given and assertions made prior to the valuation
question. Such an inquiry should be carried out in detail but
59
non-directively, so that respondents feel free to reject any part
of the information they were given at earlier points.
GOALS FOR VALUE ELICITATION SURVEYS
The following items are not adequately addressed by even the
best CV surveys. In the opinion of the Panel, these issues will
need to be convincingly dealt with in order to assure the
reliability of the estimates.
0Alternative Expenditure Possibilities: Respondents must be
reminded that their willingness to pay for the environmental
program in question would reduce their expenditures for
private goods or other public goods. This reminder should
be more than perfunctory, but less than overwhelming. The
goal is to induce respondents to keep in mind other likely
expenditures, including those on other environmental goods,
when evaluating the main scenario.
Consumers can be expected to make expenditure decisions that
are adequately sensitive to other expenditure possibilities with
which they are familiar. But environmental referenda of the type
presented in CV surveys are unfamiliar and respondents may not be
aware of the large set of other expenditure possibilities that
might be offered in future CV surveys or future referenda.
Unless informed otherwise, respondents may suppose that there is
60
only one environmental scenario that will ever be offered and
they may overspend on it.
It is not at all clear how exhaustive should be the list of
alternative public goods that are explicitly presented. If the
list is too brief, overspending can be expected. If the list is
too long, respondents will be encouraged to spread expenditures
to public goods for which there is not adequate total demand and
which therefore cannot really be offered to them. Also, if the
list gets large enough to encompass a significant fraction of
income, the gap between willingness to pay and willingness to
accept may widen.
It is also not clear what form the reminder should take. It
does not seem enough merely to list other environmental goods
since respondents would then have to guess the level of
expenditure that would be necessary to pay for the alternatives.
The survey should probably include some statement about the
price of the alternatives, for example, the per capita
expenditure that would be required to provide the items.
0Deflection of Transaction Value: The survey should be
designed to deflect the general "warm-glow" of giving or the
dislike of "big business" away from the specific
environmental program that is being evaluated. It is
possible that the referendum format limits the "warm glow"
effect, but until this is clear the survey design should
explicitly address this problem.
61
Economic models of consumer behavior generally are based on
the assumption that value derives from the goods and services
that are consumed, not from the process by which these goods are
allocated. But happiness that derives from charitable giving may
come mostly from the act of giving rather from the material
changes that follow from the gift. To give another example,
consumers may get pleasure from the act of shopping as well as
from ownership of the goods they purchase. Words that might be
useful to distinguish between these utility-producing events are
"consumption value" and "transaction value," the latter referring
to the process or transaction that establishes ownership.
We do not question the validity of "transaction value" or
differentiate it from "consumption value" as far as damage
assessment is concerned. But for both forms of value,
respondents need to be thinking clearly about the substitutes,
since the closer are the substitutes the less the damage that is
done. In the case of "transaction value," there are many close
substitutes to cleaning up oil spills since there are many other
charitable activities that can generate the same "warm glow" and
there are many other ways to express hostility toward big
business and modern technology.
0Steady State or Interim Losses: It should be made apparent
that respondents can distinguish interim from steady-state
62
losses.
The quality of any natural resource varies daily and
seasonally around some "equilibrium" or "steady state" level.
Active-use value of a resource depends on its actual state at the
time of use (and at other times), not on its equilibrium. But
passive-use value of a natural resource may derive only or mostly
from its steady state and not from its day-to-day state. If so,
full restoration at some future date eliminates or greatly
reduces passive-use loss. Surveys accordingly need to be
carefully designed to allow respondents to differentiate interim
from steady state passive-use loss.
0Present Value Calculations of Interim Losses: It should be
demonstrated that, in revealing values, respondents are
adequately sensitive to the timing of the restoration
process.
As discussed in Section III above, the time profile of
restoration following an accident potentially is an important
determinant of active-use loss and interim passive-use loss, but
respondents may have little ability to distinguish between and to
evaluate different profiles.
0Advance Approval: Since the design of the CV survey can
have a substantial effect on the responses, it is desirable
63
that -- if possible -- critical features be preapproved by
both sides in a legal action, with arbitration and/or
experiments used when disagreements cannot be resolved by
the parties themselves.
0Burden of Proof: Until such time as there is a set of
reliable reference surveys, the burden of proof of
reliability must rest on the survey designers. They must
show through pretesting or other experiments that their
survey does not suffer from the problems that these
guidelines are intended to avoid. Specifically, if a CV
survey suffered from any of the following maladies, we would
judge its findings "unreliable":
-- A high nonresponse rate to the entire survey instrument
or to the valuation question.
-- Inadequate responsiveness to the scope of the
environmental insult.
-- Lack of understanding of the task by the respondents.
-- Lack of belief in the full restoration scenario.
-- "Yes" or "no" votes on the hypothetical referendum that
are not followed up or explained by making reference to
64
the cost and/or the value of the program.
0Reliable Reference Surveys: In order to alleviate this
heavy burden of proof, we strongly urge the government to
undertake the task of creating a set of reliable reference
surveys that can be used to interpret the guidelines and
also to calibrate surveys that do not fully meet the
conditions.
65
Table of References
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Charity and Ricardian Equivalence;" Journal of Political Economy
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Bishop, Richard C., and Thomas A. Heberlien; "Measuring Values of
Extra-Market Goods: Are Indirect Measures Biased?" American
Journal of Agricultural Economics 61 (1979); 926-930.
Carson, Richard T, Robert Cameron Mitchell, W. Michael Hanemann,
Raymond J. Kopp, Stanley Presser, and Paul A. Ruud; "A Contingent
Valuation Study of Lost Passive Use Values Resulting from the
Exxon Valdez Oil Spill;" A Report for the Attorney General of the
State of Alaska; November 19, 1992.
Cummings, Ronald G., and Glenn W. Harrison; "Homegrown Values and
Hypothetical Surveys: Is the Dichotomous Choice Approach
Incentive Compatible;" Department of Economics, University of New
Mexico, submitted to Office of General Counsel, National Oceanic
and Atmospheric Administration, 1992, 18 pp.
Desvousges, William H., F. Reed Johnson, Richard W. Dunford,
Kevin J. Boyle, Sara P. Hudson, and K. Nicole Wilson; "Measuring
Natural Resource Damages with Contingent Valuation: Tests of
Validity and Reliability;" Paper presented at the Cambridge
Economics, Inc., Symposium, Contingent Valuation: A Critical
Assessment; Washington, D.C., April 1992.
Diamond, P.A., and J.A. Hausman; "On Contingent Valuation
Measurement of Nonuse Values;" Paper presented at the Cambridge
Economics, Inc. Symposium, Contingent Valuation: A Critical
Assessment; Washington, D.C., April 1992.
Diamond, P.A., J.A. Hausman, G.K. Leonard, and M.A. Denning;
"Does Contingent Valuation Measure Preferences? Experimental
Evidence;" Paper presented at the Cambridge Economics, Inc.
Symposium, Contingent Valuation: A Critical Assessment;
Washington, D.C., April 1992.
Dickie, Mark, Ann Fisher, and Shelby Gerking; Market Transactions
and Hypothetical Demand Data: A Comparative Study; Journal of
American Statistical Association, Vol. 82, March 1987, pp. 69-75.
Duffield, John W., and David A. Patterson; "Field Testing
Existence Values: An Instream Flow Trust Fund for Montana
Rivers;" Paper presented at the annual meeting of the American
Economic Association; New Orleans, January 1991.
Kahneman, Daniel; "Comments" in Valuing Environmental Goods,
edited by Ronald G. Cummings, David S. Brookshire and William D.
Schulze; Totowa, N.J.: Rowman and Allanheld, 1986.
66
Kahneman, Daniel, and Jack Knetch; "Valuing Public Goods: The
Purchase of Moral Satisfaction;" 22 JEEM 57-70; 1992.
Kemp, M.A., and C. Maxwell; "Exploring a Budget Context for
Contingent Valuation Estimates;" Paper presented at the Cambridge
Economics, Inc. Symposium, Contingent Valuation: A Critical
Assessment; Washington, D.C., April 1992.
Magleby, David B.; Direct Legislation, Johns Hopkins Press, 1984.
Mitchell, Robert Cameron, and Richard T. Carson; Using Surveys to
Value Public Goods: The Contingent Valuation Method; Resources
for the Future; Washington, DC, 1989; 499 pp.
Rowe, Robert D., W. Douglass Shaw, William Schulze; "Nestucca Oil
Spill;" Chapter 20 in Natural Resource Damages: Law and
Economics (eds. Kevin M. Ward and John W. Duffield); New York:
John Wiley & Sons; 1992.
Schuman, Howard, and Stanley Presser; Questions and Answers in
Attitude Surveys: Experiments on Question Form, Wording, and
Context; New York: Academic Press, 1981.
Seip, Kalle, and Jon Strand; Willingness to Pay for Environmental
Goods in Norway: A Contingent Valuation Study with Real Payment;
Paper prepared for the SAF Center for Applied Research,
Department of Economics, University of Oslo, 26 pp.
State of Ohio v. Department of the Interior, 880 F.2d 432 (D.C.
Cir. 1989)
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... Over the years, there have been significant pattern transfers in terms of rising assistance from the domestic sector and, to a lesser extent, aquaculture. Coastal aquaculture, marine fisheries, inland fisheries, freshwater aquaculture, and coldwater fisheries are all taking part to the country's food basket, wellbeing, financial system, exports, service, and recreation [3]. Aquaculture is the fastest-growing sector of global food production, with marine aquaculture accounting for 38% of total supply. ...
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Foreword Preface 1. Valuing Public Goods Using the Contingent Valuation Method 2. Theoretical Basis of the Contingent Valuation Method 3. Benefits and Their Measurement 4. Variations in Contingent Valuation Scenario Designs 5. The Methodological Challenge 6. Will Respondents Answer Honestly? 7. Strategic Behavior and Contingent Valuation Studies 8. Can Respondents Answer Meaningfully? 9. Hypothetical Values and Contingent Valuation Studies 10. Enhancing Reliability 11. Measurement Bias
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