Valuing Environmental Damages with Stated Preference Methods New Approaches that Yield Demonstrably Valid Values for Non-Priced Environmental Goods

EPA Grant Number: R824710
Title: Valuing Environmental Damages with Stated Preference Methods New Approaches that Yield Demonstrably Valid Values for Non-Priced Environmental Goods
Investigators: Cummings, Ronald G. , Pate, James , Brewer, Paul , Osborne, Laura L.
Institution: Georgia State University
EPA Project Officer: Hahn, Intaek
Project Period: November 1, 1995 through October 1, 1996
Project Amount: $113,856
RFA: Valuation and Environmental Policy (1995) RFA Text |  Recipients Lists
Research Category: Environmental Justice


Stated preference or Contingent Valuation studies are often criticized on the grounds that responses to hypothetical willingness to pay questions may indicate a higher willingness to pay than would be observed if respondents were asked to make an actual cash payment (this difference is called hypothetical bias). The objective of this project is to develop new stated preference institutions by extending and testing the robustness of two new designs for Contingent Valuation surveys which are referred to as the "Cheap Talk" and "Learning" design. These two designs have demonstrated in preliminary trials that they are capable of eliciting responses to hypothetical valuation questions that are indistinguishable from parallel valuation questions requiring actual payment.

Development of these surveys draws from lessons learned in experimental economics and psychology concerning the design of valuation institutions. The Cheap Talk design introduces, as a part of the willingness to pay question, an in-depth and candid description of the hypothetical bias encountered in Contingent Valuation studies. In the Learning design, respondents participate in a series of willingness to pay surveys: a hypothetical, then real (requiring actual cash payments) survey for one good, and then a final hypothetical survey for a different good. This design explores the extent to which subjects, having gone through one hypothetical-then-real valuation series will learn to anticipate a real question in responding to the hypothetical question for the second good, and thereby respond to the second hypothetical question as they would to a question involving real cash payments.

Laboratory experiments are conducted wherein surveys are conducted that involve either real or hypothetical payments to non-profit organizations affecting non-priced environmental goods. Evidence consistent with hypothetical bias has been observed in previous experiments using this methodology. The Cheap Talk and Learning Design for the hypothetical survey instrument are then conducted in an effort to eliminate any differences found between responses to the surveys involving real or hypothetical payments. To the extent these new designs can close the gap between responses to hypothetical surveys and surveys involving cash payments, in a demonstrable manner, then the credibility and acceptability of environmental assessments are enhanced. The results of these experiments are expected to provide guidelines for the conduct of stated preference studies that produce valid responses to hypothetical valuation questions.

Supplemental Keywords:

RFA, Economic, Social, & Behavioral Science Research Program, Scientific Discipline, Economics, Ecology and Ecosystems, decision-making, Social Science, Economics & Decision Making, alternative compensation, contingent valuation, ecosystem valuation, multi-objective decision making, policy analysis, social psychology, surveys, compensation, social impact analysis, valuation, community involvement, dichotomous-choice, decision analysis, economic benefits, incentives, public issues, valuing environmental quality, environmental assets, economic incentives, environmental values, preference formation, cost benefit, environmental policy, psychological attitudes, public values, stream turbidity, public policy, stated preference, willingness to pay, cost effectiveness, economic objectives

Progress and Final Reports:

  • Final