Contingent valuation: From dubious to hopeless

Abstract

Approximately 20 years ago, Peter Diamond and I wrote an article for this journal analyzing contingent valuation methods. At that time Peter's view was contingent valuation was hopeless, while I was dubious but somewhat more optimistic. But 20 years later, after millions of dollars of largely govemment-research, 1 have concluded that Peter's earlier position was correct and that contingent valuation is hopeless. In this paper; I selectively review the continc valuation literature, focusing on empirical results. I find that three long-standing problems continue to exist: 1) hypothetical response bias that leads contingent valuation to overstatements of value; 2) large differences between willingness to pay and willingness to accept; and 3) the embedding problen which encompasses scope problems. The problems of embedding and scope are likely to be the most intractable, indeed, I believe that respondents to contingent valuation surveys are often not responding out of stable or well-defined preferences, but are essentially inventing their answers on the fly, in a which makes the resulting data useless for serious analysis. Finally, I offer a case study of a prominent contingent valuation study done by recognized exp in this approach, a study that should be only minimally affected by these concerns but in which the answers of respondents to the survey are implausible inconsistent.