Contingent valuation responses and hypothetical bias

Abstract

Natural ecosystems play a central role in maintaining human well-being through provision of a wide array of services ranging from general life support to waste assimilation and recreation. However, humans have changed ecosystems more rapidly than ever before to meet fast-growing demand for food, fresh water, timber, fibre and fuel (Millennium Ecosystem Assessment, 2005). Such degradation of natural ecosystems is mainly due to undervaluation of the value of the environment. To address this, economists have developed a complex methodology to put a price tag on the natural environment. To achieve a desired environmental quality involves significant expenditures from both the public and private sectors (Mohammed, 2009). Because there is potential for substantial gain through effective utilization of the resources devoted to environmental quality improvement, judicious use of the principles of cost–benefit analysis (CBA) in evaluating policy alternatives can contribute to more effective resource utilization. Therefore, economic or monetary measurement of benefits of environmental quality improvement provides decision-makers with vital information on the cost and benefits of alternative use options that would otherwise not be taken into account in development decisions (Lambert, 2003). There are both market and non-market valuation techniques to estimate the monetary value of the environment. The most widely used non-market valuation method is the contingent valuation method (CVM) (Venkatachalam, 2004). Even though CVM has been widely used, the method is not immune to criticism.