ECON332
Economics of Natural Resources
Writing Assignment #4: Contingent Valuation
Prof. Nicola Tynan
Name: Saurya Tuladhar
According to the article, economists and policy makers use stated preference studies, such as
contingent valuation surveys or choice experiments, to gauge people's preferences and values for
goods or services that are not traded in markets, such as environmental amenities or public goods.
These studies are used to estimate the economic value of these goods or services, which can be used
to inform policy decisions. This article discusses the challenges of using stated preference studies in
developing countries, the measure taken to overcome the shortcomings of the model, and what
researchers have learned about the preferences and marginal willingness to pay of people in
developing countries.
Stated preference studies involve presenting people with hypothetical scenarios and asking them to
state their willingness to pay (WTP) for a change in the availability or quality of a good or service.
Contingent valuation surveys typically present respondents with a single scenario and ask them to
state their WTP for that scenario, while choice experiments present respondents with a series of
scenarios and ask them to choose their preferred scenario from among a set of alternatives.
The use of stated preference studies is particularly important in less-developed countries where
market-based approaches to environmental management or public goods provision may be limited or
non-existent.
However, stated preference studies and contingent valuation studies are not without their limitations.
One concern is that people in developing countries may not have the same level of familiarity with
the types of goods or services being valued as people in developed countries.
Additionally, people in developing countries may not have the same level of understanding of the
economic concepts of WTP. Another concern is that the use of stated preference studies may be
seen as a way for wealthy developed countries to impose their values on less developed countries.
This may lead to resentment or suspicion among local communities and may result in inaccurate or
biased results.
However, Dale Whittington argues that many of these concerns have been overstated. He suggests
that people in developing countries may be just as capable of understanding and responding to stated
preference surveys as people in developed countries. Furthermore, he notes that the use of stated
preference studies can help to ensure that the preferences and values of local communities are taken
into account in policy decisions. Whittington also argues that the use of stated preference studies can
help to reduce the potential for bias or corruption in decision-making processes. Moreover, these
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ECON332
Economics of Natural Resources
Prof. Nicola Tynan
surveys have dramatically improved since the 1930s when they were first started being used.
Whittington notes that improvements in survey design and administration have helped to reduce the
potential for bias. Additionally, he argues that researchers have developed new methods for
validating stated preference results, such as comparing them to actual market transactions or
conducting experiments in real markets, and with better availability of data and improved technology.
Despite its challenges and limitations, stated preference studies have been an informative economic
tool. According to Whittington, the WTP for a good or resource is significantly less than the cost of
making it available in absolute terms both as a percentage of income and relative to the cost of the
good or resource itself. An example of this is the CV estimates of households’ WTP for improved
piped water service. This study looked at the average WTP of rural households in different countries
like Ghana, Indonesia, Nepal, India etc. The study found that despite incomes being higher in some
nations than others, in this example Indonesia and Ghana respectively, the WTP for sanitation
improvements was around the same at USD $1-2 per month which was the lowest possible starting
bid (Whittington, 1991). The study found that despite interest in the technology, communities could
not come to a consensus on whether the issue was important enough to be addressed now and what
implementation methods to use. Researchers concluded that the low WTP could be an indication
that sewage and wastewater treatment while being an issue in the community, there were bigger
problems that needed to be addressed before this. The low WTP to pay can also be an indication that
people expect community issues to be solved and paid for by the government.
Citation:
Dale Whittington, “What Have We Learned from 20 Years of Stated Preference Research in LessDeveloped Countries?” Annual Review of Resource Economics (2010) No.2, 209–36.
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