WILLINGNESS TO PAY FOR CARE GOODS?

There are three major methods available to estimate peoples willingness to pay for enviroinmental (care - conservation, amenity, recreation, environmental) goods and services: (where we should remember that people will value the environment because of the Use they get from it, and also because the value of the Option of being able to use or enjoy it at some future date, and also because they value the fact that it Exists, independent of any use or option they may wish to exercise on it.

Total Economic Value = Use Value (actual use + the option to be able to use in the future) + Non-use Value (Existence value + Options to pass on to others (altruism + bequest) values)
  1. Travel Cost:  It is possible to survey the actual users and enjoyers of natural and cultivated environments - who pay their own money to enjoy and make use of these areas of land and their associated environmental attributes.  The actual expenditure they incur (travel, accomodation, entry fees etc.) is taken to represent the minimum value they place on having access to these environments (they may have been willing to pay more, but at least they have revealed they are willing to pay this much to enjoy the benefits.  These estimates from the sample of people surveyed can be grossed up to the population level so long as we know how closely the sample fits with the population as a whole. (see, e.g. Pearce, D.W. and Turner, R.K, Economics of Natural Resources, Harvester Wheatsheaf, 1990, p 153ff)
  2. Hedonic Price: Some people choose to live in the country rather than the city, at least partly because the value the countryside (and the care goods and services it provides). An estimate of how much they are willing to pay can be obtained by comparing the prices of houses in the countryside with otherwise exactly similar houses in the town. By comparing house prices in different locations, with different bundles of attributes (property specific attributtes, neighbourhood attributes, accessibility attributes, and environmental attributes (landscape, wildlife etc.)) associated with them we can estimate the average willingness to pay for these attributes at different levels, at least for those households actually buying and living in the rural properties.  We also need to know how this willingness to pay for these households is related to income levels, and other household characteristics, in order to be able to gross up this willingness to pay for the society as a whole. (see, e.g. Pearce, D.W. and Turner, R.K, Economics of Natural Resources, Harvester Wheatsheaf, 1990, p 143ff)
  3. Contingent Valuation (CV):  Simply (?) ask people how much they would be willing to pay for particular (attributes of) environments.  This is actually far from simple - the answers obtained will depend critically on the way in which the questions are phrased and asked. (see, e.g. Pearce, D.W. and Turner, R.K, Economics of Natural Resources, Harvester Wheatsheaf, 1990, p 148ff).  The major sources of bias are classifed by Pearce and Turner as:
    4. Given all these very substantial difficulties, why do we use Contingent Valuation and Choice experiments at all?  Because the other two approaches (Travel Cost and Hedonic Price) cannot provide answers to how much people are willing to pay for the Option and Existence values of the environment, since these two methods rely only on those people actually using or enjoying the environment now.
  4. Choice Experiments:  a considerable refinement on CV, which explicitly obliges the participants in the survey/experiment to make actual choices between a number of (usually hypothetical) alternatives, and then analyses these choices to detemine the implied relative valuations of the characteristics of the choices offered.  The obvious advantages over CV are: a) that the effects of requiring the participants to make choices removes some of the hypothetical bias of CV- the making of the choice obliges people to at least 'give up' the alternatives offered in that set; b) the values of complex goods and services can be valued as bundles of key attributes or dimensions, which can be mixed up in the CE so as to provide information on the relative values of each.
See, e.g. Francisco Alpizar, Fredrik Carlsson & Peter Martinsson: "Using Choice Experiments for Non-Market Valuation", Working Papers in Economics no. 52, June 2001, Department of Economics, Göteborg University
List et al., "Using Choice Experiments to Value Non-Market Goods and Services: Evidence from Field Experiments", Advances in Economic Analysis & Policy, Volume 6, Issue 2, 2006.

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