Under the microscope: dissection of a contingent valuation survey.(Report)

ABSTRACT

Recently, appraisers and real estate economists have relied upon a survey-based method called contingent valuation (CV) as an approach for estimating potential property value losses associated with environmental disamenities. This approach is not universally accepted. as some studies indicate that CV does not produce reliable estimates. This article, written from a survey research and analysis perspective, provides a close inspection of a CV questionnaire and corresponding analysis. This dissection reveals some concrete reasons why CV may not produce reliable results. The article concludes with suggestions for future studies.

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During the last several years, appraisers and real estate economists have adopted a technique from natural resource economics called contingent valuation (CV) to estimate the potential diminution in property values associated with environmental disamenities. Contingent valuation is a survey-based approach that attempts to create a hypothetical market for a good or service by constructing a scenario in which survey respondents indicate the amount of money they would pay to hypothetically acquire the good or service described in the questionnaire. Policy makers and economists developed CV almost 50 years ago to measure the value of natural resource services for public policy decisions. (1) These services, such as a day of recreational fishing on a public river, are not bought and sold in a market. As a result, the value of these nonmarket services cannot be directly observed by looking at the behaviors of buyers and sellers.

The hypothetical nature of CV, called hypothetical bias, has long been recognized as one of its biggest limitations. (2) In effect, the hypothetical nature of CV does not provide respondents with an incentive to reveal true values for natural resource services because they do not have to bear the consequences of their answers. The survey responses are not actual commitments of dollars for real purchases. If respondents make different choices in these hypothetical surveys than they would if faced with the same scenario in real life, then CV results will not produce a reliable measure of value. The key question is whether respondents' survey answers reflect their actual decisions and behaviors. In light of this hypothetical bias, natural resource economists continue to debate the reliability of CV-based estimates of value. (3)

As applied to environmental effects and property value, the CV scenario typically instructs the respondents to suppose that the residential properties have been contaminated. The survey then asks how much money respondents would be willing to pay for the contaminated properties or how much they would pay to prevent or avoid the alleged contamination to the properties. Alternatively, respondents may be asked how much money they would be willing to accept in exchange for ownership of the properties. Researchers use the reported willingness to pay (WTP) or willingness to accept (WTA) to estimate any decrease in the value of the home attributable to the alleged contamination.

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