Natural Resources: Assessing Nonmarket Values through Contingent Valuation

Publication Date: June 1999

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Environment

Type:

Abstract:

The role of nonmarket values in natural resource damage assessments and decisionmaking is being increasingly recognized. Numerous statutes direct federal agencies to provide goods and services efficiently, often necessitating a measure of nonmarket values. However, legislative issues have focused on damage assessment under Superfund, because the tax authorization under this law expired at the end of 1996, and thus Congress may debate its reauthorization.

Including nonmarket values in damage assessment and decisionmaking can be highly controversial. Proponents assert that excluding (not estimating) such values understates total values affected, often substantially, and biases decisions in favor of development. Critics counter that the measurement methodology is weak, and that such measures are not comparable to traditional measures of utilitarian values, because resource use generates economic and social benefits beyond those measured by price and volume (the traditional measures of utilitarian value). Thus, they argue that including nonmarket values can lead to arbitrary assessments of damage.

Contingent valuation is a survey technique that is purported to estimate the nonmarket value of the specified goods and services. The regulations for cost and damage recovery under the federal Superfund program explicitly recognize the use of contingent valuation as a tool for estimating such values. Contingent valuation surveys have been used in numerous settings; three significant examples include: the valuation of air quality improvement at the Grand Canyon; the valuation of damages resulting from the Exxon Valdez oil spill in Alaska; and the valuation of benefits from altering Glen Canyon dam operations.

Contingent valuation surveys use hypothetical markets to replicate actual markets or referenda for respondents to reveal their preferences for a good. Typically, respondents are asked how much they would be willing to pay (in higher prices or in taxes) for a particular action. The results of such surveys can always be questioned, because of the array of possible measurement errors and biases, because of empirical evidence challenging their reliability and validity, and because of incompatibility with market-based use values. Nonetheless, nonuse values are real, and ignoring them could significantly understate total losses, since nonuse values can at times be substantial. Thus, using contingent valuation (and other methods) to estimate nonuse values is likely to continue and to become more controversial.