Valuation Techniques for Social Cost-Benefit Analysis: - HM Treasury

It is usually recommended that the specified institution, payment vehicle, and payment
frequency should be those that would be most likely to be employed if the good were indeed
supplied. For example, Tuan and Navrud (2007) estimate the value of a proposed preservation
plan for a complex of religious temples in central Vietnam. They ask foreign visitors whether they
would pay an increase in entrance fee for this plan, while they ask local residents whether they
would bear an increase in local tax for it. Likewise, a one-time payment will be appropriate, for
example, in cases when the good is a one-time event (Carson, 2000). However, problems can
arise if respondents refuse to answer or submit protest values as an objection to paying through
some mechanism (e.g. council taxes). In such cases, adopting vaguer payment vehicle
descriptions may be justified (see Bateman et al, 2002, p.131-133).
Follow-up questions are useful for understanding the reasons behind respondents‘ valuations
and for identifying respondents who are not responding with their true WTP in mind. For
example (in an open ended contingent valuation format), some respondents may give a
valuation of zero. This may be a protest response or it may represent their true WTP (see
Bateman et al, 2002, p.145-147; or DTLR, 2002, p. 52-53).
Questions on respondents‘ characteristics (e.g., age, income, education) are useful for assessing
the representativeness of the sample and for providing variables to model the determinants of
WTP. The later is done to test for theoretical consistency (i.e. does WTP increase with income) or
to facilitate benefits transfer techniques (when valuation estimates from one study are applied to
a different context (see Rosenberger and Loomis; 2003 for an introduction to benefit transfer
techniques).
A key design choice in contingent valuation questionnaires is how to present the valuation
question(s). The most widely used elicitation formats are: 1
open ended;
bidding game;
payment card; and
and dichotomous choice.
The open-ended format is the most direct approach to valuation estimation. Respondents are
simply asked their maximum WTP for the good under consideration. The question formulation is
along the lines of: ‗what is the maximum amount you would be prepared to pay (every period)
through (payment vehicle) to receive the good just described?‘
The bidding game format proceeds by asking respondents whether they would pay a given
discrete amount for a good per period. If they respond ‗yes‘ (‗no‘), a series of higher (lower) bids
are offered until they respond ‗no‘ (‗yes‘). An open-ended WTP question is then offered. The
closed-ended bidding game format is a variant. This format does not finish with an open-ended
WTP question.
The payment card method presents respondents with a range of different listed monetary
amounts. Respondent tick amounts they are willing to pay and put a cross next to amounts that
they are not willing to pay.
The dichotomous choice (or referendum method) gives respondents the chance to respond ‗yes‘
or ‗no‘ to a single randomly drawn bid amount. Therefore, the format offers respondents a
binary choice between not having the good or having the good but giving up the offered price.
The double-bounded dichotomous choice method is a variant. An additional higher (lower) offer
is made if the respondent responds ‗yes‘ (‗no‘) to the first offer.
1 Applied examples of each format, as well at the pros and cons of each, are given in tables 9.2 to 9.6 in DTLR (2002).
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