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needs, on the other.Pricing methodsWhen monetarising environmental benefits based on market prices, there are severalapproaches, e.g:• Opportunity cost method: This monetarises the benefits of a non-market environmentalresource, based on the costs of ensuring similar benefits through alternative activities. Forexample, the “price” of pure groundwater for drinking water supplies, can be calculated asthe treatment costs of removing nitrate and various chemicals from groundwater. Themethod does not show whether or not consumers’ preferences/willingness to pay for thepurity of groundwater is larger or smaller than the costs of maintaining the currentstandard.• Replacement costs: The price of an environmental benefit can be considered equal, to thecost of producing a similar environmental benefit in other ways. If a pond is abolished inconnection with construction work, the loss of this amenity can be priced as the cost ofestablishing a similar pond in a nearby-area. This method is limited to environmentalresources that can be recreated with qualities, which are reasonably similar to those lost.Even when this is physically possible, it is not certain that the affected individuals arewilling to pay an amount equal to the cost of replacement.Pricing methods are usually easier to apply than the preference-based valuation methods, but,from a welfare economics point of view, pricing is not necessarily the correct way, of measuringthe social value of benefits connected with environmental policy initiatives.Contingent valuation methodThe Contingent Valuation Method (CVM) stipulates a scenario for the preservation or productionof a non-market good, e.g. an environmental good. Having explained the characteristic of thegood, the rules of provision, access, method of payment etc., respondents are asked to statetheir willingness to pay (e.g. through taxes) for the good in question. Various interviewingtechniques and statistical methods have been developed to prevent strategic behaviour byrespondents. Also, statistical methods are applied to test the consistency between statedwillingness to pay and the assumptions of economic theory regarding rational economicbehaviour. 38In addition to questions about willingness to pay, Contingent Valuation surveys also include anumber of questions concerning the respondent’s preferences for, or use of, the valuated good,together with demographic and socio-economic characteristics. De-briefing questions are oftenasked, to clarify whether the respondent has understood the scenario in question. The collecteddemographic and socio-economic data is subsequently used for analyses of validity, typicallyusing regression analysis, to investigate economic behaviour.Benefit transfer methodsConducting economic valuation by state-of-the-art criteria is time-consuming – and costly.Hence, the interest in reusing the results of previous valuation studies – referred to as benefittransfer – is increasing. Benefit transfer is a transfer of valuation estimates or functions, from aresearch area (i.e. an area, in which a valuation study has been conducted) to a project area(i.e. an area where one wishes to evaluate a project before a possible implementation). Thereare three methods of benefit transfer: 1) Transfer of unit values; 2) Transfer of adjusted unit38A detailed description of the various techniques in contingent valuation can be found in Mitchell & Carson (1989),together with Garrod & Willis (1999). Hanemann & Kanninen (1998) go through the statistical methods used foranalysing (binary) CV response data.30The Value of Traditional Water Schemes:Small Tanks in the Kala Oya Basin, Sri Lanka