Question

Briefly describe the contingent valuation method (CVM). Why is the meaning of “contingent” in the title – contingent upon what? Discuss why a CVM study can be very expensive. Discuss the risk of bias when using CVM for estimating benefits.

Answer 1

There are certain goods for which price cannot be determined. Also if these are public goods so you cannot prevent anyone from using it. But in order to know how people value it or how much they are willing to pay for the same, Contingent valuation method is used. In this questionnaire is prepared which reveals the preference of the people or someone is appointed to take an interview.

for example the interviewer may ask - The government is planning to close this park because of lack of funds by the people, As a donation how much would you like to give to save it?

Like this various samples are taken from people for landing into a conclusion if they want to set an entry price for the park.

So the meaning of contingency in economics is Hypothetical. And contingent valuation means a hypothetical valuation which is used if you want to know the willingness of the people with a controlled environment. It is the "contingency of the valuation" because it can differ from people to people, area to area and nothing is certain.

A CVM study is expensive because it handles primary data. And primary data unlike secondary is always expensive. You hire so many investigators, their traveling expenses, their salaries, the time required, the scale etc all takes a toll on the pocket of the municipality/committee who decides to have a CVM.

CVM definitely has biases of it's own.

1) People are very rational to realise that the investigator is asking questions and revealing how much they will be paying for the same. They might undervalue their willingness to pay and the correct picture may not come out.

2) Investigator has to be very specific to ask questions. They must not make the subject very difficult to understand. Also they must properly convey the message they wish to ask and has to keep in mind that they do not make the other person too uncomfortable

3) If there is some errors made in the information collected by these invigilators that includes the personal bias of the invigilator as well. Ofcourse they are good in their work, but human errors are always possible.

CVM is not a bad method at all, rather it is one of the recognised method one could use, but certainly like every other methods it has it's flaws.