In: Economics
Short Answer:
Explain the difference between stated- and revealed-preference methods for valuing environmental goods and services. When is it appropriate to use one versus the other?
(Environmental Economics)
Stated Preference Method | Revealed Preference Method |
This method uses a hypothetical study to elaborate and make decisions based upon | This method actually presents and studies upon a scenario as it is existing in the real world |
It accounts for the changes in technology and its affect on other variables, say damage to environment, etc. | It generally assumes that technological constraints are fixed |
This method observes existing as well as proposed alternatives | This method observes only the existing alternatives |
This method does not effectively represent the changes in market and individual limitations | This method actually represents the market and individual variables on real basis and helps better in decision making |
Its outcome are reliable only when the respondents understand, commit to and respond to the tasks given well | Its outcome are generally reliable and validated |
This method involves multiple observations in case of each respondent | This method involves only single observation in case of each respondent |
When is it
appropriate to use one versus the other?
Revealed Preference method scores over Stated Preference method in
cases where the size of census is relatively well defined and where
collection and processing of realistic feedback/report is feasible.
Further there may be certain study areas (such as quantification of
environmental damage by diesel run cars in last 10 years), which
specifically require for the Revealed Preference method.
Stated Preference method, on the other hand, scores over Revealed
Preference method in the cases where the collection and processing
of realistic feedback/report is not feasible; and also where the
size of census is so large that revealed preference method does not
make sense. Stated Preference method suits the cases more which are
warranted to focus upon the future outcomes from the future causes
; or upon the future outcomes from the present causes.