Question

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)

Answer 1

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.