Question

In the Exxon Valdez oil spill, which severely affected the wildlife population, explain which valuation method would be ideal, to arrive at the total compensation that Exxon should have been charged with. Explain in detail the reason for your choice and the possible limitation of the method you have chosen

Answer 1

The Exxon Valdez oil spill is as mentioned the valuation of a project on location. The property has is the most significant part of the project and its valuation which has a possibility of environmental degradation which impact wildlife population.

Over the years it has been tested the traditional valuation methods like a relative valuation or DCF etc aren't able to value this kind of projects fairly.
And thus the contingent valuation method is the most suitable valuation method for this project. Hence, I choose the contingent valuation method for valuing Exxon Valdez oil spill.

Contingent valuation method - it is a method in which we do a detailed study of the project and its stakeholders and prepare a survey and take interviews with all of them. We explain to them the project, its best and worst cases, environmental impact and plans to minimize it. And after all this explanation we ask them questions and there willingness to pay for this project. Based on this analysis we determine the value of the project or property whatever we are valuing.

Reasons for choosing this method are

1. Involves stakeholders and help us understand how much we should offer to get this project done
2. It helps the stakeholder and deciding the value and there won't be any
3. It takes critical stakeholder's perspective into account
4. It considers costs which traditional method never consider

Limitations of this method

1. It is not empirical enough to precisely forecast financial data and to consider difficulties in natural resource management
2. Survey responses are subjective and may lead biases