From Hopeless to Curious? Thoughts on Hausman's “Dubious to Hopeless” Critique of Contingent Valuation

Abstract

Hausman (2012) "selectively" reviews the CVM literature and fails to find progress over the 18 years since Diamond and Hausman (1994) argued that unquantified benefits and costs are preferred to benefits and costs quantified by CVM for policy analysis. In these comments, we provide counter-arguments to the claims made by Hausman. We provide these counterarguments not with the intent to convince the reader that the debate over contingent valuation is settled but rather to urge the community of economists to recognize that the intellectual debate over contingent valuation is still ongoing and that plenty of work remains to be done. We review the literature and argue that (1) hypothetical bias raises important research questions about the incentives guiding survey responses and preference revelation in both real and hypothetical settings that contingent valuation can help answer, (2) the WTP-WTA gap debate is far from settled and the debate raises important research questions about the future design and use of benefit cost analyses of which contingent valuation will undoubtedly be a part, and (3) CVM studies do, in fact, tend to pass a scope test and there is little support for the assertion that an adding up test is the definitive test of CVM validity.

The Value of Forest Conservation for Water Quality Protection

“…Variation in the quality of information from underlying studies is another concern with these approaches [96]. We also acknowledge that several studies have been critical of contingent valuation [97] despite its use in more than 7500 academic publications from more than 130 countries [98] and its approval by US federal courts for use in natural resource valuation and damage assessments.…”

An adding-up test on contingent valuations of river and lake quality

“…Haab et al (2013) describe these issues and seem to suggest that the potential problems are so great that they outweigh the potential benefits of the test. We believe that these issues need to be considered on a case-by-case basis.…”

“…Haab et al (2013) note that evidence of a WTP/WTA disparity is "a call for the curious researcher to more closely examine the assumptions and structures leading to these seemingly anomalous results." The adding-up test can be seen as a similar call to researchers to identify when and why these seemingly anomalous results arise and to expand our traditional theory and/or elicitation methods to include them.…”

Elicitation formats and the WTA/WTP gap: A study of climate neutral foods

“…Although the CV method was principally developed in environmental and transport economics, it has made considerable headway in the valuation of food products over the last decades (e.g., Buzby et al, 1998;Corsi, 2007). Most, if not all, CV studies are conducted in hypothetical contexts, particularly in environmental valuation studies where a real market with salient payments is difficult to establish and some number is considered better than no number at all (Carson, 2012;Haab et al, 2013;Kling et al, 2012).…”