Global Reference on the Environment, Energy, and Natural Resources

Edited by G. Adelson, R. Howarth, B. Hull, B. Minteer, B. Norton, and P. Thompson Published by Gale / Cengage Learning © 2009

Entry Title: NON-MARKET VALUATION

Ty Raterman Department of Philosophy University of the Pacific 3601 Pacific Ave. Stockton, CA 95211

clean air. For example. and many would pay more for clean air than for dirty air. Rationale for Non-Market Valuation Non-market valuation facilitates public policy decisions by translating policy-related gains and losses into a common unit. and even human health and life. Because it is relatively nonexcludable. or prices them inaccurately. Human life. fishing. Other goods – whether or not they are in principle inappropriate to buy and sell – are not (properly) priced because they are not pure private goods. soil. the existence of a species. the existence of a species of plant or animal. and also because it moves around.. outdoor recreational opportunities (e. scenic beauty. wildlife habitat preservation. flood protection. once we monetize the benefits of the removal of a certain amount of arsenic from drinking water. are examples. and . and various natural wonders within national parks. to prevent people from breathing air in.g. It is difficult. Some goods are simply considered inappropriate to buy and sell. water. through the operation of the market. swimming.Non-Market Valuation Non-market valuation is the process of assigning monetary value to goods and services that are not priced. we can easily compare this to the cost of arsenic-removal technology in order sensibly to determine whether an investment in such technology is worthwhile. for example. skiing). it is difficult to assign property rights to air. it is claimed. the decision that is made will inevitably lack rational justification and will likely misallocate resources. This includes: ecosystem health. which means it is in turn difficult to demand that people pay in order to do so. There are numerous reasons why the market fails to price goods. wildlife viewing. Otherwise. though people would be willing to pay something for air if they were so required. or not accurately priced. and beaches.

The revealed-preference method looks at an individual’s actual consumer behavior vis-à-vis marketed goods that are related in important ways to the non-market goods we are trying to price. To price human health. and because people will sometimes balk at the idea of paying for something they perceive themselves as having a right to (such as clean air). economists might infer willingness to pay for clean air by comparing housing prices in neighborhoods with relatively clean air to housing prices in neighborhoods with dirtier air (trying to hold all other variables constant). Or. and money is obviously a convenient unit of trade.so difficult to commodify it.g. non-market valuation involves capturing how much money people are willing to pay in order to get or retain a good.. For example. However. economists might examine wages in order to see how much more people need to be paid in order . because what is being valued is sometimes bad (e. to price recreational opportunities associated with a particular beach or park. The result is that that the real value of clean air is not captured by the price that we have to pay to breath it or to pollute it. Methodology of Non-Market Valuation The core idea underpinning non-market valuation is that a good’s worth is tied to people’s preferences in respect to it. There are two general methods for discerning willingness to pay/accept: the revealedpreference and the stated-preference methods. One’s preferences in respect to a good are expressed by – perhaps even consist in – what one would trade for that entity. So. environmental hazards that impose health risks). economists might look at how much people pay in order to travel there. economists will sometimes alternatively try to discern the amount people would be willing to accept in order willingly to get that bad thing or lose the good.

the analyst can typically see only that a person is. which is sometimes called contingent valuation – can be used. Critiques of Non-Market Valuation There are several problems plaguing the revealed-preference method. Economists have tested whether people’s stated willingness to pay is in fact an amount that they would truly be willing to pay. educational prerequisites – is similar to a safer job). Here carefully-worded surveys ask people how much the good in question is worth to them.) In such cases. there is no market behavior from which inferences can be drawn. the fact that one does pay to travel to the park does not tell us whether one would actually have paid considerably more to get to the park (which is to say that the revealed-preference method does not capture consumer surplus). too. and it turns out at least sometimes not to be. For example. When looking at an individual’s behavior in respect to that relevantly similar good. the economist might then report .. physical difficulty.to work a job that subjects them to greater health risks rather (but that in other important respects – e.g. the mere fact that one does not pay to travel to a park does not tell us whether there is some lesser amount that one would have paid to make the trip. but cannot thereby infer precisely how much that person would have been willing to pay. for example. Sometimes. which would reduce the likelihood of oil spills. or is not. a second general method for valuing nonmarket goods – the stated-preference method. (Consider. willing to pay a certain amount. is not without problems. trying to monetize the value of a second hull on oil tankers. Once a dollar amount is indicated. For example. one might be asked about one’s willingness to pay in order for the amount of arsenic in one’s drinking water to be reduced down to 10 parts-per-billion. Relatedly. however. The stated-preference method.

in one study participants were asked to specify the number of lives a medical research institute would need to save in order to deserve receiving a $10 million grant. from the perspective of the advocate of non-market valuation – some of the respondents will then pass on the opportunity to buy that filter. . However. Even where people have full information. For example. though. the theory underpinning non-market valuation seems to deny this. whereby the amount that the economist starts with – whatever it is! – tends to strike people as more or less the right amount. being asked: How much would you be willing to pay save the polar bear species? People have no point of reference. Other problems associated with non-market valuation cut across valuational methods. Inevitably – and problematically. One is that non-market valuation seems to be naively subjectivist.000. Relatedly. It is now recognized that it is better for the economist to ask a series of closed-ended questions. alas. economists typically do not insist that a person be particularly well informed before her or his willingness to pay is captured. whereas when 250. Consider. though. the median number indicated was 9. we risk misvaluing something when we value it without accurate information. and so their answer is fairly arbitrary. there is danger of an anchoring effect. when 15. It is not clear how the advocate of non-market valuation could acknowledge that we frequently pay for things that are in some meaningful respect worthless! At the very least.that a filter that will make precisely that reduction is actually available for that dollar amount. and are more philosophical in nature.000.000 people were at risk the median number specified was 100. Startlingly. people do not deal well with open-ended willingness to pay questions. for example. such as: Would you be willing to pay $X to save polar bears? (where X is then adjusted up or down as need be). While the intuitive view is that we are at least occasionally wrong about a thing’s value. their preferences are often disconcertingly strange.000 people were said to be at risk.

are all these preferences relevant.C. Washington. Pearce. Dordrecht: Kluwer Academic Publishers. Dordrecht: Springer. D. Nancy E. Myrick. Some see such anthropocentrism as objectionable. Environmental and Resource Valuation with Revealed Preferences. Brown. a case where the Brazilian government is trying to value the rainforests within its borders in order to facilitate a policy decision. A Primer on Non-Market Valuation. non-market evaluation ignores animals’ preferences. BIBLIOGRAPHY Bockstael. Barbara J. Valuing Environmental Amenities Using Stated Choice Studies. Economic Values and the Natural World. Canninen. In addition. or only those of Brazilians? Including only Brazilians’ preferences seems to undervalue the rainforests. David. So. Patricia A.An additional problem concerns whose preferences count.: Resources for the Future Press. Cambridge: MIT Press. 2006. doing otherwise is perhaps tantamount to giving people all over the world an undue vote on a matter of Brazilian governance. The Measurement of Environmental and Resource Values (Second Edition)... Champ. and Thomas C. McConnell. 2003. As it turns out. and Kenneth E. Kevin J. Boyle. . However. Consider. people all over the world have preferences regarding the preservation of these rainforests. and may simply be logistically impracticable as well. Freeman III. for example. 2007. though animals use and benefit enormously from a wide array of environmental goods. Dordrecht: Springer. 1993. A. (ed.).

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