The contingent valuation method
This method has been continuously developing since the 1970s and there is an extensive literature on the method and its application in the environmental field. There are innumerable illustrative case studies concerning the conservation and the leisure use of natural and human-made resources that are of relevance to the impact tourist and tourism business have on such resources. It is only possible to give a broad overview and evaluation of the method here; several reference are identified below that offer detailed and quite rigorous expositions of it.
The CVM directly question consumers on their state preference in two possible approaches. The first seek their willingness to pay (WTP) for the creation of an environment or an improvement in its quality. The second is to ascertain the willingness to accept (WTA) compensation for a fall in the quality of the environment or to be prevented from gaining access to it or suffer its complete loss. Since respondents are questioned directly, it is possible to ask them whether they would be willing to pay, for example, to preserve a rural informal recreation site which they might use or even a tropical rain forest of which they are not users, and not likely to be. Thus an advantage of the method giving higher values than other examine below, is that it is possible to obtain, at least in principle, non-use option and existence valuations as well as use values, i.e. the TEV as identified above. A relative early standard text explaining the method is that by Mitchell and Carson (1989) , but more recent ones are Haley and Spash (1993) and Perman et al.(2003). Significant contributions to the development in the method were made in the 1980s
- The CVM is a survey-based methodology with responses being obtained either by a postal questionnaire or by interview on the site of the project or in the home or by recruiting a panel of respondents. Sometime such a panel is used as a pre-test for the main sample survey. The first stage is to be by sampling a specified section of society off-site, to ascertain who is affected and how, in terms of their utility.
- The second stage is to ensure that respondents have sufficient knowledge of the proposed action and its likely impact on the environment and themselves. A hypothetical reason for payment or compensation in the eyes of consumers is set up. For example, respondents may be told that the government is considering clearing and improving a nearby former industrial site for a leisure development, but only if additional funds are raised.
- The third stage is to inform respondent of how much additional revenue is required and how the scheme would be paid for. This is referred to as the bid vehicle, for example a local income tax or an entry fee.
- The fourth stage is to question individuals by the various means which have been developed within the method, on their maximum WTP to ensure the scheme goes ahead, or on their minimum WTA compensation for loss of the resources or artefact. This can be done by open ended questions, or an initial suggested sum or bid card that contains a number of payment. Increasingly, however, dichotomous bidding, also called a referendum model, is being applied, whereby respondents are asked to answer yes or no to a given amount; such questioning can be repeated until a given WTP is agreed.
- The fifth stage is to analyse the responses to estimate the average an or the maximum WTP and WTA, also to ascertain how feasible the estimate are. The conduct of the exercise should be evaluated by examining the socio-economic profile of respondents, such as their educational level and income, whether they fully understood the purpose of the proposal, what problems and biases were identified and how were they resolved. Also, a comparison could be made with the evidence from other similar investigations.
- Finally, an estimation is made of a bid curve involving a regression of the WTP/WTA on a range of explanatory variable which are thought to affect the bid and on which information has been elicited in the survey, for example; incomes that might bear on their travel experience; visit to and knowledge of specific sites; education level that might determine their knowledge of environmental resources and issue connected to them; social class;age;gender and residential location. The estimate in the sample is then aggregated by multiplying the mean or median by the population (N) in the survey.