Valuing public goods: The purchase of moral satisfaction

Contingent valuation surveys in which respondents state their willingness to pay (WTP) for public goods are coming into use in cost-benefit analyses and in litigation over environmental losses. The validity of the method is brought into question by several experimental observations. An embedding effect is dem(~ns~rated, in which WTP for a good \arie\ depending on whether it is evaluated on its own or as part of a more inclusive category. The ordering of various public issues by WTP is predicted with significant accuracy by independent ratings of the moral satisfaction associated with contributions to these causc~. Contingent valuation responses reflect the willingness to pay for the moral satisfaction ol contributing to public goods, not the economic value of thehe goods. ’ I‘J’I? ,Acxlcrnl~ Pi-L?\ lnc There is substantial demand for a practical technique for measuring the value of non-market goods. Measures of value are required for cost-benefit assessments ot public goods, for the analysis of policies that affect the environment. and for realistic estimates of environmental damages resulting from human action, such as oil spills. In recent years the contingent valuation method (CVM) has gained prominence as the major technique for the assessment of the value of environmental amenities. This paper is concerned with a critique of CVM. The idea of CVM is quite simple: respondents are asked to indicate their value for a public good, usually by specifying the maximum amount they would be willing to pay to obtain or to retain it. The total value of the good is estimated by nlultiplying the average willingness to pay (WTP) observed in the sample by the number of households in the relevant population. This value is sometimes divided into use r~lue and non-use Ll&e by comparing the WTP of respondents who expect to enjoy the public good personally (e.g., benefit from improved visibility or from the increased number of fish in a cleaned up stream) to the WTP ot respondents who have no such expectations. Specific questions are sometimes added to partition non-use value further into the value of retaining an option fol future use, a bequest value, and a pure existence value 1151. The accuracy of the CVM is a matter of substantial practical import, not only in cost-benefit assessments but also in litigation over liability and damages. The validity of the technique is take as a rebuttable presumption in envir~~nmental cases brought in the United States under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA). The research on the method has been reviewed in two authoritative volumes. which offer detailed *This research was supported by Fisheries and Oceans Canada, the Ontario Ministry 01’ thi: Environment. and the Sloan Foundation. Interviews and preliminary statistical analyses were prrformed by Campbell-Goodell Consultants, Vancouver, British Columbia. We benefited from conversations with George Akerlof, James Bieke, Brian Binger, Ralph d‘Arge, Elizabeth Hoffman. Richard Thaler. and Frances van Loo. from a commentary by Glenn Harrison. and from the statistical expertise of Carol Nickerson.