7Revealed preferenceRP methods are based on observations of individual choices related to an ecosystem serviceAppropriate for direct and indirect use goodsStagesDetermine existence of surrogate market for ecosystem serviceSelect appropriate RP methodCollect market data to estimate demand functionInfer value of change in quantity/quality from demand functionAggregate valuesDiscount values where appropriateExplain that whilst a direct market might not exist for the ecosystem service we are interested in valuing, there may be a surrogate market where we can infer value indirectly. In other words, the value is ‘revealed’ by observing behaviour in other markets.For instance there is no direct market for a beach view, but there may be a premium in the housing market (or price of a hotel room) for this view.Outline the stages of the RP approach
8Revealed preference: Travel Cost Method Travel cost method (TCM)The value of an environmental good is reflected in the time and money people spend getting to it e.g. forests, mountains, fishing sitesBased on actual behaviour, mostly used for recreation studiesVisitor surveys are used to determine distance travelled to site, values are estimated from cost per mile or per hour spent travellingTravel costs are used to estimate the number of visits madeOnly direct use values are estimatedAppropriate for cultural servicesThe first RP method we will consider is the travel cost method.Explain that the value people place on an environmental good such as a recreational site can be inferred from the amount of time and money people spend getting to it.Explain that the travel cost method uses surveys to estimate visitor numbers and is used to estimate the direct use value of cultural ecosystem services
9Revealed preference: Travel Cost Method cont… TCM practical issuesFunctional formMultipurpose trips:‘Meanderers’ may visit several sites during a trip‘Purposeful visitors’ visit only one siteHolidaymakers and residents:Holidaymakers may have high overall costs but low site visit costsResidents have lower travel costs, but may in fact value the site highlySome form of weighting required to account for theseWhat costs to include?Total cost of travel, marginal cost of visit, value to timeExplain that when using the travel cost method there are some important practical issues to consider.Outline the following issues:Functional form – this is to do with the econometric analysis – not covered here but the choice can make a big difference to outcomesMulti-purpose – how do we split the total leisure time/travel costs is the key question here.Holidaymakers versus residents – important when considering international tourismWhat element of cost to consider
10Travel cost method: example Nam and Son (1991)Recreational value of the Hon Mun Islands VietnamMarine Protected Area established in 2001 with US$2m funding over 4 yearsProposal to expand port at Nha Trang City with impacts on water quality and marine ecosystemsIntroduce the first TCM example – estimates of domestic and foreign visitors’ values for recreational visits to the Hon Mum Islands in Vietnam. The islands are the site of Vietnam’s first pilot MPA, but the proposal to expand the nearby port of Nha Trang would lead to increased shipping movements and consequent impacts on water quality and marine ecosystems.Source: Google Maps
11Travel cost method: example Both domestic and foreign visitors to Hon Mun were surveyed and zonal TCMs estimated10 domestic zones, 3 international zonesIn 2000 there were 397,000 domestic and 118,700 foreign visitors
12Travel cost method: example TCM value estimates (1US$ = 14,500VND)Consumers surplusPrice paidRecreational valueAllVisitors (US$m)PerVisitor(US$)Domestic visitors1.498.962.4615.163.9522.74Foreign visitors1.6417.2231129.5313.95146.76Total3.1314.7717.90Explain that the table presents the estimated zonal TCM results for both domestic and foreign visitors, both aggregated across all visitors and per visitor. Note that values for all visitors are in million s of US$ and per visitor are in US$.Consumers’ surplus represents the benefit of visits over and above the price paid, i.e. the TCM estimates the demand for visits and this is total WTP rather than price (illustrate consumers’ surplus on white board or flip chart if needed). Total recreational value is the sum of consumers’ surplus and price paid.Explain that these values are the benefit of recreational visits throughout the wider economy and include costs of transport paid to domestic and overseas operators amongst other elements that will not directly accrue to the local community.Compare these values with the estimated US$3.1m annual revenue generated by the proposed port expansion = less than 20% of the recreation value. Note that this excludes other benefits from ecosytem services such as fisheries
13Revealed preference: Hedonic pricing Hedonic pricing (HP)The value of a good is a function of its characteristics, e.g. house prices (or rents) are determined by a number of attributes:Structural: number of rooms, garden size, garage size, central heating, double glazing…Socio-economic: quality of schools, unemployment rate, local taxes…Local amenities: access to services, transport links, environmental quality…Explain that another common type of revealed preference method is hedonic pricing in which the value of environmental amenity is one of several characteristics of property that effects its value.Outline the important attributes that affect property values.Provide examples of the types of environmental good values using HP:Air qualityVisual amenityNoise (from roads, aircraft, industry)Odours
14Revealed preference: Hedonic pricing HP practical issuesValues of those not in property marketLarge amounts of data are required to determine the values of individual attributes, and needs active marketOmitted variable bias: important explanatory variables may be missing from dataHousing markets tend to be segmented, i.e. several hedonic models may have to be estimatedVariables may be correlated, e.g. houses near quarries suffer from both noise and dustHedonic models often have very complex functional formsExplain that thee are a number of practical issues when using HP and outline these issues:Only considers values of those in the property marketLarge amounts of data requiredImportant variables may be missing or unavailableProperty markets are segmentedVariables may be correlated (e.g. both noise and dust from quarries)Complex functional forms – needs expertise
15Hedonic Pricing: example UK Defra study on effects of proximity to landfill sites on house pricesIntroduce the example from the United Kingdom commissioned by the Department for Environment, Food and Rural Affairs (Defra). This looked at the impact of proximity to landfill waste sites on property values.
16Hedonic Pricing: example Types of disamenity from landfill:noise, dust, litter, odour, vermin, visual intrusion, perception of riskHousing variables used:bedroomsbathroomstype of house (8 classes)car parking space, single garage, double garagepartial central heating, full central heatingfloor areaage (5 classes)Explain that there are multiple issues of disamenity from landfill sites, but that the study did not separate these.Outline the variables used in the analysis
17Hedonic Pricing: example Used a GIS database of 592,000 mortgage transactionscontained data on house values, characteristics, location1990 to 2000 period11,300 landfill sites - 6,100 operationalModels estimated separately for counties (sub-regions) to account for differing property marketsHedonic model captured 80% of the variation in house prices, variables had “right” signsDescribe the data used in the study and the summary of the model
18Hedonic Pricing: example Highlight some of the findings from the models. This table presents the % change in value for properties at different distances from landfill sites across different UK regions.In most, but not all, regions there is a clear distance decay effect – namely the negative effect on property prices is higher the closer the property is to the landfill site. The effect on prices is zero or insignificant at distances over 2 miles from landfill sites.Emphasise that only the figures in bold are statistically significant.
19Hedonic Pricing: example Average reduction in house prices of £5,500 within 0.25 miles of landfill and £1,600 between 0.25 and 0.5 milesAverage total UK disamenity = £2,483mBetween £334,350 and £478,990 per landfill siteBetween £1.52 and £2.18 per tonne of wasteOutline these further results from the example that put the percentage impacts into context.
20Hedonic Pricing: example How are these results used?Inform landfill tax levels - initially £15/tonne for active wasteInform planning decisionsFeed into CBA on landfill siting decisionsmitigation actionsfinancial costs of alternative sitesPotential for compensation?Some evidence of reduction in dis-amenity effects over timeExplain that the outputs from the valuation exercise can be used to inform a number of policy questions.
21Revealed preference: limitations Market imperfections and policy failuresLarge, good quality data sets requiredExpensive and time consumingOmits non-use valuesSensitive to assumptions made on relationship between ecosystem service and surrogate marketOutline the limitations of the revealed preference approach – applies to both HP and TC methods.
22Stated preferenceSP approaches use simulated markets to elicit willingness to pay (WTP) or accept (WTA) values for changes in ecosystem service provisionAppropriate for both use and non-use valuesMay be difficult to segregate these value motives from WTPSurvey based methods in which respondents are presented with a hypothetical market describing the change in service provisionIntroduce the next approach to valuation – stated preferences.Explain that this covers a range of methods in which a hypothetical market is developed in order to elicit either willingness to pay or willingness to accept compensation for a given change in ecosystem service provision.Explain that this approach can value both use and non-use values, although emphasise that might not be separable, and can importantly consider future changes and policy.
23Stated preference Summary on methods covered Contingent valuation methodOne policy-on scenario compared with Business As Usual (BAU)Choice ExperimentsAttributes are compared, e.g. ‘visibility in the sea’Some baseline BAU level for each attribute and this is compared with varying levels (with policy-on)Group valuationLess commonly applied – links valuation with deliberative methodsOutline the three broad methods that will be considered.
24Stated preference: Contingent valuation Contingent valuation method (CVM)A hypothetical market is described in which respondents either buy (WTP) or sell (WTA) a specified level of an environmental good or serviceThe values which are elicited are “contingent” on the hypothetical market with which respondents are presentedOutline the key features of the contingent valuation method
25Stated preference: Contingent valuation cont… Large differences between WTP and WTA for the same good, neoclassical economic theory suggests they should be near equalLoss aversion and implied property rights - ownership makes a commodity more valuableAbsence of substitutesIrreversibilityIncome and budget constraintsExplain that there has been some controversy over the WTP and WTA measures – theory suggest these should be equal but observation shows otherwise.Outline the reasons why WTP and WTA differ and emphasise that this has implications for how we ask valuation questions.
26Stated preference: CVM process I Survey designStart with focus groups and consultations with stakeholdersDecide the nature of the marketDetermine the quantity and quality of information provided for the goodSet allocation of property rightsWTP or WTADetermine credible scenario and payment vehicle (tax, donation, price).Choose elicitation method (e.g. dichotomous choice vs. open-ended elicitation method).Start with focus group sessions and consultations with stakeholders to define the good to be valued.Decide the nature of the market, i.e., determine the good being traded, the status quo, and the improvement or deterioration level of the good that will be valued.Determine the quantity and quality of information provided over the traded “good‟, who will pay for it, and who will benefit from it.The property rights implied in the valuation scenario will determine whether a WTP or WTA question is more appropriate. If the scenario involves a loss of ecosystem services then WTA compensation for that loss would be appropriate. This implies a ‘right’ to the current level of ecosystem service provision. However, given that WTP is generally lower than WTA and to ensure a conservative value estimate it may be preferable to phrase the scenario in terms of WTP to avoid that loss.Scenarios involving an improvement in ecosystem service provision are less problematic in terms property right allocation and a WTP scenario is appropriate.The payment scenario and payment vehicle refer to how the change in ecosystem services will be delivered and how it will be paid for. Given the hypothetical nature of the market these should seem credible and realistic.The elicitation method refers to how survey respondents are asked to state their values. The simplest way is an open-ended approach where respondents are asked to state a value. This can be problematic as respondents are unfamiliar with either the good being valued or the concept of transacting for ecosystem services. Alternatively, respondents might be shown a payment card with a range of possible values, again due to unfamiliarity with this type of exercise.Bidding games start by suggesting a value to respondents and asking if they are WTP more or less than that figure, higher or lower value amounts are then suggested iteratively until maximum WTP is identified. Responses may be subject to anchoring where respondents consider the original bid value to be the ‘correct’ value.Payment ladders list a range of values, respondents are asked to ‘climb’ the ladder from the bottom until they reach their maximum WTP. Uncertainty might also be incorporated by asking to respondents to indicate which values from the bottom of the ladder they ‘definitely would pay’ and those higher values from the top they ‘definitely would not pay’, this might leave a range of uncertainty.The preferred elicitation approach is the use of a dichotomous choice or referendum format. Respondents are offered one value (from a pre-determined distribution) and asked a yes or no question of whether they would be willing to pay it. The variation of initial bids across a large sample avoids the anchoring problem of a bidding game. The initial bid might then be followed up with higher (if yes) or lower (if no) amount. Because this approach samples WTP for different potential WTP amounts (to identify a WTP or bid curve) rather than arriving at a firm WTP value for each respondent it requires much larger sample sizes and therefore is more expensive.
27Stated preference: CVM process II Survey implementation and samplingInterview implementation: face-to-face, mail, telephone, internet, groupsInterviewers: private companies, researchersSampling: convenience sample, representative and stratified sampleExplain the there are a number of way to implement a CVM survey, the choice of these will depend on the nature of the good being valued and the time and resources available for the study.Outline the following considerationsInterviews can either by face-to-face, by mail, by telephone or via the internet. Group valuations are also increasingly popular.Face-to-face interviews are generally the most preferred as they offer the opportunity to present a lot of complex information to be presented (either as show cards or on-screen), however they are expensive and time consuming to undertake. Group valuation might be considered a variation of a face-to-face interview that might be more cost effective as it allows the simultaneous sampling of small or large groups. Group valuation can also be useful for constructing values and where shared values might be important; although the process involves a group individual values for each participant would still be sought.Mail and internet surveys are generally less expensive but may taken time to collect a sufficiently large sample. There may also be concerns over who is actually completing the survey.Telephone surveys can either use material read out to respondents over the telephone or refer to previous mailed information packs. As with mail and internet surveys these do not have the potential to interact with respondents, for example to clarify questions about information being provided or the valuation scenario. The cost of telephone surveys would lie between mail and internet and face-to-face interviews.The choice of interviewer is also important. Researchers involved in the study have the advantage of being knowledgeable about what is being valued, but this might also be a disadvantage as they may introduce bias into the study. Professional interviewers from market research companies can be dispassionate and unbiased about the study and better able to work with respondents.There are a number of alternative sampling strategies. Convenience samples might be appropriate and sufficient where surveys are being undertaken of relevant users, for example at a specific recreational site. Where the wider population is the ‘market’ for the good then the sample should be representative according to potentially important socio-economic or demographic variable (e.g. gender, age, income). To ensure representativeness stratification might also be desirable, for example rural and urban populations, visitors and residents to a site.
28Stated preference: CVM process III Calculate measures of welfare changeOpen-ended – simple mean or trimmed mean (with outliers removed )Payment cards/laddersBidding gamesDichotomous choice – estimate expected value of WTP or WTAOutline the different approaches to eliciting values and welfare changes.Discuss the following considerations with these elicitation approachesCalculating the welfare change for open-ended, payment cards or ladders and bidding game formats is relatively straightforward. This could simply be the mean WTP or WTA value across the sampled respondents. If there are extremely high WTP or WTA values then a trimmed mean might be estimated. Outlying values are identified and removed from the analysis. However this is contentious as there are no firm criteria for identifying outlying bids. Criteria could be statistically based, for example out side a specified number of standard deviations of the mean, or based on judgement about reasonable ability to pay. However it is possible that some individuals will have a genuinely very high WTP. Outlying bids can also be accommodated by also reporting median bids which are less responsive to extreme values.Outlying bids might also reflect strategic behaviour by some respondents. Here, if there is a belief that the WTP amount stated will not be collected (either fully or in part) and that the provision of the good depends on the sufficient WTP being stated there is an incentive to overstated actual WTP to ensure provision. Conversely, if there is belief the stated WTP will be collected, but that provision of the good is not dependent on WTP there is an incentive to free ride and unstated actual WTP. Both of these biases will affect mean WTP, but truncation of high WTP will only correct for strategic behaviour, the presence of free-riding amongst genuinely low WTP amounts is less obvious.The estimation of WTP or WTA when using dichotomous choice is less straightforward and involves calculating the expected value of WTP or WTA given the probabilities that each offered bid level will accepted. From this a bid curve is estimated and the mean WTP(A) is that value with a 50% probability of acceptance. The nature of this format does mean that strategic behaviour and free-riding are less problematic.
29Stated preference: CVM process IV Technical validationEstimating a bid functionTesting the validity and reliability of the estimates producedExplain that the validity of CVM value estimates should be tested to ensure confidence in the results.Discuss how validity can be tested using data collected in the survey or in comparison to other value estimates.The validity of CVM responses can be explored by estimating a bid function in which the influence of respondent socio-economics, demographics and attitudes are modelled against their WTP(A) response. It would be expected that income and education level (a proxy for income) would be positively related to WTP as would membership of environment groups or positive environmental attitudes. This is known as construct validity and refers to how well the characteristics of the sample explain the estimated values.Convergent validity is tested by comparing the estimated values to either those for similar goods using either the same or other methods; or by comparing to other values obtained from the same population. Note that differing values are often observed for the same good across different methods or CVM elicitation formats, with no clear indication as to which is ‘correct’.
30Stated preference: CVM process V Aggregation and discountingCalculating total WTP from mean/median WTP over relevant population – for example by multiplying the sample mean WTP of visitors to a site by the total number of visitors per annum.Discount calculated values as appropriate.Explain that the value estimate should be aggregated over the relevant population – this could either by the number of visitors to a particular site, the local or national population, or the number of households locally or nationally.Explain that if the valuation was for an on-going rather than one-off payment it might also be appropriate to discount future values to obtain the present value. However, note that is not clear how future values will change with increasing household or national income, or changes in other ecosystem services. Therefore reporting values using a range of discount rates as part of a sensitivity analysis might be appropriate.
31Stated preference: CVM example 1989 Exxon Valdez spilt 11 million gallons of oil in Prince William Sound, Alaska.CVM study was carried out to estimate passive use value (existence, bequest) loss to US citizens.WTP values sought for policies to prevent similar spills in future.WTA would have been correct measure.Estimated total loss was $2.81bnExplain that the Exxon Valdez study was one the most prominent applications of the methodology as the study was used to estimate compensation payments following the oil spill.Because of the potential cost to Exxon from the outcome of the study a great deal of effort was put into discrediting the method. In turn this led to a great deal of methodological refinement including the NOAA Blue Ribband panel chaired by Kenneth Arrow that set guidelines for robust CVM studies.
32Contingent valuation method: example Bann (1999)Survey of 300 households’ WTP for mangrove protection in Benut, Malaysia (243 useable responses)Introduce the example which was a CVM study of WTP to a biodiversity fund to protect the Benut mangrove area in Malaysia.Source: Google Maps
33Contingent valuation method: example 56% of respondents stated a positive WTP, of those who didn’t 49% gave protest responses, meaning thatPayment ladder and dichotomous choice elicitation methods were usedThe payment ladder asked respondents to tick values they would pay and cross values they wouldn’tExplain that there are three types of response to a CVM questions – a positive statement of WTP or zero WTP which can be interpreted in one of two ways. Zero WTP may either be a protest bid or a genuine zero value. Follow-up questions are need to distinguish these. Protests bids are against aspects of the hypothetical market such as objections to the payment vehicle, but do not mean that the respondent does not value the environmental good – these responses are excluded from further analysis. Genuine zero bids arise where responds either cannot afford to pay or do place any value on the environmental good – these responses are included in the analysis.Outline the WTP results from the payment ladder approach – the ticked values can be interpreted as the lower-bound of WTP and the crosses the upper-bound. Median values are presented because the distribution of WTP was skewed (a small number of very high values). These values have been converted from monthly WTP in Malaysian Ringgits. Note that skewed distributions are common problem in CVM.Aggregated over the relevant local population of 12,650 gives an annual value mangrove protection of approximately US$40,000MeanUS$18US$61MedianUS$10US$30
34Stated preference: Choice modelling Choice modelling (CM)Also referred to as choice experiments (CE)Type of conjoint analysisSurvey respondents make choices across environmental goods with varying bundles of attributesTrade-offs between attributes reveals their valuesCan combine qualitative and quantitative attributesIntroduce choice modelling as alternative stated preference method and outline its main characteristics:Also referred to as choice experiments (CE)Type of conjoint analysis (inc. contingent ranking and rating), more consistent with economic theory and consumer experienceRespondents within the survey are given a choice between several options, each consisting of various attributes, one of which is either a price or subsidy. ‘Price’ is included as a policy attributeRespondents are then asked to consider all the options by balancing (trading off) the various attributes, and make a “choice” of a policy packageCan combine qualitative and quantitative attributes
35Stated preference: Choice modelling CM issues:Requires specialist statistical design (and software) and sampling resourcesChoice tasks can be complexPotentially complex analytical taskInclusion of socio-economic and attitudinal variables is not straightforwardExplain that there are a number of practical considerations when using CM:Requires specialist statistical design (and software) and sampling resourcesComplex tasks may lead to use of simplistic choice heuristics by respondents, i.e. fixation on one or small subset of attributes. Need to debrief respondentsPotentially complex analytical taskInclusion of socio-economic and attitudinal variables in models not straightforward. Need to interact with one or more of the choices (e.g. status quo) or one or more attributes
36Choice Modelling: example Valuing quality changes in Caribbean coastal waters for heterogeneous beach visitors (Beharry-Borg and Scarpa, 2010)Most locals do not snorkel or dive. In order to ensure that the valuation captured both locals and non locals two groups were Identified snorkelers and non snorkelers.Most valuation studies in the Caribbean have focussed on obtaining WTP values for attributes associated with snorkelling and scuba divingThere were 9 attributes in the snorkeler subsample and 6 in the non snorkeler subsample plus a cost attributeCost was described in terms of a contribution cost to an NGOIntroduce the CM example and outline the characteristics of the study
37Choice Modelling: example Attributes1. Number of boats near the coastline2. Presence of a marine protected area3. Level of coastline development4. Average bathing water quality5. Level of vertical visibility6. Number of plastics per 30m7. Contribution fee8. Number of snorkelers per group9. Level of coral cover10. Number of fish seen while snorkellingNon-snorkelersSnorkelersOutline the attributes used in the study and how these were applied to both snorkelers and non-snorkelers – capturing different beach users groups
38Choice Modelling: example Explain that attributes and levels can be presented in a number of ways, here to help respondents visualise these levels of improvements in water clarity the study used pictorial descriptions for the attributes.No PolicyHigh PolicyLow Policy
39Choice Modelling: example Summarise the example choice card for non- snorkelers containing 6 attributes exclusive of the fee.Explain that respondents were given a choice of three alternatives including the no choice option. So they were asked whether they would be willing to pay to visit a beach with certain characteristics.198 (snorkellers) and 86 (non-snorkellers) = 284 respondents
40Choice Modelling: example Individual-specific WTP estimates (TT$ ~ 0.16US$) for snorkelersClass one (61%)Class two (39%)Up to 60 fishes355Up to 45 % coral cover5010Vertical visibility of up to 10 m40Marine Protected Area which allows fishing337Marine Protected Area which prohibits fishing34Plastics of up to 5 pieces15Low chance of ear infection2225Low level of developmentExplain that the CM approach estimates values for individual attribute level relative to a reference level (usually a no change or no policy status quo level)Explain that these results are for a model that consider two different segments of snorkelers – class 1 has stronger preferences for ‘in water’ attributes such as number of fish, coral cover, visibility and conservation level; whereas class two is more concerned with signs of human impacts including litter, health risks and development.Emphasise that recognising the potential for different values from different groups is important for ensuring good policy design and stakeholder acceptance.1TT$ ~ 0.16US$
41Stated preference: Group valuation Combination of stated preference techniques with deliberative techniquesOffer a deeper exploration of environmental information, values and preference formationTrade-off of smaller groups versus survey approaches versus more precise valuesExplain that stated preference techniques such as CVM and CM can be applied in group settings as well as individually.Explain that this can help convey complex information to respondents and allows a deeper understanding to the issue and why it might be valued to be developed.
42Stated Preference: Limitations Sometimes the only way to capture non-use valuesHypothetical nature of the markets: do the decisions correctly reflect real-life behaviour?Divergence between WTP and WTA estimates (theoretically equal)Insensitivity to scope and scaleAre the different values comparable to a common metric?Goods are complex – is there a need for pre-valuation workshops so that respondents can better understand their preferences?Outline the following limitations to stated preference methods:Sometimes the only way to capture non-use valuesHypothetical nature of the markets: do the decisions correctly reflect real-life behaviour?Divergence between WTP and WTA estimates (theoretically equal)Insensitivity to scope and scale – WTP often does not vary over different quantities of the same good, also issues with availability of substitutes.Are the different values comparable to a common metric – Are different CV approached and CM measuring a consistent good?Goods are complex – is there a need for pre-valuation workshops so that respondents can better understand their preferences?
43Comparisons between approaches: Market-based AdvantagesDisadvantagesMarket pricesReflect private WTPConstruct financial accountsEasy to obtainMarket imperfections and policy failures distort pricesSeasonal variationsCurrency variationsShadow pricesReflect true economic value or opportunity cost to societyComplex to deriveRequire substantial dataConsidered ‘artificial’Production functionLinks ecosystem functions to market valuesRequires modelling of dose response relationshipsComplex for multi-use systemsPotential double countingOutline the advantages and disadvantages of each of the market-based valuation approaches.Emphasise that each method has its good and bad points meaning that there is no one best method and the choice is more importantly driven by the context of the valuation.
44Comparisons between approach - cost-based AdvantagesDisadvantagesMitigation/restoration costsUseful when valuing particular ecosystem functionsDiminishing returns and difficulty in restoring functionsReplacement costsEstimates indirect benefits when ecological data not available for estimating damage functionsNet benefits of replacement may exceed original functionMay overstate WTPAvoided damage costPrecautionary principle appliedData or resource limitations may rule out first-best valuation methodsOutline the advantages and disadvantages of the cost-based approaches.Note that these approaches are typically used for regulating services which are otherwise difficult to value.
45Comparisons between approach - Revealed and stated preference AdvantagesDisadvantagesHedonic pricingReflects private WTPBased on observed behaviourData intensiveRequires defined surrogate marketTravel costWTP for recreational sitesRestrictive assumptions about behaviourSensitive to statistical methodsContingent valuationCan measure non-use value and give estimate of TEVSensitive to biases in survey design and implementationChoice modellingSimultaneously elicits values for a range of goods and servicesComplex statistical design and analysisPotential burden on respondents – choice heuristicsOutline the advantages and disadvantages of revealed and stated preference methods.Emphasise that these approaches are of particular use when markets or costs do not exist, for example of cultural services.Emphasise that stated preference approaches are the only way to incorporate non-use values and are also widely used for valuing ex ante policy changes.
46What do the methods capture? TEV and valuation methods Use valuesNon-use valuesDirectIndirectOptionExistenceBequestMarketProduction FunctionConfidence?Value?Revealed PreferenceNote that this slide indicates which valuation approaches are appropriate for which elements of TEVEmphasise that as we move from market to stated preference methods we may become less confident in our estimated values, but that we are able to capture a larger degree of potential values.Similarly as we move from direct use to non-use values we may also be less confident of our estimated values, but we also capture a greater degree of potential value.Stated PreferenceValue?Confidence?
47Session SummaryDifferent methods available but variability in terms of:Data needsCategories of TEV valuedConfidence in value outcomesThose that rely on market prices (or surrogates/ proxies) tend to only value a sub-set of ecosystem servicesSummarise the session by noting that the valuation approaches differ in terms of data needs, categories of TEV captured and our confidence in values. But those values with lower data needs and higher confidence such as market prices only value a sub-set of ecosystem services.