Chapter 21: Valuation Case Studies

Although it is relatively easy in theory, the actual valuation of environmental goods is complex since we need to place a monetary value on a non-traded good. Many studies based on revealed-preference (RP) data, such as hedonic pricing, rest on rather dubious assumptions. For example, it is customary to assume that people are fully aware of the environmental goods being modeled and that they consider these in the same way the modeler does. As an alternative approach, stated-preference (SP) methods allow for a different perspective: a pseudo-market is created in which respondents have to act as they would do if in real life. If respondents agree to “play the game,” many of the previous problems should disappear – but do they? In addition, a sound microeconomic foundation is required for an SP technique to be a viable input for cost–benefit analysis.