Contingent Valuation Method

Contingent valuation asks people hypothetically; revealed preference methods infer value from actual behavior (e.g., prices people pay, distances they travel). Revealed methods are harder to bias intentionally but can only value goods for which real transactions or behavior exist. Contingent valuation is flexible but subject to hypothetical bias. Ideally, use both to triangulate on true values.

Studies comparing hypothetical WTP to actual purchasing (in experiments or real markets) typically find hypothetical WTP is 2-3 times higher than real WTP. However, the magnitude varies by good, elicitation format, and sample. Dichotomous choice formats (yes/no questions) generally exhibit larger bias than open-ended formats. Economists debate whether smaller biases (~50%) are acceptable for policy analysis.

WTP is the maximum someone would pay to gain a good; WTA is the minimum compensation required to give it up. Theoretically, for small changes, WTP ≈ WTA. Empirically, WTA is often 2-5 times larger than WTP for the same good, due to loss aversion and endowment effects. Use WTA when the good is being taken away; use WTP when it is being provided.

The payment vehicle (e.g., tax, entrance fee, contribution) should be realistic and familiar to respondents. Avoid controversial vehicles (e.g., asking about a tax increase to those with strong anti-tax views). Different vehicles can yield different WTP estimates due to psychological factors (e.g., a contribution feels voluntary while a tax feels coercive). Pre-test multiple vehicles and report sensitivity to vehicle choice.