Talk is Cheap: The Existence Value Fallacy

Abstract

Recent developments in environmental law have heightened the importance of the concept of "existence value" -- the value that individuals gain simply from the knowledge that certain environmental resources exist. These values are non-use values, hence they are said to be in the nature of a public good and will tend to be underprotected by the market. Because there is no market for such values, some lawyers, economists, and policy-makers have proposed the use of "contingent valuation" studies to ascertain a value for these amenities. Contingent valuation studies ask respondents to state how much they would pay to preserve the environmental amenity in question.

Contingent valuation studies have been roundly criticized by both legal scholars and economists on various practical grounds. The purpose of this article is to move beyond these practical problems and demonstrate the use of contingent valuation to be conceptually flawed. Understanding these conceptual problems reveals that the practical problems that have previously been identified are merely manifestations of these more fundamental conceptual problems. Contingent valuation studies are based on several fundamental misunderstandings about the nature of economic choice and the role of prices in a dynamic economy. Contingent valuation studies rest on the mistaken assumptions that prices are absolute and static. In reality, prices are relative and dynamic. Thus, contingent valuation rests on a mistaken conceptual premise and should be rejected as a policy-making guide. Because existence value, by definition, can be ascertained only through choice heuristics such as contingent valuation, there is no basis in contingent valuation for political or judicial protection for existence value.