Contingent Valuation Methods: Possibilities and Problems

Abstract

Valuation of external costs created from transport is important to undertake in order to improve the decision-making basis for transport policy. In particular, this information could be utilised with respect to policy measures for the internalisation of external costs as well as with respect to appraisal of specific transport investment projects. A number of methods towards the valuation of external costs have appeared in recent years in parallel with the increased awareness about the environmental problems created by transport. These methods include approaches based on assessing the resources required to reduce the costs as well as utility-based approaches. In particular, the so-called contingent valuation method has been put forward as a way to determine the willingness to pay for various environmental goods/functions for a sample of individuals. This method has been applied in a wide range of empirical context in the last two decades. This paper will provide a critical assessment of contingent valuation methods. In particular, the paper will consider the theoretical and empirical possibilities and problems provided by this method. The paper will include the following sections. Section 1 will identify the need to valuate external costs. In section 2 an overview of contingent valuation methods will be given. This will be followed in section 3 by an examination of the possibilities and problems involved in this method. Section 4 concludes with final remarks and suggestions for further research to improve the method.

JEL Classification: H00