The Contingent Valuation
Objectives of this Chapter
Chapter 6 discussed one set of nonmarket valuation methods, those that rely on revealed
Those methods require that the environmental good be connected to a marketed
good; a consumer’s response to that marketed good provides a signal about the environmental
For many environmental goods, though, there may not be a connection to a market good.
Many people express great concern about protecting endangered species and their habitats
without ever seeing the species or visiting the area; many people who live outside the tropics and
don’t travel to the region want to protect tropical rainforests.
This chapter examines how
economists analyze these values.
In particular, you will learn about:
Non-use (also known as passive-use) values of environmental goods
The contingent valuation method to estimate values for environmental goods
Objections and responses to “assigning price tags” to the environment
The Exxon Valdez and Prince William Sound
Prince William Sound is located in southern Alaska, east of Anchorage.
the Chugach Mountains, it contains spectacular scenery, diverse habitats, glaciers, and
tremendous variety of wildlife, both terrestrial and marine, that attract tourists who take cruises
through the area to see wildlife and glaciers.
Prince William Sound also contains the port of
Valdez, the southern end of a pipeline that carries oil from Prudhoe Bay, in northern Alaska.
the port of Valdez, the oil is transferred to tankers that then take it to the lower 48 states.
On March 24, 1989, a tanker called the Exxon Valdez hit a reef in Prince William Sound;
the result was a spill of 11 million gallons of oil, the largest tanker spill to occur in the U.S.
oil coated beaches along the sound as well as many animals, resulting in the deaths of sea otters,
birds, seals, killer whales, and fish eggs.
The State of Alaska and the U.S. government not only
required Exxon to clean up the spill (which cost them over $2 billion), but they also sued for
natural resource damages.
What were those damages, and how were they to be calculated?
Certainly the fishing and
tourism industries were hurt substantially by the spill, but were those the only effects?
around the country and the world watched the pictures of the spill; did they have a stake in the
We have previously discussed “arm chair environmentalism.”
In this chapter we will
examine the values of “arm chair environmentalists” more closely, and we will examine the
means economists use to measure them in monetary terms.
We begin by discussing these “non-
use” values in more detail.