Report of the NOAA Panel on Contingent Valuation

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Report of the NOAA Panel on Contingent Valuation

• Kenneth Arrow, Robert Solow, Paul R. Portney,
  Edward E. Leamer, Roy Radner, Howard Schuman

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Introduction

• Oil Pollution Act of 1990
• Natural resource damage assessment regulations
  procedures
• Restoration cost
• Diminution value

• Lost Use Values
• Existence Value
• Passive Use
• Stateof Ohio v. Department of the Interior
• Estimation?
• Contingent Variation
• WTPgtWTA

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Introduction

• Contingent Variation
• WTPgtWTA
• Controversy
• Irrationality
• Inadequate Understanding
• Nonbinding

• NOAA determine reliability CV _at_ lost existence
• Contingent Valuation Panel

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Problem to be Addressed

• Whether CV technique is capable of providing
  reliable information about lost existence lost
  use values?
• How are the problems addressed in CV technique
  criticisms to be address?

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Framework utilized in analysis

• Criticisms
• No Validation
• No alternative
• WTPreported gt WTPactual
• Response rate Disparity
• Discounting?
• Test with market good?
• External Validation

• Other Problems
• Inconsistency with Rational Choice
• Implausibility of Responses
• Absence of a Meaningful Budget Constraint
• Information Provision and Acceptance
• Extent of the Market
• "Warm Glow" Effects

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Framework utilized in analysis

• Key Issues in Design of Contingent Valuation
  Instruments
• Referendum Format
• Addressing the Embedding Problem
• Time Dimension of Passive Use Losses

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Guidelines

• Ideal CV
• Sample Type and Size
• Minimize Non-responses
• Personal Interview
• Pretesting for Interviewer Effects
• Reporting
• Careful Pretesting of a CV Questionnaire

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Guidelines

• GUIDELINES FOR VALUE ELICITATION SURVEYS
• Conservative Design
• Elicitation Format
• Referendum Format
• Accurate Description of the Program or Policy
• Pretesting of Photographs

• Reminder of Undamaged Substitute Commodities
• Adequate Time Lapse from the Accident
• Temporal Averaging
• "No-answer" Option
• Yes/no Follow-ups
• Cross-tabulations
• Checks on Understanding and Acceptance

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Guidelines

• GOALS FOR VALUE ELICITATION SURVEYS
• Alternative Expenditure Possibilities
• Deflection of Transaction Value
• Steady State or Interim Losses
• Present Value Calculations of Interim Losses

• Advance Approval
• Burden of Proof
• Reliable Reference Surveys

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Recommendations moving forward

• Conjoint Analysis
• Produce standard damage assessments
• Measure WTP in units of articles foregone

• Reminders of alternative spending choices
• Reminders of undamaged substitute commodities
• Availability of a no-vote

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Discussion of results conclusions of paper

• Passive Use loss is a meaningful component of
  total damage
• No overt behavioral consequenses
• CV provides sufficiently reliable estimate
• While there seems upward bias, the panel still
  acknowledges CVs viability
• Stringent Guidelines set forth CV provides
  useful, reliable information

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Discussion of results conclusions of paper

• Starting point of Judicial process of damage
  assessment
• Federal agencies should begin to amass standard
  assessments for a range of insults references
• Reduce the cost and increasing accuracy
• Controversy will remain where intangible losses
  have to be evaluated in monetary terms

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Suggestions to Improve the Analysis

• 1993
• Implement more innovative methods of bias
  reduction
• Use as a reference hedonic pricing CV on market
  goods for discounting purposes

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Questions?