Topic 2: Stated Preference Methods – CVM vs. DCM

Background Information

Certain goods and services cannot be traded in the marketplace. As such, we cannot make inferences from the actual behaviour of economic activities. However, we can create a hypothetical situation whereby consumer preferences can be measured and estimated. In this approach, a normal procedure is to solicit the willingness-to-pay directly from consumers who are directly affected by economic activities. Two methods are commonly used to value non-market ecosystem services: contingent valuation method (CVM) and discrete choice model (DCM).

The contingent valuation method (CVM) seeks to solicit how many people are willing-to-pay for a forest good or service, or how many people are willing-to-accept being deprived of the same forest resource. There are a number of elicitation procedures that can be used in constructing such market and collecting data. These include direct questioning, a bidding game, a payment card, a take-it-leave-it method, and a contingent ranking method. The contingent valuation method can provide rough estimates of the value that would be useful in project development, especially if other valuations were not possible.

The discrete choice model (DCM) is used to evaluate both alternative resource use-allocation options and the marginal values of environmental attributes that may be difficult to value using CVM because of a lack of variation. The economic value of individual attributes that make up an environmental good, such as a forest ecosystem, can be estimated using DCM. It is basically implemented through a survey of respondents within a given biodiversity conservation area or people living in other areas. The respondents are posed with a series of choice sets, where each choice set contains usually three or more resource use options. Respondents are asked to choose their preferred option from each choice set. The options in each choice set contain common attributes, which can be at various levels. The combination of attribute levels for option in each choice sets are designed using experimental design techniques. Before the choice sets are presented to respondents, there is a description of the study site, the research issues, and the proposed policy changes and their implications on the environmental attributes which are being modeled. The analysis is carried out using multinomial logit model. The economic value derived from DCM indicates an implicit price that reflects the marginal rates of substitution between each attribute and the monetary attribute. This implicit price is an estimate of an individual’s willingness to pay for an additional attribute of interest to be present.

Lecture Presentations

Read and understand the following presentation:

Contingent Valuation Method.

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Discrete Choie Model.

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Additional Resources

Read the following books and articles:

Bateman, I. J., Willis, K. G., & Arrow, K. J. (2001). Valuing environmental preferences: theory and practice of the contingent valuation method in the US, EU, and developing countries. Oxford: Oxford University Press. ISBN: 0-19-924891-5

Bateman, I. J., Carson, R. T., Day, B., Hanemann, M., Hanley, N., Hett, T., Hett, T., Jones-Lee, M., Loomes, G., Mourato, S., Özdemiroglu, E., Pearce, D.W., Sugden, R., & Swanson, J. (2002). Economic valuation with stated preference techniques: a manual. Cheltenham: Edward Elgar Publishing, Inc. ISBN 1-84376-919-4

Bennett, J., & Blamey, R. (Eds.). (2001). The choice modelling approach to environmental valuation. Cheltenham: Edward Elgar Publishing. ISBN: 1 84064 304 8

Carson, R. T. (2000). Contingent valuation: A user’s guideEnvironmental science & technology34(8), 1413-1418.

Champ, P. A., Boyle, K. J., & Brown, T. C. (Eds.). (2003). A primer on nonmarket valuation (Vol. 3). Dordrecht, The Netherlands: Kluwer Academic Publishers. ISBN 0-7923-6498-8

Dixon, J. A., & Hufschmidt, M. M. (Eds.) (1986). Economic evaluation techniques for the environment. Baltimore: The John Hopkins University Press. ISBN 0-8018-3352-3

FAO. (2000). Applications of the contingent valuation method in developing countries: A survey. FAO Economic and Social Development Paper No. 146. Rome, Italy: FAO. Retrieved from

Garrod, G., & Willis, K. G. (1999). Economic valuation of the environment: methods and case studies. Cheltenham: Edward Elgar Publishing. ISBN: 1 85898 684 2

Haab, T. C., & McConnell, K. E. (2002). Valuing environmental and natural resources: the econometrics of non-market valuation. Cheltenham: Edward Elgar Publishing. ISBN: 1 84064 7043 5

Loomis, J.B. (2014). Economic valuation: Concepts and empirical methods. In

M.M. Fischer & P. Nijkamp (Eds.), Handbook of regional science (pp. 973-992). Berlin: Springer-Verlag.

Louviere, J. J., Hensher, D. A., & Swait, J. D. (2000). Stated choice methods: analysis and applications. Cambridge: Cambridge University Press. ISBN: 0 521 78275 9

King, D., & Mazzotta, M.J. (2000). Ecosystem valuation. Washington D.C: US Department of Agriculture and NOOA. Retrieved from

Mitchell, R. C., & Carson, R. T. (1989). Using surveys to value public goods: the contingent valuation method. Washington D.C.: Resources for the Future. ISBN-13: 978-0915707324

Whittington, D. (1998). Administering contingent valuation surveys in developing countriesWorld Development26(1), 21-30.

Whittington, D. (2004). Ethical issues with contingent valuation surveys in developing countries: A note on informed consent and other concerns. Environmental and Resource Economics28(4), 507-515.

Whittington, D. (2010). What have we learned from 20 years of stated preference research in less-developed countries? Annu. Rev. Resour. Econ., 2,209–36.

Self-Reflection Questions

Please answer the following self-reflection questions. After formulating your answers, you may post them online at the Knowledge Café for this course as a way to share your ideas and glean knowledge from other students’ responses.

SrQ#2.1: Can you list and identify what are biases in conducting a CVM study for valuing biodiversity of a tropical forest?

SrQ#2.2: What is the most efficient elicitation format to be used in a CVM study? Elaborate on your answer.

SrQ#2.4: Select a forest watershed area in your country. Can you design a simple CVM question using double bounded dichotomous choice for improvement of water quality of a forest ecosystem?

SrQ#2.4: Can you identify some of the problems that you might face if you want to use DCM in valuing forest ecosystem services for water quality improvement?