Extensions of the traditional models of non-market valuation for public goods to a collective framework

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Whenever events or a proposed change in policy affect quality or availability of environmental resources and public goods, either explicit or implicit cost-benefit analyses must often be undertaken. It has been recognised that the value of these goods is not explicitly determined through market transactions and the absence of markets makes it extremely difficult to establish a monetary value for access to these goods. Economists answered this challenge by developing methods of nonmarket valuation for public goods. Methods for valuing environmental goods have been categorized as indirect and direct. Direct methods, as the Contingent Valuation Method (CVM), ask consumers what they would be willing to pay (WTP) or accept (WTA) for a change in an environmental amenity. They are examples of stated preference techniques that establish hypothetical markets for public goods. Direct methods have the main advantage that they allow the measurement of non-use values but they are commonly criticised because of the hypothetical nature of the question (i.e. ‘hypothetical bias’) and the fact that the actual behavior is not observed. Researchers have identified also other problems and biases, such as strategic bias, information bias, and starting point bias (see detailed discussion of the problems in Cummings et al., 1986 and Mitchell and Carson, 1989). To investigate the validity of direct methods, researchers have compared the WTP estimates derived by applying the CVM with the WTP estimates based on indirect methods of valuation (Bishop and Heberlin, 1979; Bishop et al., 1983; Seller et al. 1985; Cameron, 1992; Adamowicz et al., 1994; Carson et al., 1996; Azevedo et al., 2003). Indirect methods, such as the Travel Cost Method (TCM), use actual choices made by consumers. These constitute revealed preferences over goods. The basic premise of the TCM is that the time and the travel cost expenses that people incur to visit a site represent the price of access to the site. The WTP to visit a site is estimated based on the number of trips that people make at different travel costs. The TCM avoids the criticism of being based on hypothetical behavior but it has other problems such as how to handle multiple-day trips, how to value time costs, how to choose the functional form of the demand for trips and how to incorporate temporal uncertainty (Cameron, 1992). This list can be extended but we argue that one of the main limitations is that the TCM focuses on defining a household to have the same utility level as a single individual. It assumes that a household acts as an elementary decision making unit where all resources are pooled and household decisions are made by a single decision maker. In particular, travel cost information is limiting in that it can reveal consumer preferences for non-market goods only capturing family behavior, while instead the WTP is an individual based measure. The correspondence between WTP estimates from the CVM and the TCM is maintained only in the case when considering a sample of singles.