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Contingent Valuation, Hypothetical Bias, and Experimental Economics

Published online by Cambridge University Press:  15 September 2016

James J. Murphy  and
Thomas H. Stevens
James J. Murphy
Affiliation:
Department of Resource Economics and Center for Public Policy and Administration
Thomas H. Stevens
Affiliation:
Department of Resource Economics, both at the University of Massachusetts-Amherst
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Abstract

Although the contingent valuation method has been widely used to value a diverse array of non-market environmental and natural resource commodities, recent empirical evidence suggests it may not accurately estimate real economic values. The hypothetical nature of environmental valuation surveys typically results in responses that are significantly greater than actual payments. Economists have had mixed success in developing techniques designed to control for this “hypothetical bias.” This paper highlights the role of experimental economics in addressing hypothetical bias, and identifies a gap in the existing literature by focusing on the underlying causes of this bias. Most of the calibration techniques used today lack a theoretical justification, and therefore these procedures need to be used with caution. We argue that future experimental research should investigate the reasons hypothetical bias persists. A better understanding of the causes should enhance the effectiveness of calibration techniques.

Keywords

contingent valuationexperimentshypothetical biasstated preference
Type
Invited Presentations
Information
Agricultural and Resource Economics Review , Volume 33 , Issue 2 , October 2004 , pp. 182 - 192
Copyright
Copyright © 2004 Northeastern Agricultural and Resource Economics Association 

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