Contingent Valuation

Posted in Marketing and Strategy Terms, Total Reads: 401
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Definition: Contingent Valuation

Method used to price non-market resources such as economic values of ecosystem and environmental service or impact of contamination. Although they provide utility but the main aspect is that pricing them according to market is difficult and they cannot be sold directly. Depending on customer’s response to survey questions, by understanding the tradeoff that they are willing to pay for any extra benefit or missing feature, the pricing can be carried forward.


Rather than inferring values from actual choices, it asks people to directly state their values thus it is also referred as “stated preference” method. Its greatest strengths and its greatest weaknesses is that CV is based on what people say that they will do rather than what the people are observed to do. Responses of people to hypothetical questions about hypothetical market situations is the major debate and practical problem while estimating economic values and developing dollar estimates.


Contingent Valuation Method Application:

Step 1: Define the valuation problem: Determine the populations and the services that are being valued.


Step 2: Take preliminary decisions: The decision should be taken for what medium the responses will be collected (for e.g. mail, phone or in person), background of people being surveyed, there sample size and other related questions


Step 3: Actual Survey Design: Conduct personal interviews or focus group discussion where general question related to that site will be asked, services important to them, how they value those services and how much they are familiar with those services.


Step 4: Implementation of the survey: Using standard statistical sampling methods, choose a random sample and ask them to fill up the survey in public places.


Step 5: Compile, analyze and report the results: Using statistical techniques analyze the data.


For example: As increasing the flow of water over falls will reduce the hydropower generation, thus how much water should they allow to flow over the falls for recreation.

 

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