Monday, May 20, 2013

The Contingent Valuation Debate Rages On: From Hopeless to Curious? Thoughts on Hausman’s “Dubious to Hopeless” Critique of Contingent Valuation

Hausman (2012) “selectively” reviews the CVM literature and fails to find progress over the 18 years since Diamond and Hausman (1994) argued that unquantified benefits and costs are preferred to benefits and costs quantified by CVM for policy analysis. In these comments, we provide counter-arguments to the claims made by Hausman. We provide these counterarguments not with the intent to convince the reader that the debate over contingent valuation is settled but rather to urge the community of economists to recognize that the intellectual debate over contingent valuation is still ongoing and that plenty of work remains to be done. We review the literature and argue that (1) hypothetical bias raises important research questions about the incentives guiding survey responses and preference revelation in both real and hypothetical settings that contingent valuation can help answer, (2) the WTP-WTA gap debate is far from settled and the debate raises important research questions about the future design and use of benefit cost analyses of which contingent valuation will undoubtedly be a part, and (3) CVM studies do, in fact, tend to pass a scope test and there is little support for the assertion that an adding up test is the definitive test of CVM validity.

by Timothy C. Haab 1, Matthew G. Interis 2, Daniel R. Petrolia 3 and John C. Whitehead 4
1. Ohio State University
2. Mississippi State University,
3. Mississippi State University
4. Appalachian State University,
"From Hopeless to Curious? Thoughts on Hausman’s “Dubious to Hopeless” Critique of Contingent Valuation"
Appalachian State University Department of Economics
Working Paper No 13-07, 2013
via REPEC Research Papers in Economics
The full paper is available free of charge at

The Hausman paper appeared in the Fall 2012 Journal of Economic Perspectives at
Approximately 20 years ago, Peter Diamond and I wrote an article for this journal analyzing contingent valuation methods. At that time Peter's view was that contingent valuation was hopeless, while I was dubious but somewhat more optimistic. But 20 years later, after millions of dollars of largely government-funded research, I have concluded that Peter's earlier position was correct and that contingent valuation is hopeless. In this paper, I selectively review the contingent valuation literature, focusing on empirical results. I find that three long-standing problems continue to exist: 1) hypothetical response bias that leads contingent valuation to overstatements of value; 2) large differences between willingness to pay and willingness to accept; and 3) the embedding problem which encompasses scope problems. The problems of embedding and scope are likely to be the most intractable. Indeed, I believe that respondents to contingent valuation surveys are often not responding out of stable or well-defined preferences, but are essentially inventing their answers on the fly, in a way which makes the resulting data useless for serious analysis. Finally, I offer a case study of a prominent contingent valuation study done by recognized experts in this approach, a study that should be only minimally affected by these concerns but in which the answers of respondents to the survey are implausible and inconsistent.

by Jerry Hausman, MIT
"Contingent Valuation: From Dubious to Hopeless"
 Journal of Economic Perspectives
Volume 26, Number 4; Fall, 2012; pages 43-56.
The full paper is available  free of charge at:

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