Contingent valuation and the budget constraint

One of the most vehemently debated techniques for the valuation of environm ental goods is the contingent Valuation method. Critics of this method ques tion its validity and reliability in many respects. However, at the moment the contingent valuation method is the only technique at hand for the asses sment of non-use Values of environmental goods. Therefore, it seems worthwh ile to have a closer look at some of the criticism raised in this debate. T his paper deals with the so-called budget constraint bias which is suspecte d of distorting the results of contingent valuation studies. According to t he critics of the contingent valuation method, the stated willingness-to-pa y for an environmental good as assessed by contingent valuation studies is systematically biased upwards because participants of such surveys do not p roperly observe their personal budget constraints. It is maintained that re spondents when asked about their willingness-to-pay for an environmental go od do not regard the amount stated by them as reducing their budget left fo r the purchase of private goods. In this paper it is shown that from a theo retical point of view respondents intuitively do the right thing when ignor ing the seeming relationship between their willingness-to-pay for an enviro nmental good and their capacity to buy private goods. It is elucidated that contingent valuation surveys should focus on the assessment of the shadow price of an environmental good rather than of the respective willingness-to -pay. Therefore, it seems that the budget constraint bias is meaningless wi th respect to the validity of the contingent valuation method. (C) 1998 Els evier Science B.V. All rights reserved.