(Georgia Institute of Technology, 2004-11-21)
Gen, Sheldon
Cost-benefit analysis has long been a dominant method of policy analysis. When applied to policies affecting the environment, however, it faced a serious problem. Many policies exert environmental impacts that are external to market transactions, so the values of these impacts resist monetary measurement. This shortcoming in cost-benefit analysis led some researchers to develop indirect and nonmarket methods of valuing environmental goods monetarily. They include the travel cost method, hedonic pricing, and contingent valuation. The popularity of these methods has grown since their inceptions, but so have controversies over their use. Economists and others have taken all sides of the debate over the validity of the methods and their normative implications. These methods popularity and controversies necessitate their critical evaluation. This research fills this need through an extensive meta-analysis of 228 existing environmental valuation studies representing the contemporary practices in each method, and capturing varieties of environmental goods and settings. The analysis tested the convergent validity of the three valuation methods, and measured the moderating effects of select variables. The results show that effect sizes of the hedonic pricing and travel cost methods converge, but contingent valuation produces effect sizes that average 40% to 55% less than the other two methods. This difference varies significantly with the environment good being valued. Other significant moderating variables include the magnitude of the environmental change, the description of the change, and the location of the study. The year of study does not significantly moderate effect sizes. These results supplement descriptive and normative frameworks for environmental valuation described by Barbier (1994), Navrud and Pruckner (1997), and Norton (1995). When the evidence and these frameworks are considered together, the defensible uses of these three valuation methods become very limited. Valuation efforts should focus on multiple dimensions of environmental value, besides economic dimensions, that reflect ecological health and public concerns for the environment.