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DISCUSSION

How can we decide whether a particular application of a technique or a particular value is credible? To answer we need to justify the theoretical and market validity of the techniques. The theoretical basis can be addressed in terms of the content of the questionnaire and the conduct of the survey, and the market validity in terms of ways to test the values obtained.

Content of the questionnaire

All the simulated market techniques require questionnaires to be written, tested and presented. All questionnaires have three components no matter what kind of technique is used or what type of environmental effect is to be valued.

A. Description of the hypothetical market.

In the first part, sufficient information is provided to simulate the market, describe the choices and allow respondents to pay/accept bids or make their hypothetical purchases. This section of the questionnaire must describe:

the good or service to be purchased
the quality of the good or service
when and where it will be available
how reliably it will be available
how it will be delivered
how the respondent will pay
by what means and how much others will pay.

B. The valuation questions.

Questions to elicit willingness to pay/accept bids for the effect and to frame the rankings, ratings or trade-offs are posed using one of the techniques described in this chapter.

C. Socio-economic data.

Information on the characteristics or attitudes of the respondent and family are collected. The values from the valuation questions can then be related to these data to check for consistency in a test of market validity.

The specification of these three components should follow economic theory and economic principles of choice. The considerable economic literature in this area and its application to valuation techniques is reviewed by Mitchell and Carson (1989). In summary, the questionnaire must specify the following five kinds of information.

1. Reference level or baseline. Describe the ownership of the good in question (current level and whether the change is an increase or decrease). Describe the current disposable income of the person concerned or the household income if the household is the unit of analysis.

2. The nature of the environmental effect. The nature of the good, service or effect, and the change in it, must be specified closely. The discreteness of the change must be specified. For example, an improvement in air quality may provide aesthetic or health benefits.

3. Prices of other goods. The environmental change may alter the prices of other goods and services; the magnitude of such changes must be noted.

4. Conditions for provision of the good and payment for it. The length of time over which the good is provided, how and where, must be specified. The frequency of payments, the time period of payments and who else will pay must also be specified.

5. The nature of the required willingness to pay/accept. The results from the questionnaire must be able to provide values as net benefits.

Conduct of the survey

The report of the National Oceanic and Atmospheric Administration Panel (Arrow, Solow et al. 1993) offers guidelines to help in the survey.

Sample size. Advice should be sought from a statistician on sample size and survey design.

Personal interview. Mail surveys tend to promote unreliable responses so face-to-face interviews should be undertaken. Telephone interviews are a cheaper, though restricted, way to undertake personal interviews.
Pretesting. Questionnaires should be pretested to check for the major sources of bias (due to starting point, information, payment vehicle and interviewer). The questionnaire inevitably contains new and technical information. Pretesting should ensure that the information is understood by the respondents and sufficient to describe the good or service to be valued.
Substitutes. Prior to the valuation question, respondents should be reminded of substitutes for the environmental effect.
Cross checks. The survey should include questions to elicit data (on income, education, attitudes to the environment) to check the values obtained.

Tests of market validity

All these techniques and their questionnaires can provide a great deal of helpful information to decision makers in addition to the values themselves. But to be acceptable and then to be used in choices, the values should meet a test of market validity.

The test requires the analyst to demonstrate that the values obtained are consistent with the values that would have been obtained in a market, had one existed. In simple terms, the values must be consistent with prices that would actually be paid. Although this consistency can rarely be tested in practice, the following approximate tests will lend credence to the values.

Test for expected patterns of values with incomes or other characteristics of respondents. A pattern, where willingness to pay rises with income, lends credence to the willingness-to-pay values.
Test for expected patterns of values with other characteristics. A pattern, where willingness to pay to enter a park decreases with distance from the park, lends credence to the willingness-to-pay values.

Conclusions

All the techniques of this chapter can be applied widely but use of the values obtained requires the decision maker to:

justify the choice of technique
demonstrate the theoretical and market validity of the values
describe the limitations of the techniques
do all this in simple terms.

Unlike the techniques of Chapters 3 and 4, all of these methods can value non-use benefits. If the content of the questionnaire, the conduct of the survey and the validity of the values pass the tests, the values should provide useful information to assist decisions. In any case, the importance of the values lies more in their order of magnitude than in their precision.