Contingent Valuation Method for Nature Valuation
Project Phase: Initiation, Planning and Design
Purpose: Creating a market-price for the valuation of an ecosystem through people's willingness to pay
Requirements: Experience with survey-development and -analysis
Relevant Software: Statistical Programme
Contingent Valuation is a survey-based, economic technique for the valuation of non-market resources, such as environmental preservation or the impact of contamination. In this methodology people's willingness to pay is determined via a hypothetical market mechanism. With the contingent valuation method for nature validation, non-financial values in BwN-projects can be expressed in monetary terms in order to include them in a Socio-economic Cost Benefit analysis (SCBA). This is important as a SCBA gives a strong argument to start a project when the benefits for society exceed the costs.
Building with Nature concepts focus on the use of natural processes in the implementation and operation of hydraulic engineering infrastructures. Ideally, these concepts involve lower lifecycle costs in monetary terms, but this is not always the case. Often non-financial benefits like ecosystem services and biodiversity are important selling points. In fact, decision-makers should be facilitated to value BwN concepts in order to compare the BwN advantages with the additional costs that may be involved.
The three values of nature (source: Ruijgrok et.al., 2004).
Valuation of the natural environment
In order to understand the way in which the benefits of the natural environment are valued, it is important to note the definition of value that is used. The economic value of ecosystems is defined as the amount of both material and immaterial forms of welfare that nature generates for society. This means that the economic value is larger than the cash flows derived from nature. These cash flows, which can be rather limited for non-exploited pristine nature areas, form the financial value. The economic value, however, also comprises all types of ecosystem services like contribution to clean water, carbon sequestration, coastal protection, recreation, etc. The broad welfare definition means that the economic value is a purely anthropocentric measurement. Economic value pertains strictly to human welfare. It does not capture intrinsic values, such as welfare for other organisms, plants and animals (Nieuwkamer, 2008). The figure shows the economic, the financial and the intrinsic value of ecosystems. Unlike the intrinsic value, the economic value of ecosystems can be expressed in monetary terms by means of several economic valuation techniques, after which it can be included in socio-economic cost benefit analyses.
Ecosystems generate human welfare because they produce goods and services that humans can use directly or indirectly (through the use of other goods or services). Examples of direct forms of use pertain to goods such as wood, clean water and fish or to services such as recreational opportunities, protection against flooding or climate change. Examples of indirect forms of use are ‘nutrient recycling’ and ‘fish nurseries’ which result in ‘clean water’ and ‘fish production’, respectively. By using the clean water or the fish, the nutrient recycling and nursery services are used indirectly. In other words: the ecosystem’s nutrient recycling and the nursery function are conditional to the production of clean water and fish. The figure shows different ecosystem services.
To capture the full value of an ecosystem it is important not to omit any goods and services that it produces. At the same time it is also important not to value indirect forms of use in addition to direct ones, as this leads to double-counting. A way to solve the problem of potential under- and overestimation is to make a distinction between goods and services that people can directly use, and conditional functions that generate welfare only indirectly. The latter should be linked explicitly and systematically to the former. To make this clear, we shall take one step back and consider the original ‘functions of nature approach’.
Interaction between economy and ecology. Source: adapted
from Ruijgrok (1999) and based on van der Maarel and
Functions of nature approach
The functions of nature approach, which distinguishes production, information, regulation and carrier functions, was originally developed by ecologists to identify the substance and energy flows between the ecosystem and the economic system (e.g. van der Maarel and Dauvellier, 1978). The approach was immediately applied by both ecologists and economist to determine the economic value of ecosystems (van Holst et.al, 1978; Gren et.al, 1994, de Groot, 1992; Costanza et.al, 1997), even though it was not meant for this purpose.
In the figure the different categories of functions are represented by arrows pointing in different directions. The production and information functions reflect a flow from the ecosystem to the economic system. They form the supply of goods (production) and services (information) from which humans directly derive welfare when using or not-using it. These are the welfare flows that we are searching for when trying to determine the economic value of ecosystems. Carrier functions represent an opposite flow from the economic system to the ecosystems. Humans put houses, waste, roads etc. into the ecosystem. These functions should not be included in ecosystem valuation studies, because they lead to overestimates. The space that ecosystems provide ultimately carries all human activities, which makes the ecosystems´ value equal to the value of all human activities. In situations where we would like to compare the benefits of ecosystems with the benefits of economic activities in order to choose between the two, this is not very helpful. If, for example, one needs to decide on whether or not to build a road through a nature area, one would like to compare the benefits of the road with the costs of losing the nature area. If the benefits of carrying a road are attributed to the nature area, than the costs of loosing nature will always be exactly equal to the benefits of the road, leaving the matter undecided.
Regulation functions are flows inside the ecosystem and are represented by an arrow inside the ecosystem. They are the processes and characteristics that make the carrying of activities and the production of goods and services possible. Originally, they were also called conditional functions (Harms, 1973). Including these conditional functions in addition to goods and services (i.e. production and information functions) is the major cause of overestimates in valuation studies.
Conditional functions such as pollination, nutrient recycling, nurseries, carbon sequestration etc. only indirectly generate welfare since they lead to respectively food production, clean water, fish production and protection against the effects of climate change. This means that if both the pollination and the food production, or both the nursery and the fish are being valued and added up to determine the total economic value, one and the same welfare flow is counted twice (Nieuwkamer, 2008).
Relevant experience numbers
In the past decades a lot of experience numbers are abstracted in order to estimate the ecosystem services in a quantitative way. These experience numbers comprise both physical effects (for example the sequestration of carbon) and monetarisation values (price tags). Relevant overviews of experience numbers are (Ruijgrok et al, 2007) in the Netherlands and (Liekens et al, 2011) in Flanders. In the case Tidal flat nourishment - Galgeplaat, NL, several factsheets for coastal protection concepts have been generated. These factsheets describe coastal protection schemes and the most important costs and benefits involved. All type of ecosystem benefits are part of these factsheets, which also include references.
Non-use value of nature
Most of the ecosystem services are goods and services that can be used directly by people. The non-use value however has to be included in the overall balance as well. Not only because we have the responsibility to protect nature values (as an intrinsic value), but also because we generate welfare from the protection of nature values. We feel good by saving or developing nature, for example because these nature values remain available for next generations. The figure shows the different values that form the total non-use value of nature. This scheme is based upon Nera, 2009, Brouwer, 2010 in De Nocker et al, 2011. Needless to say that market prices for non-use value are not available. It is however an important element to include in the overall estimation of ecosystem services. The non-use value can be estimated by means of the contingent valuation method.
How to Use
The Contingent Valuation Method (CVM) can be used to determine the non-use value of nature. This method is not new, as it is has been applied in a variety of studies all over the world. In this tool description a short introduction of the CVM is given, indicating the applicability of this method for valuating the non-use value of nature. The most important difficulties in applying the method are discussed, including the lessons learned from the ‘practical application’ in the Tidal flat nourishment - Galgeplaat, NL case.
The Contingent Valuation Method
CVM is a method in which respondents are asked, via a carefully formulated survey, how much they are willing to pay for conservation of a natural, cultural or environmental good, under hypothetically created market circumstances (de Boer et al, 1997). The survey has to be set out carefully, according to the NOAA guidelines (National Oceanic and Atmospheric Administration) and should consist of:
- A short list of questions which can be answered easily and help to clarify the subject for the respondent.
- A detailed description of questions regarding knowledge and experience on the change in nature or environment that has to be valued.
- A description of the future situation in which the respondent can clarify how much a certain change in nature is worth to him or her. From this series of questions the willingness to pay can be derived.
- A series of questions on features of the respondent, such as common values, recreational use of nature, income, family situation, level of education, age, membership of nature NGOs.
The NOAA guideline (Arrow et al, 1993) is an international guideline for the application of CVM. The guideline drescribes pre-testing of the questionnaire, personal clarification and abstraction of the results and reporting of the characteristics of the population, including the type of bidders (bidders, non-bidders or protest bidders that do not agree on this type of research).
CVM can be applied to several goods and services, provided that they meet the following criteria:
- the good or service has to be easily recognisable to the respondent;
- the respondent has to feel responsible for the good or service that he/she is asked to pay for;
- the good or service has to be marked (in terms of time and space) in order to create a proper definition/ picture;
- the number of people that are willing to pay has to be known in advance, or should be abstracted in the questionnaire.
Pros and cons of CVM
The most important benefit of including non-use values of nature by means of CVM is that they get included in the monetised overall cost-benefit analysis. This can contribute to nature-friendly (BwN) solutions. Yet, there are some problems in practically applying this method in the assessment of different projects:
- Does the questionnaire reflect a proper market situation for nature values?
For a respondent it is really difficult to estimate what a certain ecosystem in a marked project area is worth to him/ her (although existing CVM studies are based on these estimates). It gets easier for the respondent to define his/ her willingness to pay, however, when he/ she knows what amount of money is needed to preserve or develop these nature values. This approach is elaborated in the practical applications described below.
- How many people are willing to pay for certain nature values?
What is the maximum distance to the project area? And how does this relate to the scale of the project (area)? This is a common problem when trying to apply existing CVM results to new project situations. The CVM method focuses on the price tag and not on the number of households that are willing to pay. In the practical applications, the distance-decline function of the willingness to pay is determined. This can help to estimate the number of households.
- Can the results of previous questionnaires be transferred to other project areas? How does this relate to differences in project scale, regional diversity, and project definitions?
This problem is difficult to overcome. In principle, it can be overcome by building up a large database with all different ecotypes, ecotype quality indicators and project scales. In the framework of the development of this tool it was not possible to build up such a database. In the practical applications it was found out that an internet survey can be used in the application of the CVM technique. This can reduce the research effort to a large extent and speed up the implementation of the method.
- Does the method incorporate a proper distinction between the nature values at stake?
The nature values of existing CVM studies mostly concern nature types and do not value quality aspects. Also in the ‘practical applications’ study the latter was not done in detail. This was partly because detailed information about nature values was not yet available. But it was also because it is quite difficult to communicate nature quality aspects in a questionnaire. Including nature quality aspects is not easy, it requires background knowledge that is lacking among (quite a large) part of the population, whereas everybody should be able to fill in the questionnaire in order to get a proper representation of the population. CVM therefore seems to be less suitable for projects focusing on nature quality aspects. An alternative method to be used in those cases is the , as there are indications that the willingness to pay (WTP) for non-use nature values is strongly linked to the conservation of biodiversity indicated by the nature points that result from the nature index tool. In other words, the amount of nature points indicates the non-use value of nature. This leaves nature values still non-monetised, which makes them difficult to include in an overall SCBA. They can be included as a quantified ‘pro memori’ (p.m.) post. If the nature points are the only effect that is not monetised, the results can be presented via an analysis of the cost-efficiency of generating nature values, expressed, for instance, in euro/ nature point.
As part of the Building with Nature programme, the willingness to pay (WTP) has been determined by means of CVM for the Eastern Scheldt sand deficit case (Ter Haar, 2011). The overall goal of the thesis was to obtain the average willingness to pay (WTP) of people for different strategies to cope with the effects of the sand deficit. Secondary goals were to find out if:
- the imitation of a market situation is an effective strategy;
- distance-decline in the willingness to pay can be abstracted;
- (cost-effective) internet survey yields to reliable results.
Introduction to the case
The construction of a storm surge barrier in the Eastern Scheldt estuary and auxiliary engineering as part of the Delta Works have led to a reduced tide, and consequently to erosion of the intertidal areas and infill of the channels. The Dutch government has come up with a solution for the loss of plates: nourishing the existing intertidal areas, but the amount of sand and the nourishing strategy remain to be chosen. Alternative nourishment scenarios have been used in the CVM-survey, where people are asked how much they are willing to pay for the alternatives to preserve nature in the Eastern Scheldt.
Imitation of a market situation
In general it is difficult to evaluate a certain ecosystem or project area in terms of nature value. For instance, it is difficult to attribute a value to the ecosystem of the Eastern Scheldt. It gets easier, however, if the threats are clarified to which the ecosystem is exposed, as well as the measures that need to be taken to prevent a certain loss of nature values. The costs of these measures can roughly be determined, to generate a market situation. In the case of the Eastern Scheldt, the ecologically and (indirectly) economically valuable intertidal area is at stake. With sand nourishment the intertidal areas are supposed to be saved. It is possible to ask for people’s willingness to pay (WTP) for different nourishment efforts (for instance protecting half of the intertidal area, or all of it). The following table shows the different nourishment efforts. These alternatives were presented to the respondents.
Tidal flat area (m3)
Percentage of tidal flat area that is nourished
Costs per household
Note that the costs of the alternatives are included in the scheme. These costs are not hypothetical, but based on a real cost-benefit analysis. The costs comprise the investment costs of the sand nourishment minus the benefits other than the bequest value of nature. The costs are divided by the total number of households in the Netherlands. The questionnaire was worked out in line with the NOAA guideline (see sheet ‘how to use’). In the questionnaire it was proposed that possibly not all respondents want to contribute and that people were able to contribute more than the presented price-tags. See ter Haar (2011) for more details about study and questionnaire.
The average WTP in this study was 6,4 euro per household. Alternative 3 seems to be the closest to the average WTP. The sample showed derogation in education level and income (members of the panel have relatively high education level, hence a higher than average income). This has an influence on the average WTP. When the average WTP is corrected for national education level distribution, the result is on average € 6,0 per household.
There are several indications that the strategy of imitating a market situation is effective. Reactions of respondents in testing the questionnaire as well as feedback in the field make clear that the concept is logical and that people are able to fill in the form. In the questionnaire an opportunity was given to contribute more than the presented costs per household. This was done to compensate for people who do not want to pay at all, or contribute only a small amount (possibly leading to underestimation of the overall willingness to pay). It turned out that this option was used quite a lot, so the risk of underestimation seems to be tackled by this approach.
The calculation of the bequest value of nature is done by the formula:
(# households) * ( WTP per household)
In most cases, research focuses on obtaining the price-tag (WTP/ household), thereby ignoring the first part of the formula (i.e. the number of households). This study was meant to find out if the willingness to pay for nature values in the Eastern Scheldt estuary is higher if people live closer by. Therefore respondents were selected at different distances to the Eastern Scheldt estuary (see table).
Distance to the Easter Scheldt estuary
Number of respondents
Average willingness to pay (in euro)
The results in the table show that there is hardly any decline in the willingness to pay when people live further away from the Eastern Scheldt estuary. However, the number of respondents does decline at larger distances from the project area - although the effort in spreading of the questionnaire was equal. Perhaps only those people who are interested in nature do respond, which of course leads to higher price-tags. Comparison of the respondents at 300 km with a selection of respondents at 10 km (with the same profile in terms of age, income, membership of nature conservation organisations, etc) shows no difference in WTP. These are indications that the distance to the Eastern Scheldt estuary was not a significant factor of influence for the WTP. It seems logical to multiply the average WTP with the total number of households in the Netherlands. This is in line with common practice as the case in the Eastern Scheldt estuary is a high-exposure area of national concern (it is a national park, for instance). The question remains whether the total number of households can be used in projects of smaller scale and less national exposure. Previous studies (Ruijgrok & Vlaanderen, 2000) for small-scale projects on natural banks show a strong declining WTP after 10 km.
Use of online-surveys
This is one of the few studies in which such a survey has been done via the internet. The website 'Thesis tools' was used here, which is specifically made for doing online surveys. A panel of respondents were paid for their efforts, as it has proven difficult to gather a group of voluntary respondents via the internet. The group consisted of 300 respondents. Face-to-face only people 0-10 km from the Eastern Scheldt were surveyed. In two days time, as many residents as possible have been surveyed (30 persons).
There was a very small difference in the average WTP derived from the internet and the face-to-face survey. The panel on the internet survey also showed derogation in income distribution from that holding for the whole of the Netherlands. The highest and lowest income classes were overrepresented. Also, the level of education distribution was different from that for all people in the Netherlands. For internet surveys in the future, it is important to try and make the panel representative of the Dutch population. Some groups that were underrepresented on the internet should be actively approached. The internet survey is much more time-efficient than the face-to-face survey. If further developed and applied, it can be a good method to determine the WTP in a cost- efficient manner.
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