Constructing markets: environmental economics and the contingent valuation controversy

Banzhaf, H. Spencer (2016): Constructing markets: environmental economics and the contingent valuation controversy. Forthcoming in: History of Political Economy

Abstract

As economists took up the task of measuring the "demand" for environmental services not traded in markets, some chose to substituted survey-based methods known as contingent valuation (CV). Doing so, they could not help but find themselves in the uncomfortable position of self-evidently constructing their observations rather than merely observing them. Apparent anomalies between the constructs and the predictions for economic man led to a fierce debate over the merits of contingent valuation--a debate that hinged on the question of whether economic theory was being "applied" or "tested."

• Item Type: MPRA Paper
• Language: English
• Keywords: Contingent Valuation, Stated Preference, History, Environmental Economics
• Subjects: B - History of Economic Thought, Methodology, and Heterodox Approaches > B2 - History of Economic Thought since 1925; C - Mathematical and Quantitative Methods > C9 - Design of Experiments; D - Microeconomics > D6 - Welfare Economics; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics

References

Arrow, Kenneth, Robert Solow, Paul R. Portney, Edward E. Leamer, Roy Radner, and Howard Schuman. 1993. NOAA Panel on Contingent Valuation. 15 CFR Chapter IX, Federal Register 58: 4601-14.

Backhouse, Roger E., and Jeff Biddle. 2000. "The Concept of Applied Economics: a History of Ambiguity and Multiple Meanings," HOPE 32 (annual supplement): 1-24.

Backhouse, Roger E., and Béatrice Cherrier. 2016. "The Age of the Applied Economist: The Transformation of Economics since the 1970s." https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2868144

Banzhaf, H. Spencer. 2009. Objective or Multiobjective? Two Historically Competing Vi-sions for Benefit Cost Analysis. Land Economics 85: 1-23.

Banzhaf, H. Spencer. 2010. Consumer Surplus with Apology. Annual Review of Resource Economics 2: 183-207.

Banzhaf, H. Spencer. 2014. Retrospectives: The Cold-War Origins of the Value of Statistical Life. Journal of Economic Perspectives 28(4): 213-26.

Banzhaf, H. Spencer. 2016. The Environmental Turn in Natural Resource Economics: John Krutilla and "Conservation Reconsidered." Mimeo.

Bishop, Richard C., and Thomas Heberlein. 1979. Measuring Values of Extra-Market Goods: Are Indirect Measures Biased? American Journal of Agricultural Economics 61(5): 926-30.

Bohm, Peter. 1972. "Estimating Demand for Public Goods: An Experiment." European Eco-nomic Review 3(2): 111-130.

Boulier, Bryan L., and Robert S. Goldfarb. 1998. On the Use and Nonuse of Surveys in Eco-nomics. Journal of Economic Methodology 5(1):1-21.

Boumans, Marcel J. 2005. How Economists Model the World into Numbers. New York: Routledge.

Bowley, Arthur L. 1920. Cost of Living and Wage Determination. Economic Journal 30(117): 114-7.

Brookshire, David S., Alan Randall, and John R. Stoll. 1980. Valuing Increments and Decre-ments in Natural Resource Service Flows. American Journal of Agricultural Economics 62(3): 478-88.

Callon, Michel, ed. 1998. The Laws of Markets. Oxford: Blackwell.

Carson, Richard T. 2011. Contingent Valuation: A Comprehensive Bibliography and History. Cheltenham, UK: Edward Elgar.

Carson, Richard T., Robert C. Mitchell, Michael Hanemann, Raymond J. Kopp, Stanley Presser, and Paul A. Ruud. 2003. Contingent valuation and lost passive use: damages from the Exxon Valdez oil spill. Environmental and Resource Economics 25(3): 257-86.

Cason, Timothy N., and Charles R. Plott. 2014. Misconceptions and Game Form Recognition: Challenges to Theories of Revealed Preference and Framing. Journal of Political Econ-omy 122(6): 1235-1270.

Cicchetti, Charles J., and V. Kerry Smith. 1973. Congestion, Quality Deterioration, and Opti-mal Use: Wilderness Recreation in the Spanish Peaks Primitive Area. Social Science Research 2: 15-30.

Ciriacy-Wantrup, S.V. 1947. Capital Returns from Soil Conservation Practices. Journal of Farm Economics 29: 1181-96.

Coy, Peter. 1997. "The In Your Face Economist." Businessweek. Accessed at http://www.bloomberg.com/news/articles/1997-06-29/the-in-your-face-economist.

Cummings, Ronald G., David S. Brookshire, and William D. Schulze, eds. Valuing Environ-mental Goods: An Assessment of the Contingent Valuation Method. Totowa, NJ: Rowman & Allanheld.

Davis, Robert K. 1963a. The Value of Outdoor Recreation: An Economic Study of the Maine Woods. Dissertation, Harvard University.

Davis, Robert K. 1963b. Recreation Planning as an Economic Problem. Natural Resources Journal 3: 239-49.

Desvousges, William H., F. Reed Johnson, Richard W. Dunford, Kevin J. Boyle, Sara P. Hud-son, and K. Nicole Wilson. 1993. Measuring Natural Resource Damages with Contin-gent Valuation: Tests of Validity and Responsibility. In Hausman (1993): 91-164.

Diamond, Peter A., and Jerry A. Hausman. 1994. Contingent Valuation: Is Some Number Bet-ter than No Number?" Journal of Economic Perspectives 8(4): 45-64.

Diamond, Peter A., Jerry A. Hausman, Gregory K. Leonard, and Mike A. Denning. 1993. Does Contingent Valuation Measure Preferences? Experimental Evidence. In Hausman (1993): 41-90.

Dufwenberg, Martin, and Glenn W. Harrison. 2008. Peter Bohm: Father of Field Experiments. Experimental Economics 11(3): 213-220.

Edwards, José M. 2010. Joyful Economists: Remarks on the History of Economics and Psy-chology from the Happiness Studies Perspective. PhD Dissertation, Université Paris I Panthéon-Sorbonne.

Fourcade, Marion. 2011. Cents and Sensibility: Economic Valuation and the Nature of "Na-ture." American Journal of Sociology 116(6): 1721-77.

Gordon, Irene M., and Jack L. Knetsch. 1979. Consumer's Surplus Measures and the Evalua-tion of Resources. Land Economics 55(1): 1-10.

Guala, Franceso. 2005. The Methodology of Experimental Economics. New York: Cambridge University Press.

Guala, Franceso. 2007. How to Do things with Experimental Economics. In Do Economists Make Markets? On the Performativity of Economics, ed. by Donald MacKenzie, Fabian

Muniesa, and Lucia Siu. Princeton: Princeton University Press, 128-62.

Haab, Timothy C., Matthew G. Interis, Danield Petrolia, and John C. Whitehead. 2013. From Hopeless to Curious? Thoughts on Hausman's "Dubious to Hopeless" Critique of Contingent Valuation. Applied Economic Perspectives and Policy 35(4): 593-612.

Hammack, Judd, and Gardner M. Brown. 1974. Waterfowl and Wetlands: Toward Bioeconom-ic Analysis. Baltimore: Johns Hopkins U. Press for Resources for the Future.

Hanemann, W. Michael. 1991. Willingness-to-Pay vs. Willingness-to-Accept: How Much Can They Differ? American Economic Review 81(3): 635-47.

Hanemann, W. Michael. 1992. Preface. In Pricing the European Environment, ed. by Ståle Navrud. New York: Oxford University Press, 9-35.

Hanemann, W. Michael. 1994. Valuing the Environment through Contingent Valuation. Jour-nal of Economic Perspectives 8(4): 19-43.

Hausman, Jerry A., ed. 1993. Contingent Valuation: A Critical Assessment. Amsterdam: North Holland.

Heukelom, Floris. 2012. Three explanations for the Kahneman-Tversky Programme of the 1970s. The European Journal of the History of Economic Thought 19(5): 797-828.

Kahneman, Daniel. 1986. Comments by Professor Daniel Kahneman. In Cummings, Brook-shire, and Schulze (1986), 185-94.

Kahneman, Daniel, and Jack Knetsch. 1992. Valuing Public Goods: The Purchase of Moral Satisfaction. Journal of Environmental Economics and Management 22: 57-70.

Kahneman, Daniel, Jack Knetsch, and Richard H. Thaler. 1990. Experimental Tests of the En-dowment Effect and the Coase Theorem. Journal of Political Economy 98(6): 1325-48.

Kahneman, Daniel, Jack Knetsch, and Richard H. Thaler. 1991. Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias. Journal of Economic Perspectives 5(1): 193-206.

Kahneman, Daniel, and Amos Tversky. 1979. Prospect Theory: An Analysis of Decision un-der Risk. Econometrica 47(2): 263-291.

Knetsch, Jack L. 1989. The Endowment Effect and Evidence of Nonreversible Indifference Curves. American Economic Review 79(5): 1277-84.

Knetsch, Jack L., and Robert K. Davis. 1966. Comparison of Methods for Recreation Evalua-tion. In Water Research, ed. by Allan V. Kneese and Stephen C. Smith. Washington: John Hopkins Press for Resources for the Future, 125-42.

Knetsch, Jack L., and J.A. Sinden. 1984. Willingness to Pay and Compensation Demand: Ex-perimental Evidence of an Unexpected Disparity in Measures of Value. Quarterly Journal of Economics 99(3): 507-21.

Krutilla, John V. 1967. "Conservation Reconsidered." American Economic Review 57(4): 777-86.

Maas, Harro, and Mary S. Morgan, eds. 2012. Observing the Economy. Durham, NC: Duke U. Press.

Maas, Harro, and Andrej Svorenčík. 2016. Fraught with Controversy: Organizing Expertise on Contingent Valuation. Mimeo.

MacKenzie, Donald. 2007. Is Economics Performative? Option Theory and the Construction of Derivatives Markets. In Do Economists Make Markets? On the Performativity of Economics, ed. by Donald MacKenzie, Fabian Muniesa, and Lucia Siu. Princeton: Princeton University Press, 54-86.

McCloskey, Donald. 1983. The Rhetoric of Economics. Journal of Economic Literature 21(2): 481-517.

McFadden, Daniel. 1999. Rationality for economists? Journal of risk and uncertainty 19: 73-105.

McFadden, Daniel. 2013. The New Science of Pleasure: Consumer Choice Behavior and the Measurement of Well-Being. In Handbook of Choice Modelling, ed. by S. Hess and A.J. Daly. Edward Elgar.

McFadden, Daniel, and Gregory K. Leonard. 1993. Issues in the Contingent Valuation of Envi-ronmental Goods. In Hausman (1993): 165-216.

Medema, Steven G. 2014. The Curious Treatment of the Coase Theorem in the Environmental Economics Literature, 1960–1979. Review of Environmental Economics and Policy 8(1): 39-57.

Mitchell, Robert Cameron, and Richard T. Carson. 1989. Using Surveys to Value Public Goods: The Contingent Valuation Method. Washington, DC: Resources for the Future.

Moscati, Ivan. 2007. Early Experiments in Consumer Demand Theory: 1930-1970. HOPE 39: 359-401.

Muniesa, Fabian, and Michel Callon. 2007. Economic Experiments and the Construction of Markets. In Do Economists Make Markets? On the Performativity of Economics, ed. by Donald MacKenzie, Fabian Muniesa, and Lucia Siu. Princeton: Princeton University Press, 163-89.

Plott, Charles R. 1993. Contingent Valuation: A View of the Conference and Associated Re-search. In Hausman (1993): 467-78.

Plott, Charles R., and Kathryn Zeiler. 2005. The willingness to pay-willingness to accept gap, the 'endowment effect,' subject misconceptions, and experimental procedures for eliciting valuations. American Economic Review 95(3): 530-45.

Plott, Charles R., and Kathryn Zeiler. 2007. Exchange asymmetries incorrectly interpreted as evidence of endowment effect theory and prospect theory? American Economic Review 97(4): 15-38.

Portney, Paul R. 1994. The Contingent Valuation Debate: Why Economists should Care. Journal of Economic Perspectives 8(4): 3-17.

Raiffa, Howard. 1969. Preferences for Multi-Attributed Alternatives. Memorandum RM-5868-DOT/RC. Prepared for U.S. Department of Transportation, Federal Railroad Administration, Office of High Speed Ground Transportation. The RAND Corporation, Santa Monica, California.

Randall, Alan. 1972. Market Solutions to Externality Problems: Theory and Practice. Ameri-can Journal of Agricultural Economics 54(2): 175-83.

Randall, Alan, Berry Ives, and Clyde Eastman. 1974. Bidding Games for Valuation of Aesthet-ic Environmental Improvements. Journal of Environmental Economics and Management 1: 132-49.

Randall, Alan, and John R. Stoll. 1980. Consumer's Surplus in Commodity Space. American Economic Review 70(3): 449-55.

Rowe, Robert D., Ralph C. d'Arge, and David S. Brookshire. 1980. An Experiment on the Eco-nomic Value of Visibility. Journal of Environmental Economics and Management 7: 1-19.

Samuelson, Paul A. 1954. The Pure Theory of Public Expenditures. Review of Economics and Statistics 36(4): 387-9.

Schelling, T.C. 1968. "The Life You Save May be Your Own." In Problems in Public Ex-penditure Analysis, ed. by Samuel B. Chase, Jr. Washington, DC: Brookings Institution.

Schkade, David A., and John W. Payne. 1994. How people respond to contingent valuation questions: a verbal protocol analysis of willingness to pay for an environmental regulation. Journal of Environmental Economics and Management 26(1): 88-109.

Smith, V. Kerry, ed. 1984. Environmental Policy under Reagan's Executive Order: The Role of Benefit-Cost Analysis. Chapel Hill: University of North Carolina Press.

Smith, V. Kerry. 1992. Arbitrary Values, Good Causes, and Premature Verdicts. Journal of Environmental Economics and Management 22(1): 71-89.

Smith, Vernon L. 1979. Incentive Compatible Experimental Processes for the Provision of Public Goods. In Research in Experimental Economics, ed. by Vernon L. Smith. JAI Press.

Smith, Vernon L. 1982. Markets as Economizers of Information: Experimental Examination of the "Hayek Hypothesis." Economic Inquiry 20: 165-79.

Stigler, George J. 1943. The New Welfare Economics. American Economic Review 33(2): 355-9.

Svorenčík, Andrej. 2015. The Experimental Turn in Economics: A History of Experimental Economics. Dissertation, University of Utrecht.

Thaler, Richard. 1980. "Toward a Positive Theory of Consumer Choice." Journal of Economic Behavior & Organization 1(1): 39-60.

Willig, Robert D. 1976. Consumer's Surplus without Apology. American Economic Review 66(4): 589-597.