What Is Contingent Valuation?

Contingent valuation is a strategy that attempts to measure or evaluate the benefits associated with certain resources that are outside the scope of assigning a market price. From this perspective, this type of economic technique attempts to account for factors that influence the buying decisions of consumers in ways that cannot necessarily be measured in terms of price. Essentially, this type of valuation looks at what consumers are willing to pay in order to have access to the benefits associated with a certain type of activity.

One of the easiest ways to understand the concept of contingent valuation is to consider the case for the ongoing development of alternative energy forms in a number of nations around the world. For many people, the value of continuing to develop such alternatives as wind energy, solar energy and biofuel is not simply a matter of money, but a matter of discerning how supporting those efforts will ultimately have a positive impact on the environment. In order to have some idea of not only the practical utility that these efforts provide but also the indirect benefits that people receive from those efforts, contingent valuation provides the platform for making this type of accounting. As a survey-based economic technique, the approach collects data that includes how consumers feel about alternative energy forms and what they see as being the long-term and short-term benefits of access to energy alternatives.

The process of contingent valuation is often helpful when it comes to assessing the overall value associated with any type of activity. While the approach is often utilized as a means of identifying the intangible benefits associated with a given event or activity, it can also sometimes be used to provide perspective on the far reaching impact of some sort of unfortunate situation. For example, using contingent valuation along with a utility-based strategy to identify the results of an oil spill or the deforestation of a given geographic area provides a more comprehensive understanding of the long-term ramifications of the action. In this application, it is easier for punitive damages to be assessed that help to compensate parties who were somehow injured as the result of the event.

While supported in many areas as a practical means of assessing the impact of a specified set of factors, detractors of contingent valuation sometimes focus on the subjective nature of the process. This is seen as a defect that could cause the valuation to produce different results if even one or two factors are changed or omitted from consideration. At the same time, there is no consensus on a viable alternative approach to accounting for the data collected through the use of contingent valuation and making use of that data in a manner that is helpful to understanding the overall value of any event or effort.