ABSTRACT
In this chapter we consider approaches to valuing environmental goods that involve the construction of artificial markets. There are two general subapproaches: (a) stated preference approaches, and (b) experimental approaches. Stated preference approaches involve direct elicitation of environmental values in hypothetical markets, essentially asking people to reveal their willingness to pay (WTP). Such approaches are controversial but have been used to address real-world problems in a wide variety of settings, from valuing health care and food safety to the more specifically environmental concerns of this text (e.g., surface and ground water quality, wilderness and wildlife preservation or reintroduction, improvements to air quality with a special emphasis on visibility). Although there is controversy about whether the numbers one gets from stated preferences approaches are reasonable approximations of true willingness to pay, it must be emphasized that this is essentially the only way to measure nonuse (sometimes called passive use) values as discussed earlier in attempting to understand the underlying psychological motivations for valuing environmental quality. Additionally, this method can provide valuations for proposed environmental outcomes that have never been experienced and hence cannot be valued by, say, the travel cost method or other “use” methods.
