ABSTRACT
In this chapter, the authors explore how they can move from the general concepts to the actual estimates of compensation required by the courts. Economists have decomposed the total economic value conferred by resources into three main components: use value, option value, and nonuse or passive-use values. Option value reflects the value people place on a future ability to use the environment. Valuation methods can be separated into two broad categories: stated preference and revealed preference methods. Contingent valuation, the most direct approach, provides a means of deriving values that cannot be obtained in more traditional ways. Measuring willingness to pay or willingness to accept in the presence of price changes makes two new concepts relevant–compensating variation and equivalent variation. Choice experiments have evolved from both contingent valuation and marketing studies. Time and budgetary constraints precluded the use of stated preference methods such as contingent valuation or choice experiments.
