In recent years valuing non-market goods has become a major area of concern due to an increased recognition of the social importance of such goods and the losses associated with inadequately accounting for them. Absence of markets for such goods results in a need for public intervention that in turn requires accurate valuation in order to design socially optimal policies. The contingent valuation method (CVM) is one of the most widely used methodologies developed for the measurement of the value of non-market goods.
CVM is particularly suited to valuing certain non-market outputs of agriculture. Agriculture, in addition to producing food, hides and fibre, also provides many other goods and services not priced in the market. These include environmental outputs such as rural amenities and disamenities, but also social and cultural functions. Assessing the economic value of these non-market goods and services of agriculture can be done by estimating how much purchasing power people would be willing to give up to acquire those outputs if they were forced to make a choice. CVM permits estimation of the economic values of virtually any non-marketed item or environmental service.
Some reasons why estimation of the value of nonmarketed goods is important to the agricultural policy-maker include: (i) to justify and decide how to allocate public spending on public infrastructures and social services, and conservation, preservation or restoration initiatives relating to agricultural and environmental amenities; (ii) to consider the public's values, and encourage public participation and support for environmental initiatives; (iii) to compare the benefits of different projects or programs; (iv) to prioritize conservation or restoration projects; and (v) to maximize the economic benefits per unit of money spent.
Faced with budget constraints and growing needs for environmental actions, government agencies must make difficult decisions about policy, e.g. on the allocation of public funds to environmental projects. In making such decisions, policy-makers may consider many objectives, including environmental quality and effects on people's quality of life. To compare economic costs and benefits of such decisions, they will need to demonstrate in monetary terms the economic benefits of their investments. For some decisions, such as those involving the provision of rural amenities or serious public health or safety concerns, economic considerations will be secondary. However, even in these situations, policy-makers will need to make decisions that involve trade-offs or allocations of natural resources-decisions that call for economic analysis. This paper will help those who need to make practical use of economics for these types of decisions.
CVM has principally been applied in highly industrialized economies to measure the value of environmental services, however in recent years the method has also been applied in developing countries to measure the demand for goods and services such as safe drinking water and health care. By providing a thorough review of studies using CVM in the developing world, together with a detailed analysis of the methodological issues which may arise in a developing country context, this study provides a unique resource to field practitioners and professionals in both developing and developed countries.
Jacques Vercueil
Director
Agriculture and Economic
Development Analysis Division
