National Ocean Economics Program

Research Methodology Definitions

There are many good sources, both hard copy and on-line to learn about the terms and methods of environmental economics and environmental valuation. NOEP recommends the following texts:

Introductions:

A Primer on Nonmarket Valuation By Patricia A. Champ, Kevin J. Boyle, Thomas Capnor Brown published by Kluwer Academic Publishers

Environmental Economics and Policy (5th Edition) by Tom Tietenberg, published by Addison Wesley

More Advanced Reading:

Valuing Environmental and Natural Resources The Econometrics of Non-Market Valuation by Timothy C. Haab and Kenneth E. McConnell, published by Edward Elgar Publishing

The Measurement of Environmental and Resource Values Theory and Methods, Second Edition, A. Myrick Freeman III

The following are brief definitions for some of the more common terms found in this Non-Market portal.

Avoided Cost Method

The avoided cost method uses the calculation of avoidance costs, "the costs involved in preventing the degradation of an environmental good/service or the quality of that good/service," to determine the value of a particular environmental good or service such as air or water quality. (GPN)

Benefit Transfer Method

The Benefit Transfer Method "estimates economic values by transferring existing benefit estimates from studies already completed for another location or issue." For example, the value of a beach at a particular site can be determined by applying measures of beach value conducted at another similar site. (http://www.ecosystemvaluation.org/benefit_transfer.htm)

Calibrated and Conjoint Analysis

"Calibrated and Conjoint analysis are methodologies that model and evaluate how individuals choose bundles of goods, services, and assets (including aspects of the environment) by using a set of attributes or characteristics of the choices available. The approach is based on the assumption that choices made by individuals are undertaken by a set of decisions that identifies whether a good, service or asset meets a need, and an information-gathering exercise about the choices available to form preferences about the choices." (GPN)

Choice Experiments

Choice experiments "test assumptions about human behavior and decision making against standard economic precepts." (GPN) "They estimate economic values for virtually any ecosystem or environmental service by asking people to make tradeoffs among sets of ecosystem or environmental services or characteristics. Choice experiments do not directly ask for willingness to pay-this is inferred from tradeoffs that include cost as an attribute." (http://www.ecosystemvaluation.org/contingent_choice.htm)

Combined Revealed and Stated Preference

Combined Revealed and Stated Preference uses the combination of Revealed and Stated Preference, often in a random utility framework, to determine the value of a certain ecosystem good or service. See below for definitions of Revealed and Stated Preference methods.

Contingent Valuation

A method, usually in the form of a survey questionnaire, of eliciting values for environmental goods and services based upon hypothetical situations. The Contingent Valuation Method (CVM) may be the only means of estimating the passive or non-use values for environmental goods/services.

Damage Assessment Model

The Damage Assessment Model is much like the Avoided Cost Method. The Damage Assessment model uses a damage function to relate a given level of emissions or discharges to the appropriate environmental or social costs. (GPN)

Discrete Choice

Discrete Choice Method uses models of consumer choice in which the good or alternative chosen by the consumer is available only in discrete (integer) units. (GPN) For example, discrete choice can be useful in determining the relative preferences of beach runners for different route characteristics, e.g., separate path, compact sand, or hills. One advantage of discrete choice models over other methods is that the tradeoffs between attributes can be quantified (for example, a change in sand quality from "fair" to "good" can be equated to a travel time improvement of X minutes). (http://www.tfhrc.gov/safety/pedbike/vol2/sec2.5.htm)

Hedonic Pricing Method

The Hedonic Pricing Method assesses the value of an environmental feature (clean air, clean water, serenity, view) by examining actual markets where the feature contributes to the price of a marketed good. For example, using the hedonic pricing method one could determine the contribution of an ocean view, by looking at the contribution of ocean views to property values. The contribution of the environmental good is usually determined by a regression of the price of the marketed good on attributes of the good, including the environmental attribute in question. (http://www.ecosystemvaluation.org/hedonic_pricing.htm)

Implicit Valuation

Implicit valuation is valuation of those costs and benefits that are not directly considered by producers or consumers but are, nevertheless, a cost/benefit of production or consumption. (GPN)

Random Utility Model

The Random Utility Model (RUM) is a model of consumer choice in which the consumer is assumed to have perfect discrimination capability between goods or activities in order to maximize their 'utility' (relative attractiveness of competing alternatives). However, generally the analyst has incomplete information and must account for uncertainties such as unobserved alternative attributes, unobserved individual attributes, measurement errors or proxy, and instrumental variables. (http://roso.epfl.ch/mbi/papers/discretechoice/node9.html)

Referendum Method

The Referendum Method is "a survey method commonly used in contingent valuation surveys in which the respondent is asked to respond 'yes' or 'no' to a hypothetical tradeoff between some amount of environmental good or service and something else of value (especially money)." (GPN)

Revealed Preference

Revealed Preference is "an approach that is used to identify the underlying preferences, and thus demands of individuals, based upon the choices each reveals in their consumption. Thus, if a bundle of goods A is bought when another bundle of goods B is available and affordable, then bundle A is revealed to be preferred to bundle B." (GPN)

Stated Preference

Stated Preference is "the relative economic desirability of different goods (or combinations of goods) as expressed by an individual." Stated preference methods often use discrete choice methods to model stated preferences for alternative goods or environmental scenarios. Stated and revealed preference methods may be combined (see above). (GPN)

Travel Cost Method

The Travel Cost Method "estimates economic values associated with ecosystems or sites that are used for recreation. It assumes that the value of a site can be deduced from how much people are willing to pay to travel to visit the site." (http://www.ecosystemvaluation.org/travel_costs.htm)

NOTE: (GPN) references in regard to the above definitions were obtained from:
Grafton, R.Q., Pendleton L.H., and Nelson H.W. 2001. A Dictionary of Environmental Economics, Science, and Policy.Edward Elgar, Northhampton, MA.

updated 19-Sep-2007