Politicizing the Environment: (In)direct Inference, Rationality, and the Credibility of the Contingent Valuation Method

At the end of the 1950s, resource economists developed a method to derive demand functions for recreation sites from travel cost data for recreation planning purposes. Based on this work, a second, direct method of measurement was developed in the early sixties that became known as the contingent valuation method. Initially, this method asked respondents directly about their willingness to pay for a realistically described recreational amenity. When contingent valuation became used for valuation studies of environmental and health issues in a regulatory and legal framework, initial support for the method from resource and mainstream economists faded away, leading to a split in the profession between those who considered the method fit for this second purpose and those who considered this second use inappropriate and politically charged. Because much of this history has been told, including in this journal, the emphasis here is on the relation between indirect and direct inference pertaining to both methods, and the challenges that contingent valuation, as a method of direct inference, poses to the quality of a questionnaire and the possibilities of educating respondents in making a reasoned choice for the amenity on offer.