A European Perspective
New Horizons in Environmental Economics series
Edited by Ekin Birol and Phoebe Koundouri
Ekin Birol and Phoebe Koundouri BACKGROUND The Choice Experiment Method (CEM) is a Stated Preference Method (SPM) of environmental valuation, adopted from marketing and transport economics literature (see for example, Louviere and Hensher, 1982; Louviere and Woodworth, 1983; Louviere 1988; Louviere 1992). Similarly to the other SPM, the Contingent Valuation Method (CVM), CEM can elicit the total economic value (that is, both use and non-use values) of nonmarket environmental goods, which can in turn be used to inform the design of eﬃcient and eﬀective policies for their sustainable management and conservation. The CEM has a theoretical grounding in Lancaster’s characteristics theory of value (Lancaster, 1966), and an econometric basis in models of random utility (Thurstone 1927; Manski, 1977). Consequently, this method is based on the notion that any environmental good can be described in terms of its characteristics, or attributes, and the levels that these attributes take (with or without a policy change). Once attributes and their levels are identiﬁed, experimental design theory is used to generate diﬀerent proﬁles of the environmental good in terms of its attributes and the levels these attributes take. These proﬁles are then assembled in choice sets which are presented to the respondents, who are asked to state their preferences on multiple occasions. Hanley et al. (1998) deﬁne the CEM as a highly ‘structured method of data generation’. One of the attributes which is typically included in a choice experiment study is a monetary cost or beneﬁt...