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Chapter 4: The Use of Contingent Valuation in Benefit–Cost Analysis
4 The use of contingent valuation in beneﬁt–cost analysis John C. Whitehead and Glenn C. Blomquist 4.1 Introduction Beneﬁt–cost analysis is policy analysis that identiﬁes whether a government project or policy is eﬃcient by estimating and examining the present value of the net beneﬁts (PVNB) of the policy, PVNB ϭ ͚ (1t ϩ r)tt, tϭ0 T B ϪC where Bt are the social beneﬁts of the policy in time t, Ct are the social costs of the policy in time t, r is the discount rate and T is the number of time periods that deﬁne the life of the policy. If the present value of net beneﬁts is positive, then the program yields more gains than losses and the program is more eﬃcient than the status quo. The contingent valuation method (CVM) is a stated preference approach for measuring the beneﬁts, or, in the case of beneﬁts lost, the costs of the policy. The purpose of this chapter is to provide an overview of the role the contingent valuation method plays in beneﬁt–cost analysis. We begin with a brief discussion about the role of beneﬁt–cost analysis in policy making, the steps of a beneﬁt–cost analysis, and how contingent valuation ﬁts into this framework (see Boardman et al., 2001 and Johansson, 1993 for introductory and advanced treatments). Next, we discuss a range of issues for which the contingent valuation method is an...
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