WTP As A Measure Of Environmental Values

In the language of economists, “willingness to pay” describes the amount of money a person would sacrifice in order to obtain an additional unit of utility. In environmental economics, specifically, WTP is used to reflect the maximum amount a person would give up in exchange for an increase in an environmental “good” (for example, a one-unit increase in the cleanliness of a lake) or the minimum amount a person would accept in exchange for an environmental “bad” (for example, a one-unit increase in air pollution). Certainly, WTP can be a useful tool when used during standard cost-benefit analysis. However, the specific use of WTP as a measure of environmental values is flawed in several respects: it is dependent on the public’s awareness

An old adage asks: “If a tree falls in the forest, but no one is around to hear it, does it make a sound?” Similarly, in pondering the effectiveness of WTP, one could ask: “If a tree is to be cut down, but no one is aware of its impending loss, is anyone willing to pay to save it?” The answer, of course, is no. WTP depends on the public salience of a particular environmental issue, and this is deeply problematic. As economist Allen Kneese notes, WTP assumes that “all participants in the market” are “fully informed as to the qualitative and quantitative characteristics of goods and services,” a premise that he further notes is “tenuous at best” (qtd. in Sagoff 33). It may be very difficult for most people to make

While revealed preferences remove all possibilities of deliberately misleading preference statements, there are other drawbacks. It is very difficult to accurately extrapolate a person’s behaviour in a marketplace into a clear illustration of the valuation of their preferences. Again, it is best to illustrate this with an example. One technique used by some economists to estimate the value people place on national parks is to examine the costs they incur (in both money and opportunity costs, such as time) in order to visit them. If all costs of a family trip to a national park total $500, that family must value the benefits they receive from visiting the park at at least $500. Or do they? Perhaps the family derives their entire benefits of the trip from the time spent together, as opposed to the destination itself. Perhaps a park visit is equally substitutable with a trip to Disneyland, were the park to no longer exist. And would it not be ridiculous to conclude that a national park is not valued by society if no one were to visit it? It is often very difficult to derive a person’s or communities’ true WTP from their so-called revealed