Why is it Difficult to Put a Value on Irreplaceable Heritage Assets? Compare Revealed Preference and Contingent Valuation Methods in the Valuation of Such Assets.
The process of valuation aims to place a monetary on environmental impact. In this essay I will first outline some core concepts involved within the processes of both Contingent Valuation (CV) and Revealed Preference (RP) methods of valuation. I will then proceed to introduce the CV method, followed by various RP methods. Following on from this will be a comparison of the two types of valuation and ultimately an evaluation of both.
An irreplaceable heritage asset refers to a place of huge historical or social importance, a place that some might call a ‘national treasure’. Examples within England include Stonehenge, The Royal Botanical Gardens, The Tower of London and The City of Bath. It should be clear to see that almost anything, from a pile of rocks to an entire city, can be classified as a heritage asset. It should also be clear that the benefits that people draw from these assets are not all the same. Broadly, we can categorise these benefits into ‘use value’ and ‘non-use’ value. The use value is the value which an individual places upon the direct use of a resource, in this case an irreplaceable heritage asset. Non-use values “measure aspects of the resource's value to individuals which are not linked to actual resource use by the individual” (Cicchetti and Wilde 1992, p1121). These non-use values are particularly prominent when taken in the context of irreplaceable heritage assets: many people may never want to go and visit Stonehenge or the Tower of London, but if these sites were destroyed people would incur some disutility from the notion that perhaps these assets benefited the nation as a whole, and as a result national pride is depleted. Therefore it is vital to have a precise estimate of the value that society places on heritage assets so as to be able to conduct a cost benefit analysis, and therefore aid the decision making process when coming to terms with potential environmental projects.
The CV method is a ‘stated preference’ method of valuation. It uses various types of elicitation methods to ask a specified population sample about their willingness to pay (WTP) for an increase in a certain resource or their willingness to accept (WTA) payment for a decrease in a certain resource. Put simply, a CV study is a survey asking people to put a monetary value on some sort of environmental asset. The main benefit in using a contingent valuation study when aiming to place a value on irreplaceable heritage assets is the ability to capture ‘non-use’ value. By asking a population sample whether or not they value the Tower of London, irrespective of whether or not they have ever made use of the site, the survey is clearly able to capture non-use value. CV surveys also provide theoretically correct WTP and WTA measures of utility change.
The revealed preference method is based on observation of consumer behaviour, and underpinning this method is the assumption that consumers who utilise a resource more place a higher value on it than consumers who use it less. There are various types of RP methods that can be employed. One method is the Travel Cost Method; this method is used to value the recreational benefits of environmental resources. The Zonal Travel Cost Method, credited to Hotelling, who argued that if you define a series of concentric zones around a target area and then observe and record the number of visitors from each zone, along with data on travel costs, this would provide enough information for an economist to be able to work out the consumer surplus which arises as a result of the availability of the resource. There are a few variations of the TCM, such as the Individual Travel Cost Method, however for the purpose of this essay they will not be discussed. Another type of RP method is the Hedonic Price...