Nonmarket Valuation

Overview

Nonmarket valuation is a method to estimate the value of goods and services that are not commonly bought and sold in markets. Whereas sales prices give very clear signals of the monetary value for goods and services that are routinely bought and sold, environmental project alternatives often must be converted and compared in monetary terms.

General Information

Nonmarket valuation determines a value for environmental outputs, such as a healthier ecosystem, an underwater reef viewshed, or a fish population that is less likely to become extinct, that can be factored into traditional economic cost-benefit analyses.
Specific economic tools can be used to estimate the economic value of environmental outputs. These tools include

  • Using surveys designed to help respondents assign values to nonmarket goods or services (e.g., contingent valuation method)
  • Studying market transactions that are influenced by the environmental good or service of interest (e.g., travel cost and hedonic pricing methods)
  • Adapting estimates of value developed for one study area for use in another (benefit transfer method)

The results of these techniques remain estimates and are fundamentally different than actual prices realized in the marketplace. The estimates can be used in economic analysis, but practitioners should pay careful attention to potential sources of error. In many cases, it is extremely difficult, if not impossible, to measure all the nonmarket values involved in a planning decision, and you should be careful to point out values that are left out the analysis.

Application

Nonmarket valuation can be used to estimate the monetary value of the resources of marine protected areas to help guide management decisions. If, for example, fishing practices are damaging to a coral reef, contingent valuation methods can be used to estimate the value of those damages for comparison to the cost to fishermen of restricting the damaging practices. If the value of the damages prevented can be shown to be greater than the value of the incomes that will be lost, this serves as a strong economic justification of the regulatory practice.

Nonmarket valuation can also be used to estimate users'  willingness to pay for access to a resource for use in establishing access fees or to set enforcement penalties at a level that will be an incentive for compliance. Also, nonmarket valuation may be used in education and outreach to demonstrate the significance of a resource to business-minded stakeholders who are more accustomed to economic analysis.

Strengths

  • Can be used to facilitate the comparison of the value of market and nonmarket goods and services

  • Can be used to estimate the value of almost anything

  • Results can be analyzed in a straightforward manner

  • Widely used and accepted for estimating total economic value

  • Can be used in conjunction with cost-benefit analysis

  • Provides information that can be used to justify complex management decisions

Limitations

  • Some methods can be difficult, time-consuming, and expensive to apply

  • Difficult to validate estimated values externally

  • Highly vulnerable to sampling and methodology errors; if "wrong" people are surveyed, the value of the resource may be highly over- or underestimated

  • Uses controversial techniques

  • Methods relying on surveys require a high level of specialized expertise to create valid questions

  • Need to accommodate a variety of factors

Examples and Case Studies

  • Willingness to Pay in Rocky Intertidal Ecosystems in Orange County, California
  • Cost Benefit Analysis

Related Partners

NOAA is a federal agency focused on the condition of the oceans and the atmosphere. It plays several distinct roles within the Department of Commerce.

Resources: Books and Publications

  • Bateman, I.J., and K. G. Willis.1999. Valuing Environmental Preferences: Theory and Practice of the Contingent Valuation Method in the U.S., EU, and Developing Countries. Oxford; New York: Oxford University Press.

  • Bjornstad, D. J. and J. R. Kahn. 1996. The Contingent Valuation of Environmental Resources: Methodological Issues and Research Needs.Cheltenham, UK; Brookfield, VT: Edward Elgar.

  • Champ, P.A., K. J. Boyle, and T.C. Brown. 2003. A Primer on Nonmarket Valuation. Dordrecht; Boston: Kluwer Academic Publishers.

  • Kopp, R.J., W.W. Pommerehne, and N. Schwarz. 1997. Determining the Value of Non-Marketed Goods: Economic, Psychological, and Policy Relevant Aspects of Contingent Valuation Methods. Boston: Kluwer Academic Publishers.

  • NOAA Coastal Ocean Program. 1995. Economic Valuation of Natural Resources: A Handbook for Coastal Resource Policymakers. Decision Analysis Series Number 5.

Resources: Websites

  • Ecosystem Valuation
    This link gives a complete overview of nonmarket valuation, includes case studies, and discusses the advantages and limitations of nonmarket valuation methods. This website is designed for noneconomists who need answers to questions about the benefits of ecosystem conservation, preservation, or restoration.

  • The Contingent Valuation Method
    This link, developed by East Carolina University, describes the contingent valuation method, explains how the results can be used to estimate benefits and costs, and provides an example of a contingent valuation survey.