In learning about environmental issues at the forefront of modern times, it seems there is no field too large or small to be significant to the discussion. Population, health, pollution, food: everything plays its own role. Economics is often at the helm, and this week an interesting part of a seminar lecture was devoted to assessing a person’s willingness to pay for ecosystem services, a topic I’ve blogged about before.
The valuation of goods is typically assessed by “revealed preferences,” or those values that can be proven by actual behavior. For example, market prices or replacement costs can be measured in the dollars and cents that people actually pay. “Stated preferences,” however, are based on contingent valuation, or valuation of non-market resources, such as those that the environment provides. These are values that people decide upon hypothetically. Things get a little tricky when trying to price things that one doesn’t have to pay for in the real world, like clean air. And they get even trickier when people are surveyed about their willingness to pay, a survey being the most common form of contingent valuation. Problems faced by environmentalists often include trying to inform a consumer or a stakeholder of the value of an ecosystem without exaggeration, or dealing with what is called the “warm-glow effect,” wherein people overstate their willingness to pay because, simply put, it feels good to say so. This effect is the same phenomenon that fuels charitable giving, and skews responses to surveys where the person answering has nothing at stake by answering more altruistically but that old fuzzy feeling.
Take a look at the video below which describes the warm-glow effect on Australia’s recycling industry.