Valuing public goods is sometimes difficult due to the influences of hypothetical bias, and even a lack of historical pricing, but techniques have been established for estimating the value of these types of goods. Contingent Valuation and Willingness to Pay are the two biggest techniques for valuing public goods with Contingent Valuation being the biggest. The Contingent Valuation Method is used to estimate economic values for public goods and is used to estimate both use and non use values. For example, this method can be used by a university wishing to add a new varsity sports program to their athletic department, like a college football team. The Contingent Valuation Method can help determine if adding a football program is feasible, in terms of what the college football program is worth to a university, students, and other relevant stakeholders.
For instance, let's say the University of West Florida (UWF), which is located in Pensacola Florida, had a goal of adding a varsity football team to its athletic department and that UWF will allocate the costs to fund this football team for the next 10 years by adding $50 extra to all students when they register for the fall semester. Depending on the goals of UWF, this fee could disappear altogether within 10 years and simply be funded by general ticket sales, memorabilia sales revenue, and perhaps TV revenue, if the program is successful. Before the football program is actually established, the UWF athletic department needs to find out what the students actually think of this idea, mainly to see if adding a football program is worthwhile. This can best be completed by performing a survey to the UWF student body. Of course, hypothetical bias needs to be taken into account when performing these surveys. Significant difference between response to real and hypothetical valuation questions is often referred to as hypothetical bias. In other words, will the students really support paying this added fee if the football program is unsuccessful in terms of winning? Survey questions could be asked as follows:
How much would you be willing to pay in extra tuition costs to have a varsity football program for the 2012 academic year?
To ensure that this survey avoids respondents evoking hypothetical bias the survey should be done in person, with the following follow up questions:
Would you pay $50 extra for the extra benefit of having a varsity football program for the fall 2012 academic semester?
The respondents should be given all relevant information pertaining to the costs benefits of having this football program and the worst case scenarios associated with having this added program. Each student respondent should be asked this one last question:
Would you be willing to pay this extra fee without using any form of financial aid for each fall semester you are enrolled in classes at UWF?
This last question will help illustrate to the students that the student body is solely responsible for the football program, and is directly being paid for by the students. Thus, this question will help eliminate hypothetical bias from occurring in the student's responses.
News in Local and World Environmental Economics.
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