Dear HCN,
As Colorado State
Professor John Loomis shows, contingent valuation can be a useful
tool to demonstrate how much we value “goods’ like clean air or
dam-free rivers (HCN, 9/18/95). Since the valuation we ordinarily
look to is that established by parties in mutually beneficial
transactions, goods that are not bought and sold may be
undervalued, as Loomis suggests Congress now underestimates the
worth of removed dams and reintroduced wolves. But this tool ought
to come with at least two warnings.
First, as
your article suggests, no one suggests that we value the
environment only as much as people are willing to pay for it;
nonetheless, monetary commodification has a disturbing way of
crowding out other ways of valuation. Yet, when I think about why I
like clean air, I don’t think in dollars.
Second,
economists have found that people value the same things differently
depending on whether they own them or not, a phenomenon termed
endowment effect. In one study, some college students were given
coffee mugs; others were not. When asked to place a price on the
same mugs, students who now owned the mugs yielded a price
significantly higher than the students who did not own them.
Neither price was “correct,” since the mugs are only worth an
exchange price.
Endowment effect’s implications
are important. Generally, we would agree to pay much less to remove
pollution and would demand others to pay more to create the same
pollution. As a result, one derives very different “prices’ for the
value of clean air or undammed rivers depending on who one assumes
has the right to pollute or dam. I understand from your article
that Professor Loomis asked people how much they would pay to
remove the dams; they would certainly ask for more money still if
they thought the river was free-flowing and might be
dammed.
The danger here is that economic tools,
like contingent valuation, with their apparent objectivity, can
obscure more fundamental normative questions. Who owns the Elwha
River? Who has the right to see it dammed or
undammed?
Robert
Mahnke
Tulsa,
Oklahoma
This article appeared in the print edition of the magazine with the headline Economic tools obscure key questions.
Republish our articles for free, online or in print, under a Creative Commons license.
