It’s Deliberation, Stupid!

Economic valuation, attaching price tags to nature, is considered wrong by many people. The reasons are divergent, ranging from complete rejection of the idea that the value of nature could be reduced to a price to critique of specific valuation methods, especially those based on questionnaires in which people are asked about their willingness-to-pay for an environmental good in a hypothetical market. Except for the general rejection of the economic approach, which I can understand but do not accept, many of the criticisms can be approached and incorporated. A particularly promising path towards “better” economic valuation is the still seldom applied class of deliberative valuation methods.

As I outlined in an earlier post, there exist many different methods of economic valuation of environmental goods. They are commonly divided in three broad classes: market-based methods, revealed preference methods and stated preference methods. The first use market prices for environmental goods or their substitutes directly. Revealed preference methods infer economic values of environmental goods indirectly from data on specific markets, mainly those for real-estate and tourism. Stated preference methods are the only ones that enable one to account all categories of economic values of the environment–including the so-called non-use values, i.e., those not resulting from broadly understood usage of ecosystems by humans, but mainly from the utility people draw from knowing that these ecosystems actually exist. Stated preference methods are also arguably the most controversial class of methods, as they are based on hypothetical markets for such things as the aesthetics of an ecosystem: in a nutshell, the procedure is to confront ordinary people with questionnaires in which they are asked how much they would be willing to pay for a change in the state of an environmental good or service. Many people find such an approach appalling. Others do not reject it altogether, but point to a number of problems related to the elicitation of values for environmental goods through questionnaires.

Most arguments used in the critique of economic environmental valuation via stated preference methods can be summarized in two clusters, which might be called political-ethical and psychological concerns, respectively. The most important criticism based on political-ethical considerations might be called the consumer-citizen-dichotomy. Contingent valuation and other valuation methods based on the construction of hypothetical markets normally are used to elicit only individual (or consumer) preferences. They do not allow for the inclusion of other-regarding preferences or interests of future generations and nature (the so-called “silent voices”). Meanwhile, it might well be argued that such considerations should be taken into account when possibly irreversible decisions regarding ecosystems are to be made. Another political-ethical issue regards the inclusion of different axiologies–often, economic approaches are accused of value monism, as they are solely concerned with monetary values. A related notion in this debate is “incommensurability”–according to critics, nature’s value(s) cannot be traded-off against dollars or euros, as they are incommensurable.

Psychological concerns have mainly to do with the broad issue of preference formation. Conventional economics is based on the assumption that people hold pre-defined, complete orderings of preferences for every good and service they might have to deal with. This is obviously wrong, for many reasons. First, completeness of preference orderings has been shown to be a problematic assumption, although it has little importance in the context of environmental valuation. Second, many psychologists argue that people may have general attitudes–but they do not have pre-existing specific preferences. Additionally, both attitudes and preferences are the result of social processes, they cannot be viewed in isolation from the social environment of their holders. To make things even more problematic, environmental public goods exhibit high levels of unfamiliarity and complexity, so preference formation is a difficult task for laypeople.

In practice, the above-sketched limitations of stated preference methods lead to a widespread problem of “protest votes”, i.e., the refusal by many respondents to give meaningful answers to the value-elicitation questions. Environmental economists have been criticised for their frequent dismissal of such protest votes–they are mostly treated as “irrational” and intractable and drop out from the analysis. This obviously puts the validity of those studies’ results into question.

What might be the solution? Well, answers to that questions vary. As already mentioned, some people reject the idea of attaching monetary values to nature altogether. Others, including some economists, think that at least stated preference methods are useless. Still others, most of them economists who actually conduct valuation studies, argue that the critics’ arguments are either void or can be dealt with by minor changes in application. And then, finally, there is a group of economists who argue in favour of the replacement of conventional stated preference methods with deliberative methods. I belong to the latter group.

The idea to include deliberative elements in economic valuation exercises is grounded in the hope to overcome most of the problems conventional valuation methods face (see above). First, deliberation is meant to ease the process of preference formation, both by giving participants more time to think and the opportunity to ask questions and to discuss, and by accounting for the fact that preference are formed as part of social interactions, not in isolation. Second, it is hoped that deliberation can help to broaden the axiological base of economic valuation–as argued by theorists of deliberative democracy, discourse allows to take into account “silent voices”, i.e., the interests of future generations and nature (if this is possible at all), to express values in multiple categories (including non-economic ones), and, more generally, to increase legitimacy of decision-making processes. These are features that many valuation practitioners are interested in.

Here, too, there exist two groups. One group, including such a renowned ecological economist as Richard Howarth (editor-in-chief of the Ecological Economics journal), would like to adopt ideas developed by political scientists who identify themselves with the theory of deliberative democracy, and abstain from eliciting individual preferences altogether–their deliberative valuation would function in a way similar to court juries: a small group of citizens would deliberate upon an issue and then collectively decide how much something is “worth” (it is unclear, however, why the formulation of value in a metric such as money would then be still necessary). The other group envisions (and applies) an approach that combines deliberative elements with conventional economic valuation methods. This is mainly based on the conviction that both social and individual values are important, and that some social-choice mechanism is needed even for deliberative institutions. Stated preference methods–especially choice experiments–are a viable option.

What does deliberative monetary valuation look like? A number of citizens is invited to take part in valuation workshops. As statistically representative samples are impossible for practical reasons (the main downside of deliberative methods is high costs of implementation), attempts are made to assure “political representativeness”, a concept developed by theorists of deliberative democracy. As one of them put it:

Depending on the objectives of decision makers and the regulatory context […], it may be preferred to have: (a) 200000 people express their somewhat informed preferences through a referendum (broad and shallow), (b) 2000 people express their moderately informed preferences through a survey, or (c) 20 people express their very well-informed preferences through a [deliberative] process (narrow and deep). [Gregory et al. 2012]

There are two variants of political representativeness: either participants are selected at random and asked to represent society in their decisions, which is the approach behind court juries, or the selection is based on some criteria as the coverage of most important social strata etc. In effect, deliberative monetary valuation tries to make its results as robust as possible: participants are mostly selected from different strata (if possible), but at the same time there is more than just one group involved, so as to at least approximate statistical representativeness. Typically, a deliberative valuation study consists of around 10 workshops with 10-15 participants in each. Additionally, there still is the possibility to ask participants to decide as representatives of the society (here, many practitioners are somewhat “schizophrenic” and stick to the more traditional focus on individual preferences when it comes to value elicitation).

In a typical workshop, participants are presented with the issue at stake–say, a managed forest is planned to be turned into a protected area. The respective decision is to be facilitated by the results of the valuation study. After a presentation brief enough to prevent cognitive overstrain but thorough enough to facilitate the formation of informed preferences, participants are urged to ask questions and to discuss the issue within the group. After approximately an hour of information and deliberation, they are handed out questionnaires in which they are asked, among others, how high their willingness-to-pay for the planned change in the ecosystem in question is. As in conventional stated preference methods, two main approaches are available to frame the willingness-to-pay question. In contingent valuation, the respondent is simply asked “How much would you be willing to pay for the creation of a national park in forest area X?”. In choice experiments, she is confronted with a number of “choice cards”, each of which contains 3-5 options. Each option is defined in terms of attributes (mostly around 5), which describe the ecological/aesthetic/economic consequences of the envisioned change in the ecosystem. For a forest ecosystem, possible attributes might be number of species, amount of dead wood, agricultural area lost or implementation cost. The attribute expressions vary for each option. Using fancy statistical methods (going by the name of discrete choice models), it is then possible to calculate the weights people assign to the different attributes–including the cost attribute, from which the implicit willingness-to-pay may then be calculated.

To date, the number of deliberative monetary valuation studies is, to my knowledge, still in a double-digit range. Reluctance of environmental economists towards this approach has three main reasons: first, it is a serious departure from conventional economic theory, particularly from the assumption of existing preferences. Second, statistical representativeness cannot be assured in most cases. Third, deliberative valuation is expensive. Still, I believe that if economic valuation has any sense at all, it only has sense within a deliberative framework. Deliberation has the potential to overcome many problematic issues related to economic valuation. It is not a panacea, of course–for instance, it does not solve the “Oppenheimer dilemma”. But it is an approach certainly worth consideration. I risk this valuing assertion without having tested it in a choice experiment.

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