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Approximately 20 years ago, Peter Diamond and I wrote an article for this journal analyzing contingent valuation methods. At that time Peter's view was that contingent valuation was hopeless, while I was dubious but somewhat more optimistic. But 20 years later, after millions of dollars of largely government-funded research, I have concluded that Peter's earlier position was correct and that contingent valuation is hopeless. In this paper, I selectively review the contingent valuation literature, focusing on empirical results. I find that three long-standing problems continue to exist: 1) hypothetical response bias that leads contingent valuation to overstatements of value; 2) large differences between willingness to pay and willingness to accept; and 3) the embedding problem which encompasses scope problems. The problems of embedding and scope are likely to be the most intractable. Indeed, I believe that respondents to contingent valuation surveys are often not responding out of stable or well-defined preferences, but are essentially inventing their answers on the fly, in a way which makes the resulting data useless for serious analysis. Finally, I offer a case study of a prominent contingent valuation study done by recognized experts in this approach, a study that should be only minimally affected by these concerns but in which the answers of respondents to the survey are implausible and inconsistent.

A person may be willing to make an economic tradeoff to assure that a wilderness area or scenic resource is protected even if neither that person nor (perhaps) anyone else will actually visit this area. This tradeoff is commonly labeled “passive use value.” Contingent valuation studies ask questions that help to reveal the monetary tradeoff each person would make concerning the value of goods or services. Such surveys are a practical alternative approach for eliciting the value of public goods, including those with passive use considerations. First I discuss the Exxon Valdez oil spill of March 1989, focusing on why it is important to measure monetary tradeoffs for goods where passive use considerations loom large. Although discussions of contingent valuation often focus on whether the method is sufficiently reliable for use in assessing natural resource damages in lawsuits, it is important to remember that most estimates from contingent valuation studies are used in benefit–cost assessments, not natural resource damage assessments. Those working on benefit–cost analysis have long recognized that goods and impacts that cannot be quantified are valued, implicitly, by giving them a limitless value when government regulations preclude certain activities, or giving them a value of zero by leaving certain consequences out of the analysis. Contingent valuation offers a practical alternative for reducing the use of either of these extreme choices. I put forward an affirmative case for contingent valuation and address a number of the concerns that have arisen.

On March 23, 1989, the Exxon Valdez ran aground in Alaska's Prince William Sound and released over 250,000 barrels of crude oil, resulting in 1300 miles of oiled shoreline. The Exxon spill ignited a debate about the appropriate compensation for damages suffered, and among economists, a debate concerning the adequacy of methods to value public goods, particularly when the good in question has limited direct use, such as the pristine natural environment of the spill region. The efficacy of stated preference methods generally, and contingent valuation in particular, is no mere academic debate. Billions of dollars are at stake. An influential symposium appearing in this journal in 1994 provided arguments for and against the credibility of these methods, and an extensive research program published in academic journals has continued to this day. This paper assesses what occurred in this academic literature between the Exxon spill and the BP disaster. We will rely on theoretical developments, neoclassical and behavioral paradigms, empirical and experimental evidence, and a clearer elucidation of validity criteria to provide a framework for readers to ponder the question of the validity of contingent valuation and, more generally, stated preference methods.