429. The value of a non-market value
We have a new paper out on the benefits and costs of using non-market valuation to monetise the non-financial benefits generated by environmental projects.
I will probably unpack aspects of the paper in future posts, but for now here is the abstract and a link to the paper.
Abstract
Information on non-market values has the potential to improve decision making but approaches to measure these values are costly and may be inaccurate. This study develops a Bayesian value of information (VOI) model to evaluate when and if the benefit of conducting a non-market valuation (NMV) study exceeds the cost, and which method of those considered delivers the highest expected net benefit. The approach is illustrated using a water quality improvement decision, with VOI estimated for stated preference, revealed preference and benefit transfer methods, the first two implemented at varying degrees of best practice. Information on the anticipated accuracy of each valuation method is derived via structured expert-elicitation. Results show that the net VOI from NMV studies varies widely and depends on multiple factors, including project scale, the quality of existing knowledge, the accuracy of NMV methods, the type of values measured (e.g., use versus nonuse values) and the costs of applying each method. Findings suggest that familiar narratives regarding the value of NMV estimates may be too simplistic, suggesting that a more nuanced approach to study application is warranted. Although demonstrated for one case study, the approach can be adapted to many decision settings.
Further reading
Pannell, D.J., Johnston, R.J., Burton, M.P., Iftekhar, M.S., Rogers, A.A., and Day, C. (2025). The value of a value: The benefits of improved decision making informed by non-market valuation, Journal of Environmental Economics and Management DOI: 10.1016/j.jeem.2025.103148 Full paper available here.
Of course if there is no formal institution in place to actually utilize those values they have even less value!
Thanks Peter. Yes, the analysis is predicated on the assumption that the information does actually get used to inform a decision about whether to fund a project. As we say in the paper, “In cases where policy makers do not make decisions using BCA that includes NMV, our results are best interpreted as identifying potential VOI if they were to do so.” If the information is not used, then it has no value, within the definition of information value that we have used.
An implication of our results is that decision makers not using new NMV results is not necessarily a problem, if the context is such that it would have no value anyway. Another is that, if efforts are made to increase the usage of NMV results, they should be targeted to contexts where the potential value of information is high.