Last year when my colleagues and I published a paper on contingent valuation in the Journal of Real Estate Literature, I posted a link to the paper in case any of my friends would like to read it. While some congratulated me on the publication, most confessed that they had not actually read the paper because it sounded “so technical.” While the contingent valuation method (CVM) may sound overly complicated (and in fairness, it does take time and experience to utilize the method correctly), the concepts of CVM are simple to understand. So, I will start here with the basics for those who are new to the method, and in later posts we will discuss some of the more technical details.

Let’s start by considering each component of CVM individually and then build from there. First, valuation is simply the act of answering the question, “what is the value of a given item?” For example, we might want to determine the value of a single-family home. Next, something contingent is conditional, or dependent on something else. A good way to think about contingent is with the following example: “If it rains we will go to a movie, and if it doesn’t we will go for a hike.” In this example, whether we hike or go to a movie is contingent on whether or not it rains. Now we add the adjective “contingent” to valuation and we can ask, “What is the value of this house contingent on certain factors, such as the presence of contamination?” For themethod, we are using a survey to obtain the information we need to answer the valuation question, and again, that value is contingent on the scenarios presented. In essence, any survey is simply asking questions and recording answers, with some analysis and reporting once the answers are received.

To make this process work using CVM, we give survey participants a set of conditions and then ask them what they would be willing to pay for a house contingent upon certain conditions. Alternatively, the respondents could be asked what payment/discount they would be willing to accept from others for this house based on the given conditions. The conditions are set to reflect the situation that needs to be measured. If, for instance, you are trying to find out what someone would be willing to pay (or willing to accept) for a house with a contaminated drinking water well, the survey would include that specific condition.

When developing a survey, certain scientific processes should be followed. There is a multitude of research and literature on survey research, and an in-depth explanation would fall outside the scope of this introduction. For now, I have simply introduced the basic concepts, and my colleagues and I will build on this in forthcoming posts.

– Sarah J. Kilpatrick