Economic tools obscure key questions
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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
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
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