Modelling the Non-Market Environmental Costs and Benefits of Biodiversity Projects Using Contingent Valuation Data

CV studies rarely ask willingness to accept (WTA) questions, yet there are a range of environmental projects where there are likely to be potential losers as well as gainers. This paper presents evidence from six biodiversity projects that the inclusion of contingent compensation payments from those respondents who preferred the status quo can substantially reduce net project benefits, even when the proportion of losers is relatively small. A statistical model for estimating the mean welfare measure from dichotomous choice data which allows for both positive WTP, zero WTP, and WTA is described. As many environmental projects are likely to create both gainers and losers, we recommend that CV analysts give serious consideration to the collection and analysis of WTA data otherwise they risk generating biased estimates of project benefits.