Concept Architecture
Concept
Theoretically, Contingent Valuation is a stated preference method used to estimate the monetary value individuals place on healthcare interventions, health outcomes or public goods by asking their willingness to pay or willingness to accept within a hypothetical market. It is based on welfare economics and utility theory, recognising that values for non-market goods can be elicited directly from individuals when market prices do not exist. The method exists to estimate economic benefits for use in cost-benefit analysis.
Mathematically, Contingent Valuation represents an individual's utility as a function of income and the provision of a healthcare good or service. Willingness-to-pay or willingness-to-accept values are estimated from responses to hypothetical valuation questions using econometric models.
In practice, Contingent Valuation is implemented through structured surveys in which respondents state their maximum willingness to pay or minimum willingness to accept compensation for changes in health or healthcare services. Responses are analysed using regression models to estimate mean or median monetary values for use in economic evaluation and health policy.
Purpose
Used to estimate willingness to pay for healthcare interventions, value non-market health benefits, support cost-benefit analysis, quantify patient preferences, and inform healthcare policy and resource allocation.
Mathematical Formulae
Primary Formula
Indirect utility function:
U = V(Y, Q) + �
Where:
- U = Utility
- Y = Income
- Q = Health or healthcare good
- � = Random error term
Willingness-to-pay is obtained as the income change that leaves utility unchanged after a change in Q.
Supporting Formulae
For dichotomous choice contingent valuation:
P(Yes) = 1 / (1 + exp[?(� + ?B)])
Where:
- P(Yes) = Probability of accepting bid B
- B = Bid amount
- �, ? = Estimated parameters
Related Mathematical Methods
- Welfare Economics
- Random Utility Theory
- Logistic Regression
- Maximum Likelihood Estimation
- Cost-Benefit Analysis
Example
A survey asks respondents whether they would pay �40 per year to fund a new national cancer screening programme.
Responses from 2,000 participants are analysed using logistic regression to estimate the probability of accepting different bid amounts. The estimated mean willingness to pay is �57 per person per year, which is used to estimate the societal benefits of the programme.
Excel Implementation
| Function | Example Formula | Health Economics Application |
|---|---|---|
| EXP | =1/(1+EXP(-(B2+C2*D2))) | Calculate the predicted probability of accepting a bid amount. |
| AVERAGE | =AVERAGE(B2:B1000) | Estimate the mean willingness-to-pay from survey responses. |
| LINEST | =LINEST(Y_range,X_range,TRUE,TRUE) | Perform exploratory estimation before specialised econometric analysis. |
VBA (Optional)
Automate the preparation of contingent valuation survey data and generate datasets for econometric estimation.
Sources
- Mitchell RC, Carson RT. Using Surveys to Value Public Goods: The Contingent Valuation Method. Resources for the Future.
- Hanemann WM. Welfare Evaluations in Contingent Valuation Experiments with Discrete Responses. American Journal of Agricultural Economics. 1984.
- Bateman IJ, Carson RT, Day B, et al. Economic Valuation with Stated Preference Techniques: A Manual. Edward Elgar.
- Drummond MF, Sculpher MJ, Claxton K, Stoddart GL, Torrance GW. Methods for the Economic Evaluation of Health Care Programmes. Oxford University Press.
Related Concepts (2)
Library
Publications
2
NICE DSU Technical Support Document 10: The Use of Mapping Methods to Estimate Health State Utility Values — Longworth & Rowen, TSD 10 ed., 2011 (NICE Decision Support Unit (University of Sheffield))
Guidance on mapping (cross-walking) from condition-specific or non-preference-based measures onto generic preference-based measures such as EQ-5D to estimate utility values when direct data are unavailable.
NICE DSU Technical Support Document 11: Alternatives to EQ-5D for Generating Health State Utility Values — Brazier, Rowen, TSD 11 ed., 2011 (NICE Decision Support Unit (University of Sheffield))
Guidance on alternatives to EQ-5D — including SF-6D, HUI, condition-specific preference-based measures, direct valuation and vignette methods — for generating health-state utility values.
Frequently Asked Questions (6)
What is contingent valuation?
A stated preference method that elicits willingness to pay for a good or outcome by describing a hypothetical scenario and asking for a monetary value.
Source: Mitchell & Carson 1989
How is the contingent valuation question put?
A scenario is described setting out the good or change to be valued, how it would be provided, and how the respondent would pay for it, and a monetary value is then elicited. Open questions ask directly what the respondent would pay. Bidding sequences start from an amount and adjust. Payment cards offer a range to choose from. Referendum formats ask whether the respondent would accept a single stated amount, which resembles a real decision most closely and requires the largest sample.
Source: Mitchell & Carson 1989
What is scope insensitivity in contingent valuation?
It is the finding that stated values often change little when the quantity of the good is varied substantially, so respondents offer similar amounts for saving a few thousand birds and for saving many times that number. If values do not respond to how much is being provided, they cannot be measuring the quantity in question, which is the most serious charge against the method. Defenders argue that careful scenario design reduces the effect and that some insensitivity reflects genuine features of preferences.
Source: Diamond & Hausman 1994
What guidance emerged from the disputes over contingent valuation?
A panel convened to assess the method after its use in environmental damage litigation concluded that it could produce usable estimates under demanding conditions, including a referendum format, in-person administration, a clear and plausible scenario, an explicit reminder of the respondent's budget and of substitute goods, and a scope test built into the design. The recommendations set a standard many studies do not meet, and the gap between best practice and common practice remains the main reason results vary.
Source: Arrow et al. 1993
What are protest responses in contingent valuation?
Some respondents state a zero or refuse to answer not because the good is worthless to them but because they object to the premise, commonly that health care should be paid for at the point of use or that responsibility lies with government. Treating these as genuine zeros understates value; discarding them removes people whose views are systematically different. The usual approach identifies them through follow-up questions about the reason and reports results both with and without them.
Source: Mitchell & Carson 1989
Why is contingent valuation used less in health than elsewhere?
Because willingness to pay is bounded by ability to pay, so the same health improvement is valued more highly in a richer respondent, which sits badly with the principle that health gains count equally. Many respondents also find the exercise objectionable when applied to their own or others' health, which produces protest responses at rates higher than in other fields. Cost-effectiveness methods avoid both problems by valuing health in its own units, at the cost of being unable to compare across sectors.
Source: Drummond et al. 2015
Trust Record
Verified by Dr Darrin Baines
British health economist
Professional identity: darrinbaines.org
Verification date: 31 Jul 2025
Content version: 1.0.0
Canonical Identity
- Term code
- HE-EE-CBA-012
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