Concept Architecture
Concept
Theoretically, the Contingent Valuation Method is a stated preference valuation method used to estimate the monetary value individuals place on healthcare interventions, health outcomes or public goods by eliciting their willingness to pay or willingness to accept within a hypothetical market. It is based on welfare economics and utility theory, recognising that non-market goods can be assigned economic value through carefully designed surveys. The method exists to estimate monetary benefits for use in cost-benefit analysis when market prices are unavailable.
Mathematically, the Contingent Valuation Method represents 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 survey responses using econometric models, allowing monetary valuations to be derived from observed preferences.
In practice, the Contingent Valuation Method is implemented through structured questionnaires using open-ended, payment card, bidding game or dichotomous choice formats. Survey responses are analysed using regression-based econometric methods to estimate mean or median monetary values for application 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 and public preferences, and inform healthcare resource allocation.
Mathematical Formulae
Primary Formula
U = V(Y, Q) + �
Where:
- U = Utility
- Y = Income
- Q = Health or healthcare good
- � = Random error term
Willingness-to-pay is the income change that maintains constant utility following 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 contingent valuation survey asks respondents whether they would pay �60 per year to fund a national diabetes prevention programme.
Responses from 1,500 individuals are analysed using a logistic regression model. The estimated mean willingness to pay is �72 per person per year, providing an estimate of the programme's societal monetary benefit for use in cost-benefit analysis.
Excel Implementation
| Function | Example Formula | Health Economics Application |
|---|---|---|
| EXP | =1/(1+EXP(-(B2+C2*D2))) | Calculate predicted probabilities for dichotomous choice models. |
| AVERAGE | =AVERAGE(B2:B1500) | Calculate the mean willingness-to-pay from survey responses. |
| LINEST | =LINEST(Y_range,X_range,TRUE,TRUE) | Perform preliminary regression analysis before specialised econometric modelling. |
VBA (Optional)
Automate the preparation and summarisation of contingent valuation survey data for econometric analysis.
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
1
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 the contingent valuation method?
The formal methodology underlying contingent valuation surveys, covering scenario design, elicitation format, and survey administration procedures.
Source: Mitchell & Carson 1989
How does the contingent valuation method define the good being valued?
The scenario must specify what would be provided, to whom, when and with what degree of certainty, in terms a respondent can picture without specialist knowledge. Ambiguity at this stage propagates into every subsequent answer, since respondents value whatever they understood rather than what the analyst intended. The description must also make the quantity explicit, because a method that cannot show values responding to quantity cannot claim to be measuring the good at all.
Source: Mitchell & Carson 1989
Why does the payment vehicle matter in the contingent valuation method?
The vehicle is the mechanism through which the respondent would pay, whether taxation, an insurance premium, a charge at the point of use or a one-off contribution, and stated values change substantially with it. Some vehicles attract objection on principle rather than on amount, which generates refusals unrelated to the value held. The vehicle should therefore be plausible for the good in question and consistent with how it would really be funded, and the choice should be reported since it is part of what was valued.
Source: Mitchell & Carson 1989
What does the contingent valuation method require of survey administration?
Guidance developed after the method was contested in litigation favours administration in person or by another mode allowing the scenario to be explained, a sample drawn to represent the population holding the value, and a design that reminds respondents of their budget constraint and of substitutes available. It also favours a format asking whether the respondent would accept a single stated amount, since that resembles a real decision, at the cost of requiring a much larger sample than open questions.
Source: Arrow et al. 1993
How is validity tested in the contingent valuation method?
Three checks are conventional. Values should move with the quantity of the good, which is the test the method most often fails. They should relate to income, to use of the service and to other characteristics in the directions theory predicts. And where an external benchmark exists, such as an observed market price or a value from another method, the estimates should be comparable. Passing these does not establish that the values are correct, and failing any of them is strong evidence that they are not.
Source: Carson 2012
What should a contingent valuation method study report?
The full scenario text, the payment vehicle, the elicitation format and any starting amounts, since each of these shapes the result and none can be inferred from a summary. Response rates and the treatment of refusals and objections should be given, with results reported both including and excluding them. The distribution of stated values should be shown rather than the mean alone, because these distributions are heavily skewed and frequently contain a substantial group stating zero.
Source: Mitchell & Carson 1989
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-013
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