(Non-market) Valuation methods – Revealed preference

[SOURCE: Glanz A and Knapp M (2017) Understanding substantive and theoretical issues in long-term care. Glossary of key terms. From: Social Protection Investment in Long-Term Care Project, HORIZON 2020 - Grant Agreement No 649565. European Union. (The resource is accessible here)]

Revealed preference techniques examine the way in which people reveal their preferences for goods or services through market production and consumption. They also explicitly or implicitly examine the prices that are therefore given to these goods. Where direct markets for goods or services exist, the value that people place on it is revealed directly using market prices, either for that or a similar good (i.e. substitute prices). Where an impact causes a change in production, then effect on production or change in productivity can be used (Natural Capital Coalition 2016).

Within these techniques, values can also be revealed by analysing data on the time and cost incurred to visit (say) the facility in question (the travel cost method). Alternatively, they can be based on analysing how the price of an asset changes with different attributes, such as housing prices for access to favoured schools, ecosystems view, or the number of bedrooms (called hedonic pricing). This approach can also use wage differentials between similar jobs to value (say) environmental quality differences between regions.

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