From Exxon to BP: Has Some Number Become Better Than No Number?

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2012-10-01
Authors
Kling, Catherine
Phaneuf, Daniel
Zhao, Jinhua
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Kling, Catherine
Distinguished Professor Emerita
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Economics
Abstract

On March 23, 1989, the Exxon Valdez ran aground in Alaska's Prince William Sound and released over 250,000 barrels of crude oil, resulting in 1300 miles of oiled shoreline. The Exxon spill ignited a debate about the appropriate compensation for damages suffered, and among economists, a debate concerning the adequacy of methods to value public goods, particularly when the good in question has limited direct use, such as the pristine natural environment of the spill region. The efficacy of stated preference methods generally, and contingent valuation in particular, is no mere academic debate. Billions of dollars are at stake. An influential symposium appearing in this journal in 1994 provided arguments for and against the credibility of these methods, and an extensive research program published in academic journals has continued to this day. This paper assesses what occurred in this academic literature between the Exxon spill and the BP disaster. We will rely on theoretical developments, neoclassical and behavioral paradigms, empirical and experimental evidence, and a clearer elucidation of validity criteria to provide a framework for readers to ponder the question of the validity of contingent valuation and, more generally, stated preference methods.

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This article is from Journal of Economic Perspectives 26 (2012): 3–26, doi:10.1257/jep.26.4.3. Posted with permission.

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Sun Jan 01 00:00:00 UTC 2012
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