Valuing Benefits and Costs 481All nonmarketed goods are difficult to value, including national security,
pollution, health risks, traffic congestion, even the value of a life. In the absence
of market prices, other valuation methods are necessary.DIRECT ELICITATION A straightforward way to find out what people really
want is to ask them. For instance, consider a program of subsidized “free” day care
for low-income, single parents. Cost estimates for such a program are available,
but the dollar value of benefits is more elusive. A direct approach is to identify
and survey the recipient population: “How much would 20 hours of day care per
week, located within 20 minutes of your residence, be worth to you? What about
40 hours per week?” The survey would inquire about a range of day-care options
as a way to gauge what form of day care is most valuable. Policy makers use sur-
veys as a means of valuation in a host of public projects and programs—from air-
quality improvement to public transit systems to the risks of occupational hazards
or the costs of nearby “undesirable facilities,” such as prisons and waste facilities.
Direct elicitation carries advantages. It is current, direct, relatively uncom-
plicated, and controllable: The survey can ask the “right” questions of the
“right” sample population. It is politically appealing. On the other hand, the
survey approach is costly and subject to error. If those surveyed are not repre-
sentative of the entire targeted group, the survey will suffer from sampling bias.
Also, since survey questions are hypothetical, true preferences are difficult to
obtain. Subjects may intentionally misrepresent their preference in order to
influence policy, or they may simply be incapable of giving precise answers.^20INDIRECT MARKET MEASURES A second approach looks to relatedmarkets.
A number of examples illustrate the method.- To measure the value of a public secondary school education, analysts
estimate the difference in labor earnings (in present-value terms)
between high school graduates and ninth-grade dropouts.^21 - How much is an individual’s time worth? The answer to this question
is pertinent to transportation issues: the cost of traffic congestion, the
benefit of centrally locating an airport. Again, labor markets suggest a
(^20) Surveys of low-income groups face an additional problem. For these groups, value responses
reflect both willingness to pay and ability to pay. Consider two alternative survey questions: (1) If
a new day-care facility were built in your neighborhood, how much would you be willing to pay for
20 hours of day care per week? (2) You are currently using 20 hours of day care per week. If the
facility were to close down, how much money per week would be needed to compensate you for
the loss of day-care services? The answer to the first question (constrained by the respondent’s
ability to pay) might be much lower than the answer to the second ($3 per hour, say, compared to
$6 per hour). Since the goal of the day-care program is to efficiently address the needs of the local,
low-income population, many would argue that the second response (free of the income con-
straint) represents the superior benefit estimate.
(^21) To measure properly the value of schooling alone,this comparison must allow for other factors.
Thus, differential earnings should be computed for individuals of comparable intelligence and
socioeconomic status.
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