surplus measure. In natural resource economics, for example, precise knowledge 

 of the distinction is an indispensable aid in assessing the relative strengths 

 and shortcomings of the contingent value (CVM) and the travel cost (TCM) method. 

 It is difficult to have a working grasp of the terminology of natural resource 

 economics without some knowledge of these two abstract welfare measures, since 

 many natural resource economists refer often (and somewhat loosely) to the CVM 

 estimate of benefits conferred as a Hicksian consumer surplus measure and to the 

 TCM estimate as a Marshal li an measure of consumer surplus. 



In many fields of applied economics, including natural resource economics, 

 the conventional dichotomy between prices and quantities is blurred by variations 

 in demand and price caused by exogenous quality changes. Succinctly, if quality 

 changes, demand will change along with net social benefits conferred by 

 production and consumption of some market or nonmarket good or service. The 

 problem of estimating quality induced shifts in consumer surplus is interesting 

 from a conceptual perspective because, ideally, the same theoretical constructs 

 (Marshall ian consumer surplus and Hicksian consumer surplus) should be used to 

 estimate quality-induced shifts in welfare and price-induced shifts in welfare. 

 A symmetric theory of quality- and price-induced demand and welfare changes was 

 presented by Houthakker (1952). 



Houthakker's theory is the basis for the use of the contingent value and 

 travel cost methods to estimate benefit changes generated by qualitative changes 

 at outdoor recreation sites. The critical point is that the analyst need not 

 be greatly concerned with arbitrarily dividing some set of on-site changes into 

 a quality and a quantity component. 



Natural resource economists have applied the Houthakker theory in treating 

 improvements in instream flows as a qualitative improvement in site quality 

 (Loomis 1987a); I know of no applications of the Houthakker theory to wetlands, 

 but any change in the quality or quantity of the water resource component of a 

 wetland could be treated as a qualitative shift along lines suggested by recent 

 theoretical developments. 



THE CONTINGENT VALUATION METHOD 



Natural resource economists use carefully tailored questionnaires called 

 survey instruments to make contingent value method (CVM) estimates of the 

 willingness-to-pay for natural resource amenities. These questionnaires solicit 

 information from respondents by engaging them in a hypothetical bidding game. 

 The recreationist is queried as to the maximum amount he or she would pay rather 

 than give up the use of the site or amenity (this is often simply called the 

 willingness-to-pay of the respondent if there is no possibility of confusion with 

 the theoretical Hicksian measures of consumer surplus). Or he may be queried 

 as to the minimal amount of money he or she would be willing to take in exchange 

 for the use of the site (willingness-to-sell). 



The CVM is an important tool for estimating the benefits conferred by on- 

 site quality improvements. One reason for this is that it imposes relatively 



