Non-market price calculation and estimation

6.15 Social costs and benefits without a market price can be estimated using a range of techniques. Box 14 summarises a hierarchy of the main techniques that can be used. These approaches have strengths and weaknesses that need to be considered when they are used for Social CBA.14

Box 14. Valuation Methods for Non-Market Prices

Market prices Prices from the relevant market (excluding taxes and subsidies). In some cases a closely comparable market can be used where a direct market price is unavailable.

Generic prices Use of a Green Book approved transferable price applicable to the proposal.

Revealed preference Techniques which involve inferring the implicit price placed on a good by consumers by examining their behaviour in a similar or related market. Hedonic pricing is an example of this where econometric techniques are used to estimate values from existing data.

Stated preference willingness to pay Research study by professionally designed questionnaire eliciting willingness to pay to receive or avoid an outcome.	Stated preference willingness to accept Research study by professionally designed questionnaire eliciting compensation to accept a loss.	Wellbeing Use of direct wellbeing based responses (in existing data or from research by questionnaire) to estimate relative prices of non-market goods.

Estimation of a central reference value and a range Based on available data.

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14 Fujiwara and Campbell (2011) discuss the strengths and weaknesses of revealed and stated preference techniques and use of subjective wellbeing evidence.