6.16 Market prices will not represent total costs and benefits where a market is distorted because of restricted competition, such as a monopoly in supply (only one seller), or monopsony in purchasing (only one buyer). If this is the case valuation may be required and discussion is advised between the responsible organisation and their approving authority, or HM Treasury in the case of major expenditure.
6.17 For non-market valuation in general, research studies may be commissioned where there are no reliable values and it is justified by the size of the cost, benefit or risks. Where a research study is not feasible and transferable values are not available, desk-based research and other data sources may shed light on the likely range of values. In these cases a range of estimates should be used. The basis should be made clear, and they must be included in the sensitivity analysis, to test whether the benefit valuation is critical to the decision to be made.
6.18 Sometimes it is possible to identify the implied value of non-market goods from other decisions people make where prices are available. This gives a revealed preference - the value revealed as a result of people's actions. Hedonic pricing is an example of this approach. For example, the relationship between house prices and levels of environmental amenity, such as peace and quiet, may be analysed in order to assign a monetary value to the environmental benefit. Another example is the travel cost method, which involves estimating the costs people incur in order to consume a non-market good such as a recreational site.
6.19 If robust revealed preference data is not available, surveys that use willingness to pay and willingness to accept are an established alternative method known as stated preference techniques.
6.20 Revealed and stated preference techniques are commonly used to elicit estimates of what individuals are willing to pay or accept for a specific outcome. They underpin many of the valuation techniques outlined in Annex 2, for example stated preference techniques are used to value health outcomes using Quality Adjusted Life Years (QALYs).