Considering Household Size in Contingent Valuation Studies

In many empirical contingent valuation studies one finds that household size, i.e. the number of household members, is negatively correlated with stated household willingness to pay for the realization of environmental projects. This observation is rather puzzling because in larger households more people can benefit from an environmental improvement than in small households. Therefore, the overall benefit should be greater for larger households. A plausible explanation could be that household budgets are tighter for large families than for smaller families with the same overall family income. The fact that larger families can afford only smaller willingness to pay statements in contingent valuation surveys than smaller families with the same income and the same preferences might have consequences for the allocation of public funds whenever the realization of an environmental project is made dependent on the outcome of a contingent valuation study. This paper shows how the use of household equivalence scales for the assessment of environmental projects with the contingent valuation method can serve to reduce the discrimination of members of large families.