PVE as a policy evaluation instrument
Participatory Value Evaluation (PVE) is primarily developed to resolve some issues of another policy evaluation method: Cost-Benefit Analysis (CBA). In virtually all western countries, Cost-Benefit Analysis (CBA) is nowadays considered the gold standard for supporting public decision-making. A CBA expresses the impacts of a government project in monetary metrics based on the number of euros affected individuals and parties are willing to pay (WTP) from their private income. Hence, the WTP valuation paradigm assumes that private choices of citizens fully reflect their preferences towards public policy. For instance, it is assumed that impacts of government projects can be valued based on decisions people make in the real estate market or based on experiments in which citizens are asked how much they are willing to pay to preserve a nature reserve.
Critique on willingness to pay valuation paradigm
Evaluating the impact of government projects through the WTP valuation paradigm has been criticized by philosophers, economists and other scholars since the 1960s. Academics acknowledge that the amount of money individuals are willing to pay from their after tax income in (hypothetical) markets provides crucial information for setting the price of private goods offered by companies such as food, drinks and the price that a toll company asks for travelers that want to use the road. However, these academics argue that the private WTP valuation paradigm fails to consider that private choices may not fully reflect citizens’ preferences towards public policy. One central theme to the arguments of these academics is that the ways in which individuals balance their own after-tax incomes against the attributes of government projects may be a poor proxy for how the same individuals believe that their governments should trade-off public budget and impacts of public projects.
Empirical research confirms the critique
Recent empirical studies indeed show that the number of euros individuals are willing to pay for impacts of a government project might be a poor proxy for how they believe that the government (on their behalf) should trade-off public budget and impacts of public projects. For instance, Mouter et al. (2017) empirically establish that individuals’ trade-offs between travel time and accident risk in the context of a private choice (car drivers’ choice between routes that differ in travel time and accident risk) differ substantially from they way that they believe that the government should trade-off travel time and accident risk on their behalf. As a car driver individuals tend to choose the fastest route, while they are prone to choose the safest route in a public context. The private WTP-based valuation paradigm adopted in CBA may thus result in a too narrow perspective when evaluating transport projects that are financed with public budget. Individuals who participated in a follow-up study explicitly argued that the government should not use their own consumer behavior as a model for public policy. These individuals, for instance, believe that the government and individual citizens have different responsibility (e.g. government has a special duty of care when it comes to safety).
Critique on the assumption of complete fungibility
The WTP-based valuation postulates that private euros and public euros cannot have a different purpose, i.e. they are completely fungible. This principle is also known as the ‘a euro is a euro principle’. Under complete fungibility, it is possible to establish the social welfare effect of a public good that is financed with government funds (public euros) through aggregating the number of euros that individuals are (collectively) willing to pay from their after-tax income (private euros). However, a crucial issue with this assumption is that, ‘complete fungibility’ does not fit with what is observed in reality. Nobel Prize Laureate Thaler, for instance, observes that euros contained within a given sub-budget can indeed have a specific purpose. As a result, they are at best imperfect substitutes for euros from other budgets, even for the same individual. Hence, a more defensible notion is to assume that individuals might view their private income and public budget as constituting two separate budgets. More specifically, when the analyst observes that individuals are willing to pay for presents, beers, going on a holiday to Italy and travel time reductions from their private income, this implies that they gain utility from these goods when they are financed with their private income. However, this does not have to imply that they experience the same level of utility when the presents, beers, travel time reductions and the holiday to Italy are financed from the public budget. When it indeed makes a difference whether public projects are paid for by private euros (e.g. private or collective WTP) or public euros, WTP-based valuation is no longer useful for the evaluation of government projects financed from public revenues. Instead, the welfare effects of such projects should be derived from individuals’ preferences regarding the expenditure of public euros.
The willingness to allocate public budget valuation paradigm
Scholars developed so-called willingness to allocate public budget experiments (WTAPB) to derive the welfare effects of government projects from individuals’ preferences regarding the expenditure of public euros. In WTAPB experiments individuals make choices over alternative allocations of government budget across different government projects. An example of a WTAPB experiment is the study of Johansson-Stenman and Martinsen (2008) in which respondents were asked to choose between two safety-enhancing road investment projects that target different age groups and road user types. Both options required the same public investments.
Participatory Value Evaluation
Participatory Valuation Evaluation (PVE) depart from the WTAPB approach when measuring the preferences of citizens for public policy. The essence of a PVE is that participants in an (online) experiment are confronted with a restriction (e.g. a government budget or a sustainability objective to be achieved) and a number of possible policy options, including the effects of the policy options. On the basis of the choices made by participants in the PVE, analyst can determine the social costs and benefits of various policy options and determine the optimal portfolio of projects. PVE was recently applied in case of the Dutch Ministry of Infrastructure and the Environment and the Transport Authority Amsterdam. In these cases, citizens were asked to allocate a constrained public budget to various policy options. In the PVE for the thermal energy transition of the municipality of Utrecht, citizens were ask to advise the alderman on the realization of a sustainability goal.