If benefits are derived from observed behavior...

If the estimation is direct, the WTP can be derived from one observation, combined with previous research that indicates functional form and elasticity. WTP can also be derived from two or more observations, where extrapolation, model specification, and data consistency are the critical elements in the validity of the benefit estimation.

WTP can also be estimated indirectly by various methods such as analogous pricing, trade-off method, hedonic pricing, travel costs, avoided costs, and others.

• When using analogous pricing, the market price for an analogous good or service can be used as a shadow price for a publicly provided good or service.
• Under the trade-off method, the economic analysis uses the opportunity cost as a measure of value.
• Hedonic pricing can be estimated when: (i) the relationship between asset price and asset attribute can be established and (ii) and estimation of WTP for each attribute is also possible.
• Under the travel cost method – mostly used in recreational projects – total costs replace entrance price or fee as an explanatory variable for the demand equation.
• The estimation of avoided costs – also called defensive expenditures – is an approximation to benefits assuming that the intervention reduces a current expenditure.