Willingness to Pay and Sensitivity to Time Framing: A Theoretical Analysis and an Application on Car Safety

Stated preference (SP) surveys attempt to obtain monetary values for non-market goods that reflect individuals’ “true” preferences. Numerous empirical studies suggest that monetary values from SP studies are sensitive to survey design and so may not reflect respondents’ true preferences. This study examines the effect of time framing on respondents’ willingness to pay (WTP) for car safety. We explore how WTP per unit risk reduction depends on the time period over which respondents pay and face reduced risk in a theoretical model and by using data from a Swedish contingent valuation survey. Our theoretical model predicts the effect to be nontrivial in many scenarios used in empirical applications. In our empirical analysis we examine the sensitivity of WTP to an annual and a monthly scenario. Our theoretical model predicts the effect from the time framing to be negligible, but the empirical estimates from the annual scenario are about 70 % higher than estimates from the monthly scenario.     

Respondent direct experience and contingent willingness to pay for new commodities: a switching endogenous interval regression analysis

Most environmental economists argue that direct experience with the good being valuated, or with similar goods, is a precondition for providing valid willingness to pay (WTP) responses to contingent valuation questions. Two questions are posed in this article. The first is whether previous use experience of a resource (Séné nature reserve) similar to that being valuated (future nature reserves) and located in the same geographical area (Gulf of Morbihan) impacts on WTP. The second is whether accounting for the endogeneity of direct experience matters in the estimation of WTP. We find that respondents who have not experienced the Séné nature reserve provide value estimates that are statistically comparable to that of respondents who have experienced it. Our assumption is that respondents have acquired sufficient and adequate experience of future nature reserves from the questionnaire that experience obtained by experiencing the Séné nature reserve was not necessary for making a valid value formulation. Hence, aggregation of WTP estimates to obtain a total valuation of the future nature reserves is reasonable over the full target population. In addition, our results show that direct experience is endogenously determined; but controlling for the endogeneity has a marginal effect on WTP estimates.     

Is the Income Elasticity of the Willingness to Pay for Pollution Control Constant?

How willingness to pay for environmental quality changes as incomes rise is a central question in several areas of environmental economics. This paper explores both theoretically and empirically whether or not the willingness to pay (WTP) for pollution control varies with income. Our model indicates that the income elasticity of the marginal WTP for pollution reduction is only constant under very restrictive conditions. Our empirical analysis tests the null hypothesis that the elasticity of the WTP for pollution control with respect to income is constant, employing a multi-country contingent valuation study of eutrophication reduction in the Baltic Sea. Our findings reject this hypothesis, and estimate an income elasticity of the WTP for eutrophication control of 0.1–0.2 for low-income respondents and 0.6–0.7 for high-income respondents. Thus, our empirical results suggest that the elasticity is not constant but is always less than one. This has implications for how benefits transfer exercises, and for theoretical explanations of the environmental Kuznets curve.     

Valuing climate protection through willingness to pay for biomass ethanol

This study uses a multi-part, split-sample contingent valuation method (CVM) and fair share (FS) survey to better understand the public's valuation of mitigating global climate change through its willingness to pay for biomass or “cellulosic” ethanol. In addition to a basic CVM question, a related scenario was developed that asked half of the survey respondents to state their fair share cost to lessen a potential food shortage in the next decade, also through the expanded use of cellulosic ethanol. Three alternative biomass feedstocks were assessed: farming residues, forestry residues and paper mill wastes, and municipal solid wastes. Overall a slightly larger proportion of respondents were WTP extra for cellulosic ethanol in the basic CVM scenario than in the FS scenario, though no significant differences were found in the WTP for the different feedstocks. Bid curve lognormal regression results for the two models were similar, supporting the idea that asking a FS rather than a conventional WTP question may be justifiable in some circumstances, such as in cases of a national emergency.     

Asking for Individual or Household Willingness to Pay for Environmental Goods?

The aggregate welfare measure for a change in the provision of a public good derived from a contingent valuation (CV) survey will be higher if the same elicited mean willingness to pay (WTP) is added up over individuals rather than households. A trivial fact, however, once respondents are part of multi-person households, it becomes almost impossible to elicit an “uncontaminated” WTP measure that with some degree of confidence can be aggregated over one or the other response unit. The literature is mostly silent about which response unit to use in WTP questions, and in some CV studies it is even unclear which type has actually been applied. We test for differences between individual and household WTP in a novel, web-administered, split-sample CV survey asking WTP for preserving biodiversity in old-growth forests in Norway. Two samples are asked both types of questions, but in reverse order, followed by a question with an item battery trying to reveal why WTP may differ. We find in a test between samples that the WTP respondents state on behalf of their households is not significantly different from their individual WTP. However, within the same sample, household WTP is significantly higher than individual WTP; in particular if respondents are asked to state individual before household WTP. Our results suggest that using individual WTP as the response unit may overestimate aggregate WTP. Thus, the choice of response format needs to be explicitly and carefully addressed in CV questionnaire design and further research in order to avoid the risk of unprofitable projects passing the benefit-cost test.

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Proportionality of Willingness to Pay to Small Changes in Risk: The Impact of Attitudinal Factors in Scope Tests

Sensitivity (proportionality) of willingness to pay (WTP) to (small) risk changes is often used as a criterion to test for valid measures of economic preferences. In a contingent valuation (CV) study conducted in Austria, 1,005 respondents were asked their WTP for preventing an increase in the risk of being killed in an avalanche of 1/42,500 and 3/42,500 respectively. WTP for the higher variation in risk is significantly greater than WTP for the lower risk change. We find evidence that those respondents who have had personal experience of avalanches in recent years combine the information about future risk increase—as provided in the survey—with the observed number of fatal avalanche accidents in the past. Proportionality of WTP holds if such prior experience is taken into account and if attitudinal factors in scope tests are controlled for. This research was funded by alpS GmbH—Center for Natural Hazard Management, Innsbruck, Austria.     

Cognitive ability and scale bias in the contingent valuation method

This study investigates whether or not the scale bias found in contingent valuation (CVM) studies on mortality risk reductions is a result of cognitive constraints among respondents. Scale bias refers to insensitivity and non-near-proportionality of the respondents’ willingness to pay (WTP) to the size of the risk reduction. Two hundred Swedish students participated in an experiment in which their cognitive ability was tested before they took part in a CVM-study asking them about their WTP to reduce bus-mortality risk. The results imply that WTP answers from respondents with a higher cognitive ability are less flawed by scale bias.     

Public versus private demand for covering long-term care expenditures

This article studies the determinants of the Willingness to Pay (WTP) for Long-Term Care (LTC) insurance coverage. Two alternatives are considered: one compulsory, financed through taxes, the other purchased on a voluntary basis and paid through a premium. WTP was elicited through open-ended contingent valuation within a survey conducted in the Italian region Emilia-Romagna about LTC population needs. We model information on individual WTP as a two-stage process, where respondents first establish their interest for LTC cover, then state their WTP. Results show that interest and WTP are influenced by different variables, and that differences arise also between the WTP for public and private coverage.     

Exchange Rules and the Incentive Compatibility of Choice Experiments

The incentive properties of stated-preference surveys continue to be a central debate in the valuation of public goods. The majority of empirical studies have focused on incentive properties of contingent valuation questions in relation to situations where answers have monetary consequences. This research explores the incentive properties of repeated, attribute-based choice questions when subjects are provided with an explicit connection between choices and outcomes. Two market/provision-rules are investigated: a posted-price market and a plurality-rule vote. These two provision rules are contrasted to treatments in which no provision rule is discussed—subjects are simply asked to choose their preferred alternative. These three hypothetical choice treatments are compared with a binding choice treatment. While none of the public good treatments are theoretically incentive compatible, we include a comparison of hypothetical and binding choices for a private-good that is incentive compatible. The private good experiments indicate that marginal willingness to pay (WTP) estimates from the hypothetical treatment are larger, but not statistically different than corresponding estimates in the binding choice treatment. Results for the public good experiments indicate that marginal WTP estimates from the hypothetical treatments are much larger, and statistically different than corresponding estimates in the binding choice treatment. The bias is largest when no provision rule is discussed. The bias is reduced with the inclusion of a provision rule, but surprisingly, there was no difference across provision rule treatments. Overall, our results indicate that choice experiments involving a public good should include a provision rule to reduce bias, but the resulting marginal WTP estimates may still be more biased, on average, than those arising from contingent valuation survey formats.     

Choosing Between Internet and Mail Survey Modes for Choice Experiment Surveys Considering Non-Market Goods

In a choice experiment setup considering a non-market good, this paper adds to the literature on survey mode effects by providing evidence that internet surveys can be a viable alternative to traditional mail surveys when gathering feedback from a sample of respondents. The case study concerns preferences for protecting different types of landscape from road encroachment when building new motorways in Denmark. Two samples of respondents are surveyed—one by internet and one by mail. The performances of the two samples are compared over six different criteria; response rates, protest responses, demographics, preferences and WTP, estimation precision, and, finally, certainty in choice. Differences are observed for some of these criteria, implying that analysts should be aware that choosing internet over mail could be accompanied by a survey mode effect. However, the observed differences do not translate into significant differences in the unconditional WTP estimates. In most applied economic valuation studies of non-market goods, the main objective is in fact estimation of WTP. Hence, in the present case, the identified survey mode effects do not severely invalidate the applicability and continued use of the internet as a suitable means of collecting data for choice experiment economic valuation of non-market goods.     

Multivariate Mixed Models for Open-Ended Contingent Valuation Data: Willingness To Pay For Conservation of Monk Seals

Although dichotomous choice (DC) contingent valuation (CV) has been recommended by the US NOAA 'blue-ribbon' panel for large-scale contingent valuation studies, useful information can still be obtained from smaller, open-ended (OE) studies, often undertaken as a precursor to a DC survey. The CV study considered here was carried out in Greece and looked at willingness-to-pay (WTP) for protecting the Mediterranean monk seal (Monachus-monachus) in the Aegean area. This is the most endangered seal in the world, and the application of the CV methodology was the first such application in Greece. The OE data consist of two responses: first, a binary response detailing whether or not respondents were in principle prepared to pay for the protection of this seal; secondly, those respondents who answered 'yes' to the first question were then asked to state their maximum WTP for such protection. A multivariate binomial – log-normal mixture model is used to develop a bid function including explanatory variables such as income, sex, age and education. Such a modelling approach provides an alternative to more commonplace tobit estimation. However, the model is extended to include further information which was collected on:(a) an increased WTP amount given in response to information that the initial WTP amount may not be enough to prevent the extinction of the seal;(b) respondents were asked to divide their final WTP amount between use, option and existence values, the latter requiring a multivariate model with four binary and four continuous responses per individual in the same model.The discussion focuses on the methodological issues raised with some comment on the substantive interpretation of results.     

Marginal WTP and Distance Decay: The Role of ‘Protest’ and ‘True Zero’ Responses in the Economic Valuation of Recreational Water Quality

We evaluate the sensitivity of distance decay in individuals’ stated willingness to pay (WTP) for water quality improvements in eutrophied lakes. We extend the standard model of contingent valuation (CV) by allowing individuals to adopt a sequential evaluation process consisting of two decision stages. In the first stage respondents decide whether they are ‘protesters’, have a WTP   \(=\)   ‘true zero’ or a \(\hbox {WTP}>0\) . Conditioned on a strictly positive WTP, we use Lee’s selectivity-corrected model to determine the magnitude of their WTP in the second stage. Using CV survey data from Norway we find significant distance decay in the first stage classification of respondents as ‘protesters’, ‘true zero’ WTP, or positive WTP. In the second stage model for positive WTP responses, we find little or no significant relationships when correcting for selection. Results suggest that previous findings of significant distance decay in contingent valuation of lake and river water in Europe may be driven by the definition of ‘protest’ and ‘true zero’ respondents. We find that WTP for water quality may be more useful as a qualitative indicator of political support for user financed water quality measures, than as a cardinal measure of marginal utility of water quality improvements.     

Keeping up appearances: Motivations for socially desirable responding in contingent valuation interviews

The tendency to give socially desirable rather than true statements of willingness to pay (WTP) is an often reported form of bias in contingent valuation surveys. While previous research on this bias has exclusively focused on the detection of mode effects, the present study directly assesses a respondent's motivation to state WTP in a socially desirable manner. This study tests the effect of three theoretical motivations for socially desirable responding on WTP responses: A general need for social approval, a perceived social norm calling for a high contribution and perceived lack of anonymity of the interview situation. Questions for the empirical assessment of these factors are developed.Results of a valuation study in Southwest China show differing and independent impacts of these factors. While there is no effect of perceived anonymity, need for social approval biases WTP responses upwards but does not influence the general decision to state a positive WTP. It also turns out that rather the fear of losing social status than the striving for higher social approval is the main driver of this bias. Respondents perceiving a social norm for high WTP are more likely to state a positive WTP, but the specific amount is not affected.     

Dealing with preference uncertainty in contingent willingness to pay for a nature protection program: A new approach

In this paper, we propose an alternative preference uncertainty measurement approach where respondents have the option to indicate their willingness to pay (WTP) for a nature protection program either as exact values or intervals from a payment card, depending on whether they are uncertain about their valuation. On the basis of their responses, we then estimate their degree of uncertainty. New within this study is that the respondent's degree of uncertainty is “revealed”, while it is “stated” in those using existing measurement methods. Three statistical models are used to explore the sources of respondent uncertainty. We also present a simple way of calculating the uncertainty adjusted mean WTP, and compare this to the one obtained from an interval regression. Our findings in terms of determinants of preference uncertainty are broadly consistent with a priori expectations. In addition, the uncertainty adjusted mean WTP is quite similar to the one derived from an interval regression. We conclude that our method is promising in accounting for preference uncertainty in WTP answers at little cost to interviewees in terms of time and cognitive effort, on the one hand, and without researcher assumptions regarding the interpretation of degrees of uncertainty reported by respondents, on the other.     

The Economic Value of Air-Pollution-Related Health Risks in China: A Contingent Valuation Study

The economic value of preventing adverse health effects related to air pollution is estimated using contingent valuation in three diverse locations in China. Values are estimated for three health endpoints: cold, chronic bronchitis, and fatality. Alternative statistical models are tested to study their impact on estimated willingness to pay (WTP) and on the relationship between WTP and respondent characteristics. Using the official exchange rate, the sample-average median WTP to prevent an episode of cold ranges between US$3 and US$6, the WTP to prevent a statistical case of chronic bronchitis ranges between US$500 and US$1,000, and the value per statistical life ranges between US$4,000 and US$17,000. Estimated mean values are between two and thirteen times larger. Our estimates are between about 10 and 1,000 times smaller than estimates for the US and Taiwan using official exchange rates. Indoor air quality, measured for a subset of respondents, shows no consistent relationship with WTP.     

Giving Stated Preference Respondents “Time to Think”: Results From Four Countries

Previous studies have found that contingent valuation (CV) respondents who are given overnight to reflect on a CV scenario have 30–40% lower average willingness-to-pay (WTP) than respondents who are interviewed in a single session. This “time to think” (TTT) effect could explain much of the gap between real and hypothetical WTP observed in experimental studies. Yet giving time to think is still rare in binary or multinomial discrete choice studies. We review the literature on increasing survey respondents’ opportunities to reflect on their answers and synthesize results from parallel TTT studies on private vaccine demand in four countries. Across all four countries, we find robust and consistent evidence from both raw data and multivariate models for a TTT effect: giving respondents overnight to think reduced the probability that a respondent said he or she would buy the hypothetical vaccines. Average WTP fell approximately 40%. Respondents with time to think were also more certain of their answers, and a majority said they used the opportunity to consult with their spouse or family. We conclude with a discussion of why researchers might be hesitant to adopt the TTT methodology.     

The impact of the bird flu on public willingness to pay for the protection of migratory birds

In this paper, we present the results of a unique time series analysis of contingent values and models for migratory bird protection based on an identical contingent valuation (CV) survey carried out over a three year time period since the first bird flu outbreak in 2003. Although there exists no scientific evidence for a direct relationship, migratory birds are believed to play an important role in spreading the bird flu virus worldwide. The time series analysis allows us to test the temporal stability of stated preferences for migratory bird protection and at the same time examine indirectly the possible impact of increased media attention and public awareness levels regarding the bird flu. We test the impact of the bird flu on public willingness to pay (WTP) for migratory bird protection in the final 2005 survey whilst accounting for procedural variance introduced by sequencing and question ordering-effects, but we are unable to demonstrate a direct negative relationship. A novelty of the study presented here is that respondents in the CV surveys are given the opportunity to pay an annual money amount or a one-time-off lump-sum. Annual WTP values appear to be significantly higher than one-time-off WTP values, suggesting a negative implicit discount rate. Self-selection bias is an important reason for the observed differences. We find that respondents who agree to pay annually differ significantly from respondents who wish to pay a lump-sum in terms of their underlying preferences and motivations towards migratory bird protection.     

Economic Valuation of Environmental Damages due to the Prestige Oil Spill in Spain

This paper presents a parametric and non-parametric analysis of data from a contingent valuation study (CVM) conducted to estimate environmental use and passive use losses due to the Prestige oil spill. This is the first CVM study conducted in Europe after a large oil spill. The CVM survey was implemented using in person interviews. Mean willingness to pay (WTP) values were computed with both, a parametric and non-parametric approach. Parametric WTP estimation indicates that respondents in the sample are willing to pay about 40.51 € per household to avoid a similar future oil spill in Spain. This implies that on average, the Spanish society places a value of the environmental losses caused by the Prestige oil spill around 574 € million. Non-parametric estimates are slightly higher at 58.08 € per household. WTP results are similar to those obtained in the Exxon Valdez study.