The effect of distance on willingness to pay values: a case study of wetlands and salmon in California

Most contingent valuation studies in the literature utilized a pre-determined geographic market area for their sample frame. In other words, they did not include variables that would measure the extent of the geographic areas over which to aggregate willingness to pay. These studies implicitly assumed that the effects of geographic distance were moot; an assumption that could have led to an understatement of the aggregate benefit values computed in these studies. The overall goal of this study was to determine if distance affects willingness to pay for public goods with large non-use values. The data used came from a contingent valuation study regarding the San Joaquin Valley, CA. Respondents were asked about their willingness to pay (WTP) for three proposed programs designed to reduce various environmental problems in the Valley. A logit model was used to examine the effects of geographic distance on respondents' willingness to pay for each of the three programs. Results indicate that distance affected WTP for two of the three programs (wetlands habitat and wildlife, and the wildlife contamination control programs). We calculate the underestimate in benefits if the geographic extent of the public good market is arbitrarily limited to one political jurisdiction.     

Mixed logit estimation of willingness to pay distributions: a comparison of models in preference and WTP space using data from a health-related choice experiment

Different approaches to modelling the distribution of WTP are compared using stated preference data on Tanzanian Clinical Officers’ job choices and mixed logit models. The standard approach of specifying the distributions of the coefficients and deriving WTP as the ratio of two coefficients (estimation in preference space) is compared to specifying the distributions for WTP directly at the estimation stage (estimation in WTP space). The models in preference space fit the data better than the corresponding models in WTP space although the difference between the best fitting models in the two estimation regimes is minimal. Moreover, the willingness to pay estimates derived from the preference space models turn out to be very high for many of the job attributes. The results suggest that sensitivity testing using a variety of model specifications, including estimation in WTP space, is recommended when using mixed logit models to estimate willingness to pay distributions.     

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.     

Public-good valuation and intra-family allocation

I derive values of marginal changes in a public good for two-person households, measured alternatively by household member i’s willingness to pay (WTP) for the good on behalf of the household, WTP _i (H), or by the sum of individual WTP values across family members, WTP(C). Households are assumed to allocate their resources in efficient Nash bargains over private and common household goods. WTP _i (H) is then defined by trade-offs between the public good and the household good, and WTP(C) by trade-offs of between the public good and private goods. WTP _i (H) is found to be higher (lower) than WTP(C) when member i has a relatively high (low) marginal valuation of the public good, but tends on average to equal WTP(C). As a consequence, individuals tend to represent households correctly on average when questioned about the household’s WTP for a public good, even when they are purely selfish and answer truthfully. Adding all members’ WTP answers on behalf of the household then leads to double counting. Pure and paternalistic altruism (the latter attached to consumption of the public good) move each member’s WTP on behalf of the household closer to the true sum of individual WTP, but only paternalistic altruism raises this sum.      

Willingness to Pay for Car Safety: Evidence from Sweden

This study estimates a marginal willingness to pay (WTP) function for a road-mortality risk reduction. Observed marginal WTP from the Swedish car market is used and found to be positively correlated with the baseline risk of the cars. No statistically significant relationships between examined owner attributes, e.g. wealth and background risk, and marginal WTP are found. When comparing the estimated monetary value of a non-marginal risk reduction derived from the integral of the marginal WTP-function with an estimate based on marginal WTP we find, in line with expectations, that the difference between the estimates is negligible for smaller risk reductions and small, 4–10%, also for relatively large risk reductions.      

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.     

Money matters: an axiomatic theory of the endowment effect

We develop a framework that allows us to state precisely the relationship between leading concepts of the theoretical and empirical research on reference-dependent preferences, namely the status quo bias, the endowment effect and the willingness to accept (WTA)/willingness to pay (WTP) gap. We show that a monetary version of the status quo bias is a necessary condition for the WTA/WTP gap, and show how to factor out the part of the gap due to income effects from the part of the gap due to the endowment effect. As a byproduct, we show that reference-dependent phenomena are generated by reference-independent factors, i.e., an underlying reference-independent preference relation the properties of which are discussed at length.     

Economic valuation of habitat defragmentation: A study of the Veluwe, the Netherlands

This paper offers an economic value assessment of a nature protection programme in the Veluwe, the Netherlands. This programme involves two defragmentation scenarios: the first scenario connects the central part of the Veluwe with river forelands in a north-eastern direction (i.e. the meadows of the IJssel river), while the second scenario is focussed on defragmentation in a south-western direction (i.e. the meadows of the Rhine river). The valuation is based on a questionnaire that was administered during face-to-face interviews in the area and through the Internet. We employ a contingent valuation approach to assess the respondents' willingness to pay for the realisation of the defragmentation scenarios. It appears that the mean willingness to pay (WTP) for the two defragmentation scenarios is € 162.2 (lognormal distribution) per respondent. Because the Veluwe is considered a nature park of national importance, we performed an aggregation of individual WTP estimates over Dutch households. With the resulting aggregate estimates we can compare the total costs and benefits of the two scenarios for habitat defragmentation in the Veluwe. In addition, we test whether respondents value the two scenarios equally. We also check whether the methods of data collection (face-to-face interviews and Internet questionnaires) have distinct influences on the stated WTP responses.     

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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WILLINGNESS TO PAY FOR AMATEUR SPORT AND RECREATION PROGRAMS

A contingent valuation method (CVM) survey in Alberta, Canada, allows estimation of the household willingness to pay (WTP) for enhancements in the province's extensive sport and recreation programs. The estimated annual WTP of $18 per household for small enhancements in the programs far exceeds the estimated WTP of households in the United States to avoid the loss of major league sports teams, as determined in previous CVM studies. Those opposed to gambling, which helps to fund the Alberta programs, are more likely to favor using income taxes to finance expansions. ( JEL H41, L83)     

Reference Dependence Effects on WTA and WTP Value Functions and Their Disparity

In this study we investigate two reference dependence effects in a choice experiment. The first is the effect of the well-known distinction between gains and losses, the second is the effect of changing the reference value on willingness to pay (WTP) and willingness to accept (WTA). The latter has to our knowledge not been studied before. We hypothesize that there are differences between WTA and WTP, and that both value functions and their disparity are affected by the absolute value of the reference point. We test our hypotheses using a choice experiment with trade-offs between changes in flood probabilities and costs. The choice experiments elicit WTP and WTA, using two flood probability reference values, yielding four separate value functions. Our findings show that a substantial WTA–WTP disparity exists, and that this disparity increases when moving away from the reference point. Also, both WTA and WTP value functions are affected by the flood probability reference value, and the WTA–WTP disparity increases when the flood probability reference point increases. Both findings suggest that welfare effects caused by changes in public good provision depend not only on the direction of change (loss aversion), but also the reference value. Moreover, our results show that the latter effect is larger for losses than for gains. We introduce the concept of reference point updating as a possible explanation for these findings.     

The assumption of equal marginal utility of income: how much does it matter?

In most applied cost–benefit analyses, individual willingness to pay (WTP) is aggregated without using explicit welfare weights. This can be justified by postulating a utilitarian social welfare function along with the assumption of equal marginal utility of income for all individuals. However, since marginal utility is a cardinal concept, there is no generally accepted way to verify the plausibility of this latter assumption, nor its empirical importance. In this paper, we use data from seven contingent valuation studies to illustrate that if one instead assumes equal marginal utility of the public good for all individuals, aggregate monetary benefit estimates change dramatically.     

Comparing Fuzzy and Probabilistic Approaches to Preference Uncertainty in Non-Market Valuation

In seeking to value environmental amenities and public goods, individuals often have trouble trading off the (vague) good or amenity against a monetary measure. Valuation in these circumstances can best be described as fuzzy in terms of the amenity being valued, perceptions of property rights, and the numbers chosen to reflect values. In this paper, we apply fuzzy logic to contingent valuation, employing a fuzzy clustering approach for incorporating preference uncertainty obtained from a follow-up certainty confidence question. We develop a fuzzy random utility maximization (FRUM) framework where the perceived utility of each individual is fuzzy in the sense that an individual’s utility belongs to each cluster to some degree. The model is then applied to a Swedish survey that elicited residents’ willingness to pay for enhanced forest conservation and to a Canadian survey of agricultural landowners that elicited their willingness to accept compensation for a tree planting program. Both the WTP and WTA measures we obtain using the fuzzy approach are well below those obtained using standard probability methods. Based on goodness of fit measures and Monte Carlo experimentation, a case can be made for using a fuzzy preference approach for modeling preference uncertainty as opposed to incorporating respondent uncertainty within the random utility maximization framework.      

Willingness to pay for publicly-financed health care: how should we use the numbers?

This paper addresses the question of how willingness to pay (WTP) values in health care evaluation can be used by policy makers. The way in which WTP values are used depends on from whom values are elicited and whether the good concerned is privately-financed or publicly-financed through taxation. Thus, four possible uses of WTP values are identified. The focus is on the two uses which arise in the publiclyfinanced situation. ‘Conventional’ use of WTP values, where the decision as to whether or not to provide a service depends upon whether or not WTP values are greater than total cost, applies only in the privately-financed, and not publiclyfinanced situations. The situations with publicly-financed goods are more complex. The use of WTP values for publicly-financed goods is justified and illustrated.     

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.     

Endowment effect theory,prediction bias and publicly provided goods: an experimental study

Many studies report on a systematic disparity between the willingness to pay for a certain good (WTP) and the willingness to accept retribution payments in exchange for giving up this good (WTA). Thaler [Thaler RH (1980) J Econ Behav Organ 1:39–60] employs prospect theory to explain this disparity. The literature contains two different interpretations of his endowment effect theory. Accordingly, the disparity is caused either by the disutility from parting with one’s endowment and/or by an extra utility from ownership which is not anticipated by individuals who are not endowed with the good. So far, the empirical evidence on the applicability of endowment effect theory is limited to private goods. This paper reports on an experiment which finds a significant ownership utility effect for a publicly provided good. This result indicates that prospect theory applies to publicly provided goods even though consumers do not have exclusive property rights.      

The value of online banking to small and medium-sized enterprises: evidence from firms operating in the uae free trade zones

This study estimates the willingness to pay of small and medium-sized enterprises (SMEs) for a business online banking services. The estimation utilizes a contingent valuation method employing data from 400 SMEs in the United Arab Emirates free zones. An interval regression model is used to identify company characteristics affecting WTP. The results indicate an average WTP for online banking of $518.50 per month. Firms engaging in international trade value these services at least 10% more than those with only domestic operations. Other variables that significantly affect WTP include number of employees and the transportation cost of using traditional branch banking.     

Valuing Local Environmental Amenity with Discrete Choice Experiments: Spatial Scope Sensitivity and Heterogeneous Marginal Utility of Income

Using discrete choice experiments we examine preferences for the spatial provision of local environmental improvements in the context of regeneration policies. Amenities we consider are: improvements to areas of open space, recreation facilities and other public spaces; street cleanliness; restoration of derelict properties; and the provision of paths dedicated to cycling and walking. We include the spatial scope of the policy as an attribute, making the trade-off between environmental amenity and its spatial provision explicit. We employ a novel estimator for average willingness to pay (WTP) for mixed logit models with a random cost coefficient, which is robust to the presence of price insensitive respondents and performs well relative to mixed logit estimation in WTP space. We find that the spatial scope of the policy affects both the intensity and heterogeneity of preferences, and that these effects are of statistical and economic significance.     

The Willingness to Accept Value of Statistical Life Relative to the Willingness to Pay Value: Evidence and Policy Implications

Large disparities between willingness to accept (WTA) and willingness to pay (WTP) based values of statistical life are commonly encountered in empirical studies. Standard economic theory suggests that if a public good is easily substitutable there should be no marked disparity between WTA and WTP values for the good, though the disparity increases with reduced substitutability. However, psychologists have shown that people often treat gains and losses asymmetrically and tend to require a substantially larger increase in wealth to compensate for a loss than the amount they would be willing to pay for an equivalent gain. Although most transport projects may aim to improve safety, situations arise when a relaxation of an existing regulation saves resources but increases the risk of death and injuries. A survey was recently carried out in New Zealand to determine people’s willingness to pay to reduce road risks and their willingness to accept compensation for an increase in risk. This paper reports the disparity observed between the two measures and considers some of the problems posed for policymakers.     

Willingness to pay to control PM2.5 pollution in Jing-Jin-Ji Region,China

This letter aims to study individual willingness to pay (WTP) to mitigate PM_2.5 pollution in the Jing-Jin-Ji region by using contingent valuation method. Our survey indicated that residents in this region were highly concerned about PM_2.5 pollution control and supported PM_2.5 pollution control policies. In this study, a payment card (PC) format is used to elicit residents’ perceived WTP. With a two-part model, we estimate the mean WTP for an 80% reduction of severe PM_2.5 polluting days in this region is 602 CNY a year, approximately accounts for 1% of the GDP per capita. This result indicates an important funding source for the government to control PM_2.5 pollution in the region. In the econometric analysis, the mean WTP is found to significantly relate with income, expense, age and education level. It decreases with income, age and educational level, but increases with expense, and it is higher for females, people who have children, own cars and apartments but lower for those having larger families. By comparing with relevant researches, this letter indicates a strong and ever-increasing WTP for air pollution control among residents in the Jing-Jin-Ji region, China.