Preference uncertainty in contingent valuation

In this paper, the results of empirical studies that applied two widely used methods - numerical certainty scale (NCS) and polychotmous choice (PC) - for estimating preference uncertainty adjusted willingness to pay (WTP) in contingent valuation (CV), are summarized. For this review, a number of conclusions are reached. First, there is a lack of consensus about which method is more appropriate for measuring preference uncertainty. Second, although preference uncertainty information has been found useful in detecting the incidence of hypothetical bias in CV studies, a consensus about a standard certainty threshold (or treatment mechanism) at which hypothetical behaviour converges to real behaviour is yet to emerge. Third, insufficient empirical evidence exists about the causal relationship between preference uncertainty scores and the theoretically expected explanatory variables. Finally, the preference uncertainty adjusted PC and NCS models fail to provide a consistent and more efficient welfare estimate compared to the conventional dichotomous choice certainty model.     

Treating respondent uncertainty in contingent valuation: A comparison of empirical treatments

This research examines the impact of uncertainty on contingent valuation responses using (1) a survey of Canadian landowners about willingness to accept compensation for converting cropland to forestry and (2) a survey of Swedish residents about willingness to pay for forest conservation. Five approaches from the literature for incorporating respondent uncertainty are used and compared to the traditional random utility model with assumed certainty. The results indicate that incorporating uncertainty has the potential to increase fit, but could introduce additional variance. While some methods for uncertainty can be an improvement over traditional approaches, it is imperative to exercise caution when making systematic judgments about the effect of uncertainty on contingent valuation responses.     

Willingness to pay for environmental goods in Norway: A contingent valuation study with real payment

The study seeks to determine the maximum willingness to pay (MWTP) among a random sample of Norwegians, for membership in the largest environmentalist association in Norway, Norges Naturvernforbund (NNV). The study includes three stages: (1) a contingent valuation study, testing hypothetical MWTP; (2) those whose stated MWTP is at or above the current membership fee are then asked to pay this fee; (3) those individuals who do not pay in stage 2 are interviewed, and asked to consider revising their MWTP statement. The study is seemingly the first of its kind in comparing hypothetical and actual MWTP by typing valuation of a public good (the environment) to the value of a private good (membership of the NNV). The results show a rather poor correspondence between hypothetical and actual MWTP, since only 6 out of 64 who stated that they were willing to pay the membership fee in stage 1, actually paid this voluntarily in stage 2. Possible reasons for this discrepancy are discussed, on the basis of data from the telephone interview in stage 3, and on information gathered in stage 1. The data indicate that a substantial part of this discrepancy is due to MWTP being overstated in stage 1, but that other reasons also are important.     

A new valuation question: analysis of and insights from interval open-ended data in contingent valuation

This paper introduces a type of open-ended valuation question where respondents state their willingness to pay in the form of an interval rather than a point estimate. Allowing the response to be expressed as an interval has advantages compared to traditional valuation questions: it captures potential valuation uncertainty, facilitates interpretation of uncertainty and most importantly, provides a richer set of information about individuals’ preferences. Furthermore, an open-ended willingness to pay format has advantages if a survey is carried out in more than one country. Too little is known about valuation uncertainty to represent willingness to pay only as an exact value. Therefore, this value should be complemented by upper and lower boundary estimates. In this paper I present new methods for estimating these different values. The methods are illustrated with results from a survey concerning wild salmon in the Vindel River, northern Sweden. The results suggest that the upper and lower boundaries provide a kind of confidence interval for the willingness to pay, which is encouraging for estimating these values to characterise willingness to pay. The results also illustrate that some earlier criticism in the literature of open-ended questions does not apply to the question presented in this paper.     

An estimation of the future demand for portable Internet service in Korea

Portable Internet service (PIS), which refers to wireless Internet service that can be accessed via a portable terminal at every time and at any place, is scheduled to be launched in Korea in early 2006. Thus, both the government and the industry need to obtain quantitative information on the future demand for the service. This study attempts to estimate future demand for the PIS, to analyze the determinants of the demand, and to conduct pre-test-market evaluation of the service. To this end, the dichotomous choice contingent valuation method is employed. On the whole, respondents accepted the contingent market and were willing to contribute a significant amount, on average. This willingness varies according to individual characteristics. Finally, the study discusses the importance of including valuation method in a pre-test-market evaluation of the PIS and presents the implications of the results, such as the mean willingness to pay (WTP) and the effects of individual characteristics and concerns about the service on the WTP.     

A study of contract legal issues in Chinese carbon market

Clean Development Mechanism （CDM） has given birth to an international carbon trading market prosperity, which provides developing countries with valuable opportunities to address climate change issues together with economic development and environmental improvement to achieve the sustainable goal. China, as the biggest carbon market, has caught worldwide attention. However, most studies of CDM focus on economics and environmental science, few on its legal problems. Transaction activities are the essence of market mechanism. To protect the benefits of market participators and regulate the market orders, the Contract Law takes this important role along with development of market mechanism. Therefore, this paper only focuses on the carbon market in China, with the assessment of the risks in the CDM development first. The involved contracts will be identified and analyzed to point out the major contract legal issues in Chinese carbon market. In the meantime, this paper further discusses that measurements at both private level and governmental level should be taken to protect and realize the utility and equality of contract in the carbon market.     

A study of legal attributes of carbon emission rights in carbon trading

Clean Development Mechanism （CDM） has given birth to an international carbon trading market prosperity, which provides developing countries with valuable opportunity to address climate change issues right along with economic development and environmental improvement to achieve sustainable development. However, most studies of CDM focus on economics, and few on its legal problems. CDM involves too many aspects. And the clear legal attribute of trading object is the basis of progress of the transaction and also the start point of legal protection. Therefore, this paper in accordance with the inherent principle of property rights economics, and environmental economics in CDM, only discusses CDM carbon emission right legal interpretation and its attribution. The paper recommends that in order to ensure and promote the carbon emission right trading, carbon emission right should be attributed into the system of real rights to be regulated by Real Right Law. In this way, carbon emission right can gain exclusive power of possession and use, which can achieve a clear right definition of environmental goods in line with Coase＇s theory to protect Chinese profit in carbon trading market and promote the development of the carbon trading market further.     

Contingent values as implicit contracts: estimating minimum legal willingness to pay for conservation of large carnivores in Sweden

Mean willingness-to-pay (WTP) based on multiple bounded, discrete choice responses from contingent valuation surveys are normally obtained using some kind of parametric estimator. This paper instead exploits the possibility to interpret the response to the discrete-choice question as an implicit contract between the researcher and the respondent, resulting in a minimum legal WTP (MLW) estimator. Never previously used in valuation literature, it is used in this paper to estimate the WTP for the preservation of large carnivores in Sweden, based on a large scale, national survey. Results show that MLW estimates only were 12–19% of the comparable parametric estimates. In keeping with other results in contingent valuation literature, we find that the MLW estimates are positively related to the educational level, income and the fraction of urban population, while negatively related to age. Among the advantages of the MLW estimator is its transparency as well as the fact that it rests on a contractual notion of WTP.      

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.     

The economic consequences of substituting carbon payments for crop subsidies in U.S. agriculture

There is a growing body of literature on the costs of sequestering carbon. However, no studies have examined the interplay between farm commodity programs and carbon sequestration programs. This study investigates two dimensions of the interaction between farm commodity programs and afforestation programs, using a price-endogenous sector model of agriculture in the United States. First, this study compares the fiscal and welfare costs of achieving specific carbon targets through afforestation, with and without current farm programs. Second, it examines the welfare, fiscal, and carbon consequences of replacing existing farm subsidies, wholly or in part, with payments for carbon. Two approaches, Hicksian and Marshallian, are investigated. In the first, the sector model is used to quantify the carbon consequences and fiscal costs associated with various combinations of farm commodity and carbon sequestration programs that leave consumers and producers in the U.S. agricultural sector no worse off than under existing farm programs. The second approach focuses on the carbon and welfare consequences of various farm commodity and carbon sequestration programs that hold total program fiscal costs constant at current levels. Althouth the methodology and data are applied to the United States, the issues addressed are common in a number of developed nations, particularly within the European Union (EU). Adapting existing sector models in these nations to perform similar analyses would provide policy makers with more precise information about the nature of the trade-offs involved with second-best policies for replacing farm commodity subsidies with tree planting subsidies.The research reported in this paper was partially funded by the United States Environmental Protection Agency under contract number 68W90077. It does not reflect the official position of that agency. Mention of trade names does not constitute endorsement.     

Identifying and evaluating robust adaptive policy responses to climate change for water management agencies in the American west

Climate change presents a significant planning challenge for water management agencies in the western United States. Changing precipitation and temperature patterns will disrupt their supply and extensive distribution systems over the coming decades, but the precise timing and extent of these impacts remain deeply uncertain, complicating decisions on needed investments in infrastructure and other system improvements. Adaptive strategies represent an obvious solution in principle, but are often difficult to develop and implement in practice. This paper describes work helping the Inland Empire Utilities Agency (IEUA) explicitly develop adaptive policies to respond to climate change and integrating these policies into the organizations' long-range planning processes. The analysis employs Robust Decision Making (RDM), a quantitative decision- analytic approach for supporting decisions under conditions of deep uncertainty. RDM studies use simulation models to assess the performance of agency plans over thousands of plausible futures, use statistical “scenario discovery” algorithms to concisely summarize those futures where the plans fail to perform adequately, and use these resulting scenarios to help decisionmakers understand the vulnerabilities of their plans and assess the options for ameliorating these vulnerabilities. This paper demonstrates the particular value of RDM in helping decisionmakers to design and evaluate adaptive strategies. For IEUA, the RDM analysis suggests the agency's current plan could perform poorly and lead to high shortage and water provisioning costs under conditions of: (1) large declines in precipitation, (2) larger-than-expected impacts of climate change on the availability of imported supplies, and (3) reductions in percolation of precipitation into the region's groundwater basin. Including adaptivity in the current plan eliminates 72% of the high-cost outcomes. Accelerating efforts in expanding the size of one of the agency's groundwater banking programs and implementing its recycling program, while monitoring the region's supply and demand balance and making additional investments in efficiency and storm-water capture if shortages are projected provides one promising robust adaptive strategy — it eliminates more than 80% of the initially-identified high-cost outcomes.     

Measuring uncertainty of the euro area NAIRU: Monte Carlo and empirical evidence for alternative confidence intervals in a state space framework

This paper investigates uncertainty around point estimates of the euro area NAIRU in a state space framework. The relative accuracy of alternative measures of uncertainty for state space models are compared using Monte Carlo simulations. A direct bootstrap method yields confidence intervals with lower coverage probability than confidence intervals based on mean squared errors (MSE) approximations. The degree of uncertainty of the euro area NAIRU is estimated with a trivariate state space model. The direct bootstrap method shows the narrowest confidence interval compared with the MSE approximations. However, the wider intervals based on MSE approximations are narrow enough for the identification of some periods in time where observed unemployment and the NAIRU differ significantly.     

Popular Support for Climate Change Mitigation: Evidence from a General Population Mail Survey

Using a sample of 1,651 US households, we explore some determinants of willingness to pay (WTP) for climate change mitigation programs. Our mail survey had a relatively low response rate, so we first use several additional data sources to build a detailed sample selection model. This model uses features of the survey instrument, measures of geographic vulnerability to climate change, seasonality, the political mix in the county, attributes of the address or addressee, and a set of factor scores from an extensive factor analysis of all census tracts in the US. We estimate this model jointly with a model to explain climate policy preferences as a function of the domestic and international distribution of policy costs as well as the climate change impacts that each respondent believes will occur under a policy of business-as-usual. Despite statistically significant patterns of nonresponse, selectivity effects are minimal in this case. WTP for climate change mitigation is greater when the domestic incidence of mitigation costs is borne mostly through higher energy taxes. It is also greater when costs are understood to be shared internationally with other groups of countries, rather than being borne mostly by a country group including the US. People are generally more willing to pay for climate change mitigation if they believe that the harm caused by climate change impacts will be substantial, rather than just moderate. The assistance of former UCLA undergraduate students Ivka Adam, Tashi Ghale, Michelle Gogolewski, Vilija Gulbinas, and Lindy Olsson was essential to survey development and administration. This paper is based upon work supported in part by the National Science Foundation under Grant No. 9818875 to UCLA, with additional support from the Raymond F. Mikesell Foundation at the University of Oregon. Any opinions, findings, and conclusions or recommendations expressed in this paper are those of the authors and do not necessarily reflect the views of either the National Science Foundation or ICF International.     

Fairness in a tradeable-permit treaty for carbon emissions reductions in Europe and the former Soviet Union

This paper evaluates the distributional implications of alternative permit allocations in a tradeable permit regime for carbon emissions reductions (20% below baseline) in 2010 for a region consisting of Europe and the states of the former Soviet Union (FSU). Participation in such a regime is expected to hinge on the fairness of the distributional consequences. We find that initial permit allocations by populationand/or GDP are unlikely to induce participation by most countries of Eastern Europe and FSU because of the net costs involved. We identify a set of initial allocations that would at least compensate these countries. A fair treatment of the countries in Western Europe (WE) is here one which equalizes net costs perGDP. For a wide set of cost functions for carbon emission reductions, the cost gains that WE would reap from a tradeable permit system relative to unilateral reductions by WE as a group are found to be on the order of 85 percent. This would imply, among other things, a significant increase in WE'scapacity to make further emissions reductions.     

On the efficiency of a global market for carbon dioxide emission permits: Type of externality and timing of policymaking

We demonstrate that global permit markets are Pareto efficient despite the externality type, production or consumption, when income redistribution occurs after regional environmental policymaking. Ex-ante income redistribution is neutral if emissions affect production only, but non-neutral if emissions affect consumption.