Implications of Bid Design and Willingness-To-Pay Distribution for Starting Point Bias in Double-Bounded Dichotomous Choice Contingent Valuation Surveys

We examine starting point bias in double-bounded dichotomous choice contingent valuation surveys. We investigate (1) the seriousness of the biases for the location and scale parameters of the willingness-to-pay (WTP) in the presence of starting point bias; (2) whether or not these biases depend on the distribution of WTP and on the bid design; and (3) how well a commonly used diagnostic for starting point bias—a test of the null that bid set dummies entered in the right-hand side of the WTP model are jointly equal to zero—performs under various circumstances. Monte Carlo simulations suggest that the effect of ignoring starting point bias depends on the bid design and on the true distribution of WTP. A well-balanced, symmetric bid design may result in very modest biases even when the anchoring mechanism is very strong. The power of bid set dummies in detecting starting point bias is low. They tend to account for misspecifications in the distribution assumed by the researcher for the latent WTP, rather than capturing the presence of starting point bias.     

Comparing continuous and discrete contingent valuation questions

This paper explores two commonly used methods to elicit an individual's willingness to pay (WTP) for a public good in contingent valuation studies. Currently, the most preferred method is the take-it-or-leave valuation question, or discrete valuation question (DVQ), where the respondent accepts or rejects a suggested cost for the good. The traditional method, the continuous valuation question (CVQ), simply asks an individual to state his WTP for the suggested change in the provision of a public good like cleaner air. We introduce a simple way to compare the results from these two methods. We also test the anchoring behavior suggested in the psychological literature on choice under uncertainty. The results do not support the anchoring hypothesis, but suggest the hypothesis that people perceive the two tested valuation questions differently.I would like to thank Prof. Glenn Harrison, University of South Carolina, Prof. P-O Johansson, Stockholm School of Economics, Prof. Jason Shogren, Iowa State University, and two referees for helpful comments. The usual disclaimer applies.     

Measuring heterogeneity,survey engagement and response quality in preferences for organic products in Nigeria

The identification of the market potentials of organic products is important in the drive towards a sustainable agricultural development in sub-Saharan Africa (SSA). However, available evidence shows that valuing attributes of credence goods (such as organic products) while using stated preference methods faces additional obstacles compared to other normal goods. In this study, we examine consumers’ preferences and willingness-to-pay (WTP) for health and environmental attributes of organic products in Nigeria. We employ an approach that allows us to adequately capture the value of organic products by linking part of the heterogeneity across respondents to differences in scale, while making use of indicators of survey engagement, without risks of endogeneity bias and measurement error that arise from the deterministic methods. The empirical results show that market for organic products exists in Nigeria, with reduction in pesticide residues attribute attracting the highest value, followed by the certification programme. Furthermore, we observe that increases in the latent engagement variable lead to a greater probability of agreement with statements relating to survey understanding and realism, and hence more substantive output.     

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.     

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.     

Are Internet surveys an alternative to face-to-face interviews in contingent valuation?

Internet is an increasingly popular data collection mode for stated preference research in environmental economics. However, little is known about how this survey mode may influence data quality and welfare estimates. As part of a national contingent valuation (CV) survey estimating willingness to pay (WTP) for biodiversity protection plans, we assign two groups of respondents either to an Internet or face-to-face (in-home) interview mode. Our design aims to better isolate measurement effects from sample composition effects by drawing both samples from the same sample frame. We find little evidence of social desirability bias in the interview setting or satisficing (shortcutting the response process) in the Internet survey. The share of “don't knows”, zeros and protest responses to the WTP question with a payment card is very similar between modes and equality of mean WTP cannot be rejected. Results are fairly encouraging for the use of Internet in CV as stated preferences do not seem to be significantly different or biased compared to face-to-face interviews.     

Experimental Evidence on Alternative Environmental Valuation Methods

Experimental methods are central to assessments of environmental valuation approaches that are operationally meaningful. Existing lab experiments focus attention sharply on the neglect of hypothetical bias. They also offer constructive solutions to correct this bias, and beg for validation in field experiments.     

On the contingent valuation of mortality risk reduction in developing countries

Using the contingent valuation method in developing countries to value mortality risk reduction is particularly challenging because of the low level education of the respondents. In this article, we investigate whether some brief training regarding probability and risk concepts has any significant effect on the willingness-to-pay (WTP) responses. We elicit individuals’ risk perceptions by providing information on age specific mortality risks and find that people on average overestimate the mortality risk at younger ages and underestimate it at older ages. Our results indicate a significantly higher WTP for the trained sub-sample and WTP is sensitive to the magnitude of risk reduction for both the sub-samples.     

Overreaction to Fearsome Risks

When risks threaten, cognitive mechanisms bias people toward action or inaction. Fearsome risks are highly available. The availability bias tells us that this leads people to overestimate their frequency. Therefore, they also overreact to curtail the likelihood or consequences of such risks. More generally, fear can paralyze efforts to think clearly about risks. We draw on a range of environmental risks to show the following: (1) Fear leads us to neglect probability of occurrence; (2) As fearsome environmental risks are usually imposed by others (as externalities), indignation stirs excess reaction; (3) We often misperceive or miscalculate such risks. Two experiments demonstrate probability neglect when fearsome risks arise: (a) willingness-to-pay to eliminate the cancer risk from arsenic in water (described in vivid terms) did not vary despite a 10-fold variation in risk; (b) the willingness-to-accept price for a painful but non dangerous electric shock did not vary between a 1 and 100% chance. Possible explanations relate to the role of the amygdala in impairing cognitive brain function. Government and the law, both made by mortals and both responding to public pressures, similarly neglect probabilities for fearsome risks. Examples relating to shark attacks, Love Canal, alar and terrorism are discussed.     

Consistency and construction in stated WTP for health risk reductions: A novel scope-sensitivity test

A contingent valuation study is conducted to estimate willingness to pay (WTP) for reducing skin cancer risks. A split sample design contrasts dichotomous choice (DC) with open-ended (OE) methods for eliciting WTP. A novel scope test varies the remit of risk reductions from just the individual respondent to their entire household allowing us to examine both the statistical significance and scale of scope sensitivity. While OE responses fail such tests, DC responses pass both forms of testing. We conclude that conformity of the size of scope effects with prior expectations should form a focus for future validity testing.     

Trading Taxes vs. Paying Taxes to Value and Finance Public Environmental Goods

The potential sensitivity of environmentalresource valuation to payment vehicles is ofinterest to researchers and decision-makersinvolved in estimating and applying thesenumbers. A conceptual model is developed whichprovides insight into how the different paymentvehicles of a special tax and a taxreallocation affects the willingness to pay(WTP) for environmental goods. Hypothesistesting using contingent valuation datasuggests WTP with a tax reallocation is higherthan WTP with a special tax for ground waterquality protection in Georgia and Maine, USA.Technical measurement and welfare analysisimplications and limitations of valuing andfinancing public environmental goods using taxrealloactions are discussed.     

Modeling self-censoring of polluter pays protest votes in stated preference research to support resource damage estimations in environmental liability

The identification and treatment of protest response in stated preference (SP) research such as contingent valuation is an underdeveloped area. Protest related to the polluter pays principle (PPP) is expected to pose an important hurdle to the application of SP research in environmental liability claims, for instance under the European Environmental Liability Directive. Our main objective is to test the effect of PPP induced protest votes on welfare measures for lost passive use value using different treatment procedures. We argue for a more reliable and defensible indicator of willingness to pay (WTP) in environmental liability litigation cases than current standard removal practices in cases where protest votes affect sample representativeness. Analyzing the impact of PPP-based protest response on WTP values with the help of a Full Information Maximum Likelihood sample selection model, a significant correlation is found between the decision to participate in the CV market and the WTP bids. Self-censoring biases average WTP and is correlated with factors such as respondent use of the resource and disposition towards its future protection. Simply removing protest response from the sample is indefensible and results in a biased estimation of WTP.     

Enhanced Geospatial Validity for Meta-analysis and Environmental Benefit Transfer: An Application to Water Quality Improvements

Meta-regression models are commonly used within benefit transfer to estimate willingness to pay (WTP) for environmental quality improvements. Theory suggests that these estimates should be sensitive to geospatial factors including resource scale, market extent, and the availability of substitutes and complements. Valuation meta-regression models addressing the quantity of non-market commodities sometimes incorporate spatial variables that proxy for a subset of these effects. However, meta-analyses of WTP for environmental quality generally omit geospatial factors such as these, leading to benefit transfers that are invariant to these factors. This paper reports on a meta-regression model for water quality benefit transfer that incorporates spatially explicit factors predicted by theory to influence WTP. The metadata are drawn from stated preference studies that estimate per household WTP for water quality changes in United States water bodies, and combine primary study information with extensive geospatial data from external sources. Results find that geospatial variables are associated with significant WTP variations as predicted by theory, and that inclusion of these variables reduces transfer errors.     

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.     

Qualitative valuation of environmental criteria through a group consensus based on stochastic dominance

This paper introduces a qualitative valuation method to elicit stakeholders' intensities of preferences for a complex environmental issue and multiple social groups. Environmental valuation studies have shown that in any complex environment with a diversity of environmental services, stakeholders have difficulties using a monetary valuation to make trade-offs between different environmental services. Stated preference methods such as the Contingent Valuation Method (CVM) have been criticised for their individualistic format and assumptions of commensurability between environmental criteria. To alleviate both of these criticisms, we propose a qualitative valuation method. The method contains a discursive step to allow stakeholders to discuss and construct a list of environmental criteria and alternative plans. The list of criteria and plans is subsequently used by a group of experts to formulate an Impact Matrix (IM), which is to be used in the succeeding individualistic steps of the methodology. The first individualistic step consists of asking the stakeholders to rank Alternative Impacts (AIs) in the IM for each single criterion. The stakeholders are then asked to express intensities of their preferences through pairwise comparisons between the AIs of the constructed rank order on each single criterion. These intensities are expressed on a qualitative scale. Subsequently, to provide social intensities of preferences, a social preference (social rank order) is first determined for each single criterion. We propose to use the median value among the intensities of preferences as the social intensity of preference by assuming interpersonal comparability and taking into account stochastic monotonocity. This is a pre-processing step, which allows us to reach social intensities of preferences in the Lar rangeland (Iran), where several social groups have conflicting interests on rangeland services, leading to conflicting preferences on environmental criteria.     

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.     

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.      

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.     

Economic Valuation of the Threat Posed by the Establishment of the Asian Tiger Mosquito in Australia

Invasive species policy could be better informed if we understood how much people value reductions in the risks posed by these organisms. This study investigates the public’s willingness to pay (WTP) for additional measures to reduce the risk of invasion of the Australian mainland by the Asian tiger mosquito (ATM). The study contributes to the literature by applying a stated preference method to estimate the public’s WTP to reduce the risk of an ATM invasion, expressed as a change in probability. It is the first ex ante invasive species analysis to test over two discrete invasion reduction probabilities based on management effort. Further, to overcome the challenges in valuing changes in probabilities, the study presented respondents with a well-defined discrete difference in the final probability, with one scenario reducing risk from 50 to 25% and the other from 50 to 5%. We find a significant difference in the mean WTP values between these two scenarios (A$67 vs. A$90). The overall conclusion is that estimated benefits of reducing the probability of an ATM incursion outweigh the costs.