Application of Sample Selection Model to Double-Bounded Dichotomous Choice Contingent Valuation Studies

Modeling households' behavior with the data from a contingentvaluation (CV) survey is often complicated by samplenon-response, which can cause non-response bias and sampleselection bias, leading to inconsistent parameter estimates and adistorted mean willingness-to-pay estimate. This paper reportsthe results of empirical tests for both biases using householdsurvey data in which the double-bounded dichotomous choice CVquestion involved the benefit of a tap water quality improvementpolicy in Korea. No non-response bias, but sample selection bias,is detected in the sample. To correct for sample selection bias,a sample selection model is employed. The authors also discusshow failure to correct for bias may distort aggregate benefitestimates.     

Bid Design Effects in Multiple Bounded Discrete Choice Contingent Valuation

A potential concern in multiple bounded discrete choice contingent valuation surveys – where the respondent is asked to express voting certainty, rather than a simple yes or no, on a large number of payment amounts (bids) – is whether responses are influenced by the particular position of bids in the bid-voting panel rather than solely on the respondents willingness to pay (WTP). For instance, respondents may systematically state they would pay the first few bid amounts and not pay all subsequent bids – regardless of the actual dollar values. Such systematic bid design effects would suggest that this method does not provide a valid measure of WTP. Using a split-sample survey, we compare responses to three different bid arrays that have an identical minimum bid, maximum bid, and number of bids. Using nonparametric estimation techniques, we find that estimated WTP distributions and corresponding welfare measures are not statistically different across survey samples.     

Construct Validity of Dichotomous and Polychotomous Choice Contingent Valuation Questions

In this note we conduct construct validity tests for dichotomous choice (DC) and polychotomous choice (PC) contingent valuation questions. Contrary to previous results, we find that DC and PC estimates of willingness to pay are theoretically valid, convergent valid, and similar in terms of statistical precision. Similar to previous results, PC respondents are less sensitive to information than DC respondents. We conclude that DC and PC valuation questions are construct valid for this study. Sequential PC valuation questions could be used in studies where obtaining information about the certainty or intensity of respondent preferences would be useful.     

Addressing Negative Willingness to Pay in Dichotomous Choice Contingent Valuation

This paper has four purposes. First, we outline the controversy surroundingthe issue of negative willingness to pay (WTP)in contingent valuation (CV) studies. Second,we use Monte Carlo simulation to examine theperformance of alternative distributionalassumptions in estimating WTP in the presenceof varying proportions of the populationholding negative WTP values. We focus ondichotomous choice CV (DC-CV), where negativeWTP values may be especially difficult todetect. Third, we extend the simulation toinvestigate the performance of the mixturemodels that have recently been proposed forhandling/identifying non-positive WTP values. Fourth, we extend the simulation to investigatethe performance of the nonparametric lowerbound Turnbull approach. Results indicate thatthe relative performance of the DC-CV modelingalternatives evaluated here, which assumepositive WTP, varies across the simulationsetting (e.g., proportion of negative WTP); butnone can be said to reasonably ``solve' theproblem ex post. This underscores theimportance of ex ante efforts to identify ifnegative WTP is likely to be prominent in agiven valuation setting. In such cases,appropriately handling negative WTP must beaddressed through ex ante survey design andmodeling choices that allow negative WTP.     

Evaluating the Validity of the Dichotomous Choice Question Format in Contingent Valuation

Hypothetical and actual cash willingness to pay (WTP) for an art print were elicited with dichotomous choice and open-ended question formats. Comparing hypothetical and actual dichotomous choice responses using both a likelihood ratio test and the method of convolutions suggests we reject equality at the 0.05 but not the 0.01 level. Hypothetical WTP was roughly two times actual WTP with the dichotomous choice format. There were no significant differences between the open-ended and dichotomous choice question formats when both were used to estimate hypothetical WTP or both used to estimate actual WTP.     

Parametric and Semi-Nonparametric Estimation of Willingness-to-Pay in the Dichotomous Choice Contingent Valuation Framework

Standard procedures for extractingwillingness-to-pay (WTP) from dichotomouschoice CV questionnaires rely heavily uponparametric assumptions regarding thedistribution and form of WTP in the sampledpopulation. However, theory provides littleguidance regarding which parametricspecification to use and the resulting WTPestimates can be sensitive to the selectionsmade. Here we compare and contrast severalparametric and semi-nonparametric estimatorsthat have been proposed in the literature,examining the sensitivity of the resulting WTPestimates to the underlying distribution ofpreferences and the estimation procedureemployed.     

A Semi-parametric Estimator of Willingness-to-pay Applied to Dichotomous Choice Contingent Valuation Data

The use of dichotomous choice questions (Are you willing to pay $x?) has been advocated as superior to open ended questions (What would you be willing to pay?) in contingent valuation studies of non‐market goods. A supplementary dichotomous choice question, raising or lowering the bid price depending on the initial response, gives increased precision. However, a problem with these methods is that identifying the mean willingness to pay (WTP) is more complex, and often conditional on making a distributional assumption. This paper will present a semi‐parametric method for estimating WTP without invoking any such assumptions, using the interval inherent in the double bounded format, and based on estimating the underlying hazard function for the distribution of WTP. An advantage of the approach over other non‐parametric methods is that it allows one to include respondent characteristics as determinants of the individual decisions, and does so within a computationally straightforward framework.     

A Learning Design for Reducing Hypothetical Bias in the Contingent Valuation Method

Over the last few years a great deal of research has focussed on hypothetical bias in value estimates obtained with the contingent valuation (CV) method and on means for ameliorating if not eliminating such bias. To date, efforts to eliminate hypothetical bias have relied on calibration techniques or on word-smithing of one kind or another to induce subjects to provide responses to hypothetical questions that mimic responses made by subjects facing actual payments in the valuation experiment. This paper introduces a different approach for eliminating hypothetical bias. A design for a CV survey format is presented which provides subjects with the opportunity to learn how the CV institution works. Sequential referenda are conducted where respondents gain experience in CV settings by participating in both hypothetical and real referenda. The logic of this Learning Design is a straightforward application of the trials process used in experimental economics. We demonstrate that the Learning Design is effective in eliminating hypothetical bias in surveys concerning donations to two different public goods.     

Provision Point Mechanisms and Field Validity Tests of Contingent Valuation

Past field validity tests of contingent valuation have relied on voluntary contribution mechanisms to elicit actual willingness to pay, and may overestimate hypothetical bias because of free riding in the actual contributions. This paper argues that provision point mechanisms are a preferred alternative for field validity tests of contingent valuation because they increase the proportion of demand revealed in cases in which public goods can be provided in a step function. The results of a contingent valuation validity study of participation in a green electricity pricing program that uses a provision point mechanism are reported, and hypothetical open-ended and dichotomous choice responses are compared to actual participation. Calibration of hypothetical responses is also explored.     

Combining Contingent Valuation and Choice Experiments. A Forestry Application in Spain

When many good variants are to be valued, like in several forest management programs which differ in the attribute levels, the Contingent Valuation Method may not be a practical option, given the cost and time involved to value each variant separately. There are at least three alternative procedures in such situations. One (i) is to apply an attribute based valuation method like a Choice Experiment (CE); another (ii) is to conduct a CVM and a CE exercise and estimate a joint model; a third one (iii) is to use the CVM estimates to value a base scenario, and then use the CE results to adjust the CVM estimates for any new different scenario. A numerical simulation and an empirical application to an afforestation program in Spain show that the latter is the procedure that yields closer values to the CVM estimations, followed by (ii).      

Donation Payment Mechanisms and Contingent Valuation: An Empirical Study of Hypothetical Bias

Donation payment mechanisms are well suited forsome contingent valuation studies. In aneffort to better understand the discrepancythat has been consistently found between actualand hypothetical donations, we investigate anapproach to estimating actual willingness todonate using contingent donations with afollow-up question in which respondents ratethe level of certainty about their response tothe contingent donation question. The approachallows us to estimate the magnitude of thehypothetical bias and identify the respondentsresponsible for the bias. Identification ofthe respondents responsible for thehypothetical bias is the first step towarddeveloping an understanding of the causes andpossible remedies. In this study we find thatmost of the respondents (80%) to thecontingent donation question provide a responseconsistent with how we predict they wouldrespond in an actual donation situation.     

A Comparison of Induced Value and Home-Grown Value Experiments to Test for Hypothetical Bias in Contingent Valuation

This study tests the hypothesis that hypothetical bias may not be related to value elicitation; rather it may be a value formation problem. When participants are asked to indicate their willingness to pay for an induced value good, we find no evidence of hypothetical bias for three different commodity types (public good, private good, and publicly provided private good). However, when these same subjects are asked to value homegrown goods with no pre-assigned induced value using the same elicitation mechanism, hypothetical values are roughly double actual payments in all three cases. These results support the hypothesis that the process of forming values in a homegrown setting may be a key contributor to hypothetical bias.     

Testing the Effectiveness of Certainty Scales,Cheap Talk,and Dissonance-Minimization in Reducing Hypothetical Bias in Contingent Valuation Studies

Stated preference methods such as contingent valuation and choice modeling are subject to various biases that may lead to differences between actual and hypothetical willingness to pay. Cheap talk, follow-up certainty scales, and dissonance minimization are three techniques for reducing this hypothetical bias. Cheap talk and certainty scales have received considerable attention in the literature, but dissonance minimization has not previously been experimentally tested. Using a four-way split sample design involving over 600 subjects, results from an actual referendum on provision of a quasi-public good were compared with three similar but contingent referenda employing the three bias-reducing techniques. Hypothetical bias was again present. Certainty scales, when properly calibrated, and dissonance minimization were found to be most effective in reducing the bias.     

Modelling Heterogeneity and Uncertainty in Contingent Valuation: an Application to the Valuation of Informal Care

Both the lack of market data and the need to adopt a more holistic approach in the valuation of non‐market activities within health care have pointed towards the use of contingent valuation (CV) methods. However, to date, few studies have employed such techniques to value informal care, despite its provision being an important public policy question. We propose an analytical framework that through the use of random parameters models and respondents' certainty scales can incorporate both unobserved and observed heterogeneity in the CV modelling. This is the first CV study of informal care for Scotland (UK) and a £7.68 per hour value is estimated.     

Democratic Choice of an Education System: Implications for Growth and Income Distribution

We use an OLG model to examine democratic choice betweentwo modes of government support for education: subsidies forprivately purchased education and free uniform public provision.We find little conflict between democracy and growth: the samefactors that generate popular support for subsidization overfree uniform provision—large external benefits, a largeexcess burden, and little inequality—also favor its relativegrowth performance. Furthermore, restricting the franchise toan upper-income elite may also reduce growth. Two extensionsexamine the effect of intergenerational mobility and indicatethe theoretical possibility of periodic swings in the balancebetween public and private spending.     

Multicultural Evaluation of the Performance of Contingent Valuation for Forest Fire Prevention

This article evaluates the ability of contingent valuation to measure the benefits received by several ethnic groups from a prescribed burning forest fire reduction program similar to President Bush's Healthy Forest Initiative. Reasons for refusing to pay higher taxes for the prescribed burning program were not statistically different between African Americans, Hispanics, and whites. Mean willingness to pay of whites was $400, whereas for African Americans it was $505, but the difference is not statistically significant. The results suggest a substantial statewide willingness to pay by whites and African Americans for forest fuel reduction projects using prescribed burning in California. (JEL Q26 , Q23 , J15 )     

A Contingent Valuation Estimate of the Benefits of Wolves in Minnesota

In this paper we estimate the willingness topay for a wolf management plan and a wolfdamage plan in Minnesota using the contingentvaluation method. The theoretical definition ofwillingness to pay for wolf protection iscomposed of use and non-use values. Weincorporate a don't know response option in thedichotomous choice valuation questions. A largenumber of respondents answered don't know. Themultinomial logit model is used todifferentiate between don't know and noresponses. Non-use motives are importantfactors that explain willingness to pay. We usethese benefit estimates in combination with twoalternative cost estimates to consider theefficiency of the wolf management and damageplans. Both plans have estimated benefitsgreater than costs.     

A Comparison of Value Elicitation Question Formats in Multiple-Good Contingent Valuation

This paper provides a convergent validity test of two types of multinomial choice questions vis-a-vis a dichotomous choice question by formally testing whether these stated preference elicitation question formats provide comparable welfare estimates. In particular, a dichotomous choice question, a traditional multinomial choice question, and a modified multinomial choice question suggested by Carson and Groves （2007） were applied in split samples to assess the influence of the informational and incentive properties on the respondents＇ annual willingness to accept compensation for adopting costly conservation practices in agriculture that benefit the environment. Our findings suggest that the two multinomial choice question formats elicit a similar mean willingness to accept distributions, but they are both different from a standarddichotomous choice question. Further, the willingness to accept distributions derived from the multinomial choice question formats are more dispersed than those from the dichotomous choice question.     

Economic Mismeasurement and the Bias in Policy Choice

The level of economic activity is never measured perfectly because of problems of definition, inaccuracies in data collection, and the existence of the hidden economy. Such mismeasurement implies that government policies based on official statistics can be optimal only by chance. The analysis formalizes this observation in a two-sector economy and attempts to quantify the direction and extent of the bias introduced into policy by the failure to account for the true size of the economy. It is shown that short-term reform (which need not balance the government budget) can be detrimental. When a budget constraint is imposed, this ensures that reforms will be beneficial no matter how bad is the mismeasurement.