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 Meta-analysis of Hypothetical Bias in Stated Preference Valuation

Individuals are widely believed to overstate their economic valuation of a good by a factor of two or three. This paper reports the results of a meta-analysis of hypothetical bias in 28 stated preference valuation studies that report monetary willingness-to-pay and used the same mechanism for eliciting both hypothetical and actual values. The papers generated 83 observations with a median ratio of hypothetical to actual value of only 1.35, and the distribution has severe positive skewness. We find that a choice-based elicitation mechanism is important in reducing bias. We provide some evidence that the use of student subjects may be a source of bias, but since this variable is highly correlated with group experimental settings, firm conclusions cannot be drawn. There is some weak evidence that bias increases when public goods are being valued, and that some calibration methods may be effective at reducing bias. However, results are quite sensitive to model specification, which will remain a problem until a comprehensive theory of hypothetical bias is developed.JEL classifications: C9, H41, Q26, Q28     

Researching Preferences,Valuation and Hypothetical Bias

A number of recent papers in environmental economics have focused on the process of researching preferences – agents are uncertain about preferences but with effort may narrow their uncertainty. This issue has arisen in formulating bids in contingent valuation (CV) as well as the debate over the divergence between WTP and WTA. In the context of CV, it has been suggested that the hypothetical nature of the preference elicitation process biases responses. This paper provides both a theoretical model and experimental evidence to contribute to this debate. The model is a model of competitive bidding for a private good with two components that are particularly relevant to the debate. The first component is that bidders are unsure of their own value for the private good but may purchase information about their own value (researching preferences). The second component is that there is a probability that the auction is hypothetical – that the winning bidder will not get the private good and will not pay the winning bid. The experiment tests this theoretical model of bidding equilibrium and analyzes the effects of variations in the parameters (hypotheticalness, information costs and number of agents) on the endogenous variables (such as the proportion of bidders who become informed and the winning bid). Experimental results suggest that an increase in the hypotheticalness of an auction tends to decrease the likelihood that bidders pay for information on their valuation with an ambiguous effect on the winning bid.      

Minimising Payment Vehicle Bias in Contingent Valuation Studies

The payment vehicle is a crucial element inapplications of the contingent valuation methodbecause it provides the context for payment. However,in many countries a relative unfamiliarity with theuse of tax levies and referenda can affect theplausibility of payment vehicles and lead to paymentvehicle bias. The most commonly used approach fordetermining whether payment bias exists is to usetests of convergent validity. It is demonstrated thatsimple tests of convergent validity can be ineffectivein diagnosing the existence of payment vehicle bias.Payment vehicle bias is found to occur because ofdifferences in the coverage of payment vehicles anddoubts about payment being one-off. When respondentsare found to be protesting against a particularpayment vehicle, the current state of the art approachis to delete them from the sample. In this paper analternative approach that relies on the recoding ofprotest responses is proposed.     

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.     

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.     

A Field Experiment Involving Cash and Hypothetical Charitable Donations

An important focus for concern about Contingent Valuation (CV) is that hypothetical payments for non-market goods are biased upwards in comparison to cash payments. Lack of realism, through its influence on incentives to mis-report payments, may explain the divergence. This paper reports on a study which attempts to overcome this problem by emulating a real fund-raising solicitation by the Isle of Eigg Trust for both real and hypothetical donations. In contrast to previous results, the mean cash donation was higher (£3.71) than the man CV donation (£3.41). A third survey, which used a neutral CV design, implemented by a research organization, obtained a mean donation which was much higher (£6.21) than the cash equivalent.     

Induced-Value Tests of Contingent Valuation Elicitation Mechanisms

Using an induced-value experimental design that varies whether values for a “good” are certain or uncertain and whether payment is real or hypothetical, this study investigates issues of demand revelation, hypothetical bias, and value uncertainty for four elicitation mechanisms used in contingent valuation surveys: dichotomous choice, dichotomous choice with follow-up certainty question, payment card, and multiple-bounded discrete choice. For all elicitation mechanisms, we find no evidence of hypothetical bias: voting decisions do not vary systematically when payment is hypothetical versus when it is real. Under all design conditions we find the fewest deviations between stated and induced values and the strongest evidence of demand revelation with dichotomous choice. Stated uncertainty in dichotomous choice follow-up and multiple-bounded discrete choice questions does correlate with uncertain induced values, but the signal is noisy. We discuss the implications of our findings for the design of contingent valuation surveys.     

基于条件价值评估法的中国巨灾风险保险模式定量设计——基于网络问卷调查的实证研究

巨灾风险损失经验数据的缺乏使得保险人设计合理的巨灾风险保险模式存在较大困难。基于巨灾风险保险的准公共物品性质,通过网络问卷调查,运用条件价值评估法,从消费者意愿角度对中国巨灾风险保险模式的主要项目进行定量设计,可以克服非寿险常规费率厘定方法的缺陷,对纠正巨灾风险保险市场失灵亦有积极意义。     

A Bayesian Approach to Double Bounded Contingent Valuation

In this paper we propose a Bayesian approach to model double bounded contingent valuation data. The double bounded elicitation method is interpreted as a two tier iterated process in which the subject is allowed to have a second thought about his/her valuation for the environmental good. Prior information is modelled from the answers to the first dichotomous choice question. The model is Quasi-Bayesian (Q-B) in that the prior distribution refers to mean willingness to pay while the likelihood function refers to the proportions of a multinomial distribution. This model is applied to empirical data from a contingent valuation survey involving the valuation expressed by European tourists for access to natural areas in the Canary Islands. Results show that point estimate of consumer surplus computed with the Q-B model does not differ substantially from single bounded model estimation. In addition, double bounded seems to be quite robust to the choice of the prior model of willingness to pay responses. Comparison with open ended suggests that the Q-B model might be useful to control for strategic response and starting point biases.     

Valuation in the Lab

Experimental methods have proven useful to explore the power and limits to nonmarket valuation through stated preference methods. We now understand better how people learn about and react to the incentives, institutions, and information created by surveys. This paper briefly reviews topics in experimental valuation, including ex ante bias corrections, ex post bias calibration, and examining the circumstances that strengthen or weaken the economist’s presumption of rational valuation.     

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.     

Protest Responses in Contingent Valuation

A significant number of respondents to contingent valuation surveys tend to either state a zero bid, or refuse to state a bid at all, for reasons associated with the process of valuation. These protest responses are routinely removed from contingent valuation samples because it is assumed that they are not indicative of respondents true values. The censoring of protest responses has led to the emergence of a definitional controversy. One view is that the definition of protest responses and the rules for censoring them are dependent on whether the practitioner conceives of the contingent valuation survey as a market or as a referendum. However, what is not acknowledged is the possibility that protest responses and their meaning may vary according to the type of good being valued, the elicitation format, and the interaction between these elements and external factors. This potential renders the development of unambiguous rules for censoring protest responses difficult. Moreover, when willingness to pay is viewed as a behavioural intention, it becomes important to determine what the responses actually mean. This approach does not assume an interpretative position a priori against which the responses should be judged, but seeks to inform an existing understanding which is inadequate.     

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.     

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.     

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.     

Improving the Performance of Contingent Valuation Studies in Developing Countries

This paper discusses three main reasons why so many of the contingentvaluation studies conducted in developing countries are so bad. First,the contingent valuation surveys themselves are often poorly administeredand executed. Second, contingent valuation scenarios are often very poorlycrafted. Third, few CV studies conducted in developing countries aredesigned to test whether some of the key assumptions that the researchermade were the right ones, and whether the results are robust with respectto simple variations in research design and survey method. The paper concludesthat research on stated preference methods in developing countries iscritically important to the successful implementation of these methodsbecause (1) there is no empirical evidence to suggest that rapid,”streamlined” CV surveys yield reliable, accurate results, and (2)there is a significant risk that the current push for cheaper, simplerCV studies could discredit the methodology itself. Moreover, the policydebates to which CV researchers are asked to contribute are often oftremendous importance to the well-being of households in developingcountries. Because the costs of policy mistakes can prove tragic, itis critical that VC researchers push for excellence in this researchenterprise and that funding agencies think more carefully about thevalue of policy-relevant information in the fields in which thecontingent valuation method is being used to study household preferencesand behavior (e.g., water and sanitation services, urban air pollution,soil erosion, deforestation, biodiversity, watershed management,ecosystem valuation, vaccines for the poor).     

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.     

An Experimental Testing of Anchoring Effects in Discrete Choice Questions

This paper re-examines the openended/dichotomous choice question in the lab. It hasearlier been suggested that the dichotomous choiceformat suffers from anchoring and yea-saying.Comparing actual economic commitments for a privategood with a significant market value, we cannot rejectthe null hypothesis of equal WTP for the two formats.We conclude that problems with DC might be due toissues of how the survey is framed, not the DCquestion itself.