Scale-perception bias in the valuation of environmental risks

The valuation of environmental risks is commonly approached with the utilization of stated preference methods such as contingent valuation. In these methods, money is utilized as the scale that reflects the individual's underlying utility function. However, this scale can vary across individuals due to different perceptions on what are the right or appropriate bounds for Willingness To Pay (WTP). In this article, we test for scale-perception bias and propose a correction method based on the utilization of anchoring vignettes that define different degrees of preference for the nonmarket good. The proposed method is applied to study the commonly found anomaly ‘probability neglect’, which is defined by the insensitivity to the probability levels in the valuation of environmental risks. The results show that probability neglect disappears when WTP responses are corrected for self-perception bias through the utilization of the anchoring vignettes approach.     

The Effect of Protest Votes on the Estimates of WTP for Use Values of Recreational Sites

Contingent valuation studies are often characterized by a considerable number of protest responses, which may cause selectivity bias on the final estimates for WTP. Sample selection models can detect and – if necessary – correct selectivity bias. In economic applications where the relevant dependent variable is continuous, sample selection models are generally estimated using Heckman's 2-step method rather than the FIML estimator. Either method has its own drawback: computational complexity for the FIML method, susceptibility to collinearity problems for the 2-step method. Using data on valuation of forest resources for recreational use, we analyse the performance of the two estimators. In this application, given the presence of some collinearity, the FIML is preferred to the 2-step method. A procedure is outlined to deal with selectivity problems in similar settings.     

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.     

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.     

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.     

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.     

Valuing climate protection through willingness to pay for biomass ethanol

This study uses a multi-part, split-sample contingent valuation method (CVM) and fair share (FS) survey to better understand the public's valuation of mitigating global climate change through its willingness to pay for biomass or “cellulosic” ethanol. In addition to a basic CVM question, a related scenario was developed that asked half of the survey respondents to state their fair share cost to lessen a potential food shortage in the next decade, also through the expanded use of cellulosic ethanol. Three alternative biomass feedstocks were assessed: farming residues, forestry residues and paper mill wastes, and municipal solid wastes. Overall a slightly larger proportion of respondents were WTP extra for cellulosic ethanol in the basic CVM scenario than in the FS scenario, though no significant differences were found in the WTP for the different feedstocks. Bid curve lognormal regression results for the two models were similar, supporting the idea that asking a FS rather than a conventional WTP question may be justifiable in some circumstances, such as in cases of a national emergency.     

An alternative interpretation of multiple bounded WTP data—Certainty dependent payment card intervals

This paper analyzes the multiple bounded format, in which uncertainty is directly incorporated into the WTP question. A new approach for analyzing multiple bounded uncertainty data is presented. The intuition underlying the approach is that uncertain individuals would like to state their WTP as intervals rather than precise values and that the width of the intervals is determined by the degree of uncertainty. The approach is compared to the one applied in Welsh and Poe [Welsh, M., Poe, G.L., 1998. Elicitation effects in contingent valuation: comparisons to a multiple bounded discrete choice approach. Journal of Environmental Economics and Management 36, 170–185] which treats uncertainty by conditioning responses on specific verbal probability statements. We argue that the conditioning approach overestimates mean and median WTP and that conditioning WTP estimates on probability statements like “probably” and “unsure” make them “fuzzy”. To empirically compare the two approaches we use data from 2004 concerning implementation of a predator protection policy in Sweden. Our analysis show that the suggested approach: (1) is more intuitive; (2) better fits the data; (3) estimates mean and median WTP with better precision; (4) is less sensitive to distributional assumptions; and (5) it is better suited for policy analysis.     

Multivariate Mixed Models for Open-Ended Contingent Valuation Data: Willingness To Pay For Conservation of Monk Seals

Although dichotomous choice (DC) contingent valuation (CV) has been recommended by the US NOAA 'blue-ribbon' panel for large-scale contingent valuation studies, useful information can still be obtained from smaller, open-ended (OE) studies, often undertaken as a precursor to a DC survey. The CV study considered here was carried out in Greece and looked at willingness-to-pay (WTP) for protecting the Mediterranean monk seal (Monachus-monachus) in the Aegean area. This is the most endangered seal in the world, and the application of the CV methodology was the first such application in Greece. The OE data consist of two responses: first, a binary response detailing whether or not respondents were in principle prepared to pay for the protection of this seal; secondly, those respondents who answered 'yes' to the first question were then asked to state their maximum WTP for such protection. A multivariate binomial – log-normal mixture model is used to develop a bid function including explanatory variables such as income, sex, age and education. Such a modelling approach provides an alternative to more commonplace tobit estimation. However, the model is extended to include further information which was collected on:(a) an increased WTP amount given in response to information that the initial WTP amount may not be enough to prevent the extinction of the seal;(b) respondents were asked to divide their final WTP amount between use, option and existence values, the latter requiring a multivariate model with four binary and four continuous responses per individual in the same model.The discussion focuses on the methodological issues raised with some comment on the substantive interpretation of results.     

Marginal WTP and Distance Decay: The Role of ‘Protest’ and ‘True Zero’ Responses in the Economic Valuation of Recreational Water Quality

We evaluate the sensitivity of distance decay in individuals’ stated willingness to pay (WTP) for water quality improvements in eutrophied lakes. We extend the standard model of contingent valuation (CV) by allowing individuals to adopt a sequential evaluation process consisting of two decision stages. In the first stage respondents decide whether they are ‘protesters’, have a WTP   \(=\)   ‘true zero’ or a \(\hbox {WTP}>0\) . Conditioned on a strictly positive WTP, we use Lee’s selectivity-corrected model to determine the magnitude of their WTP in the second stage. Using CV survey data from Norway we find significant distance decay in the first stage classification of respondents as ‘protesters’, ‘true zero’ WTP, or positive WTP. In the second stage model for positive WTP responses, we find little or no significant relationships when correcting for selection. Results suggest that previous findings of significant distance decay in contingent valuation of lake and river water in Europe may be driven by the definition of ‘protest’ and ‘true zero’ respondents. We find that WTP for water quality may be more useful as a qualitative indicator of political support for user financed water quality measures, than as a cardinal measure of marginal utility of water quality improvements.     

Joint estimation of contingent valuation survey responses

Hanemann's utility difference model for the dichotomous choice contingent valuation method is modified to account for interrelationships between responses to a set of contingent valuation questions. A nonlinear seemingly unrelated regression model is presented to jointly estimate the probit models and to derive WTP from the CV responses. The model is used to test and impose restrictions derived from economic theory on the utility difference model. Mean WTP estimates for three different types of changes in the quality of California deer hunting were uniformly lower for the joint response probit model compared to a set of independent probit models.     

A comparison of empirical models used to infer the willingness to pay in contingent valuation

The essence of the contingent valuation method consists of creating a hypothetical market where respondents are asked about their willingness to pay (WTP) for a non-market good. Different empirical models can be formulated to estimate the expected WTP of a sample of respondents and, then, through aggregation, the social valuation of the good is inferred.This paper outlines the relevance of the distributional assumptions when estimating mean WTP. Several parametric and non-parametric methods are discussed and applied to calculate the existence value of a natural space. Results show that WTP is extremely sensitive to the empirical model used.First version received: November 2002 / Final version received: January 2004     

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.

---

     

Optimal Tax Policy under Environmental Quality Competition

This paper studies the socially optimal emission and commodity tax policy when consumers are willing to pay a price-premium for environmentally friendlier variants of a commodity vertically differentiated in environmental quality. The first-best levels of quality can be obtained by a combination of a uniform ad valorem tax and an emission tax (or a subsidy for buying green products). The first-best emission tax is higher than the social valuation of the positive externality associated with average environmental quality. Regardless of environmentally conscious consumers, if only one instrument is available, the second-best emission tax is equal to the social valuation of the positive externality associated with average environmental quality. A uniform ad valorem tax increases welfare only if the social valuation of the positive externality associated with average environmental quality is low enough.     

A Meta-study Investigating the Sources of Protest Behaviour in Stated Preference Surveys

It is a well-known empirical finding that some percentage of respondents participating in Stated Preference surveys will not give responses that reflect their true preferences. One reason is protest behaviour. If the distribution of protest responses is not independent of respondent or survey characteristics, then simply expelling protesters from surveys can lead to sample selection bias. Furthermore, WTP estimates will not be comparable across surveys. This paper seeks to explore potential causes of protest behaviour through a meta-study based on full datasets from 38 different surveys. The objective of the study is to examine the effect of respondent specific variables as well as survey specific variables on protest behaviour. Our results suggest that some of the differences in WTP typically observed between different demographic groups, different elicitation formats and different question formats might actually be attributed to inherent differences in the propensity to protest. Our results indicate that the propensity for respondents to exhibit protest behaviour when asked a stated preference type valuation question depends on a number of specific factors, respondent specific as well as survey specific—knowledge which could be used in order to reduce protest behaviour.     

Valuing Mortality Risk in Kuwait: Stated-Preference with a New Consistency Test

We report stated-preference estimates of the value per statistical life (VSL) for Kuwaiti citizens obtained using an innovative test to identify respondents whose survey responses are consistent with economic theory. The consistency test requires that an individual report strictly positive willingness to pay (WTP) for mortality-risk reduction and that his responses to binary-choice valuation questions for two risk reductions be consistent with the theoretical requirement that WTP is less than but close to proportional to the change in risk reduction. Our estimates of VSL, $18–32 million, are approximately two to four times larger than values accepted for the United States. These values may reflect cultural factors as well as the substantially larger disposable income of Kuwaiti citizens.     

The impact of behavioural risk-reduction interventions on willingness to pay to avoid sexually transmitted infections: a stated preference study of justice-involved youth

Risky health behaviours, such as smoking, drinking and risky sex, are substantial contributors to the U.S. morbidity rates and healthcare costs. While economic models typically regard preferences as stable, a growing literature suggests that information, including how it interacts with intentions and attitudes, plays an important role in unhealthy behaviours. Relatedly, a large health literature demonstrates that theory-based behavioural interventions can successfully change risky behaviour. This study uses the contingent valuation (CV) survey method to investigate the impact of behavioural interventions on a novel outcome measure: the willingness to pay (WTP) to avoid the consequences associated with risky behaviour. Using novel pre- and post-intervention data from Project MARS (Motivating Adolescents to Reduce Sexual Risk), this study estimates the impact of the intervention on elicited WTP to avoid sexually transmitted infections (STIs). It is found that after the intervention, participants’ elicited WTP to avoid STIs were significantly higher, and more sensitive to differences in infection severity. These results suggest that the intervention may affect risky sexual behaviour by changing the perceived value of avoiding the consequences of risky sexual behaviour. Additionally, these findings contribute to an ongoing debate regarding the construct validity of CV studies in health economics.