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.     

Appropriate Payment Vehicles in Stated Preference Studies in Developing Economies

Selecting appropriate payment vehicles is critical for the perceived consequentiality and incentive compatibility of stated preferences surveys. We analyze the performance of three different payment vehicles in a Malaysian case of valuing wetland conservation. Two are well-known: voluntary donations and income taxes. The third is new: reductions in government subsidies for daily consumer goods. Using donations is common, but this payment vehicle is prone to issues of free-riding. An income tax usually has favorable properties and is commonly used in environmental valuation. However, in Malaysia as well as in many other low- to middle-income economies, large proportions of people do not pay income taxes, putting the validity of this payment vehicle into question. Instead, citizens in Malaysia and many other countries benefit from subsidies for a range of consumer goods. We find that price sensitivity is higher and the unexplained variance smaller when using subsidies rather than donations or income taxes. Importantly, this approach translates into completely different conclusions concerning policy advice. Our results suggest that in developing countries, using reduced subsidies as a payment vehicle may have favorable properties in terms of improved payment consequentiality compared to alternative payment vehicles, thus enhancing the external validity of stated preference surveys.     

Commodity money in the presence of goods of heterogeneous quality

Summary The aim of this paper is to demonstrate that uncertainty about the quality of a particular commodity does not necessarily exclude it from emerging as commodity money. This is shown in the context of the model of a simple economy with specialized agents and decentralized trade described in Kiyotaki and Wright (1989). In order to derive this result, considerations about marketability of the different goods are taken into account.I wish to thank Pierre de Trenqualye for many helpful conversations and ideas. For their comments and suggestions I am also very grateful to G. de Fraja and P. J. Simmons. Special thanks are due to Randall Wright for his kind advice. The usual disclaimer applies. Financial support was provided by CIRIT (Generalitat de Catalunya, Spain).     

The Dynamic Vickrey Auction

We study the efficient allocation of a single object over a finite time horizon. Buyers arrive randomly over time, are long-lived, and have independent private values. The valuation of a buyer may depend on the time of the allocation in an arbitrary way. We construct an incentive compatible mechanism in which (A) there is a single financial transaction (with the buyer), (B) ex-post participation constraints are fulfilled, (C) there is no positive transfer to any agent and (D) payments are determined online. We exploit that under the efficient allocation rule, there is a unique potential winning period for each buyer. This reduces the multidimensional type to one dimension and the payment of the winner can be defined as the lowest valuation for the potential winning period, with which the buyer would have won the object. In a static model, this payment rule coincides with the payment rule of the Vickrey Auction.     

Core and Walrasian equilibria when agents' characteristics are extremely dispersed

Summary. It is shown that core-Walras equivalence fails whenever the commodity space is a non-separable Banach space. The interpretation is that a large number of agents guarantees core-Walras equivalence only if there is actually a large number of agents relative to the size of the commodity space. Otherwise a large number of agents means that agents' characteristics may be extremely dispersed, so that the standard theory of perfect competition fails. Supplementing the core-Walras non-equivalence result, it is shown that in the framework of economies with weakly compact consumption sets – as developed by Khan and Yannelis (1991) – the core is always non-empty, even if consumption sets are non-separable. December 12, 2001; revised version: December 6, 2002 RID="*" ID="*" Thanks to E. Dierker, M. Nermuth, R. Tourky, and N. C. Yannelis for helpful discussions and suggestions, and thanks to a referee for comments which helped to improve the final version.     

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.     

The behavior of respondents in contingent valuation: Evidence on starting bids

Data from a contingent valuation survey of New Jersey beaches provides a test of starting point bias. Subsamples were delineated corresponding to levels of respondent understanding of the commodity being valued. A means- difference test showed statistically significant starting point bias for each subsample of respondents. A bid function is used to show that starting point bias is present and it increases as the level of information (understanding) decreases. Starting point bias was found even though respondents were actually using and paying for the commodity in question and the starting bids were in the neighborhood of the entry fee.     

THE ESTIMATION OF PRICE EFFECTS IN A SOCIAL ACCOUNTING MATRIX

The estimation of true basic prices in a Social Accounting Matrix (SAM) has long been recognized as necessary in order to achieve uniform valuation of inputs for meaningful manipulation of the input-output table contained in a SAM, in order to assess the real effects of changes in demand, etc. In practice, approximate basic prices only have normally been calculated in order to avoid matrix inversion among other things. It is equally the case that true basic prices are required if one wishes to assess the price-raising effects of commodity taxes. It is shown through an example that approximate basic prices, as conventionally calculated, are inadequate and potentially misleading for this as indeed they are for achieving uniformity of valuation. There are also problems with the present procedure for calculating true basic prices.
An alternative method of calculating true basic prices is given, which has various advantages over the existing method, and a new approximate method is also derived which appears to represent a definite improvement on the present method. For the main purpose of the paper, however, the prices of concern are those charged by producers to which the methodology equally applies.     

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.     

WILLINGNESS‐TO‐PAY FOR SPORTING SUCCESS OF FOOTBALL BUNDESLIGA TEAMS

This study shows that fans and people living in the region of 28 Football Bundesliga teams from all three divisions are willing to support their team financially. Survey respondents were asked for their willingness‐to‐pay to avoid a negative outcome (e.g., relegation) and to achieve a positive outcome (e.g., promotion). Fan bonds are applied as an alternative payment vehicle within the contingent valuation method. The results show that different factors affect the decision to support the team and the actual amount of willingness‐to‐pay—for attendees and nonattendees. Public goods are particularly relevant for reporting a positive willingness‐to‐pay. (JEL Z23, L83, H41)     

Cointegration relationships and hedonic pricing of differentiated commodities: an application to price dynamics in the US dairy sector

This study investigates the implications of hedonic pricing for price dynamics of differentiated commodities. A conceptual model of hedonic pricing is developed under a Leontief technology, showing how commodity prices reflect the underlying value of their components. Implications for the existence of cointegration relationships among commodity prices are derived. An application to the pricing and dynamics of selected US dairy commodities is presented. It provides evidence on the role of component valuation in the dynamics of dairy commodity prices in the short run as well as in the long run. Distinguishing between market regime and government regime (when the government price support is active), the analysis finds significant differences in dairy price dynamics between the two regimes.     

Are There Income Effects on Global Willingness to Pay for Biodiversity Conservation?

This paper is concerned with the empirical relationship between biodiversity conservation values and income. We use random effects panel models to examine the effects of income, and then GDP per capita, on willingness to pay for habitat and biodiversity conservation. In a meta-analysis, 145 Willingness To Pay estimates for biodiversity conservation where existence value plays a major role were collected from 46 contingent valuation studies across six continents. Other effects included in the meta-analysis were the study year; habitat type; continent; scope as presented to respondents; whether WTP bids were for preventing a deterioration or gaining an improvement in conservation, whether a specific species or specific habitat was protected; whether the questionnaire used a dichotomous choice or an open-ended format; distribution format; and the choice of payment vehicle. GDP per capita seemed to perform as well as an explanatory variable as respondent’s mean stated income, indicating that it is wealth in society as a whole which determines variations in WTP. Even if large variation, our main conclusion is, that the demand for biodiversity conservation rises with a nation’s wealth, but the income elasticity of willingness to pay is less than one.     

Laboratory Testbeds and Non-Market Valuation: The Case of Bidding Behavior in a Second-Price Auction with an Outside Option

Researchers now use the lab to examine the behavioral underpinnings of valuation before the field application which some argue has less experimental control. But lab valuation work raises its own set of concerns when it uses private goods to explore non-market valuation behavior because private goods have substitutes often unaccounted for in the lab. Therefore, the lab as a tool to testbed field valuation work may be limited. Herein we design an induced valuation experiment to explore bidding behavior in a second-price auction with an outside option that is a perfect substitute for the auction commodity. Theory predicts that rational bidders will consider the prices of outside options when formulating bidding strategies, and will reduce their bids whenever their resale value exceeds the price of the outside option. Our results suggest that bidders account for outside options when formulating bids with behavior following comparative static predictions. In addition, we provide evidence concerning hypothetical versus actual behavior with induced values – the data suggesting a hypothetical bias in the level of bids but not in bid shaving.     

Cartel instability and periodic price shocks

The paper explains periodic commodity price shocks in a market with a cartelized supply side. It is shown how the interactions of sluggish demand and the inherent instability of the cartel create cyclical behavior and price shocks. The theoretical model is applied to the world petroleum market.I am indebted to two referees for helpful comments and critique. None of them is responsible for any deficiencies of the paper.     

Price rigidities and institutional variations in markets with posted prices

Summary An exchange economy with price rigidities and rationing is considered. The rationing systems allowed are very general. Several characterizations of the set of constrained equilibria are given, and new equilibrium existence results are provided. More specifically, well-known properties like the existence of equilibria without rationing of the numeraire commodity, and the existence of supply and demand constrained equilibria without rationing on the market of at least one commodity follow as special cases from the theorems proved. Finally it is shown that the equilibrium correspondence is upper semi-continuous, while it is continuous on a residual set of points. In order to prove these results a new continuity result for the budget correspondence is given.The author would like to thank Dolf Talman, Gerard van der Laan, Jan van Geldrop, and an anonymous referee for their valuable comments on previous drafts of this paper. The author is financially supported by the Cooperation Centre Tilburg and Eindhoven Universities, The Netherlands. This research is part of the VF-program Competition and Cooperation.     

A Model of Commodity Differentiation with Indivisibilities and Production

This paper presents an existence theorem in a general equilibrium model of a production economy with commodity differentiation and indivisibilities. The model is motivated by the existence of markets with indivisible commodities, such as the markets for automobiles and computers. As is standard in the literature, the space of commodity characteristics is described by a compact metric space and a commodity vector is described by an integer-valued Borel measure on the space of commodity characteristics. An atomless measure space of producers and consumers is assumed to overcome the problem of non-convexity of the production and consumption sets induced by indivisibilities. This paper is based on a chapter from James Marton’s dissertation. We would like to thank Marcus Berliant, Wilhelm Neuefeind, and an anonymous referee for their valuable comments and suggestions.     

Money as a Generic Particular: Marx and Simmel on the Structure of Monetary Denominations

ABSTRACT

This article is concerned with the structure of monetary denominations of economic value. Marx and Simmel analyze this structure by means of references to objects of mere catallactic validity. These objects are ontologically atypical insofar as they are particulars of the genus commodity. Understanding money through generic particulars elucidates the conceptual link between money as a unit of account and money as a means of payment. This initially perplexing idea captures a fundamental characteristic of money without committing to either a commodity theory or a claim theory of money. A modification of the notion ‘commodity’ allows for a conception of money as a generic particular that is consistent with contemporary accounts of money as abstract purchasing power residing in different forms of liabilities and claims denominated in a common quantitative scale.     

The law of one price and the modelling of disaggregated trade flows

This paper argues that the application of a differentiated good model to disaggregated commodity trade, and in particular to primary commodity trade, is feasible. Price data for as narrowly defined a commodity as wheat are shown to violate the law of one price. An Armington-type model which allows prices of a commodity to vary by supplier is then applied to world wheat trade. Two issues concerning the Armington model are addressed. First, it is shown that the theoretical implications of the model are plausible in the case of a disaggregated commodity. Second, as an example, 1973–1974 wheat trade flows and prices forecast by an Armington-type model are shown to be consistent with actual trade patterns and prices.     

What You Don’t Know Might Hurt You: Some Unresolved Issues in the Design and Analysis of Discrete Choice Experiments

The papers and comments in this issue focus on four broad areas related to understanding and modeling choices: (1) The use of laboratory experiments to improve valuation methods; (2) The design of stated preference choice set and choice occasions; (3) Latent class models as means of identifying and accommodating preference heterogeneity; and (4) Accommodating uncertainty about the “true” model, modeling ranking and rating tasks and pooling data sources. In what follows I offer some comments on each area, and briefly discuss several unresolved issues associated with each area, closing with some comments about future research opportunities.     

Continuity of the equilibrium price density and its uses in peak-load pricing

Summary. With as the commodity space, the equilibrium price density is shown to be a continuous function of the commodity characteristics. The result is based on symmetry ideas from the Hardy-Littlewood-Pólya theory of rearrangements. It includes, but is not limited to, the case of symmetric (rearrangement-invariant) production costs and additively separable consumer utility. Examples arise in continuous-time utility pricing, e.g., electricity pricing. In this context, a continuously varying price has two uses. First, it precludes demand jumps that would arise from discontinuous switches from one price rate to another. Second, in the problems of operating and valuing hydroelectric and pumped-storage plants (studied elsewhere), price continuity guarantees that their capacities (viz., the reservoir and the converter), the energy stocks, and in the case of hydro also the river flows, have well-defined marginal values.Received: 9 May 2001, Revised: 8 July 2004, JEL Classification Numbers: C62, D51, D58, L94. Correspondence to: Anthony HorsleyPart of this work (CentER DP 9014) was completed at the Center for Economic Research, Tilburg University, whose financial support is gratefully acknowledged. The extension to storage was supported by ESRC grant R000232822. We also thank the referee and the editor for their comments.