An Adding-up Test on Contingent Valuations of River and Lake Quality

W Desvousges,K Mathews,K Train

doi:10.3368/le.91.3.556

Abstract

For a contingent valuation (CV) study of a bundle of water quality improvements, this paper tests whether the sum of the estimated willingness to pay (WTP) for each individual part of the package, evaluated incrementally, equals the estimated WTP for the entire bundle—as implied by standard utility theory. This is the first application of the adding-up test using incremental parts and Carson and Groves’s (2007) procedures to induce truthful respondents’ answers. The test is failed, which implies that either the CV method did not elicit truthful answers or that respondents’ true preferences are inconsistent with standard utility theory. <i>(JEL Q51)</i>

Highlights

Contingent valuation (CV) is a survey procedure designed to estimate respondents’ willingness to pay (WTP) for natural resource services
Bateman et al (1997) find that the sum of the parts exceeded the whole by 5.3–16% in their experimental bidding for private goods, while we find that the sum of the parts in our CV study of a public good exceeds the whole by more than 200%
The scope test has been applied as a means to ascertain whether CV results reflect economic preferences

Summary

Introduction

Contingent valuation (CV) is a survey procedure designed to estimate respondents’ willingness to pay (WTP) for natural resource services. One of the most prominent concerns about CV is whether the estimated WTP from CV studies varies adequately with the amount, extent, or, more generally, “scope” of the environmental good.. One of the most prominent concerns about CV is whether the estimated WTP from CV studies varies adequately with the amount, extent, or, more generally, “scope” of the environmental good.3 This concern was emphasized by a panel of experts that the National Oceanic and Atmospheric Administration (NOAA) convened with the purpose of making recommendations about the reliability of CV. Passing the scope test (i.e., finding that estimated WTP increases with scope) does not imply that the William Desvousges, Kristy Mathews and Kenneth Train - 9781786434692 Downloaded from Elgar Online at 11/02/2021 03:26:15PM via free access estimated response is adequate in magnitude.

Objectives

Results

Conclusion