Nonparticipation or Misspecification? The Impacts of Nonparticipation on Dichotomous Choice Contingent Valuation

Abstract

Dichotomous choice (or Referendum) contingent valuation surveys have become the predominate choice for valuing goods and services otherwise not valued in a standard market (nonmarket goods and services). A number of researchers have recently recommended that dichotomous choice contingent valuation studies include a follow-up question to all no responses to determine whether the no response is a result of unwillingness to pay, or nonparticipation. If the goal of the study is to investigate the impact of covariates on either mean willingness to pay or the probability of nonparticipation, simple identification of indifferent individuals will not suffice. A simulation study shows that existing econometric models designed to account for nonparticipation are extremely sensitive to misspecification bias. Accurate identification of the probability of nonparticipation is hampered by potential misspecification of the distribution of willingness to pay.