Relative Versus Absolute Commodity Measurements in Benefit Transfer: Consequences for Validity and Reliability

Abstract

Non‐market goods can be measured on cardinal or relative scales. Consider a marsh of 200 acres, of which 20 acres would be affected by a policy. The same affected area can be measured in cardinal terms (20 acres) or as a relative proportion (10% of the marsh). When relative units such as percentages are a scalar transformation of cardinal units, the units of measurement used for modeling are often inconsequential for single‐site econometric and welfare analysis. However, this seemingly inconsequential transformation can have significant implications for benefit transfer across sites—a simple observation that remains unacknowledged by the literature. This article provides a theoretical and empirical evaluation of variable measurement conventions within benefit transfer, deriving conditions under which different types of measurement scales are expected to enhance validity and reliability. Theoretical results are illustrated using an application of discrete choice experiments to coastal flood adaptation in two Connecticut (United States) communities. Empirical findings validate expectations from the theoretical model, suggesting that transfers over goods measured in relative units may often outperform transfers over goods measured in cardinal units. These findings imply that the outcome of benefit transfer convergent validity tests may hinge on whether goods are measured in cardinal or relative units.