Contingent Valuation Literature Research Articles

The sample median as an estimator of population mean true willingness to pay under valuation uncertainty: a synthesis and analysis of the literature

ABSTRACT This paper reviews the contingent valuation literature on hypothetical bias and valuation uncertainty, with special emphasis on measures of central tendency suitable for applied welfare analysis. In a theoretical scenario without valuation uncertainty, sample mean willingness to pay (WTP) is an estimator of population mean true WTP, the appropriate welfare measure. It is proposed here that this may not hold under valuation uncertainty. In this case, mean true WTP should be bounded by mean hypothetical WTP and mean actual WTP (in turn, mean actual WTP should exceed mean certain WTP). Based on a theoretical model and a review of existing empirical studies, median hypothetical WTP was found to be an estimator of mean true WTP. It is therefore proposed that contingent valuation researchers should consider using the sample hypothetical median as an estimator of population mean true WTP when supporting data on the degree of valuation uncertainty are absent. This could be a straightforward approach, e.g. in a low income country context, where the possibility of financing elaborate research designs accounting for valuation uncertainty is limited. It can also prove useful to revisit existing contingent valuation studies with these findings in mind.

Payment and Policy Consequentiality in Dichotomous Choice Contingent Valuation: Experimental Design Effects on Self-Reported Perceptions

Although the contingent valuation literature emphasises the importance of controlling for respondents’ consequentiality perceptions, this literature has rarely accounted for the difference between payment and policy consequentiality. We examine the influence of the randomly assigned tax amount on consequentiality self-reports and their potential endogeneity using data from a single dichotomous choice survey about reducing marine plastic pollution in Norway. Results show that consequentiality perceptions are a function of the tax amount, with payment consequentiality decreasing and policy consequentiality increasing with higher tax amounts. We discuss the challenge of finding valid instruments to address potential endogeneity of consequentiality perceptions.

Payment and Policy Consequentiality in Dichotomous Choice Contingent Valuation: Experimental Design Effects on Self-Reported Perceptions

Although the contingent valuation literature emphasizes the importance of controlling for respondents’ consequentiality perceptions, this literature has rarely accounted for the difference between payment and policy consequentiality. We examine the influence of a randomly assigned tax amount on consequentiality self-reports and their potential endogeneity using data from a single dichotomous choice survey about reducing marine plastic pollution in Norway. Results show that consequentiality perceptions are a function of the tax amount, with payment consequentiality decreasing and policy consequentiality increasing with higher tax amounts. We discuss the challenge of finding valid instruments to address the potential endogeneity of consequentiality perceptions.

Diagnosing Insensitivity to Scope in Contingent Valuation

Sensitivity to scope is considered a desirable property of contingent valuation studies and often treated as a necessary condition for validity. We first provide an overview of scope insensitivity explanations put forth in the environmental valuation literature. Then we analyze data from a contingent valuation survey eliciting willingness-to-pay to prevent oil spills of four different magnitudes in Arctic Norway. In the baseline analysis, the scope inference is ambiguous. There is only statistical difference in willingness to pay to avoid a very large versus small oil spill (NOK 1869 and NOK 1086, respectively). However, further explorations show that several confounding factors suggested in the literature influence the scope inference. The scope sensitivity improves when we control for subjective probabilities of amenity provision, exclude respondents based on the debriefing questions, take into consideration the sample sizes, and impose diminishing marginal utility. Overall, the analysis supports an emerging view in the contingent valuation literature suggesting that statistical scope insensitivity is not a sufficient reason for deeming a study invalid.

Is Willingness to Pay for Non-Consumptive Wildlife Watching Falling? Evidence From Three Rounds of the National Survey of Fishing, Hunting, and Wildlife-Associated Recreation

ABSTRACTSince 1955, the United States Fish and Wildlife Service has conducted the National Survey of Fishing, Hunting, and Wildlife-Association Recreation (FHWAR) with the purpose of evaluating outdoor recreation. Using the socioeconomic, activity, and contingent valuation data collected from the last three rounds of this national survey (2001, 2006, 2011), econometric modeling demonstrates that variables such as age, income, gender, and type of land visited (public/private) explain variation in wildlife watching willingness to pay (WTP) and consumer surplus (CS). Although not having been fully investigated in the previous FHWAR contingent valuation literature, results suggest that distinguishing between in-state and out-of-state wildlife watching is important. Additionally, analyses indicate that CS for out-of-state wildlife watching along with CS and WTP for in-state wildlife watching are temporarily reliable. Given the study period overlaps the recent recession, this outcome suggests that welfare is stable across time and in the face of business cycles.

Decision uncertainty in multi-attribute stated preference studies

Econometric modelling of decision uncertainty has received extensive attention in the contingent valuation literature, but these methods are not directly transferable to the realm of multi-attribute stated preference studies. In this paper, an integrated choice and latent variable model tracing the impact of decision uncertainty on the valuation of flood risk reductions in the Netherlands is developed. The proposed model structure is not subject to the potential endogeneity bias and measurement error issues associated with most applied methods. The driving factors of decision uncertainty are identified through stated choices and a set of self-reported decision uncertainty follow-up questions. The model simultaneously accounts for the impact of decision uncertainty on individual choices and welfare estimates. In the presented case study uncertain respondents are found to make more random choices and select the opt out option more often. Willingness-to-pay for flood risk reductions increases after accounting for these behavioural responses to decision uncertainty.

Social and ecological impacts of the Hebei Spirit oil spill on the west coast of Korea: Implications for compensation and recovery

Although several years have passed since the incidence of the 2007 Hebei Spirit Oil Spill in Korea (HSOS), but it appears that compensation and recovery efforts are far from being satisfactory and the affected communities are still suffering various adverse impacts incurred by the disaster. This study examines how the levels of compensation for damages from HSOS were determined and discusses whether compensation and recovery efforts were sufficient to resolve not only financial but also social and ecological impacts. We performed a review of compensation processes in several large oil spill cases around the world and found that most of economic losses, evaluated through multiple economic evaluation studies, were actually compensated. In the HSOS case, however, no scientific assessment of the economic costs for adequate level of compensation for the damages was conducted before compensation occurred. We found that only 11% of the HSOS claims were approved for compensation. The size of admitted claims is minimal compared to the economic value of the damage suggested by the contingent valuation literature on tidal flats in Korea. We discuss the adequate level of monetary compensation and recovery efforts necessary to resolve the social and ecological damages and to boost up the regional economy to the satisfaction of the affected populations.

Specification of the Utility Function in Discrete Choice Experiments

BackgroundThe specification of the utility function has received limited attention within the discrete choice experiment (DCE) literature. This lack of investigation is surprising given that evidence from the contingent valuation literature suggests that welfare estimates are sensitive to different specifications of the utility function. ObjectiveThis study investigates the effect of different specifications of the utility function on results within a DCE. MethodsThe DCE elicited the public’s preferences for waiting time for hip and knee replacement and estimated willingness to wait (WTW). ResultsThe results showed that the WTW for the different patient profiles varied considerably across the three different specifications of the utility function. Assuming a linear utility function led to much higher estimates of marginal rates of substitution (WTWs) than with nonlinear specifications. The goodness-of-fit measures indicated that nonlinear specifications were superior.

Willingness to Pay for Diagnostic Technologies: A Review of the Contingent Valuation Literature

ObjectivesTo understand how people value information from diagnostic technologies, we reviewed and analyzed published willingness-to-pay (WTP) studies on the topic. MethodsWe searched PubMed for English-language articles related to WTP for diagnostic laboratory tests published from 1985 through 2011. We characterized methodological differences across studies, examined individual- and technology-level factors associated with WTP, and summarized median WTP values across different diagnostic tests. ResultsWe identified 66 relevant WTP studies. Half focused on oncology, while others analyzed infectious diseases (n = 11, 16.1%) and obstetric or gynecological conditions (n = 8, 11.7%), among others. Most laboratory tests included in studies were biological samples/genetic testing (n = 44, 61.1%) or imaging tests (n = 23, 31.9%). Approximately one third of the analyses (n = 20, 30.3%) used discrete-choice questions to elicit WTP values. Higher income, education, disease severity, perceived disease risk, family history, and more accurate tests were in general associated with higher WTP values for diagnostic information. Of the 44 studies with median WTP values available, most reported a median WTP value below $100. The median WTP value for colon or colorectal cancer screening ranged from below $100 to over $1000. ConclusionsThe contingent valuation literature in diagnostics has grown rapidly, and suggests that many respondents place considerable value on diagnostic information. There exists, however, great variation in studies with respect to the type of technologies and diseases assessed, respondent characteristics, and study methodology. The perceived value of diagnostic technologies is also influenced by the study design and elicitation methods.

PRM137 - Willingness to pay for diagnostic technologies: A review of the contingent valuation literature

PRM137 - Willingness to pay for diagnostic technologies: A review of the contingent valuation literature

A Note on the Expected Biases in Conventional Iterative Health State Valuation Protocols

Typical health state valuation exercises use tradeoff methods, such as the time tradeoff or the standard gamble, involving a series of iterated questions so that a value for each health state by each individual respondent is elicited. This iterative process is a source of potential biases, but this has not received much attention in the health state valuation literature. The issue has been researched widely in the contingent valuation (CV) literature, which elicits the monetary value of hypothetical outcomes. The lessons learned in the CV literature are revisited in the context of the design and administration of health state valuations. The article introduces the main known biases in the CV literature and then examines how each might affect conventional iterative health state valuations. Of the 8 main types of biases, starting point bias, range bias, and incentive incompatibility bias are found to be potentially relevant. Furthermore, the magnitude and direction of the bases are unlikely to be uniform and depend on the range of the value (e.g., between 0 and 0.5). Limitation. This is an overview article, and the conclusions drawn need to be tested empirically. Health state valuation studies, like CV studies, are susceptible to a number of possible biases that affect the resulting values. Their magnitude and direction are unlikely to be uniform, and thus empirical studies are needed to diagnose the problem and, if necessary, to address it.

Contingent Valuation: From Dubious to Hopeless

Approximately 20 years ago, Peter Diamond and I wrote an article for this journal analyzing contingent valuation methods. At that time Peter's view was that contingent valuation was hopeless, while I was dubious but somewhat more optimistic. But 20 years later, after millions of dollars of largely government-funded research, I have concluded that Peter's earlier position was correct and that contingent valuation is hopeless. In this paper, I selectively review the contingent valuation literature, focusing on empirical results. I find that three long-standing problems continue to exist: 1) hypothetical response bias that leads contingent valuation to overstatements of value; 2) large differences between willingness to pay and willingness to accept; and 3) the embedding problem which encompasses scope problems. The problems of embedding and scope are likely to be the most intractable. Indeed, I believe that respondents to contingent valuation surveys are often not responding out of stable or well-defined preferences, but are essentially inventing their answers on the fly, in a way which makes the resulting data useless for serious analysis. Finally, I offer a case study of a prominent contingent valuation study done by recognized experts in this approach, a study that should be only minimally affected by these concerns but in which the answers of respondents to the survey are implausible and inconsistent.

Comparing willingness-to-pay between residents and non-residents when correcting hypothetical bias: Case of endangered spotted seal in South Korea

Two threads within the contingent valuation literature are potential biases created by the hypothetical nature of the method and defining the population to sample. To our knowledge, this is the first study to combine these threads, namely examining how attempting to control for hypothetical bias interacts with how the population is defined. Results indicate controlling for hypothetical bias makes the two samples, residents of Baengnyeong Island (where the spotted seal is located) and the general South Korea population, more similar than if bias is not corrected. Without correcting for bias, for example, residents' willingness-to-pay for preservation of the seal is 33% higher than the general population; however, after controlling for hypothetical bias this percent decreases to 21%.

Ex ante and ex post valuations of a cultural good. Are preferences or expectations changing?

In recent years valuations of cultural goods and services have been undertaken using the contingent valuation method, because of its flexibility and the advantages it affords over other methods of valuing non-market goods. Yet, in contingent valuation literature few studies have addressed the reliability of the outcomes. This is the goal of the current paper, which presents the results of anapplication of the contingent valuation method to a new museum of contemporary art (Museo Patio Herreriano de Arte Contemporáneo [Spanish Contemporary Art Museum] in Valladolid, Spain). The method was applied at two different times: prior to its opening and after some years. We thus aim to contrast the evolution of preferences and willingness to pay (WTP) estimates at different points in time using bootstrap techniques. Estimations were performed using non-parametric methods and the outcomes reflect stability for valuations made by visitors to the museum but not for the valuations given by residents of Valladolid.

A Test of Cheap Talk in Different Hypothetical Contexts: The Case of Air Pollution

We explore the influence of a neutral cheap talk script in three typical scenarios used in the contingent valuation literature devoted to the valuation of air pollution effects. We show that cheap talk has a varying effect on both Willingness to Pay (WTP) and protest responses, depending on the scenario implemented. The main results are that it decreases WTP while increasing protest responses in one scenario, has no effect in another, and that some respondents’ characteristics and background make them more sensitive to the script. The crucial role of the scenario is confirmed.

Ordering anomalies in choice experiments

This paper investigates whether responses to choice experiments (CEs) are subject to ordering anomalies. While previous research has focussed on the possibility that such anomalies relate to position in the sequence of choice tasks, our research reveals that the particular order of tasks matters. Using a novel experimental design that allows us to test our hypotheses using simple nonparametric statistics, we observe ordering anomalies in CE data similar to those recorded in the dichotomous choice contingent valuation literature. Those ordering effects operate in both price and commodity dimensions and are observed to compound over a series of choice tasks. Our findings cast serious doubt on the current practice of asking each respondent to undertake several choice tasks in a CE while treating each response as an independent observation on that individual's preferences.

On Inferring Demand for Health Care in the Presence of Anchoring and Selection Biases

In the contingent valuation literature, anchoring bias poses problems when using an iterative bidding game to infer willingness to pay. This bias occurs when the willingness to pay estimate is sensitive to the initially presented starting value. More generally, whenever a survey format is used and not all of those contacted participate, selection bias raises concerns about the representativeness of the sample. In this paper, we estimate students' willingness to pay for student health care at Stanford University while accounting for both of these biases. As there is no cost sharing for students, we assess willingness to pay by having a random sample of students play an on line iterative bidding game. Our main results are that (1) demand for student health care is elastic by conventional standards; (2) ignoring anchoring bias would lead to a substantially biased measure of the demand elasticity; and (3) standard selection correction methods indicate no bias from selective non-response and newer bounding methods support this conclusion of elastic demand.

Handling respondent uncertainty in Choice Experiments: Evaluating recoding approaches against explicit modelling of uncertainty

Using data from two Choice Experiment environmental valuation surveys we investigate several different ways of handling respondent uncertainty. In both surveys respondents are asked to state their certainty of choice after each single choice set. We evaluate three different recoding-of-answers methods adapted from the Contingent Valuation literature. Furthermore, we evaluate two models which directly capture the effect of respondent uncertainty by parameterization of a scale function. In one model the scale parameter is a function of respondents' stated uncertainty level. In the other it is a function of respondent and choice set characteristics found to be significant determinants of stated uncertainty. All approaches are compared to a benchmark utility model.While some of the recoding approaches apparently reduce noise in the data, they generally have no significant effect on attribute Willingness-To-Pay (WTP) estimates, and standard errors on WTP estimates tend to increase. The explicit modelling of the scale parameter using stated uncertainty reveals that unobserved variation decreases as certainty of choice increases. While the model performance does not improve much, this approach offers a structurally and intuitively much more appealing way of accounting for uncertainty in choices in CE.

Comparison of two methods of eliciting time preference for future health states

Mean estimates of time preference rates for health vary widely in the literature. If these studies are to inform discounting practice and analyses of health-affecting behaviour, it is crucial to understand why this is the case. One reason for the variation in time preference rates is the use of different elicitation methods. The influence of elicitation method has received little attention in the time preference literature. This study compares directly an open-ended and a closed-ended method. Both private and social time preferences for health are elicited. The closed-ended method produced much lower mean rates than the open-ended method. This is in contrast to the contingent valuation literature which shows that closed-ended methods produce higher estimates of willingness to pay than open-ended methods. That the elicitation methods produce different mean estimates is clearly worrying if the interest is in estimating the true time preference rate. However, the results of this study suggest that if the interest is in testing different types of time preferences or investigating the relationship between time preference and individual characteristics then the choice of elicitation method is less important.

Contingent values as implicit contracts: estimating minimum legal willingness to pay for conservation of large carnivores in Sweden

Mean willingness-to-pay (WTP) based on multiple bounded, discrete choice responses from contingent valuation surveys are normally obtained using some kind of parametric estimator. This paper instead exploits the possibility to interpret the response to the discrete-choice question as an implicit contract between the researcher and the respondent, resulting in a minimum legal WTP (MLW) estimator. Never previously used in valuation literature, it is used in this paper to estimate the WTP for the preservation of large carnivores in Sweden, based on a large scale, national survey. Results show that MLW estimates only were 12–19% of the comparable parametric estimates. In keeping with other results in contingent valuation literature, we find that the MLW estimates are positively related to the educational level, income and the fraction of urban population, while negatively related to age. Among the advantages of the MLW estimator is its transparency as well as the fact that it rests on a contractual notion of WTP.