Ken Willis

Elicitation and truncation effects in contingent valuation studies

Abstract The contingent valuation method (CVM) uses surveys of expressed preferences to evaluate willingness to pay for (generally) non-market, environmental goods. This approach gives the method theoretical applicability to an extensive range of use and passive-use values associated with such goods. However, recent years have seen the method come under sustained empirical and theoretical attack by critics who claim that the expressed preference statements given by respondents to CVM questions are subject to a variety of biases to the extent that “true” valuations cannot be inferred. This debate was reviewed and assessed in the recent report of the US, NOAA “blue-ribbon” panel which gave cautious approval to the method subject to adherence to a rigorous testing protocol. This paper reports findings from the first UK CVM study to generally conform to those guidelines. The major objective of the research reported on here is the analysis of the effects of altering the method of eliciting willingness to pay (WTP) responses. Three WTP elicitation methods are employed: open-ended questions (where the respondent is free to give any answer); dichotomous choice questions (requiring a yes/no response regarding a set WTP bid level); and iterative bidding questions (where a respondent is free to move up or down from a given WTP starting point). Results indicate that respondents experience significant uncertainty in answering open-ended questions and may exhibit free-riding or strategic overbidding tendencies (although this is less certain). When answering dichotomous choice questions respondents seem to experience much less uncertainty although the suggestion that bid levels affect responses cannot be ruled out, and it is clear that respondents behave somewhat differently to dichotomous choice as opposed to open-ended formats. The iterative bidding approach appears to provide a halfway house with respondents exhibiting certain of the characteristics of both the other formats. We concluded that the level of uncertainty induced by open-ended formats is a major concern, and that further research into the microeconomic motivations of individuals responding to iterative bidding and dichotomous choice CV surveys is high priority. A further aim of the analysis was to test for changes in estimated mean WTP induced by the application of different forms of truncation across all elicitation methods. Recommendations are made on appropriate truncation strategies for each elicitation method.

Performance of Error Component Models for Status-Quo Effects in Choice Experiments

Environmental economists have advocated the use of choice modelling in environmental valuation. Standard approaches employ choice sets including one alternative depicting the status-quo, yet the effects of explicitly accounting for systematic differences in preferences for non status-quo alternatives in the econometric models are not well understood. We explore three different ways of addressing such systematic differences using data from two choice modelling studies designed to value the provision of environmental goods. Preferences for change versus status-quo are explored with standard conditional logit with alternative-specific constant for status-quo, nested logit and a less usual mixed logit error component specification (kernel logit). Our empirical results are consistent with the hypothesis that alternatives offering changes from status-quo do not share the same preference structure as status-quo alternatives, as found by others in the marketing literature, in the environmental economic literature and in food preference studies. To further explore the empirical consequences of such mis-specification we report on a series of Monte Carlo experiments. Evidence from the experiments indicates that the expected bias in estimates ignoring the status-quo effect is substantial, and—more interestingly—that error component specifications with status-quo alternative specific-constant are efficient even when biased. These findings have significant implications for practitioners and their stance towards the strategies for the econometric analysis of choice modelling data for the purpose of valuation.

Valuing goods' characteristics: An application of the hedonic price method to environmental attributes

This study examines the effect of selected countryside characteristics on house prices in a rural area of the United Kingdom centred around the Forest of Dean in Gloucestershire. Data are gathered from a variety of sources and the hedonic price method is then used to derive a model of property prices from which the marginal costs of particular characteristics can be estimated. Some countryside characteristics, for example woodland, are observed to have a positive influence on house prices while others, like open water, are found to have no observable effect. The proximity of less desirable characteristics, such as marshland, are shown to have the effect of reducing house prices.

The non-use benefits of enhancing forest biodiversity: A contingent ranking study

Until recently, the majority of commercial forestry in the UK has comprised blanket planting of non-native coniferous species which typically do not offer a high level of biodiversity. However, the UK government, and consequently the UK Forestry Commission, are committed under various international agreements to conserve and enhance biodiversity in British forests. The study reported in this paper estimates that substantial non-use values would be generated if the Forestry Commission were to continue in its current efforts to develop management practices that promote an increase in biodiversity across a large area of its commercial holdings in remote parts of the country which are seldom visited. Rather than adopting a referendum-type contingent valuation method, a discrete-choice contingent ranking approach is used to estimate the general publics willingness to pay to increase the area of these forests managed under each of three forest management standards designed to offer increasing levels of biodiversity at the expense of commercial timber production. This permits relative preferences for different forest management standards to be measured at the same time as willingness to pay to enhance biodiversity.

The environmental economic impact of woodland: a two-stage hedonic price model of the amenity value of forestry in britain

Woodland is an important part of the environment providing economic benefits through its use in commercial timber production and through its value as an amenity. As well as providing recreation for visitors, woodland is also important to local residents for whom it provides leisure opportunities and a source of aesthetic enjoyment. It is well known that the price of a house may reflect a households willingness to pay to live near an environmental amenity, such as a forest, and to gain access to it. The nature of this relationship may be examined by applying the hedonic price technique, an econometric method which investigates house prices and the variation in structural and environment characteristics over space. This study uses a two-stage hedonic price model to explore the impact of forest type on house price, and to estimate the demand for broadleaved woodland for a sample of houses adjacent to Forestry Commission land.

Modelling zero values and protest responses in contingent valuation surveys

In contingent valuation surveys the category of zero bidders refers to individuals that are not willing to pay anything for the programme under analysis. Specific questions can help to identify true zero values, coming from people that are indifferent to the programme, separately from protest responses: the latter are generally excluded from the analysis. This paper introduces a mixture-sample selection model that takes into account both zero values and protest responses in the estimates. The model is applied to the valuation of a traffic calming scheme aimed at reducing risks for residents in three villages in the north-east of England.

Consistency Between Contingent Valuation Estimates: A Comparison of Two Studies of UK National Parks

BATEMAN I., WILLIS K. and GARROD G. (1994) Consistency between contingent valuation estimates: a comparison of two studies of UK National Parks, Reg. Studies 28, 457–474. Recent years have seen a significant increase in the application of the contingent valuation method to the evaluation of environmental preferences in the UK. Recent theoretical and methodological developments suggest that this increase is likely to be sustained for the foreseeable future. This paper examines the issue of consistency across studies carried out to date in the UK. Attention is initially focused upon two major studies which allow the comparison of a number of findings. Analysis is then extended to a large number of smaller studies. These comparisons suggest that the results obtained to date are both consistent and logically ordered (with reference to the environmental good and the change in provision under consideration) across studies. BATEMAN I., WILLIS K. et GARROD G. (1994) La coherence des estimations contingentes: une ...

Estimating rural households' willingness to pay for health insurance.

In many developing countries limited health budgets are a serious problem. Innovative ways to raise funds for the provision of health services, for example, through health care insurance, have a high priority. Health care insurance for rural households shields such patients from unexpected high costs of care. However, there are questions about whether, and how much, rural households are willing to pay to purchase such insurance, as well as the factors determining willingness to pay. In recent years the Iranian government has tried to improve health and medical services to rural areas through a health insurance program. This study was conducted to estimate rural households’ demand and willingness to pay for health insurance. A contingent valuation method (CVM) was applied using an iterative bidding game technique. Data has been collected from a sample of 2,139 households across the country.

Estimating lost amenity due to landfill waste disposal

The increasing quantities of waste produced by society have implications not only for waste management but also for the social and environmental impacts that these activities generate. This paper examines the impacts that a well-established United Kingdom (UK) landfill site has on the people who live around it and uses a stated preference choice experiment to estimate the magnitude of these impacts in monetary terms. It is found that many residents experience minimal impacts having learnt to live with the landfill site. Willingness to pay for reducing impacts is relatively low and any reduction in landfill operations is likely to have little effect on the amenity of local people.

Valuation of urban amenities using an hedonic price model

Summary This paper examines the ability of the hedonic price method to estimate the premium offered by particular housing attributes or environmental characteristics in an urban setting. Problems of non‐separability in variables within an empirical model, suggest that this methodology is not always suitable for the estimation of specific housing attributes, and an alternative approach to this problem is suggested.