Thomas H. Stevens

A Meta-Analysis of Hypothetical Bias in Stated Preference Valuation

Individuals are widely believed to overstate their economic valuation of a good by a factor of two or three. This paper reports the results of a meta-analysis of hypothetical bias in 28 stated preference valuation studies that report monetary willingness-to-pay and that used the same mechanism for eliciting both hypothetical and actual values. The papers generated 83 observations with a median value of the ratio of hypothetical to actual value of 1.35, and the distribution has severe positive skewness. Since a comprehensive theory of hypothetical bias has not been developed, we use a set of explanatory variables based on issues that have been investigated in previous research. We find that a choice-based elicitation mechanism is important in reducing bias, though an insufficient number of studies and confounding with other variables prevents us from characterizing individual mechanisms. We provide some evidence that the use of student subjects may be a source of bias, but this variable is highly correlated with group experimental settings and no firm conclusions can be drawn. There is some weak evidence that bias increases when public goods are being valued, and that some calibration methods are effective at reducing bias. Results are quite sensitive to model specification, which will remain a problem until a comprehensive theory of hypothetical bias is developed.

Comparison of contingent valuation and conjoint analysis in ecosystem management

Abstract Contingent valuation (CV) and conjoint analysis were used to estimate landowner’s willingness to pay (WTP) for ecosystem management on non-industrial private forest land. The results suggest that even when conjoint and CV questions are the same, except for rating and pricing format, respectively, WTP estimates are quite different. Since most conjoint models essentially count ‘maybe’ responses to valuation questions as ‘yes’ responses, we conclude that conjoint model results often produce WTP estimates that are biased upwards.

Valuation of urban parks

Abstract One reason why urban parks and open spaces are subject to development pressure is that planners and researchers have been unable to articulate their value in economic terms. Three valuation techniques — each with its own strengths and weaknesses — have been applied to urban parks. This paper reviews the three techniques and presents study results from the hedonic valuation technique. Study results indicate landscape planners need to be aware of the strengths and shortcomings of each to properly evaluate research on this topic.

Is Cheap Talk Effective at Eliminating Hypothetical Bias in a Provision Point Mechanism

Significant difference between response to real and hypothetical valuation questions is often referred to as hypothetical bias. Some economists have had success with using “cheap talk” (which entails reading a script that explicitly highlights the hypothetical bias problem before participants make any decisions) as a means of generating unbiased responses in a referendum format. In this article, we test the robustness of cheap talk using a voluntary contribution mechanism with a provision point over a wide range of possible payment amounts. Our results confirm the existence of hypothetical bias, and suggest that cheap talk may eliminate hypothetical bias, but only for respondents facing higher payments. Copyright Springer 2005

Do user fees exclude low-income people from resource-based recreation?

A mail survey of New Hampshire and Vermont households shows that although user fees are widely accepted, they may substantially reduce participation in resource-based recreation by those earning less than

Contingent Valuation, Hypothetical Bias, and Experimental Economics

30,000 per year. For example, 23% of low-income respondents indicated that they had either reduced use or gone elsewhere as a result of recent fee increases, while only 11% of high-income users had made such changes. A conjoint analysis also suggests that low-income respondents are much more responsive to access fees than high-income respondents. And we find that a

Conjoint Analysis Of Groundwater Protection Programs

5 daily fee for use of public lands would affect about 49% of low-income people as compared to 33% of high-income respondents. We conclude that potential impacts of this magnitude highlight several critical problems in the design of recreation fee programs.

Public attitudes and economic values for wetland preservation in New England

Although the contingent valuation method has been widely used to value a diverse array of non-market environmental and natural resource commodities, recent empirical evidence suggests it may not accurately estimate real economic values. The hypothetical nature of environmental valuation surveys typically results in responses that are significantly greater than actual payments. Economists have had mixed success in developing techniques designed to control for this “hypothetical bias.” This paper highlights the role of experimental economics in addressing hypothetical bias, and identifies a gap in the existing literature by focusing on the underlying causes of this bias. Most of the calibration techniques used today lack a theoretical justification, and therefore these procedures need to be used with caution. We argue that future experimental research should investigate the reasons hypothetical bias persists. A better understanding of the causes should enhance the effectiveness of calibration techniques.

Economic incentives for coordinated management of forest land: a case study of southern New England

Three conjoint models-a traditional ratings model, a ratings difference specification, and a binary response model-were used to value groundwater protection program alternatives. The last, which is virtually identical to a dichotomous choice contingent valuation specification, produced the smallest value estimates. This suggests that the conjoint model is very sensitive to model specifications and that traditional conjoint models may overestimate economic value because many respondents are not in the market for the commodity being valued.

The effects of variable omission in the travel cost technique.

Wetland preservation produces two types of economic value: use value and nonuse (existence) value. Previous studies have focused almost exclusively on use value, yet nonuse value is becoming increasingly important, in part because it is now considered by the courts in natural resource damage assessments. This study uses the contingent valuation survey technique to estimate thetotal economic value of wetland preservation in New England. Respondents were willing to pay an average of between 74 and 80 dollars per year (over a five-year period) for wetlands providing flood protection, water supply, and water pollution control and between 81 and 96 dollars per year for wetlands containing rare species of plants. Aggregate value estimates ranged between 242 and 313 million dollars per year. Survey results suggest that most of this value is nonuse value—failure to consider nonuse values in decision making can therefore understate the value of preservation by a substantial margin.