W. Michael Hanemann

Welfare Evaluations in Contingent Valuation Experiments with Discrete Responses

Since the work of Bishop and Heberlein, a number of contingent valuation experiments have appeared involving discrete responses which are analyzed by logit or similar techniques. This paper addresses the issues of how the logit models should be formulated to be consistent with the hypothesis of utility maximization and how measures of compensating and equivalent surplus should be derived from the fitted models. Two distinct types of welfare measures are introduced and then estimated from Bishop and Heberleins data.

Will U.S. Agriculture Really Benefit from Global Warming? Accounting for Irrigation in the Hedonic Approach

Will U.S. Agriculture Really Benefit from Global Warming? Accounting for Irrigation in the Hedonic Approach. Wolfram Schlenker, W. Michael Hanemann, and Anthony C. Fisher ∗ There has been a lively debate about the potential impact of global climate change on U.S. agriculture. Most of the early agro-economic studies predict large damages (see, for example, Richard M. Adams, 1989; Harry M. Kaiser et al., 1993; and Adams et al., 1995). In an innovative paper Robert Mendelsohn, William D. Nordhaus and Daigee Shaw (1994) - hereafter MNS - propose a new approach: using the variation in temperature and precipitation across U.S. counties to estimate a reduced form hedonic equation with the value of farmland as the dependent variable. A change in temperature and/or precipitation is then associated with a change in farmland value which can be interpreted as the impact of climate change. Adams et al. (1998) characterize the hedonic approach as a spatial analogue approach, and acknowledge that ”the strength of the spatial analogue approach is that structural changes and farm responses are implicit in the analysis, freeing the analyst from the burden of estimating the effects of climate change on particular region-specific crops and farmer responses.” On the other hand, one of the potential disadvantages of the hedonic approach is that it is a partial equilibrium analysis, i.e., agricultural prices are assumed to remain constant. 1 While year-to-year fluctuations in annual weather conditions certainly have the potential to impact current commodity prices, especially for crops produced only in a relatively localized area, (such as citrus fruits which are grown mainly in California and Florida), changes in long-run weather patterns (i.e., changes in climate) might have a smaller effect on commodity prices because of the greater potential for economic adaptation, particularly shifts in growing regions. 2 The hedonic approach as implemented by MNS predicts that existing agricultural land on average might be more productive and hence result in benefits for U.S. farmers. 3 The hedonic approach has received considerable attention in our judgment in part because the conclusions are at variance with those of some other studies

The Impact of "No Opinion" Response Options on Data Quality: Non-Attitude Reduction or an Invitation to Satisfice?

According to many seasoned survey researchers, offering a no-opinion option should reduce the pressure to give substantive re- sponses felt by respondents who have no true opinions. By contrast, the survey satisficing perspective suggests that no-opinion options may dis- courage some respondents from doing the cognitive work necessary to report the true opinions they do have. We address these arguments using data from nine experiments carried out in three household surveys. Attraction to no-opinion options was found to be greatest among re- spondents lowest in cognitive skills (as measured by educational at- tainment), among respondents answering secretly instead of orally, for questions asked later in a survey, and among respondents who devoted little effort to the reporting process. The quality of attitude reports ob- tained (as measured by over-time consistency and responsiveness to a question manipulation) was not compromised by the omission of no- opinion options. These results suggest that inclusion of no-opinion op- tions in attitude measures may not enhance data quality and instead may preclude measurement of some meaningful opinions.

Information and the concept of option value

This paper examines the Arrow-Fisher-Henry concept of option value and analyzes its properties including its relationship to the value of information and the effects of increasing uncertainty about the future consequences of irreversible development. It is shown that this option value is distinct from but bounded by the value of information in the overall decision problem. Also, it is distinct from a concept of option value that appears in B. S. Bernanke, Quart. J. Econom. 98, 85–106 (1983). However, when there is a continuum of development levels, rather than a binary choice between full development and no development, some of these conclusions need to be modified.

One-and-One-Half Bound Dichotomous Choice Contingent Valuation

Although the double-bound (DB) format for the discrete choice contingent valuation method (CVM) has the benefit of higher efficiency in welfare benefit estimates than the single-bound (SB) discrete choice CVM, it has been subject to criticism due to evidence that some of the responses to the second bid may be inconsistent with the responses to the first bid. As a means to reduce the potential for response bias on the follow-up bid in multiple-bound discrete choice formats such as the DB model while maintaining much of the efficiency gains of the multiple-bound approach, we introduce the one-and-one-half-bound (OOHB) approach and present a real-world application. In a laboratory setting, despite the fact that the OOHB model uses less information than the DB approach, the efficiency gains in moving from SB to OOHB capture a large portion of the gain associated with moving from SB to DB. Utilizing distribution-free seminonparametric estimation techniques on a split-survey data set, our OOHB estimates demonstrated higher consistency with respect to the follow-up data than the DB estimates and were more efficient as well. Hence, OOHB may serve as a viable alternative to the DB format in situations where follow-up response bias may be a concern.

The economic conception of water

This paper explains the economic conception of water - how economists think about water. It consists of two main sections. First, it reviews the economicconcept of value, explains how it is measured, and discusses how this has been applied to water in various ways. Then it considers the debate regarding whether or not water can, or should, be treated as an economic commodity, and discusses the ways in which water is the same as, or different than, other commodities from an economic point of view. While there are some distinctive emotive and symbolic features of water, there are also some distinctive economic features that make the demand and supply of water different and more complex than that of most other goods.

The Dual Structure of Incomplete Demand Systems

Integrability of incomplete demand systems is discussed. The concepts of weak integrability, quasi-expenditure function, quasi-indirect utility function, and quasi-utility function are defined. Their relationships to the expenditure function, indirect utility function, and utility function are developed. The dual structure of the quasi-functions permits exact welfare analysis and reveals the conditional preference structure for the commodities of interest. New results relating the uniqueness and exactness of consumers surplus to the structure of the expenditure and indirect utility functions are obtained.

Quasi-option value: Some misconceptions dispelled

Abstract We discuss a couple of important issues in the recent literature on quasi-option value. We show that the assertion that quasi-option value can be negative in a model with independent learning is based on confusion between quasi-option value, which is always positive, and the net benefit of preservation (of a natural environment subject to development), which is not. We also explore the significance of different assumptions about the nature of learning and show that the result that quasi-option value is positive is surprisingly robust.

Chapter 17 Contingent Valuation

Abstract Value estimates for environmental goods can be obtained by either estimating preference parameters as “revealed” through behavior related to some aspect of the amenity or using “stated” information concerning preferences for the good. In the environmental economics literature the stated preference approach has come to be known as “contingent valuation” as the “valuation” estimated obtained from preference information given the respondent is said to be “contingent” on the details of the “constructed market” for the environmental good put forth in the survey. Work on contingent valuation now typically comprises the largest single group of papers at major environmental economics conferences and in several of the leading journals in the field. As such, it is impossible to “review” the literature per se or even cover all of the major papers in the area in some detail. Instead, in this chapter we seek to provide a coherent overview of the main issues and how they fit together. The organization of the chapter is as follows. First, we provide an overview of the history of contingent valuation starting with its antecedents and foundational papers and then trace its subsequent development using several broad themes. Second, we put forth the theoretical foundations of contingent valuation with particular emphasis on ties to standard measures of economic welfare. Third, we look at the issue of existence/passive use considerations. Fourth, we consider the relationship of contingent valuation to information on preferences that can be obtained by observing revealed behavior and how the two sources of information might be combined. Fifth, we look at different ways in which preference information can be elicited in a CV survey, paying particular attention to the incentive structure posed by different elicitation formats. Sixth, we turn to econometric issues associated with these different elicitation formats. Seventh, we briefly consider survey design issues. Eighth, we look at issues related to survey administration and extrapolating the results obtained to the population of interest. Ninth, we describe the major controversies related to the use of contingent valuation and summarize the evidence. Finally, we provide some thoughts on where we think contingent valuation is headed in the future.

The Impact of Global Warming on U.S. Agriculture: An Econometric Analysis of Optimal Growing Conditions

We link farmland values to climatic, soil, and socioeconomic variables for U.S. counties east of the 100th meridian, the historical boundary of agriculture not primarily dependent on irrigation. Degree days, a nonlinear transformation of the climatic variables suggested by agronomic experiments as more relevant to crop yield, gives an improved fit and increased robustness. Estimated coefficients are consistent with the experimental results. The model is employed to estimate the potential impacts on farmland values for a range of recent warming scenarios. The predictions are very robust, and more than 75 of the counties in our sample show a statistically significant effect, ranging from moderate gains to large losses, with losses in the aggregate that can become quite large under scenarios involving sustained heavy use of fossil fuels.