William S. Breffle

Investigating Preference Heterogeneity in a Repeated Discrete-Choice Recreation Demand Model of Atlantic Salmon Fishing*

Estimating a demand system under the assumption that preferences are homogeneous may lead to biased estimates of parameters for any specific individual and significantly different expected consumer surplus estimates. This paper investigates several different parametric methods to incorporate heterogeneity in the context of a repeated discrete-choice model. The first is the classic method of assuming utility to be a function of individual characteristics. Second, a random parameters method is proposed, where preference parameters have some known distribution. Random parameters logit causes the random components to be correlated across choice occasions and, in a sense, eliminates IIA. Simulation noise is discussed. Finally, methods are proposed to relax the assumption that the unobserved stochastic component of utility is identically distributed across individuals. For example, randomization of the logit scale, which is a new method, allows noise levels to vary across individuals without the added burden of explaining the source using covariates. The application is to Atlantic salmon fishing, and expected compensating variations and changes in trip patterns are compared across the models for three policy-relevant changes in fishing conditions at the Penobscot River, the best salmon fishing site in Maine.

Using Contingent Valuation to Estimate a Neighbourhood's Willingness to Pay to Preserve Undeveloped Urban Land

Contingent valuation (CV) is used to estimate a neighbourhoods willingness to pay (WTP) to preserve a 5.5-acre parcel of undeveloped land in Boulder, Colorado, that provides views, open space and wildlife habitat. Households were surveyed to determine bounds on their WTP for preservation. An interval model is developed to estimate sample WTP as a function of distance, income and other characteristics. The model accommodates individuals who might be made better off by development and addresses the accumulation of WTP responses at zero. Weighted sample WTP estimates are aggregated to obtain the neighbourhoods WTP. This application demonstrates that contingent valuation is a flexible policy tool for land managers and community groups wanting to estimate WTP to preserve undeveloped urban land.

Comparing Choice Question Formats for Evaluating Natural Resource Tradeoffs

Choice questions are increasingly being used to scale competing natural resource programs. Respondents choose between two alternatives with varying levels of program characteristics and costs. Complexity in the choice task can increase the randomness (variance) in the choices and the estimation of preferences, and the magnitude of randomness is examined using scope tests and scale parameters. We provide an empirical comparison of response variance from three formats. A simple resource-to-resource format appears superior to simple referendum and composite formats in terms of coherence. The application stems from a study addressing PCB-caused natural resource losses in Green Bay, Wisconsin. (JEL Q26)

Two Nested Constant-Elasticity-of-Substitution Models of Recreational Participation and Site Choice: An ‘Alternatives’ Model and an ‘Expenditures’ Model

Two demand models of recreational participation and site choice are developed: an alternatives model and an expenditures model. Both assume maximization of utility over the year, so allow for diminishing marginal utility. They do not impose the restrictive assumption that where one goes on a trip is independent of where one plans to go on other occasions. Estimation is with a nested constant-elasticity-of-substitution preference ordering: it is relatively easy to estimate because of global regularity, it allows sites to be complements, and it has the potential to be locally flexible. The application is to Atlantic salmon fishing. Copyright 2001, Oxford University Press.

Economic Valuation of Mortality‐Risk Reduction: Stated Preference Estimates from the United States and Canada

Two internet‐based surveys were conducted with adults aged 35 to 84 - 885 respondents in the United States and 641 respondents in Canada - to estimate willingness to pay (WTP) for reducing mortality risks through out‐of‐pocket costs for health‐care programs. All respondents were asked a series of choice questions followed by a payment‐card question. Causes of death included cancer and heart attack. Levels of annual mortality‐risk reduction were 1, 2, and 5 in 10,000. Converted to values of statistical life, results were in the range of

Combining Stated-Choice and Stated-Frequency Data with Observed Behavior to Value NRDA Compensable Damages: Green Bay, PCBs, and Fish Consumption Advisories

4–5 million (2002 U.S. dollars) for the choice‐question results for a 2‐in‐10,000 annual risk reduction for illness‐related mortality. U.S. and Canadian results were similar. The payment‐card results were about 50% lower than the choice‐question results. WTP to reduce mortality risk was essentially the same for cancer and heart attack. The results showed WTP weakly increasing with age, and no evidence of lower WTP for older adults versus middle‐aged adults.

Valuing A Change in a Fishing Site Without Collecting Characteristics Data on All Fishing Sites: A Complete But Minimal Model

18.

Gaussian Quadrature Versus Simulation for the Estimation of Random Parameters

Resource economists are often asked to value a proposed change at one, and only one, recreational site; the model we develop and estimate is applicable for those cases. The application is valuing the elimination of fish consumption advisories on a large bay on Lake Michigan. The model is minimal but complete: complete in that the choice set is not restricted, minimal in that only two conditional indirect utility functions are estimated. It is utility-theoretic and one does not have to collect characteristic data on all of the other fishing sites in the region. Data include the number of trips each individual currently takes to Green Bay, answers to “would you prefer to fish Green Bay under conditions A or B?” and how often each angler says they would fish Green Bay under different sets of conditions. Copyright 2006, Oxford University Press.

A sustainability-based socio-technical-environmental project selection algorithm

In environmental economics, numerical simulation using random draws is the method most commonly used to estimate joint probabilities of individual choices in discrete-choice, random-parameters models. This paper compares simulation to another method of estimation, Gaussian quadrature, on the basis of speed and accuracy. The comparison is done using stated preference data consisting of the answers to choice questions for fishing in Green Bay, a large bay on Lake Michigan. Each sampled individual chose between a pair of Green Bay scenarios with different fishing conditions. Quadrature is found to be as accurate as simulation based on random draws, but Gaussian quadrature attains stability in estimated parameters considerably faster.

A latent-class discrete-choice model of demand for economics electives: a case study on the challenge to increase enrollment

Including environmental and health impacts in project option selection is important to serve humanity and reduce the adverse effects of development. An algorithm is introduced here that includes lifecycle costs, avoided losses, users’ willingness to pay and value per statistical life (VSL), and both environmental and health impacts. The algorithm is entitled the Socio-Technical-Environmental Project Selection (STEPS) algorithm and incorporates social and health aspects through the willingness to pay, technical aspects through the engineering design, and economic aspects through the lifecycle costs. The algorithm consists of estimating the various quantities needed, such as lifecycle costs, benefits (avoided mortality and infrastructure losses), willingness to pay, and the Environmental Protection Agency’s Maximum Contaminant Level (EPA-MCL). These values are plotted with the environmental and health impacts on the horizontal axis and the Net Cost (equal to the lifecycle cost minus the benefits) on the vertical axis. The most balanced option is the one that plots closest to the origin of the plot. The new algorithm is demonstrated on project selection for the elimination of riverbank erosion using recycled concrete aggregate (RCA) as riprap. RCA uses previously used crushed concrete from demolition as aggregate for any beneficial purpose such as aggregate for new concrete or riprap, as in this case. The disadvantage of RCA, however, is that harmful chemicals leach out when exposed to water. Four options were considered, namely (1) do nothing, (2) use RCA as a riverbank erosion countermeasure, (3) use RCA with a leachate treatment system, and (4) use rock riprap instead of RCA. It was found that the proposed STEPS algorithm leads to the selection of Option 3 with RCA riprap and leachate treatment. Selecting by cost alone would have led to Option 2, which also happens to result in a violation of the EPA-MCL for the arsenic leachate. In addition, Option 4 would have been selected without considering RCA or the problem with landfills reaching capacity with the addition of crushed concrete. The STEPS algorithm, therefore, resulted in the most sustainable solution considering both the lifecycle cost and health and environmental impacts.