Underpinning Contingent Valuation

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Underpinning Contingent Valuation

• Issues in the NOAA report..
• Environmental membership
• Realism in payment method

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National Oceanic and Atmospheric Administration
(NOAA)

• A dichotomous choice format should be used.
• A minimum response rate from the target sample of
  70 should be achieved.
• in-person interviews should be employed
• Conservative design
• Elicitation format WTP

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• Accurate description of the program or policy
• Pre-testing of photographs
• Reminder of substitute commodities
• Adequate time lapse from accident scenario of
  complete restoration must be viable.

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• Temporal averaging select samples through time
  to account for time trends
• no Answer option A no-answer option should
  be explicitly allowed in addition to the yes
  and no options
• Follow up questions to determine why they
  answered yes or no.
• Cross-tabulations The survey should include a
  variety of other questions that help to interpret
  the responses to the primary valuation question.

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account for

• Income
• Prior knowledge of the site
• Prior interest in the site
• Attitudes towards the environment
• Belief in the scenarios.

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Environmental membership Readings

• Kotchen, M.J. and Reiling S.D. Environmental
  attitudes, motivations, and contingent valuation
  of nonuse values a case study involving
  endangered species. Ecological Economics 32
  (2000) 93107

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Environmental organisations

• Among items listed in the NOAA report as
  necessary was inclusion in environmental
  organizations.

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Theory of reasoned action

• Notion of the theory is that people would express
  their own preference set through their
  willingness to pay.
• The stronger a persons environmental attitudes
  the greater their willingness to pay.

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Evidence to date..

• Kotchen et al. (2000) explored the notion of
  non-use values the credibility of nonuse
  values depends largely on the plausibility of
  nonuse motives
• Focused on moral and ethical motives
• Spash (1997) correlation between
  environmental attitudes and ethical beliefs, and
  he uses this correlation to suggest that CV
  studies of environmental amenities are biased
  against individuals with strong pro-environmental
  orientations

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Rights based belief

• Individuals with strong pro-environmental
  attitudes are found more likely to hold
  rights-based beliefs than utilitarian beliefs
  about the environment.
• Thus having none or limited willingness to
  accept tradeoffs.
• all species simply have a right to exist

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Utilitarian approach

• Acknowledge benefits and costs of protecting a
  particular species and be willing to accept
  tradeoffs in order to maximize personal or social
  utility.
• Spash (1997) - valuation studies are inherently
  more acceptable to the utilitarian views.

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New Ecological Paradigm (NEP) scale

• 15 Lickert scales (Dunlap et al., 1992).
• Expanded
• reality of limits to growth
• anti-anthropocentrism
• the fragility of natures balance
• rejection of the idea that humans are exempt from
• the constraints of nature and
• the possibility of an eco-crisis or ecological
  catastrophe.

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WTP function

• YesNo f(BID, NEP, KNOWLEDGE, INCOME)

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Realism of the payment mechanism

• Cummings R.G. and L.O. Taylor (1998) Does Realism
  Matter in Contingent Valuation Surveys? Land
  Economics 74(2) 203-215.

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Contingent by nature

• The core of contingent valuation is that the
  respondent does not treat the contingent nature
  of the situation as frivolous.
• Traditional method is to include text such as
• The results of this study will be provided to
  Brisbane Forest Park management and the state
  government for consideration..

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Probability of implementation

• Response to statements of this nature is
  influenced by the subjective probability (belief
  of the respondent) that the results will in fact
  be implemented by the Government.
• Increasing the respondents subjective
  probability increases the validity or accuracy of
  the results.

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• They explored the consequences of varying the
  probability of implementation
• Ho R(p0.00) R(p1)
• Ho R(p0.25) R(p1)
• Ho R(p0.5) R(p1)
• Ho R(p0.75) R(p1)

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Method..

• The impact of real payments on willingness to
  pay.
• Each participant was given 10, asked to
  contribute to a fund to a citizen guide to people
  living in a contaminated groundwater area.
• Contributions were put in a pre-addressed
  envelope and stamped.
• If 50 voted yes the 10 was collected from
  everyone and sent.

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Conclusions

• They found that realism did influence the
  willingness to pay. realism does matter.
• But how to operationalize their findings outside
  the study is the challenge.
• Implement CV studies by giving the respondent
  real money to contribute or keep.
• Cheap talk? Where the interviewer enters into a
  discussion with the respondent about the limits
  of the hypothetical nature of the payment.

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Reference

• Loomis J., Kent P., Strange L., Faush K. and A.
  Covich (2000). Measuring the total economic value
  of restoring ecosystem services in an impaired
  river basin results from a contingent valuation
  survey. Ecological Economics 33(1) 103-117.

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Loomis et al. Ecosystem Services of a Plains River

• Five ecosystem services that could be restored
  along a 45-mile section of the Plate river..
• Natural purification of water
• Erosion control
• Habitat for fish and wildlife
• Dilution of wastewater
• Recreational use

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Measuring economic value

• If the improvement in water quality..
• Occurs in an urban environment hedonic pricing
  models
• Primarily results in recreation benefits Travel
  cost method from which a demand curve and
  consumer surplus can be estimated.
• Where it results in existence and option values
  Contingent valuation method

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Survey design

• If the South Platte Restoration Fund was on the
  ballot in the next election, and it cost your
  household -- each month in a higher water bill
  would you vote in favor or against?
• The -- was filled with the following amounts
  1,2,3,4,8,10,12,20,30,40,50,100

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Model

• log(yes)/(1-yes) bo b1bid
• b2 unlimited water
• b3 government purchase
• b4environmentalist
• -b5average water bill
• b6urban

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Interpretation
Logit Regression Analysis of the Probability of
Payment
significant at the 0.05 level. Loomis
(2000,113) significant at the 0.01 level.  
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Statistical Analysis - WTP

• Probability (yes) 1-(1expBo-B1(X))-1
• Mean WTP (1/B1)ln(1ebo)
• Where B1 is the coefficient estimate on the bid
  amount
• Bo is either the estimated constant (where there
  are no other dependent variables)
• Or the sum of the estimated constant plus the
  product of the other independent variables and
  their means. Loomis (2000), 111-112.

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Calculation of WTP

• Mean WTP (1/0.144)ln(1e2.91) 21.05

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Willingness to pay

• households would be willing to pay an average
  of 21 per month or 252 annually for the
  additional ecosystem services