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Contingent Valuation, Hypothetical Bias, and Experimental Economics

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Author Info
Murphy, James J.
Stevens, Thomas H.

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Abstract

Although the contingent valuation method has been widely used to value a diverse array of nonmarket 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.

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Publisher Info
Article provided by Northeastern Agricultural and Resource Economics Association in its journal Agricultural and Resource Economics Review.

Volume (Year): 33 (2004)
Issue (Month): 2 (October)
Pages:
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Handle: RePEc:ags:arerjl:31262

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Keywords: Environmental Economics and Policy;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Richard A. Hofler & John A. List, 2004. "Valuation on the Frontier: Calibrating Actual and Hypothetical Statements of Value," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 86(1), pages 213-221, 02. [Downloadable!] (restricted)
    Other versions:
  2. Smith, V. Kerry & Mansfield, Carol, 1998. "Buying Time: Real and Hypothetical Offers," Journal of Environmental Economics and Management, Elsevier, vol. 36(3), pages 209-224, November. [Downloadable!] (restricted)
  3. John A. List & J. Shogren, 1998. "Calibration of the difference between actual and hypothetical valuations in a field experiment," Framed Field Experiments 0038, The Field Experiments Website. [Downloadable!]
    Other versions:
  4. Robin Gregory & Sarah Lichtenstein & Thomas C. Brown & George L. Peterson & Paul Slovic, 1995. "How Precise Are Monetary Representations of Environmental Improvements?," Land Economics, University of Wisconsin Press, vol. 71(4), pages 462-473. [Downloadable!] (restricted)
  5. Taylor, Laura O. & McKee, Michael & Laury, Susan K. & Cummings, Ronald G., 2001. "Induced-value tests of the referendum voting mechanism," Economics Letters, Elsevier, vol. 71(1), pages 61-65, April. [Downloadable!] (restricted)
  6. Hanemann, W Michael, 1994. "Valuing the Environment through Contingent Valuation," Journal of Economic Perspectives, American Economic Association, vol. 8(4), pages 19-43, Fall. [Downloadable!] (restricted)
  7. Bohm, Peter, 1972. "Estimating demand for public goods: An experiment," European Economic Review, Elsevier, vol. 3(2), pages 111-130. [Downloadable!] (restricted)
  8. Johannesson, Magnus, 1997. "Some Further Experimental Results on Hypothetical versus Real Willingness to Pay," Applied Economics Letters, Taylor and Francis Journals, vol. 4(8), pages 535-36, August. [Downloadable!] (restricted)
  9. David Aadland & Arthur J. Caplan, 2003. "Willingness to Pay for Curbside Recycling with Detection and Mitigation of HypotheticalBias," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 85(2), pages 492-502, 05. [Downloadable!] (restricted)
  10. Karen Blumenschein & Magnus Johannesson & Glenn C. Blomquist & Bengt Liljas & Richard M. O’Conor, 1998. "Experimental Results on Expressed Certainty and Hypothetical Bias in Contingent Valuation," Southern Economic Journal, Southern Economic Association, vol. 65(1), pages 169-177, July.
  11. Li Chuan-Zhong & Mattsson Leif, 1995. "Discrete Choice under Preference Uncertainty: An Improved Structural Model for Contingent Valuation," Journal of Environmental Economics and Management, Elsevier, vol. 28(2), pages 256-269, March. [Downloadable!] (restricted)
  12. Roth, Alvin E, 1988. "Laboratory Experimentation in Economics: A Methodological Overview," Economic Journal, Royal Economic Society, vol. 98(393), pages 974-1031, December. [Downloadable!] (restricted)
  13. Ready Richard C. & Whitehead John C. & Blomquist Glenn C., 1995. "Contingent Valuation When Respondents Are Ambivalent," Journal of Environmental Economics and Management, Elsevier, vol. 29(2), pages 181-196, September. [Downloadable!] (restricted)
  14. Burton, Anthony C. & Carson, Katherine S. & Chilton, Susan M. & Hutchinson, W. George, 2003. "An experimental investigation of explanations for inconsistencies in responses to second offers in double referenda," Journal of Environmental Economics and Management, Elsevier, vol. 46(3), pages 472-489, November. [Downloadable!] (restricted)
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  15. Johannesson, Magnus & Liljas, Bengt & Johansson, Per-Olov, 1998. "An Experimental Comparison of Dichotomous Choice Contingent Valuation Questions and Real Purchase Decisions," Applied Economics, Taylor and Francis Journals, vol. 30(5), pages 643-47, May. [Downloadable!] (restricted)
  16. Smith, Vernon L, 1976. "Experimental Economics: Induced Value Theory," American Economic Review, American Economic Association, vol. 66(2), pages 274-79, May. [Downloadable!] (restricted)
  17. Taylor, Laura O., 1998. "Incentive Compatible Referenda And The Valuation Of Environmental Goods," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 27(2), October. [Downloadable!]
  18. Gregory, Robin & Slovic, Paul, 1997. "A constructive approach to environmental valuation," Ecological Economics, Elsevier, vol. 21(3), pages 175-181, June. [Downloadable!] (restricted)
  19. Anderson, Christopher M., 2004. "How Institutions Affect Outcomes in Laboratory Tradable Fishing Allowance Systems," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 33(2), October. [Downloadable!]
  20. Champ, Patricia A. & Bishop, Richard C. & Brown, Thomas C. & McCollum, Daniel W., 1997. "Using Donation Mechanisms to Value Nonuse Benefits from Public Goods," Journal of Environmental Economics and Management, Elsevier, vol. 33(2), pages 151-162, June. [Downloadable!] (restricted)
  21. Patricia Champ & Richard Bishop, 2001. "Donation Payment Mechanisms and Contingent Valuation: An Empirical Study of Hypothetical Bias," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 19(4), pages 383-402, August. [Downloadable!] (restricted)
  22. John A. List, 2001. "Do Explicit Warnings Eliminate the Hypothetical Bias in Elicitation Procedures? Evidence from Field Auctions for Sportscards," American Economic Review, American Economic Association, vol. 91(5), pages 1498-1507, December. [Downloadable!] (restricted)
  23. Gregory Poe & Jeremy Clark & Daniel Rondeau & William Schulze, 2002. "Provision Point Mechanisms and Field Validity Tests of Contingent Valuation," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 23(1), pages 105-131, September. [Downloadable!] (restricted)
  24. Robert G. Ethier & Gregory L. Poe & William D. Schulze & Jeremy Clark, 2000. "Comparison of Hypothetical Phone and Mail Contingent Valuation Responses for Green-Pricing Electricity Programs," Land Economics, University of Wisconsin Press, vol. 76(1), pages 54-67. [Downloadable!] (restricted)
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  25. Diamond, Peter A & Hausman, Jerry A, 1994. "Contingent Valuation: Is Some Number Better than No Number?," Journal of Economic Perspectives, American Economic Association, vol. 8(4), pages 45-64, Fall. [Downloadable!] (restricted)
  26. Sinden, J.A., 1988. "Empirical Tests Of Hypothetical Bias In Consumers' Surplus Surveys," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 32(02-03). [Downloadable!]
  27. Kurz, Mordecai, 1974. "Experimental approach to the determination of the demand for public goods," Journal of Public Economics, Elsevier, vol. 3(4), pages 329-348, November. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Roheim, Cathy A. & Johnston, Robert J., 2005. "A Battle of Taste and Environmental Convictions for Ecolabeled Seafood: A Choice Experiment," 2005 Annual meeting, July 24-27, Providence, RI 19357, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  2. Alfnes, Frode & Yue, Chengyan & Jensen, Helen H., 2009. "Cognitive Dissonance as a Means of Reducing Hypothetical Bias," Staff General Research Papers 13033, Iowa State University, Department of Economics. [Downloadable!]
    Other versions:
  3. Sund, Björn, 2009. "Certainty calibration in contingent valuation - exploring the within-difference between dichotomous choice and open-ended answers as a certainty measure," Working Papers 2009:1, Örebro University, Swedish Business School. [Downloadable!]
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