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The random expenditure function approach to welfare in RUM: The case of hazardous waste clean-up

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  • Chattopadhyay, Sudip
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    Abstract

    This paper presents an application of the random expenditure function approach for welfare analysis in RUM with a non-linear income effect. The measures of expected compensating variation (CV) are first derived as special cases to apply to a two-option conjoint choice-based survey data aimed at deciphering homeowners' willingness to pay for hazardous waste clean-up. A comparison of the expected CV with the CV based on the representative consumer approximation (CVr) reveals high degree of agreement between the estimates. Using the Diewert and Translog utility specifications the study finds that regardless of the methodology used, welfare estimates are quite sensitive to the functional forms.

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    Bibliographic Info

    Article provided by Elsevier in its journal Resource and Energy Economics.

    Volume (Year): 31 (2009)
    Issue (Month): 1 (January)
    Pages: 58-74

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    Handle: RePEc:eee:resene:v:31:y:2009:i:1:p:58-74

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    Web page: http://www.elsevier.com/locate/inca/505569

    Related research

    Keywords: Compensating variation Representative CV Random utility model Random expenditure function Conjoint choice experimental design Housing choice Hazardous waste clean-up;

    References

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    1. Alberini, Anna & Longo, Alberto & Tonin, Stefania & Trombetta, Francesco & Turvani, Margherita, 2002. "The Role Of Liability, Regulation And Economic Incentives In Brownfield Remediation And Redevelopment: Evidence From Surveys Of Developers," Working Papers 28582, University of Maryland, Department of Agricultural and Resource Economics.
    2. John K. Dagsvik & Anders Karlstr�m, 2005. "Compensating Variation and Hicksian Choice Probabilities in Random Utility Models that are Nonlinear in Income," Review of Economic Studies, Oxford University Press, vol. 72(1), pages 57-76.
    3. Louviere,Jordan J. & Hensher,David A. & Swait,Joffre D., 2000. "Stated Choice Methods," Cambridge Books, Cambridge University Press, number 9780521788304.
    4. MacKinnon, James G. & White, Halbert & Davidson, Russell, 1983. "Tests for model specification in the presence of alternative hypotheses : Some further results," Journal of Econometrics, Elsevier, vol. 21(1), pages 53-70, January.
    5. DeShazo, J. R. & Fermo, German, 2002. "Designing Choice Sets for Stated Preference Methods: The Effects of Complexity on Choice Consistency," Journal of Environmental Economics and Management, Elsevier, vol. 44(1), pages 123-143, July.
    6. Adamowicz, Wiktor & Swait, Joffre & Boxall, Peter & Louviere, Jordan & Williams, Michael, 1997. "Perceptions versus Objective Measures of Environmental Quality in Combined Revealed and Stated Preference Models of Environmental Valuation," Journal of Environmental Economics and Management, Elsevier, vol. 32(1), pages 65-84, January.
    7. Kevin J. Boyle & Thomas P. Holmes & Mario F. Teisl & Brian Roe, 2001. "A Comparison of Conjoint Analysis Response Formats," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(2), pages 441-454.
    8. Sudip Chattopadhyay & John B. Braden & Arianto Patunru, 2005. "Benefits Of Hazardous Waste Cleanup: New Evidence From Survey- And Market-Based Property Value Approaches," Contemporary Economic Policy, Western Economic Association International, vol. 23(3), pages 357-375, 07.
    9. Adamowicz W. & Louviere J. & Williams M., 1994. "Combining Revealed and Stated Preference Methods for Valuing Environmental Amenities," Journal of Environmental Economics and Management, Elsevier, vol. 26(3), pages 271-292, May.
    10. Dietrich Earnhart, 2001. "Combining Revealed and Stated Preference Methods to Value Environmental Amenities at Residential Locations," Land Economics, University of Wisconsin Press, vol. 77(1), pages 12-29.
    11. Joseph A. Herriges & Catherine L. Kling, 1999. "Nonlinear Income Effects in Random Utility Models," The Review of Economics and Statistics, MIT Press, vol. 81(1), pages 62-72, February.
    12. Robert J. Johnston & Stephen K. Swallow & Timothy J. Tyrrell & Dana Marie Bauer, 2003. "Rural Amenity Values and Length of Residency," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(4), pages 1000-1015.
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    Cited by:
    1. Lüthi, Sonja & Wüstenhagen, Rolf, 2012. "The price of policy risk — Empirical insights from choice experiments with European photovoltaic project developers," Energy Economics, Elsevier, vol. 34(4), pages 1001-1011.

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