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Bias and Efficiency of Uniform Bid Design in Contingent Valuation

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  • Kim, Sooil
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    Abstract

    While contingent valuation (CV) methods have experienced growing popularity for estimating the willingness to pay for nonmarket goods and services, optimal bid designs for CV that provide guidance in bid point placement often render themselves impractical by relying on pretest or prior information about the true distribution for willingness to pay. We investigate the use of a practical alternative to existing optimal or robust bid designs called the uniform design. Uniform design randomly draws bid points from a predetermined uniform distribution. Analytics and simulations show that the uniform design has higher low-bound of relative efficiency at 84 percent of D-optimum than a robust design. Simulations also demonstrate that uniform design outperforms other optimal designs when initial information about true parameters is poor and even outperforms robust designs when the true values of parameters are known.

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    Bibliographic Info

    Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2006 Annual meeting, July 23-26, Long Beach, CA with number 21335.

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    Date of creation: 2006
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    Handle: RePEc:ags:aaea06:21335

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    Keywords: Research Methods/ Statistical Methods;

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    1. T.A. Cameron & D.D. Huppert, 1988. ""Referendum" Contingent Valuation Estimates: Sensitivity to the Assignment of Offered Values," UCLA Economics Working Papers 519, UCLA Department of Economics.
    2. Arthur Lewbel & Daniel McFadden & Oliver Linton, 1997. "Estimating Features of a Distribution from Binomial Data," Boston College Working Papers in Economics 442, Boston College Department of Economics, revised 01 Jul 2010.
    3. Alberini Anna, 1995. "Optimal Designs for Discrete Choice Contingent Valuation Surveys: Single-Bound, Double-Bound, and Bivariate Models," Journal of Environmental Economics and Management, Elsevier, vol. 28(3), pages 287-306, May.
    4. Nyquist, Hans, 1992. "Optimal Designs of Discrete Response Experiments in Contingent Valuation Studies," The Review of Economics and Statistics, MIT Press, vol. 74(3), pages 559-63, August.
    5. Boyle, Kevin J. & Welsh, Michael P. & Bishop, Richard C., 1988. "Validation of empirical measures of welfare change: comment," MPRA Paper 31237, University Library of Munich, Germany.
    6. Cooper Joseph C., 1993. "Optimal Bid Selection for Dichotomous Choice Contingent Valuation Surveys," Journal of Environmental Economics and Management, Elsevier, vol. 24(1), pages 25-40, January.
    7. Huang, Ju-Chin & Haab, Timothy C. & Whitehead, John C., 1997. "Willingness to Pay for Quality Improvements: Should Revealed and Stated Preference Data Be Combined?," Journal of Environmental Economics and Management, Elsevier, vol. 34(3), pages 240-255, November.
    8. Joseph Cooper & John Loomis, 1992. "Sensitivity of Willingness-to-Pay Estimates to Bid Design in Dichotomous Choice Contingent Valuation Models," Land Economics, University of Wisconsin Press, vol. 68(2), pages 211-224.
    9. Kanninen Barbara J., 1995. "Bias in Discrete Response Contingent Valuation," Journal of Environmental Economics and Management, Elsevier, vol. 28(1), pages 114-125, January.
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