Biased estimates in discrete choice models: the appropriate inclusion of psychometric data into the valuation of recycled wastewater
AbstractThe introduction of measurement bias in parameter estimates into non-linear discrete choice models, as a result of using factor analysis, was identified by Train et al. (1987). They found that the inclusion of factor scores, used to represent relationships amongst like variables, into a subsequent discrete choice models introduced measurement bias as the measurement error associated with each factor score is excluded. This is an issue for non-market valuation given the increase in popularity of including psychometric data, such as primitive beliefs, attitudes and motivations, in willingness to pay estimates. This study explores the relationship between willingness to pay and primitive beliefs through a case study eliciting Perth community values for drinking recycled wastewater. The standard discrete decision model, with sequential inclusion of factor scores, is compared to an equivalent discrete decision model, which corrects for the measurement bias by simultaneously estimating the underlying latent variables using a measurement model. Previous research has focused on the issue of biased parameters. Here we also consider the implications for willingness to pay estimates.
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Bibliographic InfoPaper provided by Australian Agricultural and Resource Economics Society in its series 2009 Conference (53rd), February 11-13, 2009, Cairns, Australia with number 47943.
Date of creation: 2009
Date of revision:
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Postal: AARES Central Office Manager, Crawford School of Public Policy, ANU, Canberra ACT 0200
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discrete choice models; attitudes; factor analysis; measurement models; recycled wastewater;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-03-28 (All new papers)
- NEP-DCM-2009-03-28 (Discrete Choice Models)
- NEP-ECM-2009-03-28 (Econometrics)
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