Plausible Responsiveness to Scope in Contingent Valuation

We consider the question of economic significance, relative to statistical significance, of the scope test in contingent valuation. We review the history of the scope test in order to gain insights into how the issue of scope “adequacy” arose twenty years after it was first mentioned by the NOAA Panel on Contingent Valuation. We argue that the adding-up test is a useful test of the internal consistency of the contingent valuation method but it is flawed in concept since it requires an ex-post counterfactual scenario, it raises the cost and it does not provide a measure of economic significance. We then provide a review of Desvousges, Mathews and Train (2012) who promote the adding-up test as a measure of adequacy to the exclusion of other more obvious measures. We propose scope elasticity of willingness to pay as a more appropriate way of measuring scope plausibility. We review the literature for examples of scope elasticity and find two recent studies that provide this summary statistic. Then we provide two empirical examples to show the ease of implementation of scope elasticity and its interpretation. Key Words: Contingent Valuation Method; scope test