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Monte Carlo Benchmarks for Discrete Response Valuation Methods

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  • Smith, V. Kerry

Abstract

This paper argues that the widespread belief that discrete contingent valuation (CV) questions yield substantially larger estimates of the mean (and the median) willingness to pay (WTP) for nonmarket environmental resources in comparison to estimates from open-ended CV questions is unfounded. A set of Monte Carlo experiments estimate the factors influencing the performance of WTP estimates based on discrete response models. Most of the error in the WTP estimates arises from the specification errors that are common in most of the empirical models used in the literature. These experiments suggest models based on choices where WTP is dominated by non use (or passive use) values are likely to have smaller errors than where large use values influence these decisions.

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Bibliographic Info

Paper provided by Duke University, Department of Economics in its series Working Papers with number 96-24.

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Date of creation: 1996
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Publication status: Published in LAND ECONOMICS, Vol. 74, 1998, pages 186-202
Handle: RePEc:duk:dukeec:96-24

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Postal: Department of Economics Duke University 213 Social Sciences Building Box 90097 Durham, NC 27708-0097
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Web page: http://econ.duke.edu/

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References

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  1. Anna Alberini, 1995. "Testing Willingness-to-Pay Models of Discrete Choice Contingent Valuation Survey Data," Land Economics, University of Wisconsin Press, vol. 71(1), pages 83-95.
  2. Bengt Kriström, 1993. "Comparing continuous and discrete contingent valuation questions," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 3(1), pages 63-71, February.
  3. Holmes Thomas P. & Kramer Randall A., 1995. "An Independent Sample Test of Yea-Saying and Starting Point Bias in Dichotomous-Choice Contingent Valuation," Journal of Environmental Economics and Management, Elsevier, vol. 29(1), pages 121-132, July.
  4. 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.
  5. Kling, Catherine L., 1988. "Comparing welfare estimates of environmental quality changes from recreation demand models," Journal of Environmental Economics and Management, Elsevier, vol. 15(3), pages 331-340, September.
  6. 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.
  7. Cropper, Maureen L & Deck, Leland B & McConnell, Kenneth E, 1988. "On the Choice of Functional Form for Hedonic Price Functions," The Review of Economics and Statistics, MIT Press, vol. 70(4), pages 668-75, November.
  8. Richard C. Ready & Jean C. Buzby & Dayuan Hu, 1996. "Differences between Continuous and Discrete Contingent Value Estimates," Land Economics, University of Wisconsin Press, vol. 72(3), pages 397-411.
  9. Trudy Ann Cameron, 1992. "Combining Contingent Valuation and Travel Cost Data for the Valuation of Nonmarket Goods," Land Economics, University of Wisconsin Press, vol. 68(3), pages 302-317.
  10. McConnell, K. E., 1990. "Models for referendum data: The structure of discrete choice models for contingent valuation," Journal of Environmental Economics and Management, Elsevier, vol. 18(1), pages 19-34, January.
  11. Cameron, Trudy Ann, 1988. "A new paradigm for valuing non-market goods using referendum data: Maximum likelihood estimation by censored logistic regression," Journal of Environmental Economics and Management, Elsevier, vol. 15(3), pages 355-379, September.
  12. Kevin J. Boyle & F. Reed Johnson & Daniel W. McCollum & William H. Desvousges & Richard W. Dunford & Sara P. Hudson, 1996. "Valuing Public Goods: Discrete versus Continuous Contingent-Valuation Responses," Land Economics, University of Wisconsin Press, vol. 72(3), pages 381-396.
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Cited by:
  1. Raymond Y. T. Yeung & Richard D. Smith & Lai-Ming Ho & Janice M. Johnston & Gabriel M. Leung, 2006. "Empirical implications of response acquiescence in discrete-choice contingent valuation," Health Economics, John Wiley & Sons, Ltd., vol. 15(10), pages 1077-1089.
  2. Dixie Reaves & Randall Kramer & Thomas Holmes, 1999. "Does Question Format Matter? Valuing an Endangered Species," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 14(3), pages 365-383, October.
  3. Soliño, Mario & Prada, Albino & Vázquez, María X., 2010. "Designing a forest-energy policy to reduce forest fires in Galicia (Spain): A contingent valuation application," Journal of Forest Economics, Elsevier, vol. 16(3), pages 217-233, August.
  4. Dominika Dziegielewska & Robert Mendelsohn, 2007. "Does “No” mean “No”? A protest methodology," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 38(1), pages 71-87, September.
  5. Poe, Gregory L. & Vossler, Christian A., 2001. "Does Specification Error Explain the Discrepancy Between Open-Ended and Dichotomous Choice Contigent Valuation Responses? A Comment on "Monte Carlo Benchmarks for Discrete Valuation Methods"," Working Papers 127665, Cornell University, Department of Applied Economics and Management.
  6. Cameron, Trudy Ann & Poe, Gregory L. & Ethier, Robert G. & Schulze, William D., 2002. "Alternative Non-market Value-Elicitation Methods: Are the Underlying Preferences the Same?," Journal of Environmental Economics and Management, Elsevier, vol. 44(3), pages 391-425, November.
  7. Carson, Richard T & Flores, Nicholas A, 2000. "Contingent Valuation: Controversies and Evidence," University of California at San Diego, Economics Working Paper Series qt75k752s7, Department of Economics, UC San Diego.

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