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Identifying the True Willingness-To-Pay of Bayesian Respondents in a Dichotomous Choice Contingent Valuation Methodology

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  • Jeffrey Czajkowski

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    (Department of Economics, Florida International University)

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    Abstract

    This paper develops a respondent model of Bayesian updating for a double-bound dichotomous choice (DB-DC) contingent valuation methodology. We demonstrate by way of data simulations that current DB-DC identifications of true willingness-to-pay (WTP) may often fail given this respondent Bayesian updating context. Further simulations demonstrate that a simple extension of current DB-DC identifications derived explicitly from our Bayesian updating behavioral model can correct for much of the WTP bias. Additional results provide some caution to viewing respondents as acting strategically toward the second bid. Finally, an empirical application confirms the simulation outcomes.

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    File URL: http://casgroup.fiu.edu/pages/docs/2244/1275230037_06-06.pdf
    File Function: Revised, 2006
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    Bibliographic Info

    Paper provided by Florida International University, Department of Economics in its series Working Papers with number 0606.

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    Length: 35 pages
    Date of creation: Jun 2006
    Date of revision:
    Handle: RePEc:fiu:wpaper:0606

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    Related research

    Keywords: Bayesian updating; contingent valuation; double-bound dichotomous choice; strategic behavior; willingness-to-pay;

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    1. Loomis, John & Ekstrand, Earl, 1998. "Alternative approaches for incorporating respondent uncertainty when estimating willingness to pay: the case of the Mexican spotted owl," Ecological Economics, Elsevier, vol. 27(1), pages 29-41, October.
    2. Wang, Hua, 1997. "Treatment of "Don't-Know" Responses in Contingent Valuation Surveys: A Random Valuation Model," Journal of Environmental Economics and Management, Elsevier, vol. 32(2), pages 219-232, February.
    3. Ready Richard C. & Whitehead John C. & Blomquist Glenn C., 1995. "Contingent Valuation When Respondents Are Ambivalent," Journal of Environmental Economics and Management, Elsevier, vol. 29(2), pages 181-196, September.
    4. Joo Heon Park, 2003. "A test of the answering mechanisms of the double-bounded contingent valuation method," Applied Economics Letters, Taylor & Francis Journals, vol. 10(15), pages 975-984.
    5. Donald M. McLeod & Olvar Bergland, 1999. "Willingness-to-Pay Estimates Using the Double-Bounded Dichotomous-Choice Contingent Valuation Format: A Test for Validity and Precision in a Bayesian Framework," Land Economics, University of Wisconsin Press, vol. 75(1), pages 115-125.
    6. Herriges, Joseph A. & Shogren, Jason F., 1996. "Starting Point Bias in Dichotomous Choice Valuation with Follow-Up Questioning," Staff General Research Papers 1501, Iowa State University, Department of Economics.
    7. Li Chuan-Zhong & Mattsson Leif, 1995. "Discrete Choice under Preference Uncertainty: An Improved Structural Model for Contingent Valuation," Journal of Environmental Economics and Management, Elsevier, vol. 28(2), pages 256-269, March.
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