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Asking for Individual or Household Willingness to Pay for Environmental Goods? Implication for aggregate welfare measures

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  • Lindhjem, Henrik
  • Navrud, Ståle

Abstract

The aggregate welfare measure for a change in the provision of a public good derived from a contingent valuation (CV) survey will be much higher if the same elicited mean willingness to pay (WTP) is added up over individuals rather than households. A trivial fact, however, once respondents are part of multi-person households it becomes almost impossible to elicit an “uncontaminated” WTP measure that with some degree of confidence can be aggregated over one or the other response unit. The literature is mostly silent about which response unit to use in WTP questions and in some CV studies it is even unclear which type has actually been applied. We test for differences between individual and household WTP in a novel, web-administered, split-sample CV survey asking WTP for preserving biodiversity in old-growth coniferous forests in Norway. Two samples are asked both types of questions, but in reverse order, followed by a question with an item battery trying to reveal why WTP may differ. We find in a between-sample test that the WTP respondents state on behalf of their households is not significantly different from their individual WTP. However, within the same sample, household WTP is significantly higher than individual WTP; in particular if respondents are asked to state individual before household WTP. Our results suggest that using individual WTP as the response unit would overestimate aggregate WTP, and thus bias welfare estimates in benefit-cost analyses. Thus, the choice of response format needs to be explicitly and carefully addressed in CV questionnaire design in order to avoid the risk of unprofitable projects passing the benefit-cost test

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 11469.

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Date of creation: 31 Jan 2008
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Handle: RePEc:pra:mprapa:11469

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Keywords: Contingent valuation; household; individual; WTP;

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References

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  1. Carson, Richard T. & Hanemann, W. Michael, 2006. "Contingent Valuation," Handbook of Environmental Economics, Elsevier, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 2, chapter 17, pages 821-936 Elsevier.
  2. H. Spencer Banzhaf & Dallas Burtraw & David Evans & Alan Krupnick, 2006. "Valuation of Natural Resource Improvements in the Adirondacks," Land Economics, University of Wisconsin Press, vol. 82(3), pages 445-464.
  3. Li, Hui & Berrens, Robert P. & Bohara, Alok K. & Jenkins-Smith, Hank C. & Silva, Carol L. & Weimer, David L., 2005. "Testing for Budget Constraint Effects in a National Advisory Referendum Survey on the Kyoto Protocol," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, Western Agricultural Economics Association, vol. 30(02), August.
  4. Bateman, Ian J. & Cole, Matthew & Cooper, Philip & Georgiou, Stavros & Hadley, David & Poe, Gregory L., 2004. "On visible choice sets and scope sensitivity," Journal of Environmental Economics and Management, Elsevier, vol. 47(1), pages 71-93, January.
  5. Richard Carson & Nicholas Flores & Norman Meade, 2001. "Contingent Valuation: Controversies and Evidence," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 19(2), pages 173-210, June.
  6. Becker, Gary S, 1973. "A Theory of Marriage: Part I," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 81(4), pages 813-46, July-Aug..
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Cited by:
  1. Evans, Mary F. & Poulos, Christine & Kerry Smith, V., 2011. "Who counts in evaluating the effects of air pollution policies on households? Non-market valuation in the presence of dependencies," Journal of Environmental Economics and Management, Elsevier, vol. 62(1), pages 65-79, July.
  2. David Comerford & Liam Delaney & Colm Harmon, 2009. "Experimental Tests of Survey Responses to Expenditure Questions," Working Papers, Geary Institute, University College Dublin 200925, Geary Institute, University College Dublin.

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