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`Been there done that': Disentangling option value effects from user heterogeneity when valuing natural resources with a use component

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  • Lyssenko, Nikita
  • Martinez-Espineira, Roberto

Abstract

Endogeneity bias arises in contingent valuation studies when the error term in the willingness to pay (WTP) equation is correlated with explanatory variables because observable and unobservable characteristics of the respondents affect both their WTP and the value of those variables. We correct for the endogeneity of variables that capture previous experience with the resource valued, humpback whales, and with the area of study. We consider several endogenous behavioral variables, so we apply a multivariate probit approach to jointly model them with WTP. In this case, correcting for endogeneity increases econometric efficiency and substantially corrects the bias affecting the estimated coefficients of the experience variables, by isolating the decreasing effect on option value caused by having experienced the resource. Stark differences are unveiled between the marginal effects on willingness to pay of experience of the resources in an alternative location versus experience in the location studied.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 21976.

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Date of creation: 18 Dec 2009
Date of revision: 08 Apr 2010
Handle: RePEc:pra:mprapa:21976

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Keywords: contingent valuation; respondent experience; option values; multivari-ate probit; endogeneity; whales;

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  1. Voltaire, Louinord & Nassiri, Abdelhak & Bailly, Denis & Boncoeur, Jean, 2011. "Testing for Consistency in Tourists' Willingness to Pay for New Nature Reserves in the Gulf of Morbihan (France)," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114378, European Association of Agricultural Economists.

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