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The implications of incorrect utility function specification for welfare measurement in choice experiments

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  • Hanley, Nicholas
  • Riera, Antoni
  • Torres, Cati

Abstract

Despite the vital role of utility functional form in welfare measurement, the implications of working with incorrect utility specifications have not been examined in the choice experiments (CE) literature. This paper addresses the importance of the specification of both non-monetary attributes and the marginal utility of income. Monte Carlo experiments have been conducted wherein different attribute specifications and assumptions for the Cost parameter -that is, different functional forms of utility- have been assumed to generate simulated choices on which Multi-Nomial Logit and Mixed Logit models have been estimated under correct and incorrect assumptions about the true, underlying utility function. The inferred values have been compared with the true ones directly calculated from the true utility specifications. Results show that working with simple experimental designs and continuous-linear specifications makes attribute specification irrelevant for measuring attribute marginal values regardless of the true effects the attribute has on utility.

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File URL: http://hdl.handle.net/1893/823
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Bibliographic Info

Paper provided by University of Stirling, Division of Economics in its series Stirling Economics Discussion Papers with number 2009-07.

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Date of creation: Feb 2009
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Handle: RePEc:stl:stledp:2009-07

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Postal: Division of Economics, University of Stirling, Stirling, Scotland FK9 4LA
Phone: +44 (0)1786 467473
Fax: +44 (0)1786 467469
Web page: http://www.econ.stir.ac.uk/
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Keywords: Monte Carlo analysis; choice experiments; efficiency; accuracy; welfare measurement; attributes; utility specification;

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  1. Kling, Catherine L., 1991. "Estimating the precision of welfare measures," Journal of Environmental Economics and Management, Elsevier, vol. 21(3), pages 244-259, November.
  2. Kling, Catherine L., 1989. "The Importance Of Functional Form In The Estimation Of Welfare," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 14(01), July.
  3. Riccardo Scarpa & Ian Bateman, 2000. "Efficiency Gains Afforded by Improved Bid Design versus Follow-up Valuation Questions in Discrete-Choice CV Studies," Land Economics, University of Wisconsin Press, vol. 76(2), pages 299-311.
  4. Kling, Catherine L., 1997. "Evaluation of the Gains from Combining Travel Cost and Contingent Valuation Data to Value Nonmarket Goods (An)," Staff General Research Papers 1598, Iowa State University, Department of Economics.
  5. Kling, Catherine L., 1988. "Reliability of Estimates of Environmental Benefits from Recreation Demand Models (The)," Staff General Research Papers 1587, Iowa State University, Department of Economics.
  6. Kling, Catherine L. & Sexton, Richard, 1990. "Bootstrapping in Applied Welfare Analysis," Staff General Research Papers 1595, Iowa State University, Department of Economics.
  7. Alberini Anna, 1995. "Efficiency vs Bias of Willingness-to-Pay Estimates: Bivariate and Interval-Data Models," Journal of Environmental Economics and Management, Elsevier, vol. 29(2), pages 169-180, September.
  8. Kling, Catherine L., 1989. "Importance of Functional Form in the Estimation of Welfare (The)," Staff General Research Papers 1596, Iowa State University, Department of Economics.
  9. Fredrik Carlsson & Peter Martinsson, 2003. "Design techniques for stated preference methods in health economics," Health Economics, John Wiley & Sons, Ltd., vol. 12(4), pages 281-294.
  10. Herriges, Joseph A. & Kling, Catherine L., 2003. "Recreation Demand Models," Staff General Research Papers 10211, Iowa State University, Department of Economics.
  11. Ferrini, Silvia & Scarpa, Riccardo, 2007. "Designs with a priori information for nonmarket valuation with choice experiments: A Monte Carlo study," Journal of Environmental Economics and Management, Elsevier, vol. 53(3), pages 342-363, May.
  12. Herriges, Joseph A. & Kling, Catherine L., 1997. "Performance of Nested Logit Models when Welfare Estimation Is the Goal (The)," Staff General Research Papers 1480, Iowa State University, Department of Economics.
  13. Joseph A. Herriges & Catherine L. Kling, 1997. "The Performance of Nested Logit Models When Welfare Estimation Is the Goal," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(3), pages 792-802.
  14. Jayson L. Lusk & F. Bailey Norwood, 2005. "Effect of Experimental Design on Choice-Based Conjoint Valuation Estimates," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(3), pages 771-785.
  15. Timothy Park & John B. Loomis & Michael Creel, 1991. "Confidence Intervals for Evaluating Benefits Estimates from Dichotomous Choice Contingent Valuation Studies," Land Economics, University of Wisconsin Press, vol. 67(1), pages 64-73.
  16. Kling, Catherine L., 1987. "Simulation Approach to Comparing Multiple Site Recreation Demand Models Using Chesapeake Bay Survey Data (A)," Staff General Research Papers 1583, Iowa State University, Department of Economics.
  17. Kling, Catherine L. & Herriges, Joseph A., 1997. "Model Performance of Nested Logit Models when Welfare Estimation is the Goal, The," Staff General Research Papers 12331, Iowa State University, Department of Economics.
  18. Kling, Catherine L. & Thomson, Cynthia J., 1996. "Implications of Model Specification for Welfare Estimation in Nested Logit Models (The)," Staff General Research Papers 1599, Iowa State University, Department of Economics.
  19. Catherine L. Kling & Cynthia J. Thomson, 1996. "The Implications of Model Specification for Welfare Estimation in Nested Logit Models," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(1), pages 103-114.
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