Accounting for uncertainty in willingness to pay for environmental benefits
AbstractPrevious literature on the distribution of willingness to pay has focused on its heterogeneity distribution without addressing exact interval estimation. In this paper we derive and analyze Bayesian confidence sets for quantifying uncertainty in the determination of willingness to pay for carbon dioxide abatement. We use two empirical case studies: household decisions of energy-efficient heating versus insulation, and purchase decisions of ultralow-emission vehicles. We first show that deriving credible sets using the posterior distribution of the willingness to pay is straightforward in the case of deterministic consumer heterogeneity. However, when using individual estimates, which is the case for the random parameters of the mixed logit model, it is complex to define the distribution of interest for the interval estimation problem. This latter problem is actually more involved than determining the moments of the heterogeneity distribution of the willingness to pay using frequentist econometrics. A solution that we propose is to derive and then summarize the distribution of point estimates of the individual willingness to pay under different loss functions. --
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Bibliographic InfoPaper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 13-059.
Date of creation: 2013
Date of revision:
Discrete Choice Models; Willingness to Pay; Credible Sets;
Find related papers by JEL classification:
- C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
This paper has been announced in the following NEP Reports:
- NEP-AGR-2013-09-13 (Agricultural Economics)
- NEP-ALL-2013-09-13 (All new papers)
- NEP-DCM-2013-09-13 (Discrete Choice Models)
- NEP-ECM-2013-09-13 (Econometrics)
- NEP-ENE-2013-09-13 (Energy Economics)
- NEP-ENV-2013-09-13 (Environmental Economics)
- NEP-REG-2013-09-13 (Regulation)
- NEP-TRE-2013-09-13 (Transport Economics)
- NEP-UPT-2013-09-13 (Utility Models & Prospect Theory)
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