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Choosing a Functional Form for an International Benefit Transfer: Evidence from a Nine-country Valuation Experiment

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  • Czajkowski, Mikołaj
  • Ahtiainen, Heini
  • Artell, Janne
  • Meyerhoff, Jürgen

Abstract

This paper investigates the performance of common approaches in international benefit transfer using data from identical and simultaneous contingent valuation studies on marine water quality in nine European countries. The environmental good is shared by the study countries, but the countries differ substantially in their income levels and other characteristics. We compare the performance of value transfers (with or without income elasticity of willingness to pay adjustments) and function transfers that include only core variables supported by economic theory. Our results point to a new source of uncertainty associated with function transfer – choosing a particular functional form. Even if only theoretically relevant explanatory variables are used, the theory offers no insights with respect to a functional relationship of the dependence (e.g., linear, log-linear, exponential, polynomial). We show that while different functional forms may offer improvements in model fit, this does not necessarily translate to improvements in transfer errors or minimum tolerance levels. In our case, the value transfer with constant (unit) income elasticity adjustment, corresponding to the log-log functional relationship between willingness to pay and income, performs the best. Including additional explanatory variables or using other functional forms worsens the quality of transfers. Overall, our study questions the rationale for using more complicated function transfers in international benefit transfers, as the relationships observed within a country or a group of countries does not necessarily translate to dependencies between countries.

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  • Czajkowski, Mikołaj & Ahtiainen, Heini & Artell, Janne & Meyerhoff, Jürgen, 2017. "Choosing a Functional Form for an International Benefit Transfer: Evidence from a Nine-country Valuation Experiment," Ecological Economics, Elsevier, vol. 134(C), pages 104-113.
  • Handle: RePEc:eee:ecolec:v:134:y:2017:i:c:p:104-113
    DOI: 10.1016/j.ecolecon.2017.01.005
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    Cited by:

    1. Dupoux, Marion & Martinet, Vincent, 2019. "Can the environment be an inferior good? A theory with context-dependent substitutability and needs," Working Papers in Economics 759, University of Gothenburg, Department of Economics.
    2. Carolus, Johannes Friedrich & Hanley, Nick & Olsen, Søren Bøye & Pedersen, Søren Marcus, 2018. "A Bottom-up Approach to Environmental Cost-Benefit Analysis," Ecological Economics, Elsevier, vol. 152(C), pages 282-295.
    3. Czajkowski, Mikołaj & Budziński, Wiktor, 2019. "Simulation error in maximum likelihood estimation of discrete choice models," Journal of choice modelling, Elsevier, vol. 31(C), pages 73-85.
    4. Bockarjova, Marija & Botzen, Wouter J.W. & Koetse, Mark J., 2020. "Economic valuation of green and blue nature in cities: A meta-analysis," Ecological Economics, Elsevier, vol. 169(C).
    5. Artell, Janne & Ahtiainen, Heini & Pouta, Eija, 2019. "Distance decay and regional statistics in international benefit transfer," Ecological Economics, Elsevier, vol. 164(C), pages 1-1.
    6. Alberini, Anna & Bigano, Andrea & Ščasný, Milan & Zvěřinová, Iva, 2018. "Preferences for Energy Efficiency vs. Renewables: What Is the Willingness to Pay to Reduce CO2 Emissions?," Ecological Economics, Elsevier, vol. 144(C), pages 171-185.

    More about this item

    Keywords

    Benefit transfer; Functional forms; Explanatory variables; Transfer errors; Minimum tolerance levels; International; Contingent valuation; Water quality;

    JEL classification:

    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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