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Accounting for uncertainty in willingness to pay for environmental benefits

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  • Daziano, Ricardo A.
  • Achtnicht, Martin

Abstract

Previous 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 ultra-low-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.

Suggested Citation

  • Daziano, Ricardo A. & Achtnicht, Martin, 2014. "Accounting for uncertainty in willingness to pay for environmental benefits," Energy Economics, Elsevier, vol. 44(C), pages 166-177.
  • Handle: RePEc:eee:eneeco:v:44:y:2014:i:c:p:166-177
    DOI: 10.1016/j.eneco.2014.03.023
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    Cited by:

    1. Ricardo A. Daziano & Luis Miranda-Moreno & Shahram Heydari, 2013. "Computational Bayesian Statistics in Transportation Modeling: From Road Safety Analysis to Discrete Choice," Transport Reviews, Taylor & Francis Journals, vol. 33(5), pages 570-592, September.
    2. repec:jss:jstsof:v:079:i02 is not listed on IDEAS
    3. repec:oup:erevae:v:44:y:2017:i:4:p:634-657. is not listed on IDEAS
    4. Kragt, M.E. & Gibson, F.L. & Maseyk, F. & Wilson, K.A., 2016. "Public willingness to pay for carbon farming and its co-benefits," Ecological Economics, Elsevier, vol. 126(C), pages 125-131.
    5. Miller, Sini & Tait, Peter & Saunders, Caroline, 2015. "Estimating indigenous cultural values of freshwater: A choice experiment approach to Māori values in New Zealand," Ecological Economics, Elsevier, vol. 118(C), pages 207-214.
    6. Daziano, Ricardo A., 2015. "Inference on mode preferences, vehicle purchases, and the energy paradox using a Bayesian structural choice model," Transportation Research Part B: Methodological, Elsevier, vol. 76(C), pages 1-26.
    7. Sicsic, Jonathan & Krucien, Nicolas & Franc, Carine, 2016. "What are GPs' preferences for financial and non-financial incentives in cancer screening? Evidence for breast, cervical, and colorectal cancers," Social Science & Medicine, Elsevier, vol. 167(C), pages 116-127.
    8. repec:eee:eejocm:v:27:y:2018:i:c:p:50-61 is not listed on IDEAS

    More about this item

    Keywords

    Discrete choice models; Willingness to pay; Credible sets;

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

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