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Scale factors and hypothetical referenda: A clarifying note

  • Carlsson, Fredrik
  • Johansson-Stenman, Olof

In this note we explore in detail the importance of, and problems associated with, correcting for variance differences between data sets obtained from hypothetical and real referenda. We show that a previous discussion in the literature rests on a problematic estimation of the relative scale factor. The implications are illustrated with data from Cummings et al. (1997) [5], as well as with simulated data. Moreover, we propose a concrete methodology for how to analyze cases where it is difficult, or even impossible, to estimate the relative scale factor due to informational limitations, such as when there is no variation of the bid. We conclude that it is valuable to be able to separate behavioral differences into variance differences and parameter differences in the underlying objective function. Yet, we argue that when using the results to interpret the results of other hypothetical referenda, it is sometimes the net effect, i.e., without correction for scale differences, that matters.

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Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 59 (2010)
Issue (Month): 3 (May)
Pages: 286-292

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Handle: RePEc:eee:jeeman:v:59:y:2010:i:3:p:286-292
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  1. Timothy C. Haab & Ju-Chin Huang & John C. Whitehead, . "Are Hypothetical Referenda Incentive Compatible? A Comment," Working Papers 9708, East Carolina University, Department of Economics.
  2. repec:cup:cbooks:9780521788304 is not listed on IDEAS
  3. Cameron, Trudy Ann, 1988. "A new paradigm for valuing non-market goods using referendum data: Maximum likelihood estimation by censored logistic regression," Journal of Environmental Economics and Management, Elsevier, vol. 15(3), pages 355-379, September.
  4. Cameron, Trudy Ann & Poe, Gregory L. & Ethier, Robert G. & Schulze, William D., 2002. "Alternative Non-market Value-Elicitation Methods: Are the Underlying Preferences the Same?," Journal of Environmental Economics and Management, Elsevier, vol. 44(3), pages 391-425, November.
  5. Frykblom, Peter, 1997. "Hypothetical Question Modes and Real Willingness to Pay," Journal of Environmental Economics and Management, Elsevier, vol. 34(3), pages 275-287, November.
  6. Kiefer, Nicholas M & Skoog, Gary R, 1984. "Local Asymptotic Specification Error Analysis," Econometrica, Econometric Society, vol. 52(4), pages 873-85, July.
  7. David Reiley & John List, 2008. "Field experiments," Artefactual Field Experiments 00091, The Field Experiments Website.
  8. Cummings, Ronald G & Harrison, Glenn W & Rutstrom, E Elisabet, 1995. "Homegrown Values and Hypothetical Surveys: Is the Dichotomous Choice Approach Incentive-Compatible?," American Economic Review, American Economic Association, vol. 85(1), pages 260-66, March.
  9. Glenn Harrison, 2006. "Experimental Evidence on Alternative Environmental Valuation Methods," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 34(1), pages 125-162, 05.
  10. Yatchew, Adonis & Griliches, Zvi, 1985. "Specification Error in Probit Models," The Review of Economics and Statistics, MIT Press, vol. 67(1), pages 134-39, February.
  11. Cummings, Ronald G, et al, 1997. "Are Hypothetical Referenda Incentive Compatible?," Journal of Political Economy, University of Chicago Press, vol. 105(3), pages 609-21, June.
  12. Adamowicz W. & Louviere J. & Williams M., 1994. "Combining Revealed and Stated Preference Methods for Valuing Environmental Amenities," Journal of Environmental Economics and Management, Elsevier, vol. 26(3), pages 271-292, May.
  13. John List & Craig Gallet, 2001. "What Experimental Protocol Influence Disparities Between Actual and Hypothetical Stated Values?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 20(3), pages 241-254, November.
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