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Addressing Negative Willingness to Pay in Dichotomous Choice Contingent Valuation

  • Alok Bohara
  • Joe Kerkvliet
  • Robert Berrens

This paper has four purposes. First, we outline the controversy surroundingthe issue of negative willingness to pay (WTP)in contingent valuation (CV) studies. Second,we use Monte Carlo simulation to examine theperformance of alternative distributionalassumptions in estimating WTP in the presenceof varying proportions of the populationholding negative WTP values. We focus ondichotomous choice CV (DC-CV), where negativeWTP values may be especially difficult todetect. Third, we extend the simulation toinvestigate the performance of the mixturemodels that have recently been proposed forhandling/identifying non-positive WTP values. Fourth, we extend the simulation to investigatethe performance of the nonparametric lowerbound Turnbull approach. Results indicate thatthe relative performance of the DC-CV modelingalternatives evaluated here, which assumepositive WTP, varies across the simulationsetting (e.g., proportion of negative WTP); butnone can be said to reasonably ``solve'' theproblem ex post. This underscores theimportance of ex ante efforts to identify ifnegative WTP is likely to be prominent in agiven valuation setting. In such cases,appropriately handling negative WTP must beaddressed through ex ante survey design andmodeling choices that allow negative WTP. Copyright Kluwer Academic Publishers 2001

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Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

Volume (Year): 20 (2001)
Issue (Month): 3 (November)
Pages: 173-195

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Handle: RePEc:kap:enreec:v:20:y:2001:i:3:p:173-195
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  1. Langford, Ian H. & Bateman, Ian J., 1996. "Elicitation and truncation effects in contingent valuation studies," Ecological Economics, Elsevier, vol. 19(3), pages 265-267, December.
  2. Timothy C. Haab & Kenneth E. McConnell, 1998. "Referendum Models and Economic Values: Theoretical, Intuitive, and Practical Bounds on Willingness to Pay," Land Economics, University of Wisconsin Press, vol. 74(2), pages 216-229.
  3. Cameron, Trudy Ann & Englin, Jeffrey, 1997. "Respondent Experience and Contingent Valuation of Environmental Goods," Journal of Environmental Economics and Management, Elsevier, vol. 33(3), pages 296-313, July.
  4. Keith, John E. & Fawson, Christopher & Johnson, Van, 1996. "Preservation or use A contingent valuation study of wilderness designation in Utah," Ecological Economics, Elsevier, vol. 18(3), pages 207-214, September.
  5. Kopp, Raymond & Smith, V. Kerry & Mitchell, Robert & Presser, Stanley & Ruud, Paul & Hanemann, W. Michael & Krosnick, Jon & Carson, Richard, 1995. "Referendum Design and Contingent Valuation: The NOAA Panel's No-Vote Recommendation," Discussion Papers dp-96-05, Resources For the Future.
  6. Elnagheeb Abdelmoneim H. & Jordan Jeffrey L., 1995. "Comparing Three Approaches That Generate Bids for the Referendum Contingent Valuation Method," Journal of Environmental Economics and Management, Elsevier, vol. 29(1), pages 92-104, July.
  7. John W. Duffield & David A. Patterson, 1991. "Inference and Optimal Design for a Welfare Measure in Dichotomous Choice Contingent Valuation," Land Economics, University of Wisconsin Press, vol. 67(2), pages 225-239.
  8. Berrens, Robert P. & Brookshire, David & Ganderton, Philip & McKee, Mike, 1998. "Exploring nonmarket values for the social impacts of environmental policy change," Resource and Energy Economics, Elsevier, vol. 20(2), pages 117-137, June.
  9. Donald H. Rosenthal & Robert H. Nelson, 1992. "Why existence value should not be used in cost-benefit analysis," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 11(1), pages 116-122.
  10. Bengt Kristr´┐Żm, 1997. "Spike Models in Contingent Valuation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(3), pages 1013-1023.
  11. Trudy Ann Cameron & Michelle D. James, 1986. "Efficient Estimation Methods for "Closed-Ended" Contingent Valuation Surveys," UCLA Economics Working Papers 404, UCLA Department of Economics.
  12. Timothy C. Haab & Kenneth E. McConnell, . "Referendum Models and Negative Willingness to Pay: Alternative Solutions," Working Papers 9610, East Carolina University, Department of Economics.
  13. Werner, Megan, 1999. "Allowing for Zeros in Dichotomous-Choice Contingent-Valuation Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(4), pages 479-86, October.
  14. Paul R. Portney, 1994. "The Contingent Valuation Debate: Why Economists Should Care," Journal of Economic Perspectives, American Economic Association, vol. 8(4), pages 3-17, Fall.
  15. Trudy Ann Cameron & John Quiggin, 1992. "Estimation Using Contingent Valuation Data From a "Dichotomous Choice with Follow-Up" Questionnaire," UCLA Economics Working Papers 653, UCLA Department of Economics.
  16. Berrens, Robert P. & Ganderton, Philip T. & Silva, Carol L., 1996. "Valuing The Protection Of Minimum Instream Flows In New Mexico," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 21(02), December.
  17. Loomis, John & Ekstrand, Earl, 1998. "Alternative approaches for incorporating respondent uncertainty when estimating willingness to pay: the case of the Mexican spotted owl," Ecological Economics, Elsevier, vol. 27(1), pages 29-41, October.
  18. Joe Kerkvliet, 1997. "A Randomized Response Approach to Dichotomous Choice Contingent Valuation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(1), pages 252-266.
  19. Lockwood, Michael & Loomis, John & De Lacy, Terry, 1994. "The relative unimportance of a nonmarket willingness to pay for timber harvesting," Ecological Economics, Elsevier, vol. 9(2), pages 145-152, February.
  20. Cameron, Trudy Ann & Quiggin, John, 1998. "Estimation Using Contingent Valuation Data from a "Dichotomous Choice with Follow-Up" Questionnaire: Reply," Journal of Environmental Economics and Management, Elsevier, vol. 35(2), pages 195-199, March.
  21. Carson, R.T. & Mitchell, R.C. & Hanemann, W.M. & Kopp, R.J. & Presser, S. & Ruud, P.A., 1992. "A Contingent Valuation Study of Lost Passive Use Values Resulting From the Exxon Valdez Oil Spill," MPRA Paper 6984, University Library of Munich, Germany.
  22. Raymond J. Kopp, 1992. "Why existence value should be used in cost-benefit analysis," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 11(1), pages 123-130.
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