Differences between Willingness-to-Pay Estimates from Open-Ended and Discrete-Choice Contingent Valuation Methods: The Effects of Heteroscedasticity
Most comparative studies find that the discrete-choice contingent valuation method (DC-CVM) yields higher willingness-to-pay (WTP) estimates than the open-ended (OE) format. In this paper, we discuss and test several hypotheses to explain why WTP estimates from OE and DC-CVM questions differ. We find that WTP estimates from discrete-choice data are very sensitive to assumptions made about the random utility. In particular, violation of the homoscedasticity assumption may lead to biased WTP estimates if the error terms are correlated with the cost. This violation was a main source of difference in WTP estimates in our studies.
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