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A New Approach to Correct for Hypothetical Bias in Stated Preference Models

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  • Davies, Stephen P.
  • Loomis, John B.

Abstract

Many times economists are asked to estimate the demand for new consumer goods or services for which no market data exists. Typically market researchers and economists answer this challenge using surveys that ask about intended purchases (Louviere, et al. 2000) or what has become known as stated preference (SP) data. Tying this data to revealed preference (RP), or actual behavior, has been a target in a number of studies. Simplistic calibrations have been investigated in past RP-SP studies, such as Loomis, et al. 2001. This paper offers an alternative solution that allows the magnitude of the calibration correction to vary based on Klein and Sherman's (1997) Orbit procedure. This paper extends the original Orbit procedure of Klein and Sherman by Combining stated and revealed preference data on quantities and prices in the first stage, incorporating a correction for heteroskedasticity, and developing methods to calculate consumer surplus and elasticities.

Suggested Citation

  • Davies, Stephen P. & Loomis, John B., 2006. "A New Approach to Correct for Hypothetical Bias in Stated Preference Models," 2006 Annual meeting, July 23-26, Long Beach, CA 21204, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  • Handle: RePEc:ags:aaea06:21204
    DOI: 10.22004/ag.econ.21204
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    File URL: https://ageconsearch.umn.edu/record/21204/files/sp06da05.pdf
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    References listed on IDEAS

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    1. Klein, Roger & Sherman, Robert, 1997. "Estimating new product demand from biased survey data," Journal of Econometrics, Elsevier, vol. 76(1-2), pages 53-76.
    2. Christopher D. Azevedo & Joseph A. Herriges & Catherine L. Kling, 2003. "Combining Revealed and Stated Preferences: Consistency Tests and Their Interpretations," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(3), pages 525-537.
    3. Richard T. Carson & Nicholas E. Flores & Kerry M. Martin & Jennifer L. Wright, 1996. "Contingent Valuation and Revealed Preference Methodologies: Comparing the Estimates for Quasi-Public Goods," Land Economics, University of Wisconsin Press, vol. 72(1), pages 80-99.
    4. John A. Fox & Jason F. Shogren & Dermot J. Hayes & James B. Kliebenstein, 1998. "CVM-X: Calibrating Contingent Values with Experimental Auction Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(3), pages 455-465.
    5. Caudill, Steven B & Ford, Jon M & Gropper, Daniel M, 1995. "Frontier Estimation and Firm-Specific Inefficiency Measures in the Presence of Heteroscedasticity," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(1), pages 105-111, January.
    6. R. Craig Layman & John R. Boyce & Keith R. Criddle, 1996. "Economic Valuation of the Chinook Salmon Sport Fishery of the Gulkana River, Alaska, under Current and Alternate Management Plans," Land Economics, University of Wisconsin Press, vol. 72(1), pages 113-128.
    7. 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.
    8. Loomis, John B. & Gonzalez-Caban, Armando & Englin, Jeffrey E., 2001. "Testing For Differential Effects Of Forest Fires On Hiking And Mountain Biking Demand And Benefits," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 26(2), pages 1-15, December.
    9. Carlsson, Fredrik & Martinsson, Peter, 2001. "Do Hypothetical and Actual Marginal Willingness to Pay Differ in Choice Experiments?: Application to the Valuation of the Environment," Journal of Environmental Economics and Management, Elsevier, vol. 41(2), pages 179-192, March.
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