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Determining the change in welfare estimates from introducing measurement error in non-linear choice models

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  • Gibson, Fiona L.
  • Burton, Michael P.

Abstract

Observed and unobserved characteristics of an individual are often used by researchers to explain choices over the provision of environmental goods. One means for identifying what is typically an unobserved characteristic, such as an attitude, is through some data reduction technique, such as factor analysis. However, the resultant variable represents the true attitude with measurement error, and hence, when included into a non-linear choice model, introduces bias in the model. There are well established methods to overcome this issue, which are seldom implemented. In an application to preferences over two water source alternatives for Perth in Western Australia, we use structural equation modeling within a discrete choice model to determine whether welfare measures are significantly impacted by ignoring measurement error in latent attitudes, and the advantage to policy makers from understanding what drives certain attitudes.

Suggested Citation

  • Gibson, Fiona L. & Burton, Michael P., 2011. "Determining the change in welfare estimates from introducing measurement error in non-linear choice models," Working Papers 103428, University of Western Australia, School of Agricultural and Resource Economics.
    • Handle: RePEc:ags:uwauwp:103428
    DOI: 10.22004/ag.econ.103428
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    File URL: https://ageconsearch.umn.edu/record/103428/files/WP110010.pdf
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    References listed on IDEAS

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    1. Milon, J. Walter & Scrogin, David, 2006. "Latent preferences and valuation of wetland ecosystem restoration," Ecological Economics, Elsevier, vol. 56(2), pages 162-175, February.
    2. Kotchen, Matthew J. & Reiling, Stephen D., 2000. "Environmental attitudes, motivations, and contingent valuation of nonuse values: a case study involving endangered species," Ecological Economics, Elsevier, vol. 32(1), pages 93-107, January.
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    Cited by:

    1. Fiona Gibson & Michael Burton, 2014. "Salt or Sludge? Exploring Preferences for Potable Water Sources," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 57(3), pages 453-476, March.

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    Keywords

    Environmental Economics and Policy; Research Methods/ Statistical Methods;

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