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Valuation on the frontier: Calibrating actual and hypothetical statements of value

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  • Richard Hofler
  • John List

Abstract

The lack of robust evidence showing that hypothetical behavior directly maps into real actions remains a major concern for proponents of stated preference nonmarket valuation techniques. This article explores a new statistical approach to link actual and hypothetical statements. Using willingness-topay field data on individual bids from sealed-bid auctions for a $350 baseball card, our results are quite promising. Estimating a stochastic frontier regression model that makes use of data that any contingent valuation survey would obtain, we derive a bid function that is not statistically different from the bid function obtained from subjects in an actual auction. If other data can be calibrated similarly, this method holds significant promise since an appropriate calibration scheme, ex ante or ex post, can be invaluable to the policy maker that desires more accurate estimates of use and nonuse values for nonmarket goods and services.

Suggested Citation

  • Richard Hofler & John List, 2004. "Valuation on the frontier: Calibrating actual and hypothetical statements of value," Framed Field Experiments 00159, The Field Experiments Website.
  • Handle: RePEc:feb:framed:00159
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    References listed on IDEAS

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    1. List, John A. & Shogren, Jason F., 1998. "Calibration of the difference between actual and hypothetical valuations in a field experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 37(2), pages 193-205, October.
    2. Timothy C. Haab & Ju-Chin Huang & John C. Whitehead, 1999. "Are Hypothetical Referenda Incentive Compatible? A Comment," Journal of Political Economy, University of Chicago Press, vol. 107(1), pages 186-196, February.
    3. 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.
    4. Cummings, Ronald G, et al, 1997. "Are Hypothetical Referenda Incentive Compatible?," Journal of Political Economy, University of Chicago Press, vol. 105(3), pages 609-621, June.
    5. 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.
    6. List, John A. & Shogren, Jason F., 2002. "Calibration of Willingness-to-Accept," Journal of Environmental Economics and Management, Elsevier, vol. 43(2), pages 219-233, March.
    7. Waldman, Donald M., 1982. "A stationary point for the stochastic frontier likelihood," Journal of Econometrics, Elsevier, vol. 18(2), pages 275-279, February.
    8. Jondrow, James & Knox Lovell, C. A. & Materov, Ivan S. & Schmidt, Peter, 1982. "On the estimation of technical inefficiency in the stochastic frontier production function model," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 233-238, August.
    9. William C. Horrace & Peter Schmidt, 2002. "Confidence Statements for Efficiency Estimates from Stochastic Frontier Models," Econometrics 0206006, EconWPA.
    10. John A. List, 2001. "Do Explicit Warnings Eliminate the Hypothetical Bias in Elicitation Procedures? Evidence from Field Auctions for Sportscards," American Economic Review, American Economic Association, vol. 91(5), pages 1498-1507, December.
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    Cited by:

    1. Clot, Sophie & Andriamahefazafy, Fano & Grolleau, Gilles & Ibanez, Lisette & Méral, Philippe, 2015. "Compensation and Rewards for Environmental Services (CRES) and efficient design of contracts in developing countries. Behavioral insights from a natural field experiment," Ecological Economics, Elsevier, vol. 113(C), pages 85-96.
    2. Haddak, Mohamed Mouloud & Lefèvre, Marie & Havet, Nathalie, 2016. "Willingness-to-pay for road safety improvement," Transportation Research Part A: Policy and Practice, Elsevier, vol. 87(C), pages 1-10.
    3. Svensson, Mikael, 2006. "The Value of a Statistical Life in Sweden Estimates from Two Studies using the "Certainty Approach" Calibration," Working Papers 2006:6, Örebro University, School of Business, revised 12 May 2009.
    4. Bolliger, Conradin & Reviron, Sophie, 2008. "Consumer Willingness to Pay for Swiss Chicken Meat: An In-store Survey to Link Stated and Revealed Buying Behaviour," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44155, European Association of Agricultural Economists.
    5. Aiken Deborah Vaughn & Zamula William W., 2009. "Valuation of Quality of Life Losses Associated with Nonfatal Injury: Insights from Jury Verdict Data," Review of Law & Economics, De Gruyter, vol. 5(1), pages 293-310, May.
    6. Whittington, Dale & Sur, Dipika & Cook, Joseph & Chatterjee, Susmita & Maskery, Brian & Lahiri, Malay & Poulos, Christine & Boral, Srabani & Nyamete, Andrew & Deen, Jacqueline & Ochiai, Leon & Bhattac, 2009. "Rethinking Cholera and Typhoid Vaccination Policies for the Poor: Private Demand in Kolkata, India," World Development, Elsevier, vol. 37(2), pages 399-409, February.
    7. Anabela Botelho & Lígia Costa Pinto & Patricia Sousa, 2013. "Valuing wind farms’ environmental impacts by geographical distance: A contingent valuation study in Portugal," NIMA Working Papers 52, Núcleo de Investigação em Microeconomia Aplicada (NIMA), Universidade do Minho.
    8. Norwood, F. Bailey, 2005. "Can Calibration Reconcile Stated and Observed Preferences?," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 37(01), April.
    9. Devkota, Nirmala & Paudel, Krishna P. & Fannin, James Matthew & Hall, Larry M. & Caffey, Rex H., 2007. "Calibrating Online Survey Sample for Economic Impact Analysis," 2007 Annual Meeting, February 4-7, 2007, Mobile, Alabama 34997, Southern Agricultural Economics Association.
    10. Kumbhakar, Subal C. & Parmeter, Christopher F. & Tsionas, Efthymios G., 2012. "Bayesian estimation approaches to first-price auctions," Journal of Econometrics, Elsevier, vol. 168(1), pages 47-59.
    11. Murphy, James J. & Stevens, Thomas H., 2004. "Contingent Valuation, Hypothetical Bias, and Experimental Economics," Agricultural and Resource Economics Review, Cambridge University Press, vol. 33(02), pages 182-192, October.
    12. Jason Shogren, 2006. "Valuation in the Lab," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 34(1), pages 163-172, May.
    13. G. Concu, 2004. "A choice modelling approach to investigate biases in individual and aggregated benefit estimates due to omission of distance," Working Paper CRENoS 200412, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.

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