Improving Willingness to Pay Estimates for Quality Improvements Throught Joint Estimation with Quality Perceptions
Willingness to pay for quality change may depend on heterogeneous perceived quality levels. In these instances, contingent valuation studies should include measures of quality perceptions as covariates in the willingness to pay model in order to avoid omitted variable bias. Variation in quality perceptions across respondents leads to a potential endogeneity of quality perceptions. We address the potential for endogeneity bias using an instrumental variable approach in which a measure of quality perceptions is included as a determinant of willingness to pay and is simultaneously determined by various exogenous factors. The willingness to pay model is estimated jointly with quality perceptions allowing for correlation of the error terms. Using data on willingness to pay for water quality improvements in the Neuse River in North Carolina we reject exogeneity of perceived quality. Correcting for endogeneity improves the measurement of willingness to pay by differentiating willingness to pay among respondents with heterogeneous quality perceptions
|Date of creation:||Aug 2005|
|Date of revision:||Aug 2005|
|Contact details of provider:|| Postal: |
Web page: http://yosemite.epa.gov/ee/epa/eed.nsf/webpages/homepage
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hurley, Terrance M. & Otto, Daniel & Holtkamp, Janice, 1999.
"Valuation of Water Quality in Livestock Regions: An Application to Rural Watersheds in Iowa,"
Staff General Research Papers
5151, Iowa State University, Department of Economics.
- Hurley, Terrance M. & Otto, Daniel M. & Holtkamp, Janice, 1999. "Valuation Of Water Quality In Livestock Regions: An Application To Rural Watersheds In Iowa," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 31(01), April.
- Mi-Jung Um & Seung-Jun Kwak & Tai-Yoo Kim, 2002. "Estimating Willingness to Pay for Improved Drinking Water Quality Using Averting Behavior Method with Perception Measure," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 21(3), pages 285-300, March.
- repec:jaa:jagape:v:31:y:1999:i:1:p:177-84 is not listed on IDEAS
- Seung-Hoon Yoo & Hee-Jong Yang, 2001. "Application of Sample Selection Model to Double-Bounded Dichotomous Choice Contingent Valuation Studies," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 20(2), pages 147-163, October.
- Smith, Richard J & Blundell, Richard W, 1986. "An Exogeneity Test for a Simultaneous Equation Tobit Model with an Application to Labor Supply," Econometrica, Econometric Society, vol. 54(3), pages 679-85, May.
- Blomquist, Glenn C. & Whitehead, John C., 1998. "Resource quality information and validity of willingness to pay in contingent valuation," Resource and Energy Economics, Elsevier, vol. 20(2), pages 179-196, June.
- Viscusi, W Kip, 1989. " Prospective Reference Theory: Toward an Explanation of the Paradoxes," Journal of Risk and Uncertainty, Springer, vol. 2(3), pages 235-63, September.
- John C. Whitehead, 2002. "Incentive Incompatibility and Starting-Point Bias in Iterative Valuation Questions," Land Economics, University of Wisconsin Press, vol. 78(2), pages 285-297.
- Clifford, William B. & Hoban, Thomas J. & Whitehead, John C., 2001. "Willingness To Pay For Agricultural Research And Extension Programs," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 33(01), April.
- Hoehn, John P. & Randall, Alan, 1987. "A satisfactory benefit cost indicator from contingent valuation," Journal of Environmental Economics and Management, Elsevier, vol. 14(3), pages 226-247, September.
- Cameron, Trudy Ann & Huppert, Daniel D., 1989. "OLS versus ML estimation of non-market resource values with payment card interval data," Journal of Environmental Economics and Management, Elsevier, vol. 17(3), pages 230-246, November.
- John C. Whitehead & Timothy C. Haab & Ju-Chin Huang, 1998.
"Part-Whole Bias in Contingent Valuation: Will Scope Effects Be Detected with Inexpensive Survey Methods?,"
Southern Economic Journal,
Southern Economic Association, vol. 65(1), pages 160-168, July.
- John C. Whitehead & Timothy Haab & Ju-Chin Huang, . "Part-Whole Bias in Contingent Valuation: Will Scope Effects Be Detected with Inexpensive Survey Methods?," Working Papers 9707, East Carolina University, Department of Economics.
- Hoehn, John P. & Randall, Alan, 2002. "The effect of resource quality information on resource injury perceptions and contingent values," Resource and Energy Economics, Elsevier, vol. 24(1-2), pages 13-31, February.
When requesting a correction, please mention this item's handle: RePEc:nev:wpaper:wp200508. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Cynthia Morgan)
If references are entirely missing, you can add them using this form.