Transcript Stated Preference

Stated Preference &
Experimental Markets
Methods for measuring non-market
benefits
Recall revealed preference
Remember, we would like to use
“revealed preference” approaches to
value environmental assets.
What if value (or part of value) can’t be
captured within an existing market?
Can use the “Contingent Valuation Method”
(CVM)…Measures value contingent on
existence of a market.
Some examples
The value of the Channel Islands
marine reserve?
Do people value the organisms or the
reserve?
The damages from Exxon Valdez spill?
The value of restoring steelhead to
Ventura River?
The damage from drilling in ANWR?
Existence values
Notice, most of these are
Non-use values and
Existence values
We would like to know the demand
curve for the environmental good.
Recall demand measures “willingness to
pay” for different levels of the good.
How elicit “willingness to pay”?
No market exists within which to
measure value
Use survey
Many challenges to do a credible job
Need to design survey to minimize
opportunities for bias of results.
Cookbook procedure [1 of 2]
1. Define the “market scenario” or
payment vehicle
Or might be open ended (“how much are
you willing to pay for XXX”)
2. Determine elicitation method
Direct question, discrete choice, bidding
game, payment card, etc…
3. Design elicitation scheme
Mail, telephone, email, in person
Cookbook procedure [2 of 2]
4. Determine sample design
Population, randomization of respondents,
randomization of questions, etc.
5. Determine experimental design
How obtain demand curve and conduct
further analysis to answer question
6. Estimate demand function
Conduct analysis to answer question
Problems with CVM
WTA or WTP?…get different answers.
Hypothetical bias
Continually remind of budget constraint
Information about thing being valued
“Warm Glow”
Open-ended is unfamiliar market context
Embedding problem
NOAA guidelines for CVM
Minimize non-response
Personal interviews
Pretest for interviewer effects etc.
WTP not WTA
Referendum format
Provide adequate background info.
Remind of substitute commodities
Include & explain non-response option (not $0)
Types of payment vehicle
Payment affects all parties
National tax, local tax, fee or charge for
use, price increase for use.
Note: respondent may disagree with
agency responsible for managing resource.
Voluntary payment
Donation to trust fund
Note: remember free-riding problem, also
may get strategic bias.
Open-ended elicitation
“What is the maximum amount you would be
prepared to pay every year [vehicle] to XXX?”
For:
Straightforward, no implied value cues/anchoring
bias, gives max WTP
Against:
Large non-response/protest, unrealistically large
bids, unreliable, unlike normal market transaction
Bidding game elicitation
“Would you pay $XXX every year [vehicle]
to YYY?” [keep increasing bid until
answer is “No” or decrease until “Yes”]
For:
Forces respondent to consider preferences.
Against:
Anchor bias, yea-saying, cannot be used in
mail surveys.
Payment card elicitation
“Which of the amounts listed below
describeds your maximum WTP every year
[vehicle] to improve XXX?” [list of $ values]
For:
Avoids starting point bias, values can be
actual tax or household benchmarks
Against:
Range of numbers can induce bias, cannot be
used on telephone.
Single-bounded dichotomous
choice elicitation (referendum)
“Would you pay $X per year [vehicle] to
improve YYY?” [randomly vary X]
For
Simplifies choice (similar to market),
minimizes non-response, straightforward
Against:
May get inflated values, some yea-saying,
less informative, starting point bias.
Double-bounded dichotomous
choice elicitation
“Would you pay $X every year [vehicle] to
improve YYY?” [If yes: “And would you
pay Z (>X)?”, If no: “And would you pay
W (<X)?”.
For:
More efficient than referendum (because
know bounds.
Against
Same as referendum
Major sources of error in CVM
1. Scenario misspecification
1.
Divergence between what respondent is
answering and what researcher is asking
2. Implied value cues
1.
Unfamiliar choice problem, respondent
wants to give “right” answer.
3. Strategic bias
1.
2.
Low bid (think taxes will  but good won’t)
High bid (think won’t have to pay for it)
Reliability of CVM estimates
Compare results with comparable
revealed preference results
Construct market & compare results
Use CVM to measure demand for
market good
Test method (same sample over time)
Surveys of purchase intentions and
actual purchases (market research)
Example 1: ecotourism in Kenya
Ecotourism captures some of WTP for
preserving wildlife
Lake Nakuru Nat’l Park in Kenya (360
species of birds)
Farming has reduced water quality and
subsequent wildlife pops.
CVM estimates value park (value to
users only) at $7.5 million.
Example 2: Economic value of
noncommercial fish (US)
Rivers in 4-corners region
2465 miles of river habitat for 9
endangered fish.
Protection requires fish bypasses,
passageways, habitat improvements.
What is the economic value of
preserving the habitat?
The application (4 corners fish)
Respondents given
Maps of critical habitat
Told that officials though habitat protection
too costly, were going to eliminate critical
habitat designation
Asked if they would contribute to “Four
Corners Endangered Fish Trust Fund”
Also told all taxpayers would contribute
Voting for 4 corners fish
If majority votes in favor of contribution
to fund:
Rivers managed for optimum fish
protection. Fish will be saved & removed
from ESA over next 20 years.
If majority votes against
Rivers managed for maximum hydroelectic
output. 4 of 9 would likely become extinct.
Actual survey instrument
“Suppose a proposal to establish a Four Corners
Region Threatened and Endangered Fish Trust Fund
was on the ballot in the next nationwide election. How
would you vote on this proposal? Remember, by law,
the funds could only be used to improve habitat for fish.
If the Four Corners Region Threatened and
Endangered Fish Trust Fund was the only issue on the
next ballot and it would cost your household $______
every year, would you vote in favor of it? Circle Yes or
No.”
Dollar value randomly chosen from $1 - $350.
Results of 4 corner fish
Survey sent to random sample of 800 4
corner households. Additional 800 to
households in rest of US.
Average WTP = $195.
Extrapolated to rest of population.
Benefits far exceeded costs.
Example 3: Value of Waterfalls
FERC faced relicensing. How much
water should be required to fall at
recreation area?
More water, less power generated.
Previous license required 50 cfs (trickle)
Survey elicited WTP for increased
overflow of water.
Survey & results: waterfalls
Pictures with different flow levels mailed
to random sample of past visitors to
site.
How much pay to visit park in each
case. How many times visit park?
Result: Summer months optimal flow
should be 500 cfs (not 50 cfs).
Experimental markets
Main criticism of CVM is that it is
hypothetical.
Develop an experimental market, with
actual participants to elicit values.
Researcher constructs market, including
the good(s) and money
Observe behavior of subjects (may be
field or laboratory)
Example: goose hunting
“Good”: access to goose hunting reserve.
Permits in short supply.
Experimental market: send hunter (with
permit) check for $1 - $200, return one.
Mean of field experiment mkt. Was $63
for a license.
Estimate of value of the good is $63.