Referendum Models and Economic Values: Theoretical, Intuitive, and Practical Bounds on Willingness to Pay

Innovations in the estimation of referendum type contingent valuation models have led to willingness-to-pay (WTP) measures inconsistent with consumer preferences and unbounded from above or below. We propose a set of criteria which guarantee a bounded measure of WTP. The criteria reject the traditional random utility model with unrestricted error terms in favor of the random WTP model with bounds on WTP. Once WTP is bounded by zero and income, the form of the distribution is less consequential. A new model for WTP is developed based on the beta distribution and is compared to previously estimated models.

[1]  Timothy C. Haab,et al.  Referendum Models and Negative Willingness to Pay: Alternative Solutions , 1997 .

[2]  A. Randall,et al.  Semi-nonparametric estimation of binary response models with an application to natural resource valuation , 1997 .

[3]  Richard C. Bishop,et al.  Measuring Values of Extramarket Goods: Are Indirect Measures Biased? , 1979 .

[4]  Richard C. Bishop,et al.  Which Response Format Reveals the Truth about Donations to a Public Good , 1996 .

[5]  Trudy Ann Cameron,et al.  A New Paradigm for Valuing Non-market Goods Using Referendum Data: Maximum Likelihood Estimation by Censored Logistic Regression' , 1988 .

[6]  Michael Creel,et al.  Comparing benefit estimates from travel cost and contingent valuation using confidence intervals for Hicksian welfare measures , 1991 .

[7]  M. An.  Semiparametric Estimation of Willingness to Pay Distributions , 1996 .

[8]  B. Turnbull.  The Empirical Distribution Function with Arbitrarily Grouped, Censored, and Truncated Data , 1976 .

[9]  Bengt Kriström,et al.  A non-parametric approach to the estimation of welfare measures in discrete response valuation studies. , 1990 .

[10]  Gregory L. Poe,et al.  Implementing the Convolutions Approach: A Companion to "Measuring the Difference (X-Y) of Simulated Distributions: A Convolutions Approach" , 1994 .

[11]  R. Ready,et al.  Statistical Approaches to the Fat Tail Problem for Dichotomous Choice Contingent Valuation , 1995 .

[12]  Barbara Kanninen,et al.  Bias in Discrete Response Contingent Valuation , 1995 .

[13]  John B. Loomis,et al.  Sensitivity of Willingness-to-Pay Estimates to Bid Design in Dichotomous Choice Contingent Valuation Models , 1992 .

[14]  Michael P. Welsh,et al.  Validation of Empirical Measures of Welfare Change: Comment and Extension , 1988 .

[15]  Jean-Paul Chavas,et al.  Validation of Empirical Measures of Welfare Change: A Comparison of Nonmarket Techniques , 1985 .

[16]  Helen R. Neill,et al.  Hypothetical Surveys and Real Economic Commitments , 1994 .

[17]  W. Michael Hanemann,et al.  Welfare Evaluations in Contingent Valuation Experiments with Discrete Responses , 1984 .

[18]  David A. Patterson,et al.  Inference and Optimal Design for a Welfare Measure in Dichotomous Choice Contingent Valuation , 1991 .

[19]  R. G. Cummings,et al.  Homegrown Values and Hypothetical Surveys: Is the Dichotomous Choice Approach Incentive-Compatible? , 1995 .