Single or double bounded contingent valuation? A Bayesian test
| DOI | http://doi.org/10.1111/1467-9485.5002004 |
| Date | 01 May 2003 |
| Published date | 01 May 2003 |
SINGLE OR DOUBLE BOUNDED
CONTINGENT VALUATION? A
BAYESIAN TEST
Roberto Leo
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n
and Carmelo J. Leo
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nn
Abstract
This paper evaluates the performance of asymptotic approximations of the Bayes
factor to appraise the relative likelihoods of the bivariate and the restricted double
bounded models for contingent valuation. The performance of the Bayes factor test
is studied by Monte Carlo simulation showing that it correctly chooses the
bivariate model when appropriate, but tends to over predict the double bounded
model when the correlation coefficient is not estimated accurately. However, the
quadratic error in estimating willingness to pay is reduced if the model preferred by
the test is chosen. In addition, we consider the effect of averaging the estimates of
WTP from both models, weighting each model with its posterior probability. The
results show that ‘model averaging’ across the competing hypothesis further
reduces the squared error. The applications with two data sets on National Parks
show that the test rejects the restricted double bounded hypotheses against the
bivariate model.
I Introduct ion
The valuation of environmental goods requires specific methods such as
contingent valuation (CV). This is a survey method which consists of asking
subjects about their willingness to pay (WTP) for some policy change. The
dichotomous choice format involves a binary question to a given price and has
been advocated by the NOAA panel protocol on CV (Arrow et al., 1993). A
variant of this method is the double bounded format, by which two successive
binary questions are put to the subject, with a second price which is conditioned
on the responses to the first price. Hanemann et al. (1991) demonstrated that this
format leads to more efficient welfare measures because it requests more
information from the respondent.
However, the double bounded method has been controversial because of
potential inconsistency with the responses to the first binary question, since it
n
University of York
nn
University of Las Palmas de Gran Canaria
Scottish Journal of Political Economy, Vol. 50, No. 2, May 2003
rScottish Economic Society 2003, Published by Blackwell Publishing, 9600 Garsington Road, Oxford OX4 2DQ, UK
and 350 Main Street, Malden, MA 02148, USA
174
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