cvm
CONTINGENT VALUATION METHOD (CVM)
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Case Study
Non-parametric approach
Exercise. Using a non-parametric approach, estimate the mean of the maximum willingness to pay for a reduction of 2% in a given pollutant, according to the following data obtained from a contingent valuation survey with a single-bounded dichotomous choice elicitation format question
Data. When asked for a 100 euro payment, nobody accepted to pay. 10% said yes to 50 euro. Those asked for 30, 20 and 5 euro payment, answered yes 40%, 60% and 80% of those questioned, respectively. And nobody would object to the 2% reduction of the pollutant if they would not have to pay
Solution. A mean maximum willingness to pay of 27.5 euros per person for a 2% reduction of the pollutant
Additional problem. Estimate the median of the maximum willingness to pay, from the same data
Parametric approach
Exercise. A single-bounded dichotomous choice contingent valuation survey was appllied in the metropolitan region of Barcelona, to find the mean of the maximum Barceloneans would be willingness to pay to place underground the various high voltage power lines crossing the region, in order to improve the landscape
Data. In [limdep] format
Solution. A mean maximum willingness to pay of 7.99 euros per person for the removal of the high voltage power lines of the region
Additional problem. If the adult population of the region were 3 million people, how can it be used in a cost-benefit analysis of a project to remove such power lines? According to the limited information provided, what costs and benefits would you consider?
Equivalency Analysis - Debits
Exercise. With enough investment, a program can be implemented to avoid some types of large forest fires. A single bounded dichotomous choice collected the following data to value a programe of this type that would prevent such fire on a given area and type of forest. [Spanish version of the questionnaire]
Data. In [limdep] format. Variable BID corresponds to the payment bid, and YESNO to the answer (yes=1, and no=0)
Solution. A mean maximum willingness to pay of 62.26 euros per person for the prevention of the given amount, type, and location of forest from being burned
Equivalency Analysis - Credits
Exercise. A contingent valuation exercise is conducted to value an afforestation program of a given type and amount of forest, in a given location. A single-bounded dichotomous choice format is used, where the bid amount is set fixed to 60 euros (i.e., the rounded figure from exercise example 3.a) and the amount of afforestation surface varies accross the survey. [Spanish version of the questionnaire]
Data. In [limdep] format. Variable PERCENT corresponds to the amount of forest (expressed as a percentage of the area of reference in exercise example 3.a), and YESNO to the answer (yes=1, and no=0)
Solution. A mean minimum afforestation amount of 29.30% of the originally burned area for a payment of 60 euros per person, for that particular type, and location of forest. Therefore, the burned surface has to be compensated by afforesting this area and near one third additional surface, according to the value-to-value equivalency analysis
Single-bounded dichotomous choice - Artificial agents
Exercise. Using artificial agents, simulate a single-bounded dichotomous choice, and estimate the median maximum willingness to pay, programing the log-likelihood function
Data. To be generated
Solution. Example [in limdep]
Additional problem. Estimate the mean value
Readings
- Whitehead, John C. (2006) A Practioner's Primer on Contingent Valuation in Anna Alberini , James R. Kahn (eds.) Handbook On Contingent Valuation. Cheltenham: Edward Elgar, chapter 3, pp. 66-90
- Class notes from a Barcelona Graduate School of Economics equivalent subject (by Pere Riera)
Software
- NLogit-Limdep (Limited Dependent Variable Models)
Suggested homework
Exercise. Using your own words, summarize the main ideas behind Whitehead's 2006 paper
Exercise. Simulate your own data and solve a non-parametric CVM application, as in the case study above
Other References
- Arrow, Kenneth, Robert Solow, Paul R. Portney, Edward E. Leamer, Roy Radner, and Howard Schuman (1993) Report of the NOAA Panel on Contingent Valuation. Federal Register 58: 4601-4614.
- Carson, Richard T., Robert C. Mitchell, Michael Hanemann, Raymond J. Kopp, Stanley Presser, and Paul A. Rood (2003) Contingent Valuation and Lost Passive Use: Damages from the Exxon Valdez Oil Spill. Environmental and Resource Economics. 25, 257-286.
- Hanemann, W. Michael (2006) The Economic Conception of Water, In P. P. Roges, M. R. Llamas, and L. Martinez-Cortina (eds.) Water Crisis: Myth or Reality? Taylor & Francis plc., London.
- Hanemann, W. Michael and Barbara Kanninen (1998) The Statistical Analysis of Discrete-Response CV Data. Working Paper 798, Department of Agriculture and Resource Economics and Policy, University of California at Berkeley.
- Kriström, Bengt and Pere Riera (1996) Is the income elasticity of environmental improvements less than one? Environmental and Resource Economics, 7(1), 45-55.
- Riera, Pere and Giovanni Signorello (eds.) (2012) Good practice guidelines for the non-market valuation of forest goods and services. University of Catania, Catania, Italy: DiGeSA.
Inquiries and suggestions: Pere Riera prieram@gmail.com