contingent valuation in a policy context

7/31/2019 Contingent Valuation in a Policy Context

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Cont ngent Va uat on n a Po cyContext:

The National Oceanic and

Atmospheric AdministrationReport and Its Implications for

The Use of Contingent Valuation

Methods in Policy Analysis inBritainKen Willis

University of Newcastle upon TynePresented by.

Setia Lesmana H351100034Yocie Gusman H351100044Baidhuri Purna Edi H351100064


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23 Maret


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Outline: Introduction

Detailed Conclusions of The NOAA Report

General guide-lines

Value elicitation surveys

Goal for value elicitation surveys

Recommendations Currently in Use

Recommendations Not Generally in Current

Use Referendum versus Alternative Elicitation

Methods

Embedding Problems

Warm Glow Effects


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Introduction

ExxonValdez: oilspilled(24-03-1989)

Losses of marketed goods, e.g. tofishermen;

Restoration of natural resourcesystem&loss of non use values

CERCLA 1980 => sued fordamaged use&non use values byCVMOil Pollution Act 1990 =>procedures for assessing damages

NOAA commisioned a blue ribbonpanel :Use&non use valuesNOAA report 1993 => qualifiedrecognition CVM +

recommendations


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Detailed Conclusions of The NOAAReport

Principal Conclusion:

CV studies convey usefulinformation as reliable bystandards that seem to beimplicit in similar contexts, like

market analysis for new andinnovative products, and theassesssment of other damagesnormally allowed

The appropriate... Agencies shouldbegin to accumulate standarddamage assessments for a rangeoil spills... That process shouldimprove the reliability of CV

studies in damage assessment. It

Recommendation General

guide-lines Value

elicitationsurveys

Goals forvalueelicitationsurveys


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General guide-lines

1. Sample type and size: that

probability sampling is essential.2. Non-response:this should be

minimized otherwise survey results

will be unreliable.3. Personal interview:it is unlikely

that reliable estimates of values can

be elicited with mail surveys. Face-to-face surveys are preferable,although telephone interviews havesome advantages in terms of costand centralized supervision.


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Value elicitation surveys

1. Conservative design: increasesthe realibility by eliminatingextreme response that can enlargeestimated values. Thus, an option

which tends to underestimatewillingness to pay(WTP) ispreferred.

2. Elicitation format: WTP should beused instead ofwillingness to accept(WTA), because the former is the

conservative choice.


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Value elicitation surveys7. Adequate time lapse from accident: to avoid

misunderstanding of restoration possibilities, andrespondents reporting a substantial passive use losseven when informed full restoration will occur.Questionnaire should force respondents to considerthe difference between interim and steady statepassive use value.

8. Temporal averaging: to reduce measurement noise.A time trend in responses would cast doubt upon thereliability of the findings.

9. No-answer option: to allow for approximate

indifference, inability to answer without moreinformation, preference for another mechanism, andboredom with the survey.

10. Yes/no follow ups: to ascertain why respondentsanswered yes or no to a WTP question.

11. Cross tabulations: to interpret WTP responses in


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1. Alternative expenditure possibilities:

respondents should be reminded their WTP forthe environmental good would reduce theirexpenditure on other private goods.

2. Deflection of transaction value: the survey

should be designed to deflect warm-glow effect.Utility derived from charitable giving may comemainly from the act of giving rather than thematerial change that follow the gift. While both

are real values, there may be close substitutesto cleaning up oil spills which would producethe same charitable warm-glow efffects.

3. Steady state or interim losses: respondents

should be able to distinguish between these,


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4. Present value calculations of interim

losses: it should be demonstrated that therespondents are sensitive to the timing ofrestoration

5. Advance approval: the CV survey should be

approved by both sides in the legal action.

6. Burden of proof: to rest with CV designers, todemonstrate that the CV survey is reliable.

7. Reliable reference surveys: governmentshould create reliable reference surveys tointerpret the Panels guide-lines and calibratesurveys in meeting their conditions


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No Recommendation

s

Remarks

1 Personalinterview

*(Macmillan et al.,1994)=>mailsurveys

2 Careful

pretesting forCV questinnaire

Pretested in pilot surveys

3 Elicitationformat

Prefer WTP to WTA>Divergence between WTP &WTA (Bateman and Turner, 1993)>Explanation: questionnairedesign&interviewing techniques;respondents rejection of the

property right; prospect theory


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No Recommendation

s

Remarks

4 Accuratedescription ofprogramme or

policy

Using brochure (Ecotec, 1993;Loomis and du Vair, 1993; Williset al., 1993a)

5 Pretesting ofphotographs

e.g. Photograph of the SomersetLevel and MoorsEnvironmentally Sensitive Area(ESA) (Willis et al., 1993a);montages of coastal erosion(Tunstall and Cooker,1992)


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Recommendations Currently in UseNo Recommendatio

nsRemarks

6 Yes/no followups

e.g. Studies of flood protection in thebroads (Bateman et al., 1992,1993);landscape, wildlife and historicalarchaeological preservation benefits oflandscapes through ESA prescription

(Willis et al., 1993a), benefits low flowalleviation in the River Darent (Willisand Garrod, 1993c), the protection ofthe aquatic environment from acid rain(Ecotec, 1993)

7 Crosstabulations

*To asses the relationship of WTP withexplanatory variable => modelling.*LF => r2 => extremely low (Cobbingand Slee, 1993)-> the Mar Lodge Estate*Good questionnaire&interviewer

training (Willis et al., 1993a)*Dichotomous choice models => hi h


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Recommendations Not Generally inCurrent Use

No Recommendation

s

Remarks

1 Sample typeand size =>large sampledsize (around1000)

Cummings et al. (1986): a smallsample size (160 or so),OE,levelof statistical realiability => lieWTP 20%, true WTP 80%*NOAA Panel: no consideration=> complexities samplingstrategies

2 ReferendumFormat

*Bateman et al. (1992) => theNorfolk Broads (3000 sample;split>> OE-iterative biding-Dichotomous Choice)

*Willis et al. (1993a) => ESAs(3000 sample)

ecommen a ons o enera y n


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ecommen a ons o enera y nCurrent Use

No Recommendations

Remarks

3 Pretesting forinterviewereffects =>modify the

standard face-to-face survey toallowrespondents to

either: (i) writetheir vote on aballot anddeposit it in asealed box; or (2)

mail their ballots

*a large pilot survey; impractical*in the main survey: modernstatistical packages=>SAS

ecommen a ons o enera y n


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ecommen a ons o enera y nCurrent UseNo Recommendation

sRemarks

4 Reporting *questionnaires available toother researchers*data sets=> original researcher*not open to subsequentscrunity&interpretation

5 Temporalaveraging

*at different points in time =>not undertaken*creates immediate emotionalconcern, and/or losses are likelyto be interim; i.e. Theenvironment will recoverovertime => undertaken

6 Reminder of

undamaged

*Willis and Garrod (1993c) =>

low flow allevation in rivers*


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Rare agreement:

questionnaire by 2 opposing partieshaving interest (producing a

favourable outcome)


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Referendum vs AlternativeElicitation Methods

Mitchell and Carson(1989)


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Referendum vs AlternativeElicitation Methods

OE => unlikely provide the mostreliable valuation for non-use(caused by: scenario lack realism;strategic overstatement)

Mitchell and Carson (1989): strategicbias (need: analysis of outlier, testsfor bimodal distribution; tests of sub-

samples) Free-riding => underestimation of

WTP (minimized by introducing the

risk of potential exclusion from the


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Embedding Problems

Observed firstly by Kahneman andKnetsch (1984): to clean up lakes inMuskoka & all lake in Ontario.

Produced by careless questionnaiedesign.

Reflected that different levels ofprovision of the good had not beenclearly specified to respondents.

Suggestion: increasinginformation&context.


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Embedding Problems

How much information/context: noexogenous criterion.

Hoevenagel and van der Linden (1993):significantly different WTP values (as

economic theory predicts) CV responses cannot be context free

=> the size & nature of the choice

set. Randall (1991):

market prices: conditional (depend on

institutions, supply-demand conditions andex ectations about both .


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Warm Glow Effects

Panels suggestion: people onsupport one/two charitableorganizations to the tune $10 to $20

per year; 99,9% charities =>nosupport from any individual. CVM: forminor public goods or a public good

with large numbers of substitutes =>zero WTP.

Donation =>> WTP to avoid

guilt/embarrasment or to buy warm


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Some Framing Issues

Valuation question should be framedin terms of WTP, not WTA (no logicalreason)

Precautionary principle (methods ofrisk assessment) => Risk ofirreversible or catasthrophic

environmental effects (ex. Safeminimum standard)

Tversky and Kahneman (1982): in terms

of lives saved or in terms of lives lost


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Some Framing Issues

Embedding problems

MAFF (1992) -> value benefit 2 ESAs:the South Downs and Somerset Level

and Moors (perfect no substitute foranother)

Sites of Special Scientific Interest (SSSIs)

or low flow allevation (LFA) in rivers(perfect subtitute for each other)

Modify national resouce accounts by

applying values of environmental


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Other Issues

The items of concern to psychologists,economists, statisticans.

Psychologists:

1. Covariation misestimation

2. Perceptions of environmental

hazards3. Lack of awareness

4. The effect of information on CV

estimates, in terms of:


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Other Issues

Economists:

1) Paradigm in which people areassumed to be able to articulate andexpress values.

The Concerns: strategic response, etc

Treatment: proper incentives,referendum models, etc.

Theoretical base: demand analysis, etc.

Tests of success: sensible answer


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CV and the Law

Environmental damage in Englishlaw: criminal law (e.g. under theWildlife and Countryside Act 1981,

and other Act) & tort law. Compensation -> loss of value -> the

market value of the lost

resources+transaction cost. Non-pecuniary losses (e.g. in

relation to health effects) ->

arbitrary.


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