valuing the unmeasurable cj presentation verf

8/3/2019 Valuing the Unmeasurable Cj Presentation Verf

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Valuing the Unmeasurable:

non-market valuation using

conjoint analysis

Sahan Dissanayake

Agricultural and Consumer Economics

University of Illinois

[email protected]


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Outline

Introduction My Background Two questions Why non-market valuation?

Stated preference vs revealed preference Stated Preference Why conjoint analysis?

History Pros and Cons

Applications of CJ My Research Project Conclusions Questions A few words on applying to US graduate programs


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My Background

University of Illinois

Department of Agricultural andConsumer Economics

Located in Urbana-Champaign, Illinois Surrounded by corn fields


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My Background

My research interests

Mathematical Programming for ReserveDesign

GE Modeling of Environmental Tax

Non-Market Valuation using ConjointAnalysis

Intersections of Civil Conflict, FoodSecurity and Economic Development


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The Pinnawala Elephant Orphanage is in the process of beingexpanded. Fifty acres of additional land will be purchased,expanding the carrying capacity by 100 elephants. In addition 20rare plant species will be planted.

The expansion will require an increase in the entrance fee. Thecurrent entrance fee is Rs. 100.00

How much of an increase in the entrance fee are you willing topay to support the expansion?

Two Questions


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Two Questions

Option A Option B

50 acres ofpaddy landwill be

purchased and converted to

use by Pinnawala

50 acres offorest land will be

purchased and converted to

use by Pinnawala

Capacity increases by 100

elephants

Capacity increases by 75

elephants

20 species of rare plants will be

planted

10 species of rare plants will be

planted

The entrance fee will increase by

Rs. 50.00

The entrance fee will increase by

Rs. 25.00

The Pinnawala Elephant Orphanage is in theprocess of being expanded. Which option wouldyou choose?


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Why non-market valuation?

Imperfect and Incomplete Markets

The market does not capture the full value of

goods and services The Sinharaja National Forest is worth more

than the land and the timber

The value of the biosphere is estimated to be

US$16

-54

trillion per year*(Global GNP is ~ US$18 trillion per year)

*Costanza et. al. 1997


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We obtain utility from goods that are notdirectly purchased in the market

The existence of elephants

Carbon sequestration in the Amazon

The utility can be negative

Air pollution

Fertilizer runoff


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For market goods prices are public and the demand or the

goods varies among individuals

For nonmarket goods levels are public and shared while the

marginal values vary

Policy makers need to consider both themarket and non-market values when makingdecisions.



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Stated vs Revealed Preference

Revealed Preference

Use existing markettransactions to reveal

the preference for nonmarket goods

Examples

Hedonic Analysis

Travel Cost

Revealed preferencemethods require

a link between the

market good and thenon-market good

enough variation in theprices to useeconometric estimationtechniques

Stated Preference

Gathers responses fromsurveys conducted toestimate WTP or WTAfor non market goods

Examples

Contingent Valuation

Conjoint Analysis


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A Brief History ofSP Methods

L. L. Thurstons work in the 1920s built on priorwork by psycologists.

Economists started using surveys by the 1940s tounderstand consumer purchases.

Davis (1960) was the first occurrence when statedpreference surveys were used to value outdoor

recreation.

Lancaster (1966) laid the economic foundations formethods to value attributes of goods.


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Advantages and Disadvantages ofSP

SP Valuation methods rely on peoples ability to ordertheir preferences.

Ranking is less confrontational than pricing

SP methods can accommodate New goods

Limit the choice set

Introduce hypothetical scenarios

Downside concerns about validity since the decision making

context is hypothetical.


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Stated Preference Question Types

SP valuations rely on answers to carefully wordedsurvey question

Answers Monetary amounts

Choices

Ratings

Answers are scaled following an appropriatemode of preference to yield a measure value.


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Stated Preference Question Types

Binary choice questions are attractive

Less cognitive burden on the respondent

Only require comparison oftwo items at

a time (unlike ranking, rating, andmultinomial choice which requirecomparison amongst three or moreitems)

Respondents only need to make an

ordinal judgment (no need to calculate aWTP)


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Validity of stated preference valuation

Validity of the measure

Does the estimated value measure thetheoretical objective.

Does the mean WTP match the populationsmean Hicksian surplus?

The validity can be assessed by comparing it

with a direct measure Most time NMV is used when behavior is not

directly observable


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Conjoint Analysis

Based on Lancasters (1966) consumer theory

consumers derive utility not from goods themselves butrather from the attributes or characteristics that thegoods possess.

The stated preference equivalent for hedonicmethod.

Historically

Conjoint measurement: mathematical psychology

Conjoint analysis: marketing research


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ASample CJ Survey

A sample survey fromJan et. al (2000)


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ASample CJ Survey

A sample survey from Baarsma (2003)


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Conjoint Analysis

Geographic and temporal scope of the change Single or multiple sites, instantaneous or not... Who benefits, passive uses, relevant behavior...

Most important attributes that influence decisions Number of attributes Levels of each attribute Use focus groups and pre-tests

Experimental Design ChoicesFull factorial designs

Fractional factorial designsOrthogonal designsRandomized designsCompletely Randomized designs

Data collection methods

Mail SurveyPersonal interviewsTelephone interviewsOnline surveys

Steps in conducting CJ survey1. Characterize the decision problem

2. Identify and describe the attributes

3. Develop an experimental design4. Develop the questionnaire

5. Collect data

6. Estimate model

7. Interpret results for policy analysis ordecision support


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Examples ofStated Preference

Clem Tisdell and Ranjith Bandara - VisitorsReaction to Pinnawala Elephant Orphanage

in Sri Lanka: A Survey

The mean WTP estimates, calculated on themaximum WTP amount, is Rs. 409.39.

local WTP Rs. 55.09 (current Rs. 25.00)

foreign WTP Rs. 738.39 (current Rs. 200.00)

Your Responses?


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Clem Tisdell and Ranjith Bandara Comparison of rural and urban attitudes to

the conservation of Asian elephants

They use a contingent valuation survey

Urban WTP is higher than rural WTP

Urban WTP loss to farmers > 0


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Jeevika Weerahewa Perceptions of Social Climate inCalculating Poverty

A conjoint analysis survey of social climate

attributes - access to health, access to education, risk to lifeand property, and income

Levels - good, moderate, and bad


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Examples of Conjoint Analysis

Milon and Scrogin (2006) study the preferencesforrestoring the Florida Greater Evergladeswetland ecosystem using a split-sample designbased on ecological characterization

They find structural characterization subsample favors

restoration more than the functional subsample

socioeconomic and attitudinal factors effect theWTP


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Morrison et al. (1999) study the effect of includingthe loss of agricultural employment when calculatingthe WTP for Macquarie Marshes, New Zealand

They find WTP for an additional species is $4 (1997 AU$)

WTP for an irrigation-related job is $0.13

Inclusion of employment in the choice models loweredthe overall willingness to pay for environmental

improvements by 20% - 30%


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Beenstock et. al. (1998) conduct a survey ofhouseholds attitudes to electricity outagesand find status quo effects

loss aversion

They suggest an empirical approach forremoving response biases from conjointanalyses

They compares the results with a CV considerable response resistance in the case

of CV (over50% gave 0 as the response)


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Neuman and Neuman (2008) analyzethe loss aversion in discrete choiceexperiment involving the quality ofmaternity wards in three hospitals inIsrael.

They find loss aversion for four of fiveattributes

Not found for travel time

Isreal is fairly small


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Teisl et. al. (1996) analyze the severalpotential management programs forAtlantic salmon in the Penobscot Riverfishery across multiple angler groups.

They find that preferences are

driven by the size of the resulting fish stock

less by whether the fishery was natural


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Jan et. al. (2000) study a SouthAustralian communities preferences forpublic hospital services.

They were unable to estimate WTP butfind that

Improvements in complication rates arepositively associated

Waiting times and parking arenegatively associated


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Baarsma (2003) study WTP to save the IJmeernature reserve in Netherlands which is partly beingdeveloped into a city.

She finds Respondents are willing to contribute between1.31

and 2.15 to maintaining the nature reserve with a10% increase in recreation

This is equivalent to0.675 million for Amsterdam.

Ranking, rating and choice give inconsistent estimates


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My Project

Understanding the preferences forbird habitat restoration.

Loss aversion (Behavioral economics)

Analyze the impact of specifying theopportunity cost in terms of foregonespecies

Size/Number effects Study the preferences over saving a large

number of individuals from a few speciesversus

many species with few individuals fromeach species.


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Common Pitfalls

Characterize the WTP clearly

WTP for individuals or household

Payments are one time or monthly or annually

Payment vehicle needs to be identified Sample size

Response rate should be considered

Not including a status quo option

Recently the literature suggests using a status quo option Taking the final results as all encompassing


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Conclusion

Conjoint Analysis is rapidly growing as a wayto elicit nonmarket valuations.

Preferred to CV since the respondent is not

required to monetize a good or service. Experiment design and analysis is complex

(than CV).

Not limited to environmental goods/services.

If you have ideas to discuss or questionsabout CA e-mail me [email protected]


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Reference Texts


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Last Example

Heaven and Hell lI1991, Alkyd and Oil on canvas

Collection of Carmen Lomas Garza


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Last Example

Branas-Garza et. al. (2009) analyze lossaversion with respect to the role ofheaven and hell in religious behaviorusing 35,000 subjects.

They find the effect of the carrot (heaven) is more

than three times as large as the effect ofthe stick (hell)

in the presence of infinitum rewards or

punishment, rewards (carrots) are moreeffective than punishment (stick) inencouraging religious practice


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Thank you forlistening Questions?


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Applying to US Graduate Programs

Dont be afraid to e-mail prospective advisers

Starting a conversation early can helpidentifying funding and suitable universities

Many faculty will respond But make sure your research interests match

and dont e-mail randomly

Spend time on your personal statement Emphasize the research you have done

Mention the advanced text books you used


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Applying to US Graduate Programs

When choosing schools, apply to

a broad range of schools

programs that have had prior students from

Peradeniya programs that your faculty attended

programs where your research interests match

Spend time on your personal statement Emphasize the research you have done

Mention the advanced text books you used


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Validity of the measure

Does the estimated value measure thetheoretical objective.

Does the mean WTP from CV match thepopulations mean Hicksian surplus?

The validity can be assessed by comparing it

with a direct measure Most time NMV is used when behavior is not

directly observable


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Three forms of validity Criterion validity

Compare the SP measure with another measure(criterion) that is closer to the theoretical construct

Construct validity

Test if the SP measure relates to other measures aspredicted by theory. (changes with income, travel cost)

Content validity Tests the quality of the survey instrument that was

used.


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My Background

Education

BA in Computer Science and Economics

MA (2010) in Applied Mathematics

PhD (2011?) in Applied Economics Research

Mathematical Programming for Reserve Design

GE Modeling of Environmental Tax

Non-Market Valuation using Conjoint Analysis Civil Conflict, Food Security and Poverty


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Conjoint Analysis

Geographic and temporal scope of the change Single or multiple sites, instantaneous or not... Who benefits, passive uses, relevant behavior...

Most important attributes that influence decisions Number of attributes Levels of each attribute Use focus groups and pre-tests

Experimental Design ChoicesFull factorial designsFractional factorial designsOrthogonal designsRandomized designsCompletely Randomized designs

Data collection methods

Mail SurveyPersonal interviewsTelephone interviewsOnline surveys

Steps in conducting CJ survey1. Characterize the decision problem

2. Identify and describe the attributes

3. Develop an experimental design4. Develop the questionnaire

5. Collect data

6. Estimate model

7. Interpret results for policy analysis or

decision support

valuing the unmeasurable cj presentation verf

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