Stated Preference Experimental Markets Methods for measuring nonmarket benefits Recall revealed preference Remember we would like to use revealed preference approaches to value environmental assets What if value or part of value can t be captured within an existing market Can use the Contingent Valuation Method CVM Measures value contingent on existence of a market Some examples The value of the Channel Islands marine reserve Do people value the organisms or the reserve The damages from Exxon Valdez spill The value of restoring steelhead to Ventura River The damage from drilling in ANWR Existence values Notice most of these are Non use values and Existence values We would like to know the demand curve for the environmental good Recall demand measures willingness to pay for different levels of the good How elicit willingness to pay No market exists within which to measure value Use survey Many challenges to do a credible job Need to design survey to minimize opportunities for bias of results Cookbook procedure 1 of 2 1 Define the market scenario or payment vehicle Or might be open ended how much are you willing to pay for XXX 2 Determine elicitation method Direct question discrete choice bidding game payment card etc 3 Design elicitation scheme Mail telephone email in person Cookbook procedure 2 of 2 4 Determine sample design Population randomization of respondents randomization of questions etc 5 Determine experimental design How obtain demand curve and conduct further analysis to answer question 6 Estimate demand function Conduct analysis to answer question Problems with CVM WTA or WTP get different answers Hypothetical bias Continually remind of budget constraint Information about thing being valued Warm Glow Open ended is unfamiliar market context Embedding problem NOAA guidelines for CVM Minimize non response Personal interviews Pretest for interviewer effects etc WTP not WTA Referendum format Provide adequate background info Remind of substitute commodities Include explain non response option not 0 Types of payment vehicle Payment affects all parties National tax local tax fee or charge for use price increase for use Note respondent may disagree with agency responsible for managing resource Voluntary payment Donation to trust fund Note remember free riding problem also may get strategic bias Open ended elicitation What is the maximum amount you would be prepared to pay every year vehicle to XXX For Straightforward no implied value cues anchoring bias gives max WTP Against Large non response protest unrealistically large bids unreliable unlike normal market transaction Bidding game elicitation Would you pay XXX every year vehicle to YYY keep increasing bid until answer is No or decrease until Yes For Forces respondent to consider preferences Against Anchor bias yea saying cannot be used in mail surveys Payment card elicitation Which of the amounts listed below describeds your maximum WTP every year vehicle to improve XXX list of values For Avoids starting point bias values can be actual tax or household benchmarks Against Range of numbers can induce bias cannot be used on telephone Single bounded dichotomous choice elicitation referendum Would you pay X per year vehicle to improve YYY randomly vary X For Simplifies choice similar to market minimizes non response straightforward Against May get inflated values some yea saying less informative starting point bias Double bounded dichotomous choice elicitation Would you pay X every year vehicle to improve YYY If yes And would you pay Z X If no And would you pay W X For More efficient than referendum because know bounds Against Same as referendum Major sources of error in CVM 1 Scenario misspecification 1 Divergence between what respondent is answering and what researcher is asking 2 Implied value cues 1 Unfamiliar choice problem respondent wants to give right answer 3 Strategic bias 1 2 Low bid think taxes will but good won t High bid think won t have to pay for it Reliability of CVM estimates Compare results with comparable revealed preference results Construct market compare results Use CVM to measure demand for market good Test method same sample over time Surveys of purchase intentions and actual purchases market research Example 1 ecotourism in Kenya Ecotourism captures some of WTP for preserving wildlife Lake Nakuru Nat l Park in Kenya 360 species of birds Farming has reduced water quality and subsequent wildlife pops CVM estimates value park value to users only at 7 5 million Example 2 Economic value of noncommercial fish US Rivers in 4 corners region 2465 miles of river habitat for 9 endangered fish Protection requires fish bypasses passageways habitat improvements What is the economic value of preserving the habitat The application 4 corners fish Respondents given Maps of critical habitat Told that officials though habitat protection too costly were going to eliminate critical habitat designation Asked if they would contribute to Four Corners Endangered Fish Trust Fund Also told all taxpayers would contribute Voting for 4 corners fish If majority votes in favor of contribution to fund Rivers managed for optimum fish protection Fish will be saved removed from ESA over next 20 years If majority votes against Rivers managed for maximum hydroelectic output 4 of 9 would likely become extinct Actual survey instrument Suppose a proposal to establish a Four Corners Region Threatened and Endangered Fish Trust Fund was on the ballot in the next nationwide election How would you vote on this proposal Remember by law the funds could only be used to improve habitat for fish If the Four Corners Region Threatened and Endangered Fish Trust Fund was the only issue on the next ballot and it would cost your household every year would you vote in favor of it Circle Yes or No Dollar value randomly chosen from 1 350 Results of 4 corner fish Survey sent to random sample of 800 4 corner households Additional 800 to households in rest of US Average WTP 195 Extrapolated to rest of population Benefits far exceeded costs Example 3 Value of Waterfalls FERC faced relicensing How much water should be required to fall at recreation area More water less power generated Previous license required 50 cfs trickle Survey elicited WTP for increased overflow of water Survey results waterfalls Pictures with different flow levels mailed to random sample of past visitors to site How much pay to visit park in each case How many times visit park Result Summer