Hostname: page-component-586b7cd67f-t8hqh Total loading time: 0 Render date: 2024-11-24T04:06:09.109Z Has data issue: false hasContentIssue false
  • English
  • Français

Contingent Valuation, Hypothetical Bias, and Experimental Economics

Published online by Cambridge University Press:  15 September 2016

James J. Murphy  and
Thomas H. Stevens
James J. Murphy
Affiliation:
Department of Resource Economics and Center for Public Policy and Administration
Thomas H. Stevens
Affiliation:
Department of Resource Economics, both at the University of Massachusetts-Amherst
Get access

Abstract

Although the contingent valuation method has been widely used to value a diverse array of non-market environmental and natural resource commodities, recent empirical evidence suggests it may not accurately estimate real economic values. The hypothetical nature of environmental valuation surveys typically results in responses that are significantly greater than actual payments. Economists have had mixed success in developing techniques designed to control for this “hypothetical bias.” This paper highlights the role of experimental economics in addressing hypothetical bias, and identifies a gap in the existing literature by focusing on the underlying causes of this bias. Most of the calibration techniques used today lack a theoretical justification, and therefore these procedures need to be used with caution. We argue that future experimental research should investigate the reasons hypothetical bias persists. A better understanding of the causes should enhance the effectiveness of calibration techniques.

Keywords

contingent valuationexperimentshypothetical biasstated preference
Type
Invited Presentations
Information
Agricultural and Resource Economics Review , Volume 33 , Issue 2 , October 2004 , pp. 182 - 192
Copyright
Copyright © 2004 Northeastern Agricultural and Resource Economics Association 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Aadland, D., and Caplan, A. J. (2003). “Willingness to Pay for Curbside Recycling with Detection and Mitigation of Hypothetical Bias.” American Journal of Agricultural Economics 85(2), 492–502.Google Scholar
Anderson, C. M. (2004, October). “How Institutions Affect Outcomes in Laboratory Tradable Fishing Allowance Systems.” Agricultural and Resource Economics Review 33(2), 193–208 [this journal issue].Google Scholar
Arrow, K., Solow, R., Portney, P., Leamer, E. E., Radner, R., and Schuman, H. (1993). “Report of the NOAA Panel on Contingent Valuation.” Federal Register 58(10), 4602–4614.Google Scholar
Bishop, R. C., and Heberlein, T. A. (1979). “Measuring Values of Extramarket Goods: Are Indirect Measures Biased?” American Journal of Agricultural Economics 61(5), 926–930.Google Scholar
Bishop, R. C., and Heberlein, T. A. (1986). “Does Contingent Valuation Work?” In Cummings, R., Brookshire, D., and Schulze, W. (eds.), Valuing Environmental Goods: A State of the Art Assessment of the Contingent Valuation Method (pp. 123–147). Totowa, NJ: Rowman and Allenheld.Google Scholar
Blackburn, M., Harrison, G. W., and Rutström, E. E. (1994). “Statistical Bias Functions and Informative Hypothetical Surveys.” American Journal of Agricultural Economics 76, 1084–1088.Google Scholar
Blumenschein, K., Johannesson, M., Blomquist, G. C., Liljas, B., and O’Connor, R. M. (1998). “Experimental Results on Expressed Certainty and Hypothetical Bias in Contingent Valuation.” Southern Economic Journal 65(1), 169–177.Google Scholar
Bohm, P. (1972). “Estimating the Demand for Public Goods: An Experiment.” European Economic Review 3, 111–130.Google Scholar
Bohm, P. (1984). “Revealing Demand for an Actual Public Good.” Journal of Public Economics 24(2), 135–151.Google Scholar
Brown, T. C., Ajzen, I., and Hrubes, D. (2003). “Further Tests of Entreaties to Avoid Hypothetical Bias in Referendum Contingent Valuation.” Journal of Environmental Economics and Management 46, 353–361.Google Scholar
Burton, A. C., Carson, K. S., Chilton, S. M., and Hutchinson, W. G. (2003). “An Experimental Investigation of Explanations for Inconsistencies in Responses to Second Offers in Double Referenda.” Journal of Environmental Economics and Management 46(3), 472–489.Google Scholar
Champ, P. A., and Bishop, R. C. (2001). “Donation Payment Mechanisms and Contingent Valuation: An Empirical Study of Hypothetical Bias.” Environmental and Resource Economics 19(4), 383–402.Google Scholar
Champ, P. A., Bishop, R. C., Brown, T. C., and McCollum, D. W. (1997). “Using Donation Mechanisms to Value Nonuse Benefits from Public Goods.” Journal of Environmental Economics and Management 33(2), 151–162.Google Scholar
Champ, P. A., Brown, T. C., and Boyle, K. J. (2004). A Primer on Nonmarket Valuation. Dordrecht: Kluwer Academic Publishers.Google Scholar
Coursey, D. L., Hovis, J. L., and Schulze, W. D. (1987). “The Disparity Between Willingness-to-Accept and Willingness-to-Pay Measures of Value.” Quarterly Journal of Economics 102(3), 679–690.Google Scholar
Crocker, T. D., and Shogren, J. F. (1991). “Preference Learning and Contingent Valuation Methods.” In Dietz, F., Ploeg, F. V. d., and Straaten, J. V. d. (eds.), Environmental Policy and the Economy (pp. 85–107). Amsterdam: North-Holland.Google Scholar
Cummings, R. G., Harrison, G. W., and Osborne, L. L. (1995). “Can the Bias of Contingent Valuation Surveys Be Reduced?” Economics Working Paper No. B-95-03, Division of Research, College of Business Administration, University of South Carolina.Google Scholar
Cummings, R. G., Harrison, G. W., and Rutström, E. E. (1995). “Homegrown Values and Hypothetical Surveys: Is the Dichotomous Choice Approach Incentive-Compatible?” American Economic Review 85(1), 260–266.Google Scholar
Cummings, R. G., and Taylor, L. O. (1999). “Unbiased Value Estimates for Environmental Goods: A Cheap Talk Design for the Contingent Valuation Method.” American Economic Review 89(3), 649–665.Google Scholar
Diamond, P. A., and Hausman, J. A. (1994). “Contingent Valuation: Is Some Number Better Than No Number?” Journal of Economic Perspectives 8(4), 45–64.Google Scholar
Dickie, M., Fisher, A., and Gerking, S. (1987). “Market Transactions and Hypothetical Demand Data: A Comparative Study.” Journal of the American Statistical Association 82, 69–75.Google Scholar
Ethier, R. G., Poe, G. L., Schulze, W. D., and Clark, J. (2000). “A Comparison of Hypothetical Phone and Mail Contingent Valuation Responses for Green-Pricing Electricity Programs.” Land Economics 76(1), 54–67.Google Scholar
Fox, J. A., Shogren, J. F., Hayes, D. J., and Kliebenstein, J. B. (1998). “CVM-X: Calibrating Contingent Values with Experimental Auction Markets.” American Journal of Agricultural Economics 80(3), 455–465.Google Scholar
Gregory, R., Lichenstein, S., Brown, T. C., Peterson, G. L., and Slovic, P. (1995). “How Precise Are Monetary Representations of Environmental Improvements?” Land Economics 71(4), 462–473.Google Scholar
Gregory, R., and Slovic, P. (1997). “A Constructive Approach to Environmental Valuation.” Ecological Economics 21(3), 175–181.Google Scholar
Haab, T. C., and McConnell, K. E. (2003). Valuing Environmental and Natural Resources: The Econometrics of NonMarket Valuation. Northampton, MA: Edward Elgar.Google Scholar
Hanemann, W. M. (1984). “Welfare Evaluations in Contingent Valuation Experiments with Discrete Responses.” American Journal of Agricultural Economics 66(3), 332–341.Google Scholar
Hanemann, W. M. (1994). “Valuing the Environment Through Contingent Valuation.” Journal of Economic Perspectives 8(4), 19–43.Google Scholar
Harrison, G. W. (2002, June). “Experimental Economics and Contingent Valuation.” Working paper, Department of Economics, University of Central Florida. Online. Available at http://www.bus.ucf.edu/gharrison/wp/Experimental%20Economics%20and%20Contingent%20Valuation.pdf. [Accessed August 18, 2004.]Google Scholar
Harrison, G. W., Harstad, R. M., and Rutström, E. E. (2004). “Experimental Methods and Elicitation of Values.” Experimental Economics 7(2), 123–140.Google Scholar
Harrison, G. W., and Rutström, E. E. (Forthcoming). “Experimental Evidence on the Existence of Hypothetical Bias in Value Elicitation Methods.” In Plott, C. and Smith, V. L. (eds.), Handbook of Results in Experimental Economics. New York: Elsevier Science.Google Scholar
Heberlein, T. A., and Bishop, R. (1986). “Assessing the Validity of Contingent Valuations: Three Field Experiments.” Science of the Total Environment 56, 434–479.Google Scholar
Hoehn, J. P., and Randall, A. (1987). “A Satisfactory Benefit-Cost Indicator from Contingent Valuation.” Journal of Environmental Economics and Management 14(3), 226–247.Google Scholar
Hofler, R. A., and List, J. (2004). “Valuation on the Frontier: Calibrating Actual and Hypothetical Statements of Value.” American Journal of Agricultural Economics 86(1), 213–221.Google Scholar
Johannesson, M. (1997). “Some Further Experimental Results on Hypothetical versus Real Willingness to Pay.” Applied Economics Letters 4, 535–536.Google Scholar
Johannesson, M., Blomquist, G. C., Blumenschein, K., Johansson, P., and O’Connor, R. M. (1999). “Calibrating Hypothetical Willingness-to-Pay Responses.” Journal of Risk and Uncertainty 8, 21–32.Google Scholar
Johannesson, M., Liljas, B., and Johansson, P. (1998). “An Experimental Comparison of Dichotomous Choice Contingent Valuation Questions and Real Purchase Decisions.” Applied Economics 30, 643–647.Google Scholar
Kurz, M. (1974). “Experimental Approach to the Determination of the Demand for Public Goods.” Journal of Public Economics 3, 329–348.Google Scholar
Li, C.-Z., and Mattsson, L. (1995). “Discrete Choice Under Preference Uncertainty: An Improved Structural Model for Contingent Valuation.” Journal of Environmental Economics and Management 28(2), 256–269.Google Scholar
List, J. A. (2001). “Do Explicit Warnings Eliminate the Hypothetical Bias in Elicitation Procedures? Evidence from Field Auctions for Sportscards.” American Economic Review 91(5), 1498–1507.Google Scholar
List, J. A., and Gallet, C. (2001). “What Experimental Protocols Influence Disparities Between Actual and Hypothetical Stated Values?” Environmental and Resource Economics 20, 241–254.Google Scholar
List, J. A., and Shogren, J. F. (1998). “Calibration of the Difference Between Actual and Hypothetical Valuations in a Field Experiment.” Journal of Economic Behavior and Organization 37(2), 193–205.Google Scholar
List, J. A., and Shogren, J. F. (2002). “Calibration of Willingness to Accept.” Journal of Environmental Economics and Management 43(2), 219–233.Google Scholar
Loomis, J., and Ekstrand, E. (1998). “Alternative Approaches for Incorporating Respondent Uncertainty When Estimating Willingness-to-Pay: The Case of the Mexican Spotted Owl.” Ecological Economics 27(1), 29–41.Google Scholar
Lusk, J. L. (2003). “Willingness to Pay for Golden Rice.” American Journal of Agricultural Economics 85(4), 840–856.Google Scholar
Mansfield, C. (1998). “A Consistent Method for Calibrating Contingent Valuation Survey Data.” Southern Economic Journal 64(3), 665–681.Google Scholar
Mitchell, R. C., and Carson, R. T. (1989). Using Surveys to Value Public Goods: The Contingent Valuation Method. Washington, DC: Resources for the Future.Google Scholar
Murphy, J. J., Stevens, T. H., Allen, P. G., and Weatherhead, D. (2003). “A Meta-Analysis of Hypothetical Bias in Stated Preference Valuation.” Working Paper No. 2003-8, Department of Resource Economics, University of Massachusetts, Amherst.Google Scholar
Neill, H. R., Cummings, R. G., Ganderton, P. T., Harrison, G. W., and McGuckin, T. (1994). “Hypothetical Surveys and Real Economic Commitments.” Land Economics 70(2), 145–154.Google Scholar
Opaluch, J. J., and Segerson, K. (1989). “Rational Roots of Irrational Behavior, New Theories of Economic Decision-Making.” Northeastern Journal of Agricultural and Resource Economics 18, 81–95.Google Scholar
Poe, G. L., Clark, J. E., Rondeau, D., and Schulze, W. D. (2002). “Provision Point Mechanisms and Field Validity Tests of Contingent Valuation.” Environmental and Resource Economics 23, 105–131.Google Scholar
Polomme, P. (2003). “Experimental Evidence on Deliberate Misrepresentation in Referendum Contingent Valuation.” Journal of Economic Behavior and Organization 52(3), 387–401.Google Scholar
Portney, P. (1994). “The Contingent Valuation Debate: Why Should Economists Care?” Journal of Economic Perspectives 8(4), 3–17.Google Scholar
Ready, R. C., Whitehead, J. C., and Blomquist, G. C. (1995). “Contingent Valuation When Respondents Are Ambivalent.” Journal of Environmental Economics and Management 29(2), 181–196.Google Scholar
Roth, A. E. (1988). “Laboratory Experimentation in Economics: A Methodological Overview.” Economic Journal 98, 974–1031.Google Scholar
Samuelson, W., and Zeckhauser, R. (1988). “Status Quo Bias in Decision Making.” Journal of Risk and Uncertainty 1(1), 7–59.Google Scholar
Sinden, J. A. (1988). “Empirical Tests of Hypothetical Biases in Consumers’ Surplus Surveys.” Australian Journal of Agricultural Economics 32(2/3), 98–112.Google Scholar
Smith, V. K., and Mansfield, C. (1998). “Buying Time: Real and Hypothetical Offers.” Journal of Environmental Economics and Management 36, 209–224.Google Scholar
Smith, V. L. (1976). “Experimental Economics: Induced Value Theory.” American Economic Review 66(2), 274–279.Google Scholar
Smith, V. L. (1994). “Economics in the Laboratory.” Journal of Economic Perspectives 8(1), 113–131.Google Scholar
Taylor, L. (1998). “Incentive Compatible Referenda and the Valuation of Environmental Goods.” Agricultural and Resource Economics Review, 27(2), 132–139.Google Scholar
Taylor, L. O., McKee, M., Laury, S. K., and Cummings, R. G. (2001). “Induced-Value Tests of the Referendum Voting Mechanism.” Economics Letters 71(1), 61–65.Google Scholar
Wang, H. H. (1997). “Treatment of ‘Don't-Know’ Responses in Contingent Valuation Surveys: A Random Valuation Model.” Journal of Environmental Economics and Management 32(2), 219–232.Google Scholar