Grantee Research Project Results

1997 Progress Report: Can Contingent Valuation Measure Passive Use Values

EPA Grant Number: R824688
Title: Can Contingent Valuation Measure Passive Use Values
Investigators: Schulze, William , Brown, Gardner , Poe, Gregory , Cameron, Trudy , McClelland, Gary
Institution: Cornell University , University of Washington , University of Colorado at Boulder , Princeton University , University of California - Los Angeles
Current Institution: Cornell University , Princeton University , University of California - Los Angeles , University of Colorado at Boulder , University of Washington
EPA Project Officer: Hahn, Intaek
Project Period: October 1, 1995 through September 30, 1997
Project Period Covered by this Report: October 1, 1996 through September 30, 1997
Project Amount: $381,150
RFA: Valuation and Environmental Policy (1995) RFA Text |  Recipients Lists
Research Category: Environmental Justice

Objective:

Critics have raised substantial concerns about the ability of contingent valuation (CV) to produce reliable estimates of passive-use values. A serious criticism is that hypothetical survey responses may not accurately predict actual behavior (validity). The objective of our project is to address the validity issue by comparing alternative CV elicitation methods (open ended, payment card, dichotomous choice, multiple bounded discrete choice, and conjoint/stated preference) with actual participation in a Niagara Mohawk Power Corporation (NIMO) green pricing program that offered customers the opportunity to fund a landfill gas recovery project and plant 50,000 trees. The NIMO program used a provision point mechanism to address free riding.

Progress Summary:

Our research consisted of two efforts. First, we conducted laboratory experiments to explore the performance of single shot provision point mechanisms (SSPM) in large group (n>40) settings. Surprisingly, these mechanisms resulted in approximately demand revealing behavior. Provision point mechanisms have a Nash equilibrium where participants' contributions sum to cost. Uncertainty in a single shot environment with many risk averse participants apparently motivates demand revelation. This is an important result both because a practical and reliable demand revealing public good mechanism is needed to calibrate CV methods, and because this mechanism can be used to facilitate actual funding of public goods by utilities, local communities, and environmental organizations.

The second part of our project consisted of a field test comparing actual and hypothetical participation levels in the NIMO Green Choice program. Two separate survey efforts were undertaken, as summarized in Table 1 on the following page. First, we conducted telephone interviews during which respondents were asked to sign up on the spot for the NIMO program (which had a $6 monthly cost). These responses can be compared to hypothetical dichotomous choice sign-ups for the program in a nearly identical phone interview at the single posted offer price of $6. We also asked an open ended willingness to pay (WTP) question in another treatment. Results from the phone survey are reported in the first three columns of Table 1. Appropriate statistical tests indicate that the hypothetical dichotomous choice sign-up rate was significantly different from the actual sign-up rate. The prediction from the open ended WTP question was much closer to, and not significantly different from, the actual level of participation. These results suggest that the open ended mechanism provides a more accurate estimate of predicted participation rates than the dichotomous choice method. However, any of the methods can be calibrated based on actual participation.

The second mail survey effort utilized the entire array of standard elicitation procedures used in CV surveys. Extremely preliminary results are shown in Table 1. Mail and phone survey results are similar both for dichotomous choice and open ended WTP. Surprisingly, the payment card approach produced the lowest estimate while the conjoint/stated preference approach produced the highest estimates of value and/or participation. The multiple bounded discrete choice approach is still being analyzed.

Accomplishments and Research Results

Our findings are significant both for advancing public good mechanism design and for calibrating CV methods. This is the first field study of a public good to simultaneously use a demand revealing mechanism for the actual good and to compare actual participation with predictions for the complete range of CV methods. Replication of these findings in other settings should be a priority for future research.

	Phone Survey			Mail Surveys Data for the mail survey are still being collected. Results are very preliminary since these data are incomplete and have not been verified or cleaned. At this point, only simple, trial statistical analyses have been conducted.
	Actual $6 Sign-Ups	Hypothetical Open-Ended	Hypothetical Dichotomous Choice at $6	Hypothetical Open-Ended	Hypothetical Payment Card	Hypothetical Dichotomous Choice Var. $	Hypothetical Conjoint/ Stated Perference
Response Rate (%)	71.4	74.8	71.2	63.3	68.6	65.5	65.4
Final/ Current Sample (n)	142	294	259	266	285	717	325
Actual/ Estimated Sign-Up Rate at $6 per mo. for 12 mos. (%)	20.5	23.9	30.5	19.3	9.0	33.0	n.a.
Median WTP (Preliminary)				2.00	1.00	2.43	2.69

Table 1. Preliminary Results From NIMO Field Research

Supplemental Keywords:

RFA, Scientific Discipline, Economic, Social, & Behavioral Science Research Program, Economics & Decision Making, decision-making, Social Science, Ecology and Ecosystems, benefits assessment, public values, validity, Monte Carlo study, multi-criteria decision analysis, valuing environmental quality, cost benefit, ecosystem valuation, environmental law, legal and policy choices, standards of value, embedding, Niagra Mohawk Power Company, community involvement, multi-attribute utility, passive use values, environmental values, public policy, surveys, decision analysis, economic incentives, psychological attitudes, social psychology, valuation, contingent valuation, collaborative resolution, environmental assets, environmental policy

Progress and Final Reports:

Original Abstract

1996

Final