Accounting for uncertainty in willingness to pay for environmental benefits

Ricardo Daziano () and Martin Achtnicht

Energy Economics, 2014, vol. 44, issue C, 166-177

Abstract: Previous literature on the distribution of willingness to pay has focused on its heterogeneity distribution without addressing exact interval estimation. In this paper we derive and analyze Bayesian confidence sets for quantifying uncertainty in the determination of willingness to pay for carbon dioxide abatement. We use two empirical case studies: household decisions of energy-efficient heating versus insulation, and purchase decisions of ultra-low-emission vehicles. We first show that deriving credible sets using the posterior distribution of the willingness to pay is straightforward in the case of deterministic consumer heterogeneity. However, when using individual estimates, which is the case for the random parameters of the mixed logit model, it is complex to define the distribution of interest for the interval estimation problem. This latter problem is actually more involved than determining the moments of the heterogeneity distribution of the willingness to pay using frequentist econometrics. A solution that we propose is to derive and then summarize the distribution of point estimates of the individual willingness to pay under different loss functions.

Keywords: Discrete choice models; Willingness to pay; Credible sets (search for similar items in EconPapers)
JEL-codes: C25 D12 Q51 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:44:y:2014:i:c:p:166-177

DOI: 10.1016/j.eneco.2014.03.023

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