A new baseline model for estimating willingness to pay from discrete choice models

Richard Carson and Mikolaj Czajkowski

Journal of Environmental Economics and Management, 2019, vol. 95, issue C, 57-61

Abstract: We show a substantive problem exists with the widely-used ratio of coefficients approach to calculating willingness to pay (WTP) from discrete choice models. The correctly calculated standard error for WTP using this approach is shown to be undefined. This occurs because the cost parameter's standard error implies some possibility the true parameter value is arbitrarily close to zero. We propose a simple yet elegant way to overcome this problem by reparameterizing the (negative) cost variable's coefficient using an exponential transformation to enforce the theoretically correct positive coefficient. With it the confidence interval for WTP is now finite and well behaved.

Keywords: Conditional logit; Confidence intervals; Contingent valuation delta method; Discrete choice experiment; Krinsky-Robb; Multinomial logit; Probit; Welfare measures (search for similar items in EconPapers)
JEL-codes: C01 C15 C18 Q0 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (37)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:95:y:2019:i:c:p:57-61

DOI: 10.1016/j.jeem.2019.03.003

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