The sensitivity of willingness to pay to an economic downturn

Paul Metcalfe () and William Baker

Journal of Environmental Economics and Policy, 2015, vol. 4, issue 1, 105-121

Abstract: Stated preference studies are typically undertaken at one point in time, while the results may be relied on in decision-making several months or even years later. This reliance is only justified if values are stable over time, an assumption which is doubtable given the onset of an economic downturn. We assess the reliability of values taken before an economic downturn for application during the downturn, via analysis of responses to two near-identical surveys conducted, respectively, before and during the 2008-2010 economic recession. The surveys were valuing near identical sets of permanent water sector service and environmental improvements. Each survey employed a dichotomous choice and a payment card contingent valuation question. Our main result is that the economic downturn led to lower payment card responses but had no effect on the values elicited via a dichotomous choice (i.e. referendum-type) contingent valuation question. We explore potential explanations for this finding in light of the literature on closed-ended versus open-ended elicitation method comparisons.

Date: 2015
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DOI: 10.1080/21606544.2014.978821

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