The impact of arbitrary constraints over the payment parameter on WTP: a case of a normally distributed random parameter

Andy Choi ()

Journal of Environmental Economics and Policy, 2020, vol. 9, issue 2, 125-139

Abstract: This paper aims to substantiate the impact of the ‘old’ practice in environmental valuation that arbitrarily imposes a constrained distribution on the payment parameter, and to offer a rule of thumb guidance for the accurate willingness-to-pay (WTP) estimation using choice experiments. A ratio of means approach and a mean of ratios approach were compared for estimation accuracy, involving eleven simulated datasets and two real world cases. Contrary to what is still practiced in the literature, incorrectly constrained payment parameters can in fact cause a systematic misrepresentation of true mean WTP values. The overall findings suggest for researchers using choice experiments, as a rule of thumb, that mean WTP values for environmental changes might be safely and accurately estimated using the ratio of means approach based on population moments with an unconstrained random payment parameter. In contrast, the mean of ratios approach based on conditional individual-specific WTP ratios might be neither accurate nor reliable.

Date: 2020
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/21606544.2019.1614482 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:teepxx:v:9:y:2020:i:2:p:125-139

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/teep20

DOI: 10.1080/21606544.2019.1614482

Access Statistics for this article

Journal of Environmental Economics and Policy is currently edited by Ken Willis

More articles in Journal of Environmental Economics and Policy from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().