Evaluation of likelihood based tests for non-nested dichotomus choice contingent valuation models

Margarita Genius and Elisabetta Strazzera

Working Paper CRENoS from Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia

Abstract: Distributional assumptions are crucial in the estimation of the value of public projects assessed by means of contingent valuations analyses, and it would seem obvious that tests for model specification should play an important part in the statistical analysis. It can be observed, though, that when the competing hypotheses are non nested, the choice of the model is often based on heuristic grounds, or, at most, on deterministic selection model criteria such as Akaike s (1973). In this paper we study two alternative, probabilistic, approaches to checking model specification, that, like Akaike s, are based on the Kullback-Leibler Information Criterion (KLIC) - the model selection testing proposed by Vuong (1989) and the non nested model test proposed by Cox, in the simulated approach of Pesaran and Pesaran (1993). The three approaches are confronted by comparing their performance in selecting among different contingent valuation models applied to simulated data. Our preliminary results seem to warrant the use of Vuong s test, complemented in same cases by the application of the Cox test.

Date: 2000
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