Inadequate response to frequency of payments in contingent valuation of environmental goods

Abstract

The purpose of this chapter is to test the sensitivity of a willingness to pay (WTP) derived from a referendum-style contingent valuation (CV) survey to the frequency of payments specified in the valuation question. Using a split-sample survey we consider a one-time payment versus an annual reoccurring payment under the null hypothesis that the present values from the two payment frequencies will be the same. We offer this as a simple test of the validity of the CV method. In principle, one would hope that values are invariant with respect to frequency of payment. Boyle (forthcoming) notes that “[t]his is another area where there is scant research” and cites some evidence that suggests respondents may fail to seriously consider the time frame of payments in the valuation question. The setting for our analysis is the valuation of a conservation program designed to protect a migratory shorebird that has recently been in decline. We redesigned a survey previously used by Myers (2013) and Parsons and Myers (2016) to conduct our test. The split-sample surveys are identical but for the frequency of payment required – one uses one-time payment, the other uses annual reoccurring payment. With response data from both surveys, we estimate willingness to pay using a non-parametric Turnbull estimator and a parametric probit estimator and test for differences in willingness to pay between our treatments. We also consider sensitivity tests – weighting to align data with the census, adjustments for certainty of response, and adjustment for disbelief in bid amount.