how to combine long and short return histories efficiently a common challenge in portfolio risk analysis is that certain assets have shorter return histories than others unfortunately many standard portfolio risk analysis techniques including historical tail risk measurement regime dependent risk analysis and bootstrapping simulations require full return histories for all assets or risk factors the author presents easy instructions on how to efficiently combine data for investments whose histories differ in length and offers a new model to better account for non normal distributions

on the inventory cycle and the instability of the competitive mechanism this paper presents a model of the business cycle with perfect foresight where the mere presence of inventories is responsible for the appearance of the cycle the basic assumption of the model is that the price system does not adjust instantaneously to its competitive value then inventory holding destabilizes the t tonnement dynamics and creates the cycle a wicksellian cumulative process generates both the booms where the real rate of return on cash is smaller than the natural rate of interest obtained by the inventory holders and the recessions where inventories are dominated by money balances

models for referendum data the structure of discrete choice models for contingent valuation abstract in 1979 bishop and heberlein introduced an appealing variant of the contingent valuation method which required only yes or no responses hanemann developed a utility theoretic interpretation of the yes no responses which has helped popularize the approach recently cameron has offered another interpretation also utility theoretic which she argues is more general than the hanemann random utility model this paper compares the deterministic models suggested by hanemann and cameron showing them to be dual to each other it shows that correct specification of either function must exclude endogenous variables such as quantity demanded it also demonstrates that using utility theoretic models allows one to compare travel cost models and contigent valuation models on the basis of their implied behavior not on the unobservable surplus or variation measure

the greenhouse effect damages costs and abatement the buildup of so called greenhouse gases in the atmosphere co2 in particular appears to be having an adverse impact on the global climate this paper briefly reviews current expectations with regard to physical and biological effects their potential costs to society and likely costs of abatement for a worst case scenario it is impossible to assess in economic terms the full range of possible non linear synergistic effects in the most favorable although not necessarily likely case of slow paced climate change however it seems likely that the impacts are within the affordable range at least in the industrialized countries of the world in the third world the notion of affordability is of doubtful relevance making the problem of quantitative evaluation almost impossible we tentatively assess the lower limit of quantifiable climate induced damages at 30 to 35 per ton of co2 equivalent worldwide with the major damages being concentrated in regions most adversely affected by sea level rise the non quantifiable environmental damages are also significant and should by no means be disregarded the costs and benefits of 1 reducing cfc use and 2 reducing fossil fuel consumption as a means of abatement are considered in some detail this strategy has remarkably high indirect benefits in terms of reduced air pollution damage and even direct cost savings to consumers the indirect benefits of reduced air pollution and its associated health and environmental effects from fossil fuel combustion in the industrialized countries range from 20 to 60 per ton of co2 eliminated in addition there is good evidence that modest e g 25 reductions in co2 emissions may be achievable by the u s and by implication for other countries by a combination of increased energy efficiency and restructuring that would permit simultaneous direct economic benefits savings to energy consumers of the order of 50 per ton of co2 saved a higher level of overall emissions reduction possibly approaching 50 could probably be achieved at little or not net cost by taking advantage of these savings we suggest the use of taxes on fossil fuel extraction or a carbon tax as a reasonable way of inducing the structural changes that would be required to achieve significant reduction in energy use and co2 emissions to minimize the economic burden and create a political constituency in support of the approach we suggest the substitution of resource based taxes in general for other types of taxes on labor income real estate or trade that are now the main sources of government revenue while it is conceded that it would be difficult to calculate the optimal tax on extractive resources we do not think this is a necessary prerequisite to policy making in fact we note that the existing tax system has never been optimized according to theoretical principles and is far from optimal by any reasonable criteria

option value empirical evidence from a case study of recreation and water quality a procedure for measuring option value and other preservation values of water quality is developed and applied to a case study area in the south platte river basin colorado benefits from water based recreation activities are the focus of the study the results provide an empirical test and confirmation of weisbrod s proposal that option value and other preservation values represent important social benefits and should be added to the aggregate consumer surplus of recreation activities to determine the total benefit of environmental amenities to society in the absence of such an estimate insufficient resources would be allocated by society to preservation of unique environments such as pristine mountain streams where mineral and energy development may irreversibly degrade water quality

preferences for environmental quality under uncertainty abstract although the expected effects of environmental policies and interventions are rarely known with certainty stated preference surveys rarely elicit preferences over uncertain environmental outcomes this article presents empirical results challenging the view that ignoring such uncertainty during preference elicitation is of no consequence so long as people only care about final environmental states we show that measured preferences for final environmental states water quality in this case depend on whether people choose between final states or between lotteries over final states in contrast to the typical finding for monetary lotteries we find significant under weighting of low probability events related to water quality

measuring values for environmental resources under uncertainty abstract the relationship between conventional hicksian measures of the benefits from changes in environmental amenities under certainty and corresponding measures of valuation when the conditions of access to an uncertain environmental resource are changed is considered the analysis utilizes a contingent commodity framework with the assumption of state dependent preferences the findings suggest that the valuation of these changes will depend upon the availability of fair markets for diversifying risk moreover conventional measures of compensating or equivalent surplus will not necessarily bound the individual s valuation of a change in access to an uncertain environmental resource

how might nature value man abstract while much time and effort is spent attempting to quantify environmental services for inclusion in the economic system no one seems to ask how nature might value us an ecological accounting process is devised to accommodate ecosystem flows allowing for the computation of ecological prices and leading to the calculation of net ecosystem output and the efficiency of its production the process is somewhat similar to economic accounting but allows us to consider the ecosystem as open conforming to thermodynamic laws examples such as intervention to reduce soil erosion illustrate how humans might be appreciated by the ecosystem in some instances the net output might be higher with some human presence than with no human presence

valuing option existence and bequest demands for wilderness to assess the relative importance of current costs and future benefits of nuclear waste storage we develop a simple model of bequest value the basic model of nonparternalistic altruism is extended to account for the uncertain nature of the externality

implications of basing health care resource allocations on cost utility analysis in the presence of externalities abstract cost utility analysis is increasingly being advocated as a tool for helping to establish funding priorities among programs and services in the health care sector as currently conducted however cost utility analysis is problematic as a basis for achieving allocative efficiency because it excludes externalities the exclusion of externalities may bias program ranking in unpredictable ways leading to a non optimal allocation of resources consideration of externalities also raises a number of distributional issues for the evaluation of health services and highlights the importance of developing economic evaluation methods that are consistent with the conceptual basis for allocating resources

incentive incompatibility and starting point bias in iterative valuation questions we test for incentive incompatibility and starting point bias to describe the effects of iterative valuation questions on willingness to pay we compare double triple and multiplebounded models with data from two surveys with similar designs of the valuation questions we find that incentive incompatibility is present in both sets of data and starting point bias is present in one the efficiency of the willingness to pay estimate is improved in only one set of data the potential loss from using iterative questions without controlling for both incentive incompatibility and starting point bias is biased willingness topay estimates

distributional preferences and the incidence of costs and benefits in climate change policy we explore the relationship between willingness to pay wtp for climate change mitigation and distributional preferences by which we mean individuals opinions about who should be responsible for climate change prevention and whether the share of climate change impacts borne by the poor is a cause for concern we use 1 770 responses to an online stated preference survey the domestic costs in our survey s policy choice scenarios are expressed as a set of randomized shares across four different payment vehicles and the international cost shares are randomized across four groups of countries we also elicit respondents perceptions of the likely regressivity of climate change impacts under a policy of business as usual wtp is higher when larger cost shares are borne by parties deemed to bear a greater responsibility for mitigation and when respondents believe and care that the impacts of climate change may be borne disproportionately by the world s poor that wtp for an environmental policy depends on the distributional consequences of the policy is an unsettling result efficiency assessments are typically assumed to be separate from equity considerations in most benefit cost analyses

social demand for electricity from forest biomass in spain does payment periodicity affect the willingness to pay in this article we analyze social preferences for a partial substitution programme of electricity generated by conventional energy sources for energy generated from a local renewable energy source such as forest biomass this analysis sets arguments in favour of accelerating the introduction of this renewable technology in the spanish electricity system simultaneously two methodological goals concerning the contingent valuation method are discussed in the first one we analyze if there are statistical differences in the willingness to pay wtp when a single or a double bounded format is employed to ask the valuation question results show that wtp estimates from single and double bounded significantly differ in the second one we analyze the effect of the periodicity of the payment vehicle on the estimates of welfare change the timeframe specification of the payment vehicle has been scarcely studied and this fact constitutes the main contribution of this paper to the specialized literature results show that periodicity influences upon the probability to favour the proposed change the periodicity does not affect to the mean wtp obtained in the single bounded format but there are statistical differences in the double bounded format these results might be explained by the presence of yea saying and payment scale bias

valuation and management of wetland ecosystems we recently completed a study of wetland values in coastal louisiana that employed both willingness to pay and energy analysis based methodologies and were able to bracket a range of values within which we feel fairly confident the true value lies however a large amount of uncertainty remains our current estimates of the total prsent value of an average acre of natural wetlands in louisiana are us 2429 6400 per acre assuming an 8 discount rate to 8977 17000 per acre assuming a 3 discount rate at the lowest value the current annual rate of loss of louisiana wetlands 50 sq miles per year is worth about 77 million at the largest value it is worth about 544 million in this paper we a discuss the fundamental theoretical and practical problems underlying natural resources valuation b summarize our methods and findings for louisiana wetlands and c elaborate on some of the more recalcitrant problems attending applied natural resource valuation including discounting and dealing with uncertainty and imprecision the discount rate makes more difference in the final result than any other one factor and yet there is much disagreement about the appropriate approach to discounting natural resources we discuss the discounting problem as applied to natural resources and argue for lower discount rates for valuing renewable natural resources than apply for other aspects of the economy it now seems clear that no reasonable amount of effort will produce very precise estimates of wetland values and we suspect this is also the case for several other classes of natural resources we elaborate a wetlands asurance bonding system to address these problems

comparing tax and tax reallocation payments in financing rail noise abatement programmes results from a stated choice valuation study in italy the paper examines the use of stated choice experiments sc to assess the economic value of alternative rail noise reduction interventions on the brennero railway in italy the paper formally tests the econometric robustness of the sc estimates under three payment regimes a a regional tax where consumers must trade off welfare gains due to noise reduction for part of their income b a transport tax reallocation scheme where consumers must trade off a part of the tax payments that are currently spent on the public transport sector and c an administration tax reallocation scheme where consumers must trade off a part of the tax payments that are currently spent on the administration sector the test results are varied on the one hand the sc estimates are found to be statistically different for the tax reallocation and the tax introduction regimes this confirms previous valuation research results and thus reiterates the hypothesis that states the inequality between marginal values of private income and public money on the other hand the sc estimates are not found to be statistically different for the two proposed tax reallocation regimes suggesting that in the case study investigated here the marginal value of public money does not depend upon the budget source

a bottom up approach to the risk adjusted performance of the buyout fund market we use the burgiss dataset to study private equity buyout fund performance our findings on performance before risk adjustments are consistent with those in the literature and indicate significant outperformance of buyout fund investments using a bottom up approach we identify the systematic risks of underlying companies in buyout funds to inform an appropriate risk adjusted benchmark which we determine to be a levered size and sector adjusted public index after making these risk adjustments we find no significant outperformance of buyout fund investments versus the public market equivalent on a dollar weighted basis we contend that even without significant risk adjusted outperformance buyout funds can play a valuable role in institutional investors portfolios

the risk in hedge fund strategies theory and evidence from trend followers hedge fund strategies typically generate option like returns linear factor models using benchmark asset indices have difficulty explaining them following the suggestions in glosten and jagannathan 1994 this article shows how to model hedge fund returns by focusing on the popular trend following strategy we use lookback straddles to model trend following strategies and show that they can explain trend following funds returns better than standard asset indices though standard straddles lead to similar empirical results lookback straddles are theoretically closer to the concept of trend following our model should be useful in the design of performance benchmarks for trend following funds

the sign and size of option value we adapt the theoretical state preference model to value nonmarket public goods under individual uncertainty about use illustrating with an assessment of willingness to pay to prevent acid rain lake damage in the northeast united states individual

specification of the logit model the case of valuation of nonmarket goods abstract we address the proper specification of the logit model for estimation of nonmarket commodity demand economic theory is used to show the conditions which must be met by the logit functional form if it is to yield valid estimates of welfare change measures and demand relationships an empirical example is used to illustrate the argument recreational boating data were collected using the contingent valuation method cvm in texas in one instance the demand curve is positively sloped due to the specific functional form chosen the estimated demand curve for the theoretically preferred functional form has the expected negative slope

a bayesian approach to double bounded contingent valuation in this paper we propose a bayesian approach to model double bounded contingent valuation data the double bounded elicitation method is interpreted as a two tier iterated process in which the subject is allowed to have a second thought about his her valuation for the environmental good prior information is modelled from the answers to the first dichotomous choice question the model is quasi bayesian q b in that the prior distribution refers to mean willingness to pay while the likelihood function refers to the proportions of a multinomial distribution this model is applied to empirical data from a contingent valuation survey involving the valuation expressed by european tourists for access to natural areas in the canary islands results show that point estimate of consumer surplus computed with the q b model does not differ substantially from single bounded model estimation in addition double bounded seems to be quite robust to the choice of the prior model of willingness to pay responses comparison with open ended suggests that the q b model might be useful to control for strategic response and starting point biases

effect of distance on the preservation value of water quality in the past dozen years an extensive body of literature has developed on the willingness to pay for water quality in particular its recreation use and nonuse preservation values this paper illustrates a procedure for estimating the effect of distance on the preservation value of environmental quality using the contingent valuation approach the case considered is the potential degradation of water quality due to coal mining activity in the flathead river drainage system montana the analysis supports a negative association for this particular study area the effect of distance on preservation value was considered both directly and indirectly through its effect on visits 36 references 2 tables

characterizing the effects of valuation methodology in function based benefits transfer abstract meta analyses have demonstrated that willingness to pay wtp estimates vary systematically according to methodological factors the benefits transfer literature provides little guidance with regard to the treatment of such effects transfers are typically conducted by ignoring such effects using ad hoc adjustments or otherwise suppressing information regarding the sensitivity of wtp to methodological attributes this paper illustrates a means to characterize methodological effects within benefits transfer based on an application of the common bootstrap drawing from meta analysis the approach characterizes the sampling distribution of wtp with respect to patterns of methodological variation present in underlying studies results provide a means to characterize the extent of variation associated with predefined groups of methodological attributes providing transparent information on the sensitivity of wtp not typically available in benefits transfer

wage and price adjustment in a multimarket disequilibrium model the estimation of wage and price adjustment equations rests heavily on the use of tension variables that aim at capturing the disequilibria in the labour and goods markets disequilibrium models therefore provide a natural way of endogenizing these tension variables this paper estimates jointly a two market disequilibrium model and a wage and price adjustment block where price and wage growth react to excess effective demands the estimation is carried out using the simulated pseudo maximum likelihood methods developed by laroque and salanie 1989 the results look promising as regards the estimation of even more sophisticated models

welfare effects of changes in environmental quality under individual uncertainty about use we adapt the theoretical state preference model to value nonmarket public goods under individual uncertainty about use illustrating with an assessment of willingness to pay to prevent acid rain lake damage in the northeast united states individual usage uncertainty is modelled via probabilities of participation in trout fishing changes in environmental quality are valued using a random utility model to explain yes no responses to a contingent valuation question we produce quantitative welfare measures individual fitted and simulated passiveand active use values individual expected consumer surplus option price option value and complete individual willingness topay loci

estimates of the option values for water quality improvements abstract this paper presents estimates of the option values associated with increased oppurtunities for outdoor recreation resulting from improved water quality the estimates are based on a 1981 survey of 301 households in the pennsylvania monongahela river basin

a new paradigm for valuing non market goods using referendum data maximum likelihood estimation by censored logistic regression abstract this paper challenges the w m hanemann amer j agr econom 66 332 341 1984 and c sellar j p chavas and j r stoll j environ econom management 13 382 390 1986 utilizations of logit models to estimate the value of non market resources from referendum survey data these data are more informative than conventional choice data the random utility interpretation of logit models is therefore too restrictive bypassing the utility function entirely it will be shown that parameters and standard errors for utility theoretic inverse hicksian demand functions can be extracted directly and much more simply estimated demand functions need not be limited to those corresponding to the linear in parameters utility difference specifications which can be handled by packaged logit programs

supply uncertainty option price and option value this article develops a general model of private and public choice under temporal uncertainty the model incorporates the effects of risk preferences and the prospect of future learning into both the individual and aggregate valuations of public projects

asset allocation risk models for alternative investments often the lack of mark to market data lures investors into the misconception that alternative asset classes and strategies represent somewhat of a free lunch this article proposes solutions to measuring mark tomarket risk in alternative and illiquid investments the authors describe how to estimate risk factor exposures when the available asset return series may be smoothed owing to the difficulty of obtaining market based valuations they show that alternative investments are exposed to many of the same risk factors that drive stock and bond returns i nvestors have long recognized that asset class returns are driven by a common set of risk factors asset allocators often use the risk factor approach to improve portfolio diversification and to translate macroeconomic views into expected asset returns in practice implementing a risk factor approach to asset allocation requires mapping asset classes to their underlying factor exposures which can be challenging especially for asset classes for which the available historical data are limited or biased in this article we propose solutions to measuring mark to market risk in alternative and illiquid investments we describe how to estimate risk factor exposures when the available asset return series may be smoothed owing to the difficulty of obtaining market based valuations we show that alternative investments are exposed to many of the same risk factors that drive stock and bond returns our approach has profound implications for risk estimation in an asset allocation context for example figure 1 shows the difference between adjusted and reported from index returns volatilities for several alternative investments as well as for public markets equities and bonds it also shows a measure of autocorrelation which highlights how return smoothing contributes to the misestimation of volatility the bottom line is that alternative investments are much more volatile on a mark to market basis than their reported index returns would suggest this bias tends to be more pronounced for indices that are smoothed in this article we describe the methodology used to arrive at these adjustments and include other key risk measures relevant to asset allocation we recognize that there already is a significant body of literature that attempts to estimate risk factor exposures for various individual alternative investments and strategies however little research has been done to estimate the risk factor exposures across all alternatives within an internally consistent unified risk factor framework given increased allocations to alternative investments in institutional investors portfolios we see an urgent need to develop a consistent approach that directly integrates the risks of alternative assets with the rest of investors portfolios

household willingness to pay for green electricity in urban and peri urban tigray northern ethiopia determinants and welfare effects abstract this paper set out to estimate household willingness to pay for green electric services and welfare gains attributed to such schemes for this purpose contingent valuation survey was conducted on 300 urban and peri urban households in northern ethiopia a bivariate probit model was used to elicit willingness to pay and analyze determinants of household willingness to pay on the other hand welfare gains were analyzed using consumer and producer surpluses the mean willingness to pay was estimated to be birr 12 5 0 66 usd per month per household for five years on top of monthly electricity bill among others income played positive role on willingness to pay while difference in willingness to pay behavior was observed between male and female headed households in addition distance to wood and charcoal alternative energy markets played encouraging role for willingness to pay results from the welfare analysis show that there is significant societal gain to be made both in terms of surplus for households and producers government if the previously untapped green electricity service was implemented the revenue producer surplus for the state would be instrumental in contributing to the state s endeavor to generate a much needed capital for investment in and expansion of renewable energy

fees eat diversification s lunch although diversification is often spoken of as the only free lunch in investing the authors show that it is not free and that it must be considered in light of its costs they also show that fees on diversifying asset classes are high relative to their risk adjusted diversification benefit with the more exotic asset classes carrying higher price tags because there is meaningful cross sectional variation fees need to be considered when making strategic asset allocation decisions

an econometric model of serial correlation and illiquidity in hedge fund returns the returns to hedge funds and other alternative investments are often highly serially correlated in sharp contrast to the returns of more traditional investment vehicles such as long only equity portfolios and mutual funds in this paper we explore several sources of such serial correlation and show that the most likely explanation is illiquidity exposure i e investments in securities that are not actively traded and for which market prices are not always readily available for portfolios of illiquid securities reported returns will tend to be smoother than true economic returns which will understate volatility and increase risk adjusted performance measures such as the sharpe ratio we propose an econometric model of illiquidity exposure and develop estimators for the smoothing prole as well as a smoothing adjusted sharpe ratio for a sample of 908 hedge funds drawn from the tass database we show that our estimated smoothing coecien ts vary considerably across hedge fund style categories and may be a useful proxy for quantifying illiquidity exposure

valuation of ecotourism resources using a contingent valuation method the case of the korean dmz abstract the korean demilitarized zone dmz which has been untouched by human interference for the last half century has become a sanctuary for rare species of animals and plants conflicts concerning development between communities and environmentalists are arising estimates of the preservation value of the dmz are necessary for society to properly address these issues such estimates will help policy makers address issues of conservation management sustainable development and public financial support given this situation the objectives are two fold the primary objective of this study is to obtain estimates of the preservation value of the korean dmz and civilian control zone ccz a secondary objective is to examine the potential for hypothetic bias in respondents answers in a contingent valuation method framework findings suggest hypothetical bias is present in the survey including a real payment vehicle may reduce hypothetical bias in eliciting willingness to pay wtp best estimates are the mean wtp is us 16 74 per capita aggregate preservation value lies between us 264 and 602 million these findings indicate that conservation of the dmz and ccz is not only important for moral and ecological reasons but the dmz and ccz are of considerable economic value to south koreans any development unfriendly to the environment will degrade the quality of the ecosystem of the dmz as well as decrease its economic value

differentiating use and nonuse values for coastal pond water quality improvements this paper measures the benefits of water quality improvements in three coastal ponds on the island of martha s vineyard massachusetts u s a use option and existence values were elicited from martha s vineyard property owners by the contingent valuation method on average more than half of the total benefits are attributed to existence value results from the heckman selection model show that the exclusion of protest as well as missing bids does not cause significant bias in estimating respondents willingness to pay socioeconomic characteristics are found to have distinctively different influences on use option and existence values different model parameters are likely to be estimated depending on which value categories are measured by a selected valuation technique these findings emphasize the importance of nonuse values from water quality improvements and of socioeconomic characteristics for measuring different categories of values

gender specific starting point bias in choice experiments evidence from an empirical study abstract in this paper we test whether preferences and willingness to pay estimates obtained in a choice experiment study are susceptible to starting point bias as is often the case in dichotomous choice contingent valuation studies on the basis of a multinomial probit model we find that preferences are indeed susceptible to starting point bias in a split sample design our results suggest that varying the price levels displayed in a so called instructional choice set presented prior to the actual preference eliciting choice sets significantly impacts respondents preferences and willingness to pay for protecting danish nature areas from new motorway development in particular our results show that the bias is gender specific only female respondents are significantly affected results further reveal that the impact of the starting point bias decays as respondents evaluate more and more choice sets this supports the discovered preference hypothesis and on the basis of this we suggest a number of ways to potentially mitigate the starting point bias

ex ante willingness to pay with supply and demand uncertainty implications for valuing a sea turtle protection programme it is argued that ex antewillingness to pay is appropriately measured as a function of subjective supply and demand probabilities an exploratory case study of a loggerhead sea turtle protection programme is used to show how estimates of these probabilities can be obtained from a sample survey and how a change in probabilities determines contingent choice empirical results confirm that subjective probabilities are important when explaining ex antewillingness to pay attempts to estimate the determinants of ex antewillingness to pay without controlling for subjective probabilities will result in specification bias it is important that subjective probability information is gleaned from contingent valuation survey respondents and included in empirical models of contingent choice

trading taxes vs paying taxes to value and finance public environmental goods the potential sensitivity of environmentalresource valuation to payment vehicles is ofinterest to researchers and decision makersinvolved in estimating and applying thesenumbers a conceptual model is developed whichprovides insight into how the different paymentvehicles of a special tax and a taxreallocation affects the willingness to pay wtp for environmental goods hypothesistesting using contingent valuation datasuggests wtp with a tax reallocation is higherthan wtp with a special tax for ground waterquality protection in georgia and maine usa technical measurement and welfare analysisimplications and limitations of valuing andfinancing public environmental goods using taxrealloactions are discussed

use of dichotomous choice nonmarket methods to value the whooping crane resource market prices for endangered wildlife species rarely exist when prices do exist they arc not likely to reflect accurately individual preferences both consumptive uses such as hunting fishing and trapping boyle and bishop 1985 stou and johnson brookshire eubanks and randall and more esoteric benefits such as viewing and existence values must be considered this article is addressed to the valuation of whooping cranes grus americana a prominent endangered species the purpose of this article is to present a methodology for estimating nonconsumptive benefits associated with the existence of an endangered species a dichotomous choice form of contingent valuation is applied to quantify individuals economic surplus associated with preservation of the whooping crane resource specific issues and limitations of the empirical approach are discussed some of which have been previously examined by bishop and heberlein 1979 and hanemann the present paper expands upon earlier work in several ways fit in addition to discussing the above issues a unique application of the approach to an endangered species is presented second three model specifications are examined two of which arc consistent with utility theory and one which is not hanemann ti again following hanemann economic surplus is estimated at the sample median as well as the mean the dii cussion of the last two issues sheds sit on their implications for estimation of economic surplus throughout the article the suitability of alternative estimation techniques for dichom mous choice or referendum style data is examined the methodological and empirical results are relevant to a number of cumnt issues regarding model specification choice of binary response model and choice of estimator for equivalent surplus hanemann boyle and bishop 1984 sellar chavas and stoll

the welfare cost of perceived policy uncertainty evidence from social security policy uncertainty reduces individual welfare when individuals have limited opportunities to mitigate or insure against the resulting consumption fluctuations we field an original survey to measure the degree of perceived policy uncertainty in social security benefits and to estimate the impact of this uncertainty on individual welfare our central estimates show that on average individuals are willing to forgo 6 percent of the benefits they are supposed to get under current law to remove the policy uncertainty associated with their future social security benefits this translates to a risk premium from policy uncertainty equal to 10 percent of expected benefits

enhanced geospatial validity for meta analysis and environmental benefit transfer an application to water quality improvements meta regression models are commonly used within benefit transfer to estimate willingness to pay wtp for environmental quality improvements theory suggests that these estimates should be sensitive to geospatial factors including resource scale market extent and the availability of substitutes and complements valuation meta regression models addressing the quantity of non market commodities sometimes incorporate spatial variables that proxy for a subset of these effects however meta analyses of wtp for environmental quality generally omit geospatial factors such as these leading to benefit transfers that are invariant to these factors this paper reports on a meta regression model for water quality benefit transfer that incorporates spatially explicit factors predicted by theory to influence wtp the metadata are drawn from stated preference studies that estimate per household wtp for water quality changes in united states water bodies and combine primary study information with extensive geospatial data from external sources results find that geospatial variables are associated with significant wtp variations as predicted by theory and that inclusion of these variables reduces transfer errors

controlling starting point bias in double bounded contingent valuation surveys in this paper we study starting point bias in double bounded contingent valuation surveys this phenomenon arise in applications that use multiple valuation questions indeed response to follow up valuation questions may be influenced by the bid proposed in the initial valuation question previous research have been conducted in order to control for such an effect however they find that efficiency gains are lost when we control for undesirable response effects relative to a single dichotomous choice question contrary to these results we propose a way to control for starting point bias in double bounded questions with gains in efficiency

investment projects and natural resources economic rationality in janus role abstract the evaluation of a public project or a public policy is in general based on scientific principles and methods however such an evaluation is not simply a logical and computational exercise there are uncertainties often severe ones in the way scientific knowledge is to be used hence there are degrees of freedom available to the promoters of the project or policy and possibly to other parties involved this paper discusses what use of these degrees of freedom has been made in western europe in situations where the conservation of natural resources has been a significant issue at stake we examine how scientific requirements on one hand and on the other hand the particular views held by the promoter and by other parties involved interact and how main features of the methodology of evaluation are influenced by this interaction which in some cases takes the form of an elaborated negotiation on methodological points

estimating the use and preservation values of national parks tourism resources using a contingent valuation method abstract the korean national parks authority has questioned whether natural resources have enough economic value to justify an increase in admission fee in the case of inadequate assistance from the government alternatively they also question whether the national parks have sufficient value to contribute to citizens welfare in order to receive continuing support from the government hence the purpose of this research is to estimate the use and preservation values of natural and or cultural resources in five distinctive national parks using a dichotomous choice contingent valuation method the empirical results show that natural and or cultural resources of the sample national parks possessed considerable use and preservation values outweighing current admission fees and maintenance costs per visitor thus these values provide enough justification for the national park authority to increase admission fees to maintain the quality of natural environment and avoid degrading natural resources in the event of no assistance by the government the findings may provide guidance to national park managers and practitioners who establish pricing policies the results also show that values of natural and or cultural resources were different across five distinctive national parks indicating the possibility of employing differential admission fees according to park characteristics

an assessment of the empirical magnitude of option values for environment goods this paper provides an empirical assessment of the magnitude of option values relative to expected surplus using a model presented by larson and flacco 1992 option values and option prices are computed for both simulated data sets and actual estimates of recreation demands results indicate that option values engendered by price and income uncertainty are generally quite a small percent of expected surplus

willingness to pay measures and expectations an experiment in studies of the willingness to pay for various environmental commodities services it is typically explicitly or implicitly assumed that the respondent has perfect has perfect foresight this paper which is based on a questionnaire completed by examining if and how the value of a hunting permit is affected by the hunter s expectations regarding the outcome of the hunting in particular the willingness to pay is estimated as a function of expected values as well as variances of different variables using a question which reflects an extension of jensen s inequality to the multivariate case as well as measures of downside risk it is shown that risk attitudes are important determinants of the willingness to pay for a hunting permit

a comparison of compensating surplus and budget reallocation with opportunity costs specified the use of most nonmarket valuation techniques is predicated on respondents paying additional amounts of money for increased provision of a public good however in many circumstances this may not be appropriate treaty rights or the capacity of a government to raise and collect taxes in the context of a developing country may preclude the introduction of new taxes alternatively there may be settings where respondents reject the notion of an additional payment and a different approach to estimating nonmarket values is needed this article demonstrates a methodology for estimating compensating budget reallocation which is the amount of expenditure on other public goods that respondents are willing to forego for the government to provide more of another public good one of the main contributions of this article is a demonstration of how to improve the specification of the opportunity costs of budget reallocations second using choice modelling for the estimation of budget reallocations is compared with

information and the concept of option value this paper examines the arrow fisher henry concept of option value and analyzes its properties including its relationship to the value of information and the effects of increasing uncertainty about the future consequences of irreversible development it is shown that this option value is distinct from but bounded by the value of information in the overall decision problem also it is distinct from a concept of option value that appears in b s bernanke quart j econom 98 85 106 1983 however when there is a continuum of development levels rather than a binary choice between full development and no development some of these conclusions need to be modified

nonuse values in benefit cost analysis benefit cost analysis bca is a pragmatic realization of the theory of welfare economics much of the research associated with bca has sought to expand the types of benefits that can be measured in dollar terms with this research there has been a progressive movement of goods and services from the set without measures usually designated as intangibles in bca terminology to the set with for example the recreational services provided by projects associated with dams for hydroelectric power or flood control were regarded as intangible until the development of the travel cost model for estimating the demand for outdoor recreation sites one of the current frontiers in bca research is associated with modeling and measuring nonuse benefits in contrast to the past efforts with intangibles research on this topic has remained controversial with few direct effects on the practice of applied welfare economics there are two principal reasons for this outcome first there has not been an accepted set of definitions for nonuse benefits and second applied studies with empirical estimates of nonuse benefits have until recently been non existent clearly these problems are related a consistent set of definitions is a necessary prerequisite for empirical implementation i will argue that consistent definitions for nonuse benefits have been elusive because the conceptual frameworks used in the literature to describe its primary components option value and existence values are not mutually consistent in the process of demonstrating this result i will describe the elements of a consistent framework for treating both use and nonuse benefits and apply it in explaining some of the problems with the available empirical estimates of nonuse benefits

are french consumers ready to pay a premium for eco labeled seafood products a contingent valuation estimation with heterogeneous anchoring could the future french eco label for fresh seafood products find its place in the french market this study employs a contingent valuation method to estimate french consumers willingness to pay wtp for eco labeled fresh seafood products we exploit original data from a survey carried out in 2010 where 626 participants responded to a double bounded dichotomous choice model through an ascending or descending bid system controlling for shift and anchoring effects in random effect probit models we significantly improve estimation of wtp and its determinants for the three species studied monkfish lobster sole in particular when using heterogeneous anchoring we show that wtp is positively correlated to respondents income and also to their environmental concern to living alone to living far from the coast and to trusting ngos or public institutions more than producer organizations to implement an eco label we also show that the mean price premiums do not differ between species finally on average the maximum premium consumers accepted to pay is approximately 10 of the product price

starting point bias in dichotomous choice valuation with follow up questioning abstract follow up questions are frequently used to improve the efficiency of dichotomous choice contingent valuation questionnaires however a number of authors e g 12 16 have noted a significant difference between the wtp distributions implied by initial and follow up question responses this paper investigates starting point bias as one explanation for the phenomenon we develop a model of starting point bias in the context of dichotomous choice questioning with follow up using a monte carlo simulation to illustrate the potential bias imparted to wtp estimates an application is provided based on data from a cv study in northcentral iowa

contingent valuation a new perspective after several decades of academic research on the contingent valuation cv method a consistent behavioral explanation of hypothetical bias is still lacking based on evidence from economics economic psychology and the political sciences i propose an explanation that is based on two simple working hypotheses about respondent behaviour in contingent valuation surveys the first hypothesis is that survey respondents are unable to form consistent preferences about unfamiliar goods unless the choice context offers reliable informative cues that can be rationally exploited in simplified heuristics the second hypothesis is that the probability and impact of strategic responses in dichotomous choice questions about public goods depends on the extent to which the presented hypothetical costs differ from the actual costs the literature on hypothetical bias is revisited in the light of these behavioral hypotheses i find that the hypotheses are generally supported by the empirical data moreover the hypotheses are able to explain several important empirical phenomena that previous research has not been able to explain in particular they solve the puzzle that pre election polls but not cv surveys are able to predict actual referendum outcomes and they explain why income effects on willingness to pay are lower in cv responses than in actual votes if confirmed by further studies the hypotheses will have important implications for future research and practice first the hypothetical costs presented in the dichotomous choice question should to be close enough to the actual costs to be credible to all respondents this can be achieved by specifying the costs as a percentage rather than absolute change in taxes second the respondents should be given the option to answer based on information about the positions of large parties and interest groups with known political orientation rather than based on the raw policy information theory and evidence suggest that this new survey paradigm largely eliminates the fundamental problems of the conventional stated preference methods

option prices for groundwater protection abstract this paper reports results from a contingent valuation study of households willingness to pay pay to prevent uncertain future nitrate contamination of a potable supply of groundwater the functional form of the corresponding logit model is derived from utility maximization theory probability of future demand change in the probability of future supply and an attitudinal score for interests in the well being of future generations are significant positive determinants of option prices several implications of these results for aquifer management policy are highlighted

exploring preference anomalies in double bounded contingent valuation double bounded dichotomous choice dbdc contingent valuation offers increased efficiency of willingness to pay wtp estimates compared with the single bounded format however evidence suggests dbdc generates anomalous respondent behaviour this paper provides the first investigation and explanation of these anomalies in health results suggest the incentives for truthful preference revelation are altered in the presence of a follow up question this result is found using both regression techniques and analysis of raw responses although findings suggest very certain respondents exhibit less anomalous behaviour inconsistencies remain across bounds the results of this study question the use of iterative valuation formats

problems in valuing the benefits of biodiversity protection this paper considers two problems in valuing the benefits of biodiversity protection these are firstly that preferences for biodiversity protection may be lexicographic rather than utilitarian the more individuals for whom this is true the less is cost benefit analysis validated as a means of decision making for biodiversity protection since lexicographic preferences are incompatible with the kaldor hicks compensation test secondly people may be poorly informed about the meaning of biodiversity complicating the use of contingent valuation as a means of measuring preservation benefits this paper first discusses the meaning of biodiversity and trends in diversity over time we offer some empirical evidence with regard to lexicographic preferences consider the implications of having poorly informed consumers and then report the results of a contingent valuation study of biodiversity protection with varying levels of information we find that willingness to pay for biodiversity protection increases with the level of information provided

modeling shifts in willingness to pay from a bayesian updating perspective this paper derives a structural shift empirical specification for a double bound dichotomous choice contingent valuation methodology premised upon willingness to pay wtp shifts ensuing from a representative model of respondent bayesian updating behavior we demonstrate by way of data simulations that a traditional structural shift specification may often fail at estimating true wtp in this context further simulations demonstrate that a simple extension of the traditional structural shift model derived explicitly from our bayesian framework can correct for much of the wtp bias with an empirical application confirming the simulation outcomes finally we investigate the relationship between strategic behavior and wtp shifts

adaptation and the option value of uncertain environmental resources abstract just as ecology has benefited from the economic theory of optimization economics can benefit from the ecological theory of adaptation we examine the impact of short term non genetic adaptive self protection on the values individuals attach to uncertain prospective environmental resources we demonstrate that collective provision of reductions in supply uncertainty does not necessitate a positive option value given that uncertainty is influenced by the individual s ability to adapt through self protection we conclude that the total value of reducing the supply uncertainty of a natural resource is reflected in both the individual s option price payments for collective provision and in his willingness to pay for adaptation through self protection by ignoring adaptive self protection traditional benefit cost analysis has systematically underestimated the total value of environmental resources that are characterized by uncertain supplies

procedural invariance testing of the one and one half bound dichotomous choice elicitation method the contingent valuation method for estimating willingness to pay for public goods typically adopts a single referendum question format which is relatively statistically inefficient as an alternative cooper hanemann and signorello 2002 propose the one and one half bound oohb format allowing researchers to question respondents about both a lower and higher limit on project costs thereby securing substantial gains in statistical efficiency using an experimental design we find that responses to oohb valuation questions fail crucial tests of procedural invariance we test various competing models of observed response patterns including strategic misrepresentation of standard preferences and nonstandard models of preference formation

valuing the incremental benefits of groundwater protection when exposure levels are known both economic theory and psychological research indicate that benefit functions for reductions in health risk exposures may be conditional on current exposures using nitrates found in household wells it is demonstrated that perceptions of health risks across exposure levels are affected by the individual s current exposure level thus providing support for a conditional benefits function approach functions of conditional incremental benefits are estimated from a contingent valuation study of households that had been informed of their water test results incremental benefits reach a peak at an intermediate level of nitrates and then decline possible explanations for this non convexity are provided

bequest values for marine resources how important for indigenous communities in less developed economies communities owning and living on ancestral land tend to have a strong sense of stewardship over the land and its resources which may translate into an economic value to present generations of being able to pass on ancestral lands to future generations i e bequest value this study estimates bequest values to local users of a traditional fishing ground on the coral coast of fiji using a contingent valuation approach using monetary as well as time based contributions bequest values are estimated at between fj 1 25 1 41 us 0 64 0 73 per individual per week or fj 183 90 us 106 91 per household per year this represents a significant proportion of stated average household expenditure comparable to spending on durable household goods and clothes and footwear these results suggest that low income groups may have significant bequest values which should be accounted for in developing economy valuation studies

learning design contingent valuation ldcv noaa guidelines preference learning and coherent arbitrariness we extend the contingent valuation cv method to test three differing conceptions of individuals preferences as either i a priori well formed or readily divined and revealed through a single dichotomous choice question as per the noaa cv guidelines k arrow r solow p r portney e e leamer r radner h schuman report of the noaa panel on contingent valuation fed reg 58 1993 4601 4614 ii learned or discovered through a process of repetition and experience j a list does market experience eliminate market anomalies q j econ 2003 41 72 c r plott rational individual behaviour in markets and social choice processes the discovered preference hypothesis in k arrow e colombatto m perleman c schmidt eds rational foundations of economic behaviour macmillan london st martin s new york 1996 pp 225 250 iii internally coherent but strongly influenced by some initial arbitrary anchor d ariely g loewenstein d prelec coherent arbitrariness stable demand curves without stable preferences q j econ 118 1 2003 73 105 findings reject both the first and last of these conceptions in favour of a model in which preferences converge towards standard expectations through a process of repetition and learning in doing so we show that such a learning design cv method overturns the stylised facts of bias and anchoring within the double bound dichotomous choice elicitation format

option price estimates for water quality improvements a contingent valuation study for the monongahela river abstract we present the findings from a contingent valuation survey designed to estimate the option price bids for the improved recreation resulting from enhanced water quality in the pennsylvania portion of the monongahela river the findings are based on a survey design that used professional interviewers to conduct personal interviews determined from a representative sample of 393 households in addition the research suggests that protest bids and outliers be viewed similarly accordingly a new technique for identifying outlying responses is proposed the findings suggest that the question format affects the option price estimates and that criteria for determining the final sample of responses can have an important influence on contingent valuation results

requiem for option value as freeman 1984 accurately notes a lot of ink has been spilled over the concept of option value during the last two decades graham in his seminal 1981 article outlined the specific conditions under which option price is and more significantly is not an appropriate and relevant measure of value under demand uncertainty while graham s article demonstrates that option value is relevant only under restrictive assumptions regarding preferences and the nature of the uncertainty both the tone and contents of recent articles on the

determinants of visitors willingness to pay for the national marine park of zakynthos greece abstract we examined the influence of visitors profile information sources environmental dispositions and visit evaluation on visitors willingness to pay wtp for the national marine park of zakynthos regarding wtp amounts pledged parameters of visit evaluation were the most significant predictors the estimated annual revenue that could be gained could cover the operating costs of the protected area management body visitor and visit characteristics were not significant determinants of visitor responses to the payment principle question while they explained a relatively small amount of variation in the wtp amount multiple regression model nationality was not a significant predictor of wtp all the same greek visitors showed more signs of pro environmental attitudes than foreign ones non use values dominated over use values and higher wtp amounts were associated with bequest value an alternative classification of the valuation system alleged to justify wtp is proposed where option value could be arranged together with use value components under the assumption that future use could still be regarded as another form of use value moreover existence and bequest values could be approached separately under the hypothesis that the former is expected to be associated with relatively lower wtp amounts pledged while the latter is expected to lead to relatively higher wtp amounts our study adds to the complexity and context dependency of wtp determinants park managers are suggested to organize environmental education programs that could decrease visitors consensus estimation error and act as a feedback through word of mouth information gained by friends and relatives

commodity specification and the framing of contingent valuation questions contingent valuation studies comprise a process of information transfer a researcher through a survey instrument conveys information about the item being valued and repondents in turn provide information about the value they place on this item considering contingent valuation from this perspective nearly all of the research evaluating the validity of this valuation method is in a general sense focused on examining the effects of information structures on value estimates a comparison of various questioning techniques represents such an examination boyle and bishop 1988 randall hoehn and tolley 1981 smith desvousges and fisher 1986 on a more specific level the selection of a payment vehicle also forms part of the information set and may affect statements of value greenley walsh and young 1982 1985 mitchell and carson 1985 these examples suggest that the validity of estimated contingent values relies heavily on the information conveyed to survey respondents since varying information structures can affect the magnitude of estimated values

measuring option prices from market behavior abstract option prices can be calculated from empirical demand models given knowledge of the utility theoretic structure implied by the demand specifications and the joint density of the random variables consumers face formulas for option price are given for three common weakly complementary demand specifications because it can be difficult to assess behavioral uncertainty and calculate option prices in practice knowledge of the sign of option value is important since it is a guide to the bias from ignoring this type of uncertainty the sign of option value is determined for sources of uncertainty that have proved elusive in previous treatments

respondent uncertainty and ordering effect on willingness to pay for salt marsh conservation in the brest roadstead france abstract this paper explores the potential link between the sensitivity of willingness to pay wtp to the order of presenting bid amounts in contingent valuation questions ordering effect and respondent uncertainty the resource being valued is a public project to protect salt marshes against the spread of an invasive aquatic plant in the brest roadstead france valuation uncertainty is captured through a variant of payment card format where respondents are given the opportunity to report their wtp as either a single value option a or an interval of values option b the ordering effect is tested using both parametric models that ignore and control for the potential sample selection bias related to the choice between option a and option b as well as non parametric models the results suggest that 1 respondents place substantial wtp values on salt marsh conservation and 2 the ordering effect is linked to respondent uncertainty since only uncertain respondents react differently to changes in the order of presenting bid amounts specifically for uncertain respondents putting bid amounts in ascending order yields lower welfare estimates than putting bid amounts in descending order or random order policy recommendations and options to deal with ordering effect are discussed

generating electricity with forest biomass consistency and payment timeframe effects in choice experiments abstract this paper presents a choice experiment analyzing the consumers preferences towards a policy for replacing conventional electricity with electricity generated from forest biomass the results show that consumers specially prefer the effects related to the lower risk of forest fires and to the decrease in pressure on non renewable resources the article also presents a methodological test in relation to the payment timeframe and its effect on marginal willingness to pay and consistency of responses using choice experiments the most frequent and realistic payments are associated with lower presence of inconsistent responses finally we cannot reject the null hypothesis of no effects of payment timeframe on marginal willingness to pay

rationed access and welfare case of public resource lotteries pressures on public lands and waterways are resulting increasingly in the rationing of public access by lottery upon accounting for the uncertainties of random rationing discrete choice models lend themselves to analyzing participation in public resource lotteries and estimating welfare changes key to valuing lotteryrationed rights is accounting for changes in access probabilities that result from policy changes the empirical application models the discrete choices of more than 18 000 participants in a new mexico lottery system for elk harvest rights welfare estimates are obtained from simulated policy changes that affect individually and jointly the access probability and indirect utility