Economic Benefits of

Reducing Mercury Deposition in Minnesota

This study was conducted on behalf of the

Minnesota Pollution Control Agency

and

The Legislative Commission on Minnesota Resources

by

Daniel A. Hagen, Ph.D.

Department of Economics

Western Washington University

Bellingham, Washington

James W. Vincent, Ph.D.

Department of Economics

University of St. Thomas

St. Paul, Minnesota

Patrick G. Welle, Ph.D.

Department of Economics

Bemidji State University

Bemidji, Minnesota

June 1999
2

Table of Contents

Section Page

Executive Summary i

I. Introduction 1

II. The Context for Possible Mercury-Emissions Policy 3

III. Emissions Reduction and Economic Benefits 8

IV. Methods for Inferring Economic Value 11

V. An Overview of the Contingent-Valuation Method 12

VI. Survey Design 15

VII. Survey Execution: Mail 23

VIII. Survey Execution: Personal Interview 24

IX. Empirical Results 26

X. Summary and Conclusions 37

IX. References 38

Appendix A “Impacts of Mercury Reduction in Minnesota”, by Douglas Rae. A-1

Appendix B Mail-survey instruments B-1

Appendix C Personal-interview-survey instrument, visual aids C-1

Appendix D Cover letters, follow-up letters and phone script for mail survey D-1

Appendix E Contact letters and phone-verification script for personal-interview survey E-1

Appendix F Estimation Techniques: Logistic and Censored Logistic Regression F-1

Appendix G Biographical Information G-1
Executive Summary

The State of Minnesota is considering the development of policies which would place

limits on the emissions of mercury into the environment. Reduced deposition of mercury is

projected to have beneficial human-health and environmental effects. These effects produce

economic benefits, the estimation of which is the objective of this study.

Many of the economic benefits of improved environmental quality are not reflected in

market-based transactions, thus there is no market mechanism in which people can reveal their

willingness to pay for environmental quality. Therefore, in order to estimate the total economic

value of improvements in environmental goods and services, a method is required which allows

the estimation of economic benefits from non-price (non-market) data. A stated-preference

estimation technique known as contingent valuation is employed.

Contingent valuation employs a survey in which the prospective policy and its effects are

described. The survey also indicates to the respondent how much it would cost their household

(through higher prices for goods and services) if the policy were adopted. Respondents are then

allowed to state how they would vote in a referendum on this policy, given its effects and

financial consequences. On the basis of peoples’ stated choices it is possible to estimate the

economic value people attach to the policy and its effects.

For this study a mail survey was sent to 2,500 Minnesota households and personal

interviews were conducted with 250 others. The responses to the survey allows the monetization

of the benefits that respondents see the described policy as producing. A statistical valuation

function was estimated, and from this information the average annual willingness of Minnesota

households to pay for the policy was computed.

This study evaluated the benefits that respondents derived from four different policy

scenarios affecting anthropogenic mercury emissions: (1) a 50% reduction in Minnesota

emissions, (2) a 50% reduction in regional Midwest emissions, (3) a 50% reduction in U.S.

emissions, and (4) a 50% reduction in world-wide emissions. This study devoted most of its

attention to a “baseline” scenario, the 50% reduction in regional Midwest emissions. This policy

was projected to reduce mercury deposition in Minnesota by approximately 12%.

For the baseline policy scenario, the mail survey resulted in a "best estimate" of annual

household willingness to pay of $118.91. The best estimate for the personal interview sample

show a higher willingness to pay of $198.03, possibly indicating “yea-saying” behavior resulting

from the personal nature of the interview procedure.

Using the more conservative mail-survey estimate, a state-wide willingness to pay can be

computed by multiplying the per-household figure ($118.91) by the number of households (1.786

million in 1996) to yield an annual state willingness to pay of $212 million. With a state

population of 4.683 million (1996 estimate) this translates into a figure of approximately $0.12

per person per day.
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Section I.

Introduction

Mercury emissions into the environment raise concern because of the known toxicity of

mercury in its various chemical forms. Mercury, particularly in its methylated form,

bioaccumulates in the flesh of fish and is consumed by fish-eating species. The State of

Minnesota tests lakes for the mercury content of fish. The Minnesota Department of Health has

established guidelines for recommending restrictions on fish consumption if the mercury content

is sufficiently high. Other agencies, such as the Minnesota Pollution Control Agency and the

Minnesota Department of Natural Resources, have conducted or reviewed research which raises

other environmental concerns, such as adverse effects to fish-eating wildlife. In light of this

information, additional research has been conducted on the science of mercury emissions,

transport, exposure and toxicity. This study described in this report focused on an economic

aspect of environmental mercury. This research involved estimating the willingness of

Minnesota households to pay for reductions in mercury emissions, given the current state of

scientific understanding about the sources and effects of environmental mercury.

Ordinary goods and services which are traded in markets have prices which are indicators

of their economic value. Market price data are relatively easy to obtain, thus facilitating efforts

to estimate the economic benefits associated with marketable goods. In contrast, the benefits

produced by reduced mercury pollution are not fully revealed in market transactions. In order to

estimate the economic value of improved environmental quality, methods which infer economic

value from non-price data must be used. This study employed a method with which willingness

to pay can be estimated from peoples’ stated preferences. This is known as the contingentvaluation method. The contingent-valuation method is a survey technique which is designed to

elicit the willingness of a household to pay for a policy which will produce benefits for that

household. This is a non-market analogue to the observation of a market transaction in which a

consumer reveals his or her willingness to pay the market price for a good.

This report provides results from a state-wide contingent-valuation study which was

designed to elicit the willingness of Minnesota households to pay for reductions in adverse health

and environmental effects which result from mercury deposition. This study employed a dual

mode of survey administration: mail and personal-interview. The mail survey was sent to a

sample of 2,500 Minnesota households, and personal interviews were conducted with 250

households. On the basis of responses to this survey, a valuation function was statistically

estimated. The results of these estimates provide information on the economic benefits

Minnesota households receive as a result of projected reductions in adverse effects associated

with mercury deposition.

Outline of the Report

Section II of this report summarizes some of the scientific information on mercury and its

environmental effects. Section III lays out the conceptual principles which underlie the economic

benefits of improved environmental quality. Section IV provides a brief overview of techniques

which are employed in the estimation of the economic value of improved environmental quality. 
2

Sections V through VIII describe the contingent-valuation method in general, and how the survey

instruments for this study were designed and administered. Section IX contains results from the

statistical analysis of the survey data. Estimates of willingness to pay are provided and the

models from which they were derived are described. A set of appendices provides details and

exhibits which supplement the discussion contained in the report.
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Section II.

The Context for Possible Mercury-Emissions Policy

Atmospheric deposition of mercury raises concerns about a variety of possible

environmental and health consequences. Mercury, particularly in its methylated form,

bioaccumulates in the aquatic environment and principally affects piscivorous species, including

humans. The primary pathway of exposure to environmental mercury is through fish

consumption.

The State of Minnesota samples fish from lakes in order to test for toxic substances. The

Minnesota Department of Health has developed criteria for setting “fish-consumption

advisories”. These advisories recommend limits on fish consumption depending on the

concentrations of mercury and PCBs which are found in the fish. The stringency of the

advisories vary by fish species, size class and by the sensitivity of the consuming population

(e.g., children under six and women of child-bearing age).1

In addition to possible human-health effects, the possible impact of mercury

accumulation on ecosystem integrity is of concern. Animals that rely upon fish for their diet may

be receiving mercury exposure sufficient to cause adverse health or behavioral effects. Birds

such as eagles and ospreys, and mammals such as river otters consume fish as a large proportion

of their diet.

In order to provide a factual basis for the estimation of the benefits of mercury reduction,

and ultimately for the development of sound emissions policy, a comprehensive study of mercury

sources, human-health effects and environmental effects was undertaken. This study, “Impacts

of Mercury Reduction in Minnesota”, was conducted by Douglas Rae, a consultant for Hagler

Bailly Services, Inc. of Boulder, Colorado. The following is a brief summary of some of the

findings.2

The study found that the human-health effects of exposure to environmental mercury are

possible developmental problems in fetuses and small children, and possible neurological

problems in adults. Exposure to levels of mercury that would demonstrably result in these

adverse effects would appear to be limited to populations that do not heed or are unaware of the

fish-consumption advisories. However, there is substantial uncertainty regarding the behavior of

such populations, and regarding the extent to which some peoples’ exposure to mercury is

increased by the presence of mercury-containing dental amalgams.

Evaluation of the state of science on other environmental impacts revealed several species

of piscivorous animals that may be receiving doses of mercury sufficient to cause

 1

 Although the fish-consumption advisories are based on both mercury and PCB content, the analysis

conducted for this study focused solely on the mercury component.

2

 For a complete discussion see Rae (1997)--the full study has been included as Appendix A to this report.
4

adverse effects. Four bird species (bald eagles, common loons, belted kingfishers and

ospreys) and two mammal species (river otters and mink) were identified. Disorders such as

reduced reproductive success and reduced predatory success have potential implications for

individual animal viability and for population stability.

The study also examined sources of mercury emissions and, using this information,

predicted the likely effect on Minnesota deposition of a range of control strategies. 

Approximately 70% of mercury emissions worldwide are anthropogenic, with the remainder

being natural background emissions. Of the mercury deposited in Minnesota, approximately

70% comes from all global anthropogenic sources. Of this 70%, it was estimated that 10%

comes from Minnesota sources, 25% comes from regional Midwest sources (including

Minnesota), and 42% comes from all U.S. sources (including the Midwest). The remaining 28%

of anthropogenic mercury comes from non-U.S. countries.3

In addition to consolidating and interpreting research results on the effects of mercury in

the environment, the Rae study estimated the impact in Minnesota of four different mercuryreduction scenarios. A reduction in anthropogenic mercury emissions was considered at each of

the following policy scopes: (1) a 50% reduction in Minnesota emissions, (2) a 50% reduction in

emissions from the upper-Midwest region, (3) a 50% reduction in U.S. emissions and (4) a 50%

reduction in global emissions. Given the contribution of each of these more-inclusive sources to

Minnesota deposition, these policy scenarios would reduce deposition in Minnesota by 5%,

12.5%, 21% and 35%.

This range of options was considered to be a useful starting point for policy analysis. 

Gaining an understanding of the value people attach to the environmental and human-health

effects projected for each scenario was regarded as important information in assisting the State of

Minnesota in developing sound mercury-emissions policy.

The economic-valuation study devoted most of its attention to a policy scenario deemed

to be of greatest interest to policy-makers. This case is the 50% upper-Midwest reduction

scenario, resulting in a 12.5% reduction in Minnesota deposition. (This will hereafter be referred

to as the 12% scenario, as the 12.5% was changed to 12% for clarity in the economic-valuation

survey.) The other policy options were evaluated for comparative purposes and to be able to test

the validity of the economic-valuation instrument.

The information presented in the economic-valuation survey provides a comprehensive

summary of the informational context in which mercury-emissions policy is being deliberated. 

The following is a verbatim excerpt from the mail-survey instrument for valuation of the 12%

deposition-reduction scenario:

 3

 See Rae (1997), Chapter 2.
5

THE EFFECTS OF MERCURY IN THE ENVIRONMENT

Almost all of the mercury deposited in our environment comes from the air.

 About 30% comes from natural sources.

 About 70% comes from air pollution.

Mercury pollution is regulated separately from the more common air pollutants like sulfur

dioxide and carbon monoxide, for which there are both state and federal regulations.

Effects on Humans

Fish as a source of mercury

A major way in which humans are exposed is through eating fish. Mercury builds up in the

tissues of fish, especially freshwater fish.

Limits on fish consumption help protect human health

Some fish contain enough mercury that the Minnesota Department of Health issues advisories

recommending limits on the amount of fish eaten from some lakes and rivers. It is safe to

consume fish from these lakes and rivers in quantities below the recommended limits. It may not

be safe to consume fish in quantities above these advisories.

Most advisories apply to walleyes, northerns, trout, bass and other predator fish

The advisories apply primarily to predator fish (such as walleye, northern pike, lake trout, and

bass) which build up mercury by eating smaller fish. There are relatively few advisories on pan

fish (such as crappies, bluegills, and sunfish).

The advisories may cause some anglers to change or restrict their fishing

Fish advisories may cause some anglers to avoid fishing on lakes where they would otherwise

fish or to switch to species of fish that they find less desirable. Advisories are more strict for

young children and women of child bearing age

 Because young children and fetuses are the most vulnerable to health damage from mercury,

these advisories are more strict for children under six and women of child bearing age.

 Some health experts are concerned that children may be delayed in walking and talking or
6

suffer reductions in learning abilities similar to those caused by exposure to low levels of lead.

Some Minnesotans may be experiencing health effects, but these possible effects have not yet

been documented

 At present, it is difficult for medical studies to determine whether or not any Minnesotans are

experiencing health effects from exposure to mercury.

 While there are no documented cases of adverse health effects, up to five percent of

Minnesotans (primarily anglers and their families) are eating enough mercury-tainted fish that it

is possible that some undocumented health effects could be occurring. These people are being

exposed to mercury above the level which medical scientists consider safe, but below the level

where medical symptoms are easily observed and quantified.

 Exposure to much higher levels of mercury found in other parts of the world show that

mercury can cause kidney problems, nervousness, insomnia, tremors, blurred vision, slurred

speech, and fatigue.

Effects on Wildlife that Eat Fish

Some birds and mammals that eat fish are at risk

The primary risk to wildlife is to some birds that eat fish, including eagles, osprey, loons, and

kingfishers. Mammals that eat fish, such as otters and mink, seem to face less risk than these

birds.

Possible effects to animals include reproductive, muscle, and nerve damage

 The possible effects on birds and mammals that eat fish are to the muscles and nervous system,

as well as possible decreases in their ability to bear and raise offspring.

 State, federal and university scientists have concluded that some fish-eating birds may die due

to muscle and nerve damage caused by mercury. This damage may reduce their ability to catch

food or avoid predators.

Local populations of some birds may be at risk

 Individual birds and local populations of these birds may be at risk on some lakes when fish

contain mercury above the level which scientists consider safe, but below the level where

wildlife damages are easily observed and quantified.
7

 While studies have shown that eagle populations are increasing due to decreases in chemicals

such as DDT, little research has been done on whether mercury pollution may be affecting local

populations of eagles or other species.

Plants, plant-eating animals, and the fish themselves are NOT at risk

Plants and plant-eating animals are not damaged by mercury at the levels found in the Minnesota

environment. While mercury builds up in fish, and may damage the health of animals that eat

fish, the amount of mercury found in Minnesota lakes and rivers probably doesn't damage the

health of the fish themselves.

INFORMATION ABOUT THE PROPOSED LAW

Minnesota and other Upper Midwest states would limit emissions

The State of Minnesota is considering a regional mercury reduction program, which would limit

future mercury emissions to half (50%) of the level of recent years, which is about 10,000 pounds

per year in Minnesota. Other states in the region (the Upper Midwest) would join in placing this

cap on mercury emissions.

Sources of Mercury Air Pollution

The three main sources of mercury emissions that would be reduced by the program are:

 coal-burning electric power plants

 incineration of garbage that contains mercury

 some manufacturing processes

In considering this program, it is important to keep in mind the following facts:
8

12% reduction in mercury deposition (full effect after 20 years)

 Of the mercury that is deposited in the Minnesota environment, about 25% comes from

pollution emitted in Minnesota and the other Upper Midwest states. (The rest comes from other

states, other countries, or natural sources.)

 The 50% reduction in emissions would thus result in about a 12% reduction in the amount of

mercury deposited in Minnesota and these other states. The reduction in emissions would cause

mercury deposition to begin to decline almost immediately, but the full 12% reduction in the

mercury content in fish would take about 20 years to occur.

Reduction of most restrictive advisories for about 10% of fishable lakes

 Minnesota has nearly 6,000 lakes that are fishable. Based on the lakes that have been tested,

about 70% have advisories that women of child-bearing age and children under six eat no more

than one meal per month over the course of a year, or eat no fish at all.

 Due to the proposed mercury reduction, these most restrictive advisories would decrease from

roughly 70% of the lakes down to about 60%. The mercury content in some rivers would also be

reduced, but nearly all the reduction in advisories would be for lakes.

The number of lakes with fish which pose risks to wildlife would decrease

The percentage of lakes which pose risks to wildlife would change as follows:

Percentage of Lakes Where Species May be at Risk

Species Now Under Program

Kingfishers 50% 35%

Ospreys 35% 20%

Loons 6% 4%

Eagles 6% 4%

Otters 2% 0%

Mink 2% 2%
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Section III.

Emissions Reduction and Economic Benefits

Economic Goods Defined

The usefulness of economic analysis in the evaluation of policy options derives from the

fact that policy changes produce costs and benefits. While the economic costs of more-stringent

emissions policies are understood by most people at a general level (e.g., costs of production may

rise, resulting in price increases), the economic benefits are often less apparent. This is due, in

part, to the fact that improvements in the quantity or quality of environmental goods and services

are typically not the kinds of economic goods for which people “vote with their dollars” in the

marketplace. Nonetheless, such improvements in environmental services are economic goods in

a very real sense.

An economic good is something that produces improvement in human well-being. (In

economic-theoretic terms, this means that there will be positive demand at a zero price.) 

Economic goods provide value irrespective of whether the good is traded in a market. Therefore,

policy changes which result in improved or additional environmental services (e.g., greater

opportunities for fish consumption, reduced risk to wildlife) can be viewed as “producing”

economic goods, as long as some people receive value from such goods.

Categories of Economic Value

Economic goods reveal their value in two principal ways: through “use value” and

through “passive-use value”. Use value is said to be obtained when someone gets satisfaction

from some form of direct interaction with the resource. For example, people may engage in

activities such as fishing or wildlife watching in Minnesota's aquatic environment. 

Improvements in the quantity or quality of the resources that enable these activities will thus

result in an increased quantity of goods that people value.

Value can also accrue to those who do not use the resource in a conventional sense. 

Some people may derive increased satisfaction (well-being) simply from knowing that measures

are being taken to ensure ecosystem health, even if they do not pursue activities (such as fishing)

as a resource user. These people derive economic value in a passive manner. A type of passiveuse value that has received substantial attention in the literature is that of existence value.4

 There

are several possible motives underlying existence value. These may include altruism, the desire

to leave a bequest to future generations, or perhaps the capacity of people to derive satisfaction

directly from the knowledge that ecosystems are being protected. Existence value has been

identified in a variety of contexts, including for natural resources, places of historic significance,

and great works of art.

 4

 This concept was first articulated by Krutilla (1967). See Mitchell and Carson (1989) for an overview.
10

Market vs. Non-market Provision of Goods

At this point a central question about policy-making arises. If environmental

improvements are economic goods, does their provision need to be assisted by a public-policy

process rather than being left up to market forces? If the answer to this question is “yes”, then

development of sound policies would require information on the magnitude of value people

attach to the additional production of environmental goods and services. If the answer is “no’,

then perhaps the marketplace would do an adequate job of providing the proper level of

environmental services. As is discussed below, the economic characteristics of many

environmental goods and services lead to the answer of “yes”.

Some goods, typically known as “private” goods, have a characteristic referred to as rival

consumption. Such goods tend to be compatible with provision by the private marketplace. The

value of a unit of such a good is realized only by the person consuming it. For example,

consumption of a slice of pizza by one person precludes the consumption of that slice by anyone

else. In the case of a private good, such as a slice of pizza, it makes economic sense to produce it

if there is a person who places sufficient value on it to pay for the cost of production. Since each

unit of a private good produces value only to the person consuming it, the value of the good is

the value attached to it by that one consumer. In addition, the prices that people pay in the

marketplace reveal information about the strength of economic value they attach to such goods.

Other goods have a characteristic known as non-rival consumption--these goods are

collectively consumed, and are conventionally known as "public" goods. One person’s accrual of

benefits from lower mercury content in fish, for example, does not "use up" or preclude anyone

else from receiving benefits from the same environmental improvement. While there is some

rivalry in the actual harvesting of fish, much of the economic benefit of a cleaner aquatic

environment collectively benefits all users. In the case of passive-use value, consumption is nonrival in its purest form. 

The public-goods character of many environmental resources results in distorted

incentives in private markets, typically causing their underprovision. The absence of private

markets for such goods means that people do not have the opportunity to "vote with their

dollars". This implies that public intervention may be necessary to ensure provision of adequate

levels of these goods. In addition, the lack of markets results in an absence of the price

information which reveals economic value. An additional implication is that the value of each

unit of the public good is the sum of values placed on it by each potential consumer. This is

because the non-rivalry of the consumption allows each unit of the good to be enjoyed by all

consumers.
11

Section IV.

Methods for Inferring Economic Value

Methods for estimating the willingness to pay (WTP) for environmental improvements

fall into two classes: revealed-preference techniques and stated-preference techniques. Revealedpreference approaches involve examining peoples’ behavior, and using this information to draw

conclusions about WTP. Stated-preference approaches involve the use of surveys to elicit

information which can be used to estimate WTP.

Referring to revealed-preference methods, Kopp, Krupnick and Toman claim, “The most

developed probably are the hedonic-labor-market approach, the property-value approach, and the

travel-cost approach to valuing recreation” (1997, p. 16). The hedonic-labor-market method is

used for valuation studies on human health. It employs information on wage structures to see

what “payments” (in the form of lower wages) workers are willing to make to have reduced jobrelated health risk. The property-value approach evaluates the contribution environmental

quality makes to property values in the private-housing market. The travel-cost method uses

information on the cost of travel to a recreation site as a proxy for the price people are willing to

pay to use the site. This can reveal information on the strength of demand for the use-value of

recreation services provided by increases in environmental goods. These are partial-valuation

techniques in that they measure only some of the components of value that would accrue from

improvements in environmental quality. In particular, they cannot measure some components of

passive-use value, as such value is not associated with market behavior.

The principal stated-preference technique for environmental-policy analysis is the

contingent valuation method (CVM). CVM employs a survey method which characterizes the

object of choice (e.g., the bundle of effects associated with a policy change). It is for the object

of choice that CVM is designed to produce a monetized value. The object of choice must be

framed within a credible choice context, and with clear financial consequences attached to the

choice. A survey format in common use is to place the object of choice in a referendum-voting

context. The respondent is asked whether they would vote yes or no on the policy, where

adoption of the policy will have specific financial consequences to the respondent. These

mechanisms must be credible (higher taxes, higher product prices, etc. as appropriate) in order

for the stated choices to be meaningful. Under circumstances where the object is properly

framed and the credibility conditions are satisfied, the stated choices provided by respondents

provide the basis for estimating WTP for the effects produced by the prospective policy change.
12

Section V.

An Overview of the Contingent-Valuation Method

The contingent-valuation method (CVM) is widely applied to the problem of estimating

the economic value of goods and services which are not traded in markets and for which no

economic behavior is observable. These non-market characteristics are present when the "good"

in question is in the form of an environmental amenity. As a result, contingent valuation is

receiving increasing use for estimating the economic value of environmental goods. These

applications include the estimation of economic damages from oil spills, the value associated

with ecosystem preservation, and the benefits of reduced pollution. 

The contingent valuation method utilizes survey methodology to reveal the monetary

values respondents place on goods. The CV researcher must provide respondents with a realistic

portrayal of the policy change, and describe the cost burden to their household. The cost burden

is defined both in terms of its magnitude and the vehicle through which these costs will be paid

(e.g., higher prices for products, higher taxes, etc.). A valuation question then typically follows,

in which respondents reveal either directly or indirectly their willingness-to-pay (WTP) for the

stated good. For example, a dichotomous-choice (or referendum) valuation question allows the

respondents to reveal how they would vote in a referendum on the policy, given the policy's cost

to their household. From such responses, a household-average WTP can be estimated. 

Alternatively, the valuation question can have an open-ended or payment-card format. (See

Mitchell and Carson, 1989, for an extensive discussion of these approaches.)

The credibility accorded to the results of contingent-valuation studies is evidenced, in

part, by the increasing support for its use as a method for estimating the economic benefits

associated with policy proposals. For example, it is included in the federal government's

prescribed procedures for analysis (Water Resources Council, 1979, 1989 and Department of the

Interior, 1986.) In addition, results from contingent-valuation studies were granted the status of

rebuttable presumption in environmental-damage litigation cases by a U.S. Circuit Court of

Appeals (State of Ohio vs. the United States Department of Interior, 880 F.2d 432, D.C. Circuit,

1989). These policy developments provide for the use CVM as an estimation technique to

establish compensable environmental damages under the Comprehensive Environmental

Response, Compensation, and Liability Act of 1980 (CERCLA). The same now holds true for

the Oil Pollution Act of 1990. Along with this increasing use has come increasing scrutiny.

In recent years economists, psychologists and survey researchers have vigorously debated

the validity of using the contingent valuation method to estimate the economic value of goods

which are not traded in markets. An evaluation of CVM was conducted by a high-profile panel

appointed by the National Oceanic and Atmospheric Administration (NOAA). This panel

assessed the usefulness of the method and recommended research protocols to improve the tool's

performance. The conclusions reached by the panel were used by NOAA in its rulemaking under

the Oil Pollution Act of 1990. The panel consisted of five distinguished researchers, and was cochaired by two Nobel laureates in Economics, Kenneth Arrow and Robert Solow. One of its

members describes the task given to the panel as addressing the following question: "Is the
13

contingent valuation method capable of providing estimates of lost nonuse or existence values

that are reliable enough to be used in natural resource damage assessments?" (Portney, 1994, p.

8). 

 Summaries of many of the issues can be found in surveys of the literature produced by

Cummings, Brookshire, and Schulze (1986) and by Mitchell and Carson (1989). Carson, et al.

(1994) have assembled a bibliography on CVM which contains 1,672 references. The studies

referenced include applications of CVM as well as diagnostic research designed to assess its

validity and reliability. 

Much of the research on CVM has focused on the extent to which it is subject to random

error (imprecision) or systematic error (biased results). The most serious concerns have related

to the possibility of bias (systematic over- or underestimation). The categories of bias, and how

surveys are designed to mitigate bias, are fully discussed below in Section VI.

Among the most interesting methodological studies are those designed to compare CV

results to the values generated in simulated markets in which actual (as opposed to hypothetical)

monetary transactions are made. Some of the most revealing work in this area is that by Bishop

and Heberlein on the exchange of hunting permits (Bishop and Heberlein, 1979, 1990 and

Bishop, et al., 1983). Contingent values on willingness to pay were statistically quite close to

those revealed in actual cash transactions. Contingent values generated from a sealed-bid auction

were 33% higher than cash-transactions values. When the CV questions were in the

dichotomous choice format (in which the respondent must agree or refuse to pay a specified price

for the good), the CV results for willingness to pay exceeded the values from the simulated

market by 13%. In neither case were the differences statistically significant.

Concern about how a good's characteristics affect the reliability of CV estimates is

addressed in research by Kealy, Montgomery, and Dovidio (1990). Their research examined

contingent values of two goods "...at polar extremes of the private/public good continuum: a

brand-name candy bar and a contribution to a program to alleviate acid rain damage in a major

recreational area (Kealy, et al., 1990, p. 259)." They hypothesized "...that contingent values for

our public good would be less reliable and less accurate predictors of actual willingness to pay

than those for our private good because the private good was more well defined and concrete,

and because of respondents' greater familiarity with the private good (p. 259)." Their results,

however, contradict this hypothesis. They found comparable reliability and predictive validity

for both types of goods.

Much concern has been expressed regarding "embedding" bias in CVM results, a

phenomenon which results in respondents exhibiting "insensitivity to scope". Insensitivity to

scope would have been exhibited if, for example, respondent revealed the same willingness to

pay for a policy which would reduce emissions of a pollutant by 10% as for a policy which would

reduce emissions by 90%. The NOAA panel recommended that CV studies should be conducted

in a manner in which respondents sensitivity (or insensitivity) to scope could be tested. This

would be used as one criterion by which the validity of the CV results could be judged. 

Additional evidence regarding sensitivity to scope is discussed in Hanemann (1994).

Some of the evidence reviewed by Hanemann is evidence contained in the meta-analysis by

Walsh, Johnson and McKean (1992) on over 100 CVM recreation studies and in a study by
14

Smith and Osborne (1994) on 10 applications of CVM to air quality. Hanemann discusses at

some length the evidence provided in a review by Carson (1994) of 27 papers testing for

sensitivity to scope, and notes that only two failed to generate statistical evidence of sensitivity to

scope, the one by Kahneman and Knetsch (1992) and the other by Boyle, et al. (1994). That is,

only 2 of 27 papers found evidence of this type of embedding behavior. Hanemann notes that

critiques of these two studies have pointed to methodological shortcomings which could explain

their findings. In summarizing the evidence Hanemann claims, "At any rate, even if one regards

these two studies as highly credible evidence that respondents were insensitive to scope, they

certainly do not represent the majority finding in the contingent valuation literature regarding the

variation of willingness-to-pay with scope" (Hanemann, 1994, p. 35).

Regarding estimation of passive-use values per se, the NOAA Panel's conclusions are the

most comprehensive and authoritative statement to date. Given that the NOAA panel was

considering the use of CVM for environmental damage litigation (in which a single party could

be held liable for environmental damages) they were compelled to adopt very strict standards by

which to judge the method. After obtaining input critical of CVM, the panel noted, ".... some

antagonists of the CV approach go so far as to suggest that there can be no useful information

content to CV results. The Panel is unpersuaded by these extreme arguments" (Arrow, et al.,

1993, 4610). After thorough review of the validity CVM for measuring passive-use values, the

preponderance of evidence supports the usefulness of results from carefully performed CV

studies. The NOAA panel concludes, ".... the Panel concludes that CV studies can produce

estimates reliable enough to be the starting point of a judicial process of damage assessment,

including lost passive-use values" (Arrow, et al., 1993, 4610).
15

Section VI.

Survey Design

The Role of Focus Groups and Pretesting

Assessing General Context Through Focus Groups

A major purpose of focus groups in CV research is in survey design. Focus groups not

only provide evidence of how the survey population views the policy trade-off to be studied, but

also provides an intensive setting in which to understand how people will process the

information and structure of the survey instrument. The two focus groups conducted for this

study began by assessing group participants background knowledge of air pollution and

environmental policy in general, and mercury pollution in particular. Participants' discussion of

their familiarity with mercury pollution revealed some level of knowledge about the problem, as

well as some confusion with other pollution problems such as acid rain, lead and PCBs. After

the initial discussion, participants were read drafts of the information on mercury pollution in

Minnesota.

How Information is Understood and Interpreted

Further discussion was stimulated by asking participants to rate the importance of the

various effects of mercury that had been described. This approach afforded the opportunity to

observe how the participants’ interpretations of the information affected their desire to see a

reduction in effect of environmental mercury. The importance attached to the effects was

influenced by the credibility people attached to the described environmental effects.

Participants were prone to touch on the economic consequences of the pollution or its

control in explaining their importance ratings even prior to the portion of the focus group

designed specifically to provoke discussion on the economic effects. In general, the discussion

indicated a strong tendency of people to see the economic dimensions of the problem and its

connection to their household budgets. Participants engaged in thoughtful discussion of the

baseline case (the 12% reduction in deposition in Minnesota resulting from a 50% reduction in

emissions in the upper-Midwest). People typically saw statewide control as most politically

achievable but small in effect, but accepted as credible the notion of a regional, multi-state

control plan in the area, on which the 12% scenario is based. Describing effects of nationwide or

global reductions policies met with less acceptance due to doubts about gaining cooperation from

other countries. Respondents identified the ways which conveyed the information most clearly

and explained how it influenced their thinking.

Assessing Effectiveness of CV Questions

The focus group setting is extremely useful for understanding how respondents regard the

CV questions in the specific policy context. Discussions tend to be very informative about the

payment vehicle, in this case higher prices for goods and services affected by mercury-emissions

limits. It is possible to anticipate payment vehicles which will elicit emotional reactions which

confound the assessment of willingness to pay. Both focus groups indicated the need to

emphasize the program would not be financed through higher taxes, but rather that emitters
16

would incur control costs and pass the burden (or at least part of it) on to consumers in the form

of higher prices for energy and other products, as well as through higher fees for garbage

disposal. Attention was also devoted to assessing the most effective ways to communicate that

the household costs would occur each year for the foreseeable future.

Simulating CV Responses

Having focus-group participants engage in the referendum-style CV process and discuss

their reaction to it is not only useful in generating preliminary indications of values attached to

the policy, but also in "getting into people's heads" on how the CV mechanism is understood. It

also affords the opportunity to debrief respondents on the motives which underlie their values

and their reasons for favoring or opposing the proposed policy.

Implementation of Pretesting

As noted above, two focus groups were conducted as part of the survey design. They

were held in July 1997: one in Minneapolis for Twin-Cities metro-area participants, and the other

in Brainerd with people from the Crow Wing and Morrison County areas.

In addition to the focus groups, the three types of pretests recommended by Dillman were

also performed.5

 Recommended pretests involve the following three groups: (1) professionals

experienced in survey design, (2) users of the information, and (3) members of the survey

population. The professionals who critiqued the numerous versions of the survey instruments

included economists familiar with mercury policy, practitioners of CV and survey research,

academics in related fields, and a reading specialist who evaluated the instrument for level of

difficulty in vocabulary and reading.

The second pretest group provided substantial feedback on numerous versions of the

instruments. Many improvements were suggested by the staff of the Minnesota Pollution

Control Agency and the Minnesota Department of Health. Improvements were made in the

technical accuracy of the descriptions and in the clarity of information delivery.

Pretests were also conducted with members of the survey population. Early drafts of the

instruments were assessed using interviews with people intercepted at public places such as malls

or coffee shops. As drafts became better-developed, people were recruited to self-administer the

survey, followed by a debriefing session assessing the clarity of the instrument and the credibility

of the described effects and payment mechanism.

The final pretest with the survey population was through a pilot mailing to 250 randomly

selected Minnesota adults. This pilot allowed monitoring of the effectiveness of all elements of

mail-survey administration, including postal processing, etc. No follow-ups were sent to the

pilot sample. Responses to the pilot also produced information upon which the distribution of

household costs for the full survey would be based.

 5

 See Dillman (1979) for an authoritative guide to survey design and administration.
17

Defining the Good to be Valued

The Contingent Valuation Method is termed as such because values are elicited based on

described policy changes which would produce public goods. Benefits would accrue if the

effects of the policy are regarded as economic goods. The survey design process becomes all the

more crucial because it defines the elements of the policy on which the benefits estimates

depend.

The policy consequences which people may value in this case are reductions in mercury

emissions, the consequent reductions in deposition levels in Minnesota, and ultimately the

reductions in risks to human health and wildlife from exposure to mercury. All of these elements

are described in the description of the policy, but the goods being produced are the reductions in

risks to humans and wildlife. These were identified in the focus group discussions and pretesting

as the primary sources of benefits.

This section will highlight key phrases employed in defining the good.6

 Identical

information is provided in the mail survey and personal interview survey instruments, although

wording and visual material were altered slightly to fit the delivery mechanism. In addition to

placing the policy in the context of other public programs with questions Q-5 through Q-12 in the

mail survey, a clear distinction is made between this mercury-reduction proposal and existing

state and federal policies on other air pollutants, such as sulfur dioxide and carbon monoxide.

The Effects of Mercury in the Environment

Following are key phrases describing the effects of mercury. Focus group discussions

addressed the most effective ways to convey these messages. Under EFFECTS ON HUMANS

the phrases in boldfaced type in the mail survey are as follows: Fish as a source of mercury;

Limits on fish consumption help protect human health; Most advisories apply to walleyes,

northerns, trout, bass and other predator fish; The advisories may cause some anglers to change

or restrict their fishing; Advisories are more strict for young children and women of child bearing

age; Some Minnesotans may be experiencing health effects, but these possible effects have not

been documented.

Under EFFECTS ON WILDLIFE THAT EAT FISH the phrases in boldfaced type in the

mail survey are as follows: Some birds and mammals that eat fish are at risk; Possible effects to

animals include reproductive, muscle, and nerve damage; Local populations of some birds may

be at risk; Plants, plant-eating animals, and the fish themselves are NOT at risk.

Information About the Proposed Law

Following are key phrases providing additional information about the proposed law. 

Phrases stated in boldfaced type in the 12% reduction scenario in the mail survey are as follows:

Minnesota and other Upper Midwest states would limit emissions, Sources of Mercury Air

Pollution; 12% (or 5, 21, or 35%) reduction in mercury deposition (full effect after 20 years);

Reduction of most restrictive advisories for about 10% of fishable lakes; The number of lakes

with fish which pose risks to wildlife would decrease. Visual aids were provided in the personal

 6

 For further reference see Section II of this report and the survey instruments. The complete survey

instruments are contained in Appendix B.
18

interviews to highlight this section and to provide visual stimuli. The table on changes in

percentages of lakes where species may be at risk was included in the mail survey under the four

scenarios. Actual percentages for the four scenarios are provided with the complete instruments

in Appendix B.

Potential Biases and Survey-Design Features to Mitigate Bias

As noted above in the section on CVM, much concern has been expressed in the literature

about potential biases in benefits estimates based on CV responses. Recently the major concern

has been with embedding bias, which would be seen empirically as insensitivity to scope. The

benefits estimate might not vary with the scope of the good being provided if (1) people are

predominantly supporting the policy to enjoy a "warm glow" or (2) if respondents misappropriate

larger benefits from more comprehensive policies than the one being evaluated. That is, benefits

which are overestimated due to part-whole bias will be insensitive to changes in scope, as long as

those changes in scope are still within the improperly large scope within which respondents are

embedding the actual policy.

Other biases of major concern in the literature are: (a) strategic bias, systematic error due

to incentives to strategically understate or overstate value; (b) hypothetical bias resulting from the

hypothetical nature of the market; error resulting from conveying incorrect information or

information bias; (d) yea-saying bias, due to social pressure to support these kinds of policy

proposals; and (e) starting point bias, which results from the household's value being influenced

by the initial cost stated in the survey. The latter is primarily a concern in the open-ended CV

format, so is not an issue in the referendum format utilized here. While the studies which

investigate these potential biases are too numerous to review here, Mitchell and Carson (1989),

Cummings, et al., (1986) and the NOAA Panel (1993) survey this literature.

This literature contains guidelines for designing CV instruments to mitigate these

potential biases. The NOAA Panel protocol is among the more comprehensive and highly

regarded within the field, though it has not garnered consensus in all of its recommendations. A

common thread in the discussion of design features to mitigate biases is to achieve incentive

compatibility, so that respondents are motivated and enabled to provide unbiased responses. The

referendum format on willingness to pay is fundamental to an incentive compatible study design.

Another cornerstone of incentive compatibility is consequence realism, so that

respondents believe the study results with actually affect policy as stated, as well as their

household budget. The former is often referred to as policy consequence realism. The cover

letter and booklet cover play on a strength of this study in that it truly is a part of a policy design

process. The questions pertaining to geographical location and eligibility to vote are potentially

useful covariates for statistical analysis. They also help serve the purpose of fortifying the image

of the official nature of the study so that respondents take their task seriously..

The other element of incentive compatibility pertains to the household's consequences if

this policy is actually enacted. Incentive compatibility also depends on respondents accepting

that a burden will come from their household budget. The literature promotes a context which

emphasizes the household's income constraint and the cost of the policy. Here again this study

addressed these elements through the preliminary questions on commitment of money to various

programs. These questions remind respondents of the public budget constraints and the
19

availability of substitute programs, in case respondents would not be mindful of these realities. 

They are also reminded to respond based on their current level of household income. 

Focus group discussions indicated that people sensed a high degree of realism in both

policy consequences and household budget consequences. Section IX, "Empirical Results"

provides further evidence generated from follow-up (debriefing) questions regarding the

credibility of the payment mechanism and the magnitude of the payment.

Cost of This Program to Households Like Yours

In accordance with the NOAA protocol and the recommendations of Mitchell and Carson,

the study established a payment vehicle which is neutral and realistic. The costs to households

were explained carefully according to suggestions offered in focus groups and pretesting. 

Following are key phrases in the section on THE COSTS OF THIS PROGRAM TO

HOUSEHOLDS LIKE YOURS. Phrases stated in boldfaced type in this section of the mail

survey are as follows: Prices of goods and services would rise due to higher production costs;

Administrative costs will also cause price increases; No change in taxes; No single Minnesota

company would suffer a large percentage increase in costs; Some households will adjust their

purchases; While your household may not be typical, please vote based on the stated cost; The

cost stated below is a fixed annual payment.

Other Aspects of Survey Design

Other aspects of the survey design were included not only to convey the proper valuation

context, but also to mitigate potential bias. Questions were designed according to the NOAA

recommendations on assessing respondent's acceptance of the information. Follow-up questions

pertain to the respondents' views on the seriousness of the effects, the effectiveness of programs

in general and this policy in particular, and acceptance that their household would have to pay

higher prices. Households were also asked about their difficulty in paying the costs of the policy.

 The final questions establish a profile of recreational activities and demographics.

The Use of Two Different Survey-Delivery Mechanisms

This study is strengthened by the utilization of two methods for delivering the CV survey:

personal interview and mail questionnaires. The NOAA Panel favors the interview delivery

mechanism based on the recommendations of a majority of practitioners, though some continue

to conduct mail surveys. This determination of the NOAA Panel was based more on the advice

of experts than on hard empirical evidence on the relative advantages of any survey delivery

mechanism.

Interviews allow researchers to monitor the attentiveness of respondents and to interact

with them, especially in answering questions if the information is unclear. But interviews are

much more expensive so the costs can be prohibitive for obtaining a sufficiently large sample. 

The presence of an interviewer may also encourage yea-saying bias to a greater degree than

anonymous mail responses where material can be read and reflected upon at the respondent's own

pace, much as in preparing to vote in a referendum.

Based on the research team's prior experience with mail surveys and the need for
20

adequate sample size, mail surveys were also utilized to corroborate the personal interview

results and to investigate sensitivity to scope in a more cost-effective manner. The dual

implementation methods allowed investigation of the methodological issue of whether interviews

are necessary to generate useful results, or whether mail responses corroborate interview results

so are preferable due to low expense, or whether mail is preferable as generating more

conservative estimates by avoiding yea-saying bias.

The Purpose of Using Four Different Scopes of the Mail-Survey Instrument

The conceptual rationale for including at least two levels of the policy, or two levels of

the good, is that demand estimation is founded on identifying at least two points on the demand

curve for the good. In this study, four different levels of the policy were tested over four

different sub-samples within the survey population. This type of split sample is referred to as

intersample variation in the scope of the policy.

This leads to the methodological rationale for including four levels of the policy. It

allows for a more thorough test for sensitivity to scope than found in most studies. But perhaps

the most important reason for the four mercury reduction scenarios is the most basic, that this

reflects the reality of the policy situation. The geographical scale of any reductions in mercury

emissions which may eventually occur (only statewide, regional, national, or global) will greatly

influence the magnitude of reductions in deposition levels and effects in Minnesota.

NOAA Guidelines and Summary of Design Features

The NOAA Panel recommended a protocol for CV design by providing survey guidelines

in the following categories: “General Guidelines”, “Guidelines for Value Elicitation Surveys”,

and “Goals for Value Elicitation Surveys. Specific NOAA recommendations are itemized below

in parentheses with brief reference to design features in this study. This study was conducted to

generate evidence to inform mercury policy not as a court proceeding for damage assessment. 

The NOAA Panel notes that whether a particular study incorporates certain features can be

exactly determined (e.g. The valuation question has a referendum format) other features are a

matter of degree. The panel states “A CV survey does not have to meet each of these guidelines

fully in order to qualify as a source of reliable information to a damage assessment process.” 

(NOAA . p. 4608)
21

General Guidelines

* (Sample Type and Size): Probability sampling was utilized as recommended.

* (Minimize Nonresponses): No exact response rate is established as being satisfied to

guarantee reliable results. The mail and interview response rates are lower than anticipated but

within the ranges found in the literature for other studies.

* (Personal Interview): Personal interviews were conducted and were augmented by a larger

sample of mail surveys to enable comparative analysis.

* (Pretesting for Interviewer Effects): This study explores the possible “social desirability” bias

effects of interviewers compared to the privacy of actual referenda. Comparative analysis with

confidential and anonymous mail responses goes beyond the type of assessment which the panel

deemed necessary.

* (Reporting): Information on sample size, questionnaire wording, cover letters, etc. is

provided in this report. Carson et al. (1992) is cited as an example of good practice and the

availability of this prototype informed this study to a large degree not only on reporting practices

but on all aspects of study design.

* (Careful Pretesting of a CV Questionnaire): The careful, thorough pretesting performed in

this study is described above in this section, including practice interviews, self-administered

questionnaires, pretesting through intercepts at public places, focus groups and a pilot study.

Guidelines for Value Elicitation Surveys

* (Conservative Design): Where judgments were required, alternatives were chosen to

understate the benefits of mercury reductions. The description of effects and the policy were

designed to error on the side of caution.

* (Elicitation Format): The willingness-to-pay format was employed.

* (Referendum Format): The CV question was posed as a referendum.

* (Accurate Description of the Program of Policy): The study and policy description were

carefully integrated with the MPCA Report (Rae, 1997).

* (Pretesting of Photographs): Visual aids were included in pretesting.

* (Reminder of Undamaged Substitute Commodities): Percentages of lakes affected and those

not affected was made explicit.

* (Adequate Time Lapse from the Accident and Temporal Averaging): These features are more

applicable to oil spills and damage assessment.

* (“No-answer” Option): A “not sure” option was provided.

* (Yes/no Follow-ups): These were provided.

* (Cross-tabulations): Results section reports extensive multivariate analysis.

* (Checks on Understanding and Acceptance): This was carefully pretested and assessed as
22

part of survey process, including interviewer debriefing similar to Carson et al. (1992).

Goals for Value Elicitation Surveys

In the NOAA Report, the panel states “The following items are not adequately addressed by even

the best CV surveys.” (p. 4609) The panel raises issues for further improvement of the CV

method. This study incorporates improvements since the NOAA Report was released.

* (Alternative Expenditure Possibilities): Other expenditures for private and public goods are

mentioned and the trade-offs for the household’s budget are addressed specifically.

* (Deflection of Transaction Value): The realism of the policy consequences in this study and

the referendum format are regarded as reducing the “warm glow” effect.

* (Steady State or Interim Losses and Present Value Calculations of Interim Losses): These

features are also more applicable to damage assessment but are addressed in this study with the

description of a time stream of effects and the establishment of an annual payment “for the

foreseeable future.”

* (Advance Approval): While this was not a part of a judicial damage assessment the survey

was pretested with anticipated users of the results.

* (Burden of Proof and Reliable Reference Surveys): Results from elaborate pretesting are

reported above in this section. While reliable reference surveys do not exist for this particular

environmental impact, the design features (as noted above) are patterned closely after previous

studies cited as good practice.
23

Section VII.

Survey Execution: Mail

Sample Selection and Source

The sample selection procedure employed here was also attentive to the NOAA

guidelines in that probability sampling was performed on the population which matches the

market of the policy. The random samples for the mail survey and the interviews were drawn by

the Minnesota Department of Public Safety. Selecting from the list of Minnesota driver licenses

and state identification cards yields the best available list of Minnesota adults (it was restricted to

those 18 or over). This list also provides names in the official form which is the full name used

for state identification purposes, as opposed to the initials for first and middle names found on

many marketing research lists.

The Minnesota Department of Public Safety provided 2,500 randomly selected names and

addresses. This number provided a large potential sample in anticipation of response which will

support multivariate statistical analyses across different groups of respondents. Those results are

reported in Section IX.

Mailing Technique: The Use of Multiple Follow-Ups and Their Timing

Five contacts were made with potential mail respondents, where possible: four mailings

and a brief telephone contact. The first, third, and fourth mailings included a survey booklet,

while the second mailing was just a reminder letter. The four mailings were sent on October 22,

November 4, and November 13, 1997 and January 13, 1998. For those non-respondents where

telephone numbers could be secured, up to five attempts were made at a phone contact during

March to determine if the mailings had been received and to encourage response. Appendix C

contains the cover letters from the mailings and the telephone script.
24

Section VIII.

Survey Execution: Personal Interview

Sample Selection and Source

As with the mail survey, sample selection was attentive to the NOAA guidelines. 

Probability sampling was performed from a spatially limited, but geographically

representative, sample of the Minnesota population. The state was divided into three regions for

the purpose of defining geographical representativeness. Sampling from these three regions

avoided the expensive and logistically difficult procedure of sampling households from the state

as a whole, where households could be selected which are great distances from any other given

the sparse populations of many rural Minnesota counties. The most populous region, the sevencounty Twin-Cities metro area of Anoka, Carver, Dakota, Hennepin, Ramsey, Scott, and

Washington Counties was sampled randomly. The northern and southern regions of the state

were sampled by selecting representative counties from which to draw the sample. The northern

counties chosen were Saint Louis, Beltrami, and Clearwater. The southern counties chosen were

Olmstead, Dodge, and Steele.

Again the list of driver licenses and state identification cards from the Minnesota

Department of Public Safety was used to randomly draw names and addresses for interviews. As

is often the case with spatial sampling procedures, the sampling unit was defined as a dwelling

unit. Rather than taking a census of all structures in which people dwell in these counties, the

addresses drawn from the Minnesota list defined the dwelling units from which the interview

sample would be composed. While the person drawn from the list may have moved, maybe even

out of state, the dwelling unit was still occupied in almost all cases.

Interviewer Training

All interviewers were trained carefully for delivering the instrument for this study. While

some interviews were completed by professional interviewers, the special requirements and

content for this project still required extensive interviewer training sessions. For those

interviewers without experience, more elaborate training sessions were conducted on the

conceptual background and guidelines of effective interviewing. Numerous practice interviews

were conducted with project staff as part of the training, as well as supervised and unsupervised

pilot interviews with members of the study population. 

Advance Letters and Interviewer Contact Procedure

As is typically the case, potential interview participants were sent advance letters

describing the study (in the most general of terms) so they could anticipate the visit by the

interviewer during a specified time frame, without providing the person the chance (or specific

reasons) to refuse participation immediately. Sometimes interviews were completed on the

initial visit or the resident specified a more convenient time for completing the interview. 

Oftentimes no one was home when the interviewer visited, so a letter was left to that effect. 

Appendix C contains the advance letters and other letters sent to potential participants in the

personal interviews.
25

Interview Delivery Procedure

The interview instrument is provided in Appendix B. The initial screening portion

identifies the procedure for securing interview participation. Interviewers were trained to follow

the interview protocol. The interview script and visual aids provided in Appendix B are

self-explanatory of the interview procedure, including the post-interview assessment performed

by the interviewer on distractions, attentiveness, etc.
26

Section IX.

Empirical Results

Mail Survey Results

Response Rate

A total of 862 completed booklets were received from Minnesota residents (where

“completed” is defined as containing responses to a majority of the questions). An additional 30

booklets were received that were either not completed (containing no or very few responses) or

were from nonresidents. The 862 completed, resident booklets represent 34.5 percent of the

original sample of 2500. Of these 2500 mailings, however, 461 were not deliverable due to an

incorrect address, 3 were not deliverable as a result of the recipient being deceased, and 16 were

mailed to recipients who had moved out of state. Correcting for these 480 booklets that were not

deliverable to Minnesota respondents, there were 2020 potential respondents. The 862

completed booklets thus represents a response rate of 42.7 percent of potential respondents. This

is somewhat lower than what we have experienced from earlier CV studies that we have

conducted within Minnesota. This may in part be due to a declining willingness to participate in

surveys as a result of the recent increase in telemarketing and market survey research, which in

turn reflects “improvements” in computerized telephone solicitation technologies.

Demographic Profile of the Respondents 

The respondents represent all income and educational levels, and reside in all parts of the

state. The following table shows mean income and educational levels for the respondents and for

the state population as a whole:
27

Table IX-1

Income and Education Levels:

Mail Respondents vs. State Population

Respondents State Population

mean household income $ 47,600 $ 46,086

mean educational level 

(of respondent)

14.3 years 12.8 years

Education by level:

no high school diploma 3.3 % 17.6 %

high school graduate or some college

(including. Assoc. deg.)

60.4 % 60.6 %

bachelor’s degree 27.2 % 15.6 %

graduate degree 9.2 % 6.3 %

Note: Mean household income for the state is calculated using 1996 data on per-capita earnings

and average household size, as reported by the State Demographer’s Office.

As shown in the above table, average income is somewhat higher for the survey

respondents than for the population as a whole. Regarding educational levels, there is a

substantial difference in the two distributions at high and low levels of educational attainment. 

Specifically, those without a high school diploma are significantly under-represented in the

sample, whereas those with a bachelor’s or graduate degree are significantly over-represented. 

This may be due in part to the fact that the educational level given by the respondent is not the

average for all adults in the household, but rather is for the respondent him-or herself. To the

extent that a majority of the surveys are filled out by heads-of-households with higher than

average educational levels within the household, the sample number would be biased upward. It

is unlikely, however, that all (or even most) of the discrepancy between the sample and the

population is attributable to this phenomenon, and thus it is necessary to consider the impacts of

educational level on estimated willingness-to-pay to allow for the possibility of correcting for

differences between the sample and the population. 

Table IX-2 below compares the geographic distribution of the respondents to that of the

population as a whole.
28

Table IX-2

Geographic Distribution:

Mail Respondents vs. State Population

Respondents State Population

Twin Cities-Metro

Counties

46.7 % 56 %

Non-Twin Cities,

South/Central

28.9 % 23 %

Northern 24.5 % 21 %

Notes: The metro county category refers to the seven-county Minneapolis-St. Paul metropolitan

area, which includes Anoka, Carver, Dakota, Hennepin, Ramsey, Scott, and Washington

counties. The northern Minnesota category includes the following counties: Aitkin, Becker,

Beltrami, Benton, Carlton, Cass, Chisago, Clay, Clearwater, Cook, Crow Wing, Douglas,

Hubbard, Isanti, Itasca, Kanabec, Kittson, Koochiching, Lake, Lake of the Woods, Mahnomen,

Marshall, Mille Lacs, Morrison, Norman, Otter Tail, Pennington, Pine, Polk, Red Lake, Roseau,

St. Louis, Todd, Wadena, and Wilkin. All other counties are in the non-TC south central

category.

The geographic distribution of the respondents corresponds roughly to that for the state

population. The Minneapolis-St.Paul metropolitan area is slightly under-represented within the

sample, but there is a good balance between northern Minnesota and the south/central parts of the

state.

Regression Analysis

Choice of a Dependent Variable

As explained in Section VI, "Survey Design", the survey instrument contains two

referendum questions: (1) a standard dichotomous choice question roughly midway through the

booklet; and (2) a second, multi-category referendum question near the end of the instrument

which allows the respondent to change their vote. For the regression results presented below, the

second question is used to define the dependent variable, with a “definite” or “probable”

affirmative vote being treated as a vote in favor of the referendum. (Results from the first,

dichotomous choice question are also provided, but in much less detail.) As was explained

above, we believe that this second question is more likely to provide reliable estimates. 

Moreover, the empirical results derived using this format have proven more robust in our

analysis, and provide greater consistency with the predictions of economic theory. 

Regression Results: Simple Specification

As noted above in Section VI, the mail instrument has four versions, corresponding to

different percentage reductions in mercury deposition (and corresponding differences in the

bundles of effects). The following results were obtained by estimating WTP using censored
29

logistic regression on each separate sub-sample. In each case, the dependent variable (vote) is

regressed on the household cost variable using logistic regression, and the parameters are then

transformed into a censored logistic regression model for which the dependent variable is

expected WTP. (See Appendix D for details on the estimation procedure.)

Table IX-3

Split-Sample Estimates of Willingness-to-Pay

Subsample (listed by %

reduction in deposition)

Estimated WTP Standard Error n

5 percent case 120.96 52.19 159

12 percent case (base) 118.91 24.84 348

21 percent case 160.22 81.05 164

35 percent case 225.57 173.72 174

These results show generally strong support for policies to reduce mercury deposition, as

exhibited by the substantial WTP7. Moreover, the point estimates show a general pattern of

rising WTP as a function of the magnitude of the effects (with the exception of the 5%-to-12%

increment). Tests of statistical significance regarding sensitivity to scope are made problematic,

however, by the small sample sizes on the alternative cases, which give rise to large standard

errors for these cases. In short, the results are consistent with sensitivity to scope (that is,

sensitivity to scope cannot be ruled out), but the results are also consistent with the absence of

sensitivity to scope. The large standard errors on the alternative cases make it impossible to rule

out either possibility.

Regression Results: Alternative Specifications

An alternative to the above approach of stratifying the sample into sub-samples is to use a single

sample, but to include the effects case as an independent variable. This is done below. While

ideally a separate variable would be included for each of the alternative cases, the shortage of

observations (relative to the data demands of logistic regression) make it difficult to accurately

identify the magnitude of the associated effects. In order to improve the efficiency of the

estimation process, restrictions can be placed on the estimation (so long as those restrictions are

consistent with underlying economic principles). In this case, we impose the restriction that

increases in pollution reduction are monotonically related to willingness to pay (while allowing

for the possibility that the “slope” may be zero). This is done by using the percentage reduction

 7

 While there is no theoretical justification for assuming that non-respondents (57% of the sample) have

zero WTP, a curious reader may be interested in determining what the WTP would be under such a conservative

assumption. Such estimates could be produced by multiplying the WTP figures in Table IX-3 by 0.43, the response

rate.
30

in mercury deposition as an effects variable. This variable serves as a proxy for a more complex

set of effects resulting from reduced deposition. (As is discussed below, other effects variables

were also tried, with no significant impact on the results.) 

Another distinction between the estimation results highlighted in this section and those

presented above involves the treatment of households who reveal through their responses that

they would be unwilling to support the policy at any price (even if there were no cost to their

household). Such households do not perceive reductions in mercury deposition as providing any

benefit to the household. In other words, for such households reduced deposition is not a “good”

and hence the probability of support for the policy zero regardless of the cost to the household. 

The overall sample thus consists of two groups: one group for which reduced deposition

is a “good” (and for which the probability of support varies with the cost to the household), and

one group (the “NG” group) for which reduced deposition is not a good. Equation IX-1 is

estimated only for the first group, since for the “NG” group there is no functional relationship

between cost and support. Approximately 17 percent of the respondent households fall into the

“NG” category. These households are added back in (at a WTP of zero per household) following

the estimation of the equation. The logistic regression equation for the sample that combines the

different effects levels (but excludes the “NG”s) is as follows:

Equation IX-1

Logistic Regression

Estimation using Combined Sample,

 “NG” Households Initially Excluded

 (standard errors in parentheses)

ln[Pi/(1-Pi)] = .539 - .00511 Ci +.00991 EFFECTS + .518 COLLEGE + .0363 INC

 (.291) (.00161) (.00847) (.193) (.0177)

As noted above, EFFECTS is the percentage reduction in mercury deposition. COLLEGE

is a dummy variable equal to 1 if the respondent holds at least a bachelor’s degree, and INC is

household income (measured in 5,000-dollar increments). In the above logistic regression, the

“effects” variable is significant at a 76 percent confidence level. All of the other variables are

significant at much higher confidence levels (as is apparent by taking the ratios of the coefficients

to their standard errors). Using the transformations discussed in Appendix D, the above equation

yields the following censored logistic regression equation:
31

Equation IX-2

Censored Logistic Regression

(derived from IX-1)

Estimation using Combined Sample,

 “NG” Households Initially Excluded

(standard errors in parentheses)

E(WTPi) = 105.40 + 1.94 EFFECTS + 101.28 COLLEGE + 7.11 INC

 (45.96) (1.77) (48.80) (4.04)

It is interesting to note that the above equation implies that respondents holding a bachelor’s

degree (or above) have a mean WTP that is $101.28 higher than for those with lower educational

attainment. Given the over-representation of such households in the sample, this suggests that

the results need to be corrected to reflect for this disparity (as is done below). 

The population mean for the COLLEGE variable is .219 (given the 21.9 percent of the

population with a bachelor’s degree or above—see Table IX-1). Given the scaling of the INC

variable (in $5000 increments), the population mean for the INC variable is 9.717 (reflecting a

mean household income of $46,086). The effect of using the population means (as opposed to

the sample means) for the income and education variables is to reduce estimated WTP by about

$16.84 (approximately $14.69 of which is due to the adjustment to education and $ 2.15 of which

is due to the adjustment for income).

Evaluating equation IX-2 at the population means for education and income, and adding

back in the 17 percent of the sample with zero WTP, yields the following results:
32

Table IX-4

Implied Willingness-to-Pay from Equation IX-2:

Estimation using Combined Sample,

 “NG” Households Initially Excluded

Effects Case Estimated WTP

5 percent case 171.29

12 percent case (base) 182.56

21 percent case 197.05

35 percent case 219.59

These results are somewhat higher than for the split-sample approach, and the differences

between the two low-effects cases and the higher-effects cases are somewhat more compressed. 

Several alternative (and more complex) effects variables were also tried. The effects presented in

the survey instrument fall into three broad categories: reductions in the percentage of lakes

subject to advisories (regarding human consumption of fish), reductions in the percentage of

lakes for which fish-eating birds are “at risk”, and reductions in the percentage of lakes for which

fish-eating mammals (otters and mink) are at risk. 

There are no significant differences between the different versions with regard to the

effects on fish-eating mammals. Rather, the difference are primarily in terms of the impacts on

consumption advisories and on fish-eating birds. Separate variables for each of these were

attempted, but these effects are highly correlated. The resulting multicollinearity creates

identification problems. As an alternative, a composite variable was constructed by averaging

across species the bird-related effects (defined as the percentage reduction in lakes where each

species is at risk), and then it turn by averaging the bird-related effects with the percentage

reduction in consumption advisories. This yields the following average percentage reduction

values for the four cases: 4.625, 9.25, 16, and 26. Using this variable results in slightly

compressed WTP estimates, however for each case the estimated WTP is within two dollars of

the estimates derived from the reduction-in-deposition approach presented above in Table IX-4

Finally, for purposes of comparison, we present estimated WTP from the multivariate

approach when the logistic regression equation is estimated using all households (including the

“NG”s). The implied WTP from this approach (evaluated using the population means for

income and education) are presented below in Table IX-5. Note that this approach results in

somewhat lower estimates that are more consistent with the estimates provided by the splitsample approach presented above in Table IX-3.

.
33

Table IX-5

Implied Willingness-to-Pay:

Estimation using Combined Sample,

 “NG” Households Initially Included

Effects Case Estimated WTP

5 percent case 126.81

12 percent case (base) 138.78

21 percent case 154.17

35 percent case 178.11

Credibility of the Payment Vehicle

In order for the contingent valuation method to provide valid results, the respondents

must believe that there is some payment consequence attached to the policy being considered. It

is sometimes argued that respondents do not actually believe that will have to pay should the

policy be adopted. However if respondents were to believe that they do not have to pay, there

would be no reason for them to condition their responses on the stated cost to their household, or

on their income. And yet the results presented above show that both of these variables are

significant, suggesting that the respondents are in fact conditioning their responses on these

variables.

A more direct way to test for a tendency on the part of households to ignore the potential

costs to their household is to ask the respondents if they believe that will have to pay the amount

stated in the survey instrument. This was done in the mail instrument via question Q-24, which

asks “Do you believe your household would pay roughly the dollar amount shown in Q-14 in

higher prices for products every year for the foreseeable future if this proposal passes?” The

results to this question are shown in Table IX-6.

Table IX-6

Credibility of Payment Vehicle: Responses to Q24

Question: “Do you believe your household would pay roughly the dollar amount shown in Q-14

in higher prices for products every year for the foreseeable future if this proposal passes?”

Yes 37.1 %

No, actual cost would be higher 48.4 %

No, actual cost would be lower 14.5 %
34

As the responses to this question show, only a very small percentage of the sample (14.5

percent) expressed a belief that they would pay less than the stated amount. A substantial

majority expressed the belief that they will pay as much or more than the stated cost (with nearly

half suggesting that it will cost more than is stated). 

Personal Interview Results

The results from the personal interviews are presented below in Table IX-7 for the first

referendum question and for the follow-up referendum question (which allowed respondents to

change their vote). For the interviews, all respondents were confronted with a 12 percent

reduction in deposition. The corresponding cases are presented for the mail survey. Identical

specifications are used in each case. (For a discussion of the specification, see the discussion in

the section above entitled “Regression Results: Simple Specification.”) Two sets of estimates

are provided: estimates obtained by trimming the tails of the distribution (of the cost variable)

and estimates for the full sample. When the number of observations is low, estimates of the

logistic function can be very sensitive to the tails of distribution of the cost variable. For

example, if there are a small number of observations in the upper tail (as we have here with only

14 observations with a cost to the household at or above $215), small shifts in the percentage of

"yes" votes within the tail can significantly alter the estimates, and can result in an increase in the

standard errors. The estimates are less sensitive to observations that are between the tails of the

distribution, and thus a trimmed-tail subsample may provide more robust estimates when there is

a small number of observations in the tails. We thus provide estimates for a subsample with

trimmed tails and for the full sample. 

Table IX-7

Estimates from Personal Interviews

(comparison with corresponding mail survey estimates)

Sample Estimated

WTP

Standard Error n

mail (12%, V1) 131.32 22.39 351

mail (12%, V2) 118.91 24.84 348

interv., trimmed, V1 214.68 60.57 200

interv., trimmed, V2 198.03 45.32 200

interv., full, V1 454.85 423.71 250

interv., full, V2 1327.90 5516.75 250

Notes: V1 refers to estimates for which the dependent variable is based on the first referendum

question; V2 refers to estimates for which the dependent variable is based on the second version

of the referendum question at the end of the survey. The "trimmed" version of the interview

estimates excludes observations in the tails of the distribution; only those observations for which
35

the cost to the household exceeds $45 and is less than $215 are included. This excludes 14

observations in the upper tail and 36 observations in the lower tail.

As with the mail survey results, the substantial WTP estimates from the personal

interviews are consistent with a strong level of support for the mercury reduction policy. The

average household clearly perceives there to be a substantial benefit associated with such

reductions. This is most apparent with the trimmed subsample, since the full sample, while

yielding higher point estimates, also yields very large standard errors due to the problem of an

insufficient number of observations in the tails of the distribution.

The estimates also show a tendency for the interview approach to yield higher values than

the mail survey. The lower estimates from the mail survey may reflect the “impersonal” nature

of the mail survey. Moreover, the presence of an interviewer may lead some respondents to react

more favorably to the survey questions than if the survey were conducted in greater anonymity. 

In any case, there is no evidence from these results that the estimated WTP from the mail survey

is biased upward vis-a-vis a personal interview approach (contrary to concerns expressed during

the NOAA Panel proceedings). 

Finally, both the mail survey results and the statistically-significant personal interview

results (the trimmed estimates) show a slight tendency for the estimated WTP to fall when

respondents are given a chance to change their vote at the end of the survey. This may provide

an additional reason for favoring the use of the second referendum question over the first. 

Credibility of the Payment Vehicle for the Interview Sample 

As noted above in the discussion of the mail survey, in order for the contingent valuation

method to provide valid results, the respondents must believe that there is some payment

consequence attached to the policy being considered. One way to test for this is to ask the

respondents if they believe they will have to pay, and if they believe they will have to pay the

amount stated in the survey instrument. This was done in the interview instrument via question

2-7, which asks "Do you believe your household would pay higher prices for products if this

proposal passes"; and via question 2-8, which asks “Do you believe your household would pay

roughly the dollar amount I told you in higher prices for products every year for the foreseeable

future if this proposal passes?” The results for these questions are shown in Table IX-8.

Table IX-8

Credibility of Payment Vehicle in the Personal Interviews

Question 2-7: “Do you believe your household would pay higher prices for products if this

proposal passes?”

Yes 89.2 %

No 7.2 %

Not sure 3.6 %

Question 2-8: “Do you believe your household would pay roughly the dollar amount I told you

in higher prices for products every year for the foreseeable future if this proposal passes?”
36

Yes 66.8 %

No 22.4 %

Not sure 10.8 %

As Table IX-8 shows, only 7.2 percent expressed a disbelief in the notion that they would

have to pay higher product prices. Approximately 22 percent expressed a belief that they would

pay either more or less than the stated amount (with 11 percent not sure of the amount they

would have to pay). Unlike the mail respondents, the interview respondents were not asked

whether they thought that the stated cost is an overestimate or an underestimate. The results from

the mail survey show a very strong preponderance for those respondents who question the

credibility of the cost estimates to think that the cost estimates are too low. It is quite possible,

therefore, that the majority of the 22 percent who expressed disbelief at the cost estimates did so

primarily because they thought that the estimates are too low. This would be consistent with

attitudes expressed by respondents during pre-testing and by participants in the focus groups,

many of whom expressed a belief that "these things always cost more than is expected". In any

event, the evidence from all of these sources--the interviews, the mail survey, the focus groups,

and the pre-testing--suggests that an overwhelming majority of respondents believe that they will

in fact have to pay. 
37

Section X.

Summary and Conclusions

Reductions in mercury emissions will have beneficial human and environmental effects. 

A contingent-valuation study was employed in order to provide a monetized measure of these

benefits to Minnesota households. This study involved a mail survey of 2,500 Minnesota

households and personal interviews with 250 Minnesota households.

Analysis of survey responses produced a statistical estimate of a valuation function. The

valuation function is used to compute the average annual willingness of Minnesota households to

pay for the projected effects of reduced mercury emissions. For the baseline policy scenario (the

12% deposition reduction), the mail survey resulted in an estimated annual household

willingness to pay of $118.91.8

 The personal interview results (for the trimmed subsample) show

a higher WTP of $198.03, possibly indicating “yea-saying” bias from the personal nature of the

interview procedure.

Using the more conservative mail-survey estimate, a state-wide willingness to pay can be

computed by multiplying the per-household figure ($118.91) by the number of households (1.786

million in 1996) to yield an annual state WTP of $212 million.9

 With a state population of 4.683

million (1996 estimate) this translates into a figure of approximately $0.12 per person per day.

 8

 See Table IX-3 in Section IX.

9

 Population figures are estimates produced by the Minnesota Office of State Demographer.
38

Section XI.

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42

Appendix A

“Impacts of Mercury Reduction in Minnesota”, by Douglas Rae.
43

Appendix B

Mail-survey instruments
44

Appendix C

Personal-interview-survey instrument, visual aids
45

Appendix D

Cover letters, follow-up letters and phone script for mail survey
46

Appendix E

Contact letters and phone-verification script for personal-interview survey
47

Appendix F

Estimation Techniques: Logistic and Censored Logistic Regression

The conventional technique for estimating mean willingness-to-pay (WTP) from

referendum data involves the estimation of a logistic regression equation of the following form:

ln[Pi /(1-Pi )] = α Ci + γ’Xi , 

where,

Pi = probability of an affirmative vote, 

ln[Pi /(1-Pi )] = “log odds” of an affirmative vote,

Ci = cost to household i if the policy is adopted,

Xi = other explanatory variables (income, education, etc.) for household i,

α ,γ = model parameters (to be estimated).

Solving for Pi yields:

Pi = [1 + exp-(αCi + γ’Xi )]-1,

which is the cumulative density function (c.d.f.) of the logistic p.d.f. From this expression the

log-likelihood function can be derived and maximized with respect to α and γ. The estimated

mean WTP is obtained by integrating the fitted logistic c.d.f. with respect to Ci.

Censored logistic regression represents an extension of the above approach. Censored

logistic regression has the advantage of providing an explicit expression for estimated mean

WTP in the following form:

E(WTPi) = β’Xi .

The β parameters can be obtained from the parameters of the conventional logistic regression

model through the following transformation (Cameron, 1988):

β = -γ /α .

Moreover, the asymptotic standard errors of the estimated β can be obtained from the variancecovariance matrix of the standard logistic regression model using the following transformation

(Patterson and Duffield, 1991):

Var(ßj) = (gj

2

/α

4

)Var(α) - 2(gj/α

3

)Cov(α,gj) + (1/α

2

)Var(gj) (F5)

This yields estimates that are equivalent to those obtained by maximizing the censored logistic

log-likelihood function. (Patterson and Duffield, 1991, demonstrate the mathematical

equivalence of these two approaches, and provide an example. Hagen, Vincent and Welle, 1992,

utilize both approaches and find that the results are identical.) All of the censored logistic

regression estimates presented in this report were obtained by transforming the logistic regression

parameters in the manner described above.
48

Appendix G

Biographical Information

Daniel A. Hagen is Associate Professor of Economics at Western Washington University. He

received his B.A., M.A. and Ph.D. degrees in Economics from the University of California,

Berkeley. His teaching and research focuses on environmental and resource economics, and on

international trade. He has published articles and technical reports on a variety of topics,

including environmental valuation, energy pricing, natural resource management, forecasting,

and international trade. Dr. Hagen has served as a consultant to a variety of public agencies and

private firms.

James W. Vincent is Associate Professor of Economics at the University of St. Thomas in St.

Paul, Minnesota. He received a B.A. in Economics from the University of Montana and the M.S.

and Ph.D. degrees in Economics from the University of Wisconsin-Madison. He has served as a

consultant and expert witness for organizations such as the Colorado Office of Consumer

Counsel, the Colorado Public Utilities Commission, the Colorado Division of Wildlife, the

Montana Public Service Commission and U S West Communications. He conducts academic

research in the areas of energy and environmental economics and has produced published papers

and technical reports on energy pricing, environmental valuation and electric utility systems.

Patrick G. Welle is Professor of Economics at Bemidji State University. He holds an M.A. and

Ph.D. in Economics from the University of Wisconsin, Madison. Dr. Welle's consultant work

includes research for state, regional, and local units of government and public and private

economic development agencies, as well as advising private businesses, particularly on matters

of tourism and economic development. Much of this work has involved the utilization of

economic surveys. Dr. Welle has published numerous articles and reports on topics such as

benefit-cost analysis, environmental policy, natural resource management, tourism, and economic

development. Dr. Welle directed a project for the Minnesota Pollution Control Agency as part of

the rule-making process on acid rain and served as an expert witness. He authored the report

"Potential Economic Impacts of Acid Rain in Minnesota: The Minnesota Acid Rain Survey."