Contingent Valuation in a Policy Context: The National Oceanic and Atmospheric Administration Report and Its Implications for

The Use of Contingent Valuation Methods in Policy Analysis in Britain

Ken Willis Click to edit Master subtitle style University of Newcastle upon Tyne Presented by. Setia Lesmana H351100034 Yocie Gusman H351100044 Baidhuri Purna Edi H351100064

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23 Maret
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Click to edit Master subtitle style

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Click to edit Master subtitle style

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Outline:

Introduction Detailed Conclusions of The NOAA Report

General guide-lines Value elicitation surveys Goal for value elicitation surveys

Recommendations Currently in Use Recommendations Not Generally in Current Use Referendum versus Alternative Elicitation Methods Embedding Problems
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Warm Glow Effects

Introduction
Exxon Valdez: oil spilled (24-031989)

Losses of marketed goods, e.g. to fishermen; Restoration of natural resource system&loss of non use values CERCLA 1980 => sued for damaged use&non use values by CVM Oil Pollution Act 1990 =>

procedures for assessing damages NOAA commisioned a blue ribbon panel : Use&non use1993 => qualified NOAA report values
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recognition CVM + recommendations

Principal Conclusion:

Detailed Conclusions of The NOAA Report

CV studies convey useful information as reliable by standards that seem to be implicit in similar contexts, like market analysis for new and innovative products, and the assesssment of other damages normally allowed

The appropriate... Agencies should begin to accumulate standard damage assessments for a range oil spills... That process should improve the reliability of CV studies in damage assessment. It 5/11/12

Recommenda tion General guide-lines Value elicitation surveys Goals for value elicitation surveys

General guide-lines
1.

Sample type and size: that

probability sampling is essential.

2.

Non-response: this should be

minimized otherwise survey results will be unreliable.

3.

Personal interview: it is unlikely

that reliable estimates of values can be elicited with mail surveys. Faceto-face surveys are preferable, although telephone interviews have some advantages in terms of cost 5/11/12 and centralized supervision.

Value elicitation surveys

1.

Conservative design: increases the realibility by eliminating extreme response that can enlarge estimated values. Thus, an option which tends to underestimate willingness to pay (WTP) is preferred.

2.

Elicitation format: WTP should be used instead of willingness to accept (WTA), because the former is the conservative choice. 5/11/12

Value elicitation surveys

7.

Adequate time lapse from accident: to avoid misunderstanding of restoration possibilities, and respondents reporting a substantial passive use loss even when informed full restoration will occur. Questionnaire should force respondents to consider the difference between interim and steady state passive use value. Temporal averaging: to reduce measurement noise. A time trend in responses would cast doubt upon the reliability of the findings. No-answer option: to allow for approximate indifference, inability to answer without more information, preference for another mechanism, and boredom with the survey. Yes/no follow ups: to ascertain why respondents answered yes or no to a WTP question. Cross tabulations: to interpret WTP responses in

8.

9.

10.

11.

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Goal for value elicitation surveys

1.

Alternative expenditure possibilities: respondents should be reminded their WTP for the environmental good would reduce their expenditure on other private goods. Deflection of transaction value: the survey should be designed to deflect warm-glow effect. Utility derived from charitable giving may come mainly from the act of giving rather than the material change that follow the gift. While both are real values, there may be close substitutes to cleaning up oil spills which would produce the same charitable warm-glow efffects. Steady state or interim losses: respondents should be able to distinguish between these, 5/11/12

2.

3.

Goal for value elicitation surveys

4.

Present value calculations of interim losses: it should be demonstrated that the respondents are sensitive to the timing of restoration Advance approval: the CV survey should be approved by both sides in the legal action. Burden of proof: to rest with CV designers, to demonstrate that the CV survey is reliable. Reliable reference surveys: government should create reliable reference surveys to interpret the Panels guide-lines and calibrate surveys in meeting their conditions
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5.

6.

7.

Recommendations Currently in Use

No Recommendation Remarks s 1 Personal *(Macmillan et al.,1994)=>mail interview surveys 2 Careful Pretested in pilot surveys pretesting for CV questinnaire 3 Elicitation format Prefer WTP to WTA >Divergence between WTP & WTA (Bateman and Turner, 1993) >Explanation: questionnaire design&interviewing techniques; respondents rejection of the property right; prospect theory

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Recommendations Currently in Use

No Recommendation Remarks s 4 Accurate Using brochure (Ecotec, 1993; description of Loomis and du Vair, 1993; Willis programme or et al., 1993a) policy 5 Pretesting of e.g. Photograph of the Somerset photographs Level and Moors Environmentally Sensitive Area (ESA) (Willis et al., 1993a); montages of coastal erosion (Tunstall and Cooker,1992)

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No Recommendatio ns

Recommendations Currently in Use

Remarks

Yes/no follow e.g. Studies of flood protection in the ups broads (Bateman et al., 1992,1993); landscape, wildlife and historical archaeological preservation benefits of landscapes through ESA prescription (Willis et al., 1993a), benefits low flow alleviation in the River Darent (Willis and Garrod, 1993c), the protection of the aquatic environment from acid rain (Ecotec, 1993) Cross tabulations *To asses the relationship of WTP with explanatory variable => modelling. *LF => r2 => extremely low (Cobbing and Slee, 1993)-> the Mar Lodge Estate *Good questionnaire&interviewer training (Willis et al., 1993a) *Dichotomous choice models => high

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No Recommendation Remarks s 1 Sample type Cummings et al. (1986): a small and size => sample size (160 or so),OE,level large sampled of statistical realiability => lie size (around WTP 20%, true WTP 80% 1000) *NOAA Panel: no consideration => complexities sampling strategies 2 Referendum Format *Bateman et al. (1992) => the Norfolk Broads (3000 sample; split>> OE-iterative bidingDichotomous Choice) *Willis et al. (1993a) => ESAs (3000 sample)

Recommendations Not Generally in Current Use

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Recommendations Not Generally in Current Use

No Recommendation Remarks s 3 Pretesting for *a large pilot survey; impractical interviewer *in the main survey: modern effects => statistical packages=>SAS modify the standard face-toface survey to allow respondents to either: (i) write their vote on a ballot and deposit it in a sealed box; or (2) mail their ballots 5/11/12

Recommendations Not Generally in Current Use No Recommendation Remarks

4

s Reporting

*questionnaires available to other researchers *data sets=> original researcher *not open to subsequent scrunity&interpretation *at different points in time => not undertaken *creates immediate emotional concern, and/or losses are likely to be interim; i.e. The environment will recover overtime => undertaken *Willis and Garrod (1993c) => low flow allevation in rivers

Temporal averaging

Reminder of undamaged 5/11/12

Rare agreement: questionnaire by 2 opposing parties having interest (producing a favourable outcome)

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Referendum vs Alternative Elicitation Methods

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Mitchell and Carson (1989)

Referendum vs Alternative Elicitation Methods OE => unlikely provide the most reliable valuation for non-use (caused by: scenario lack realism; strategic overstatement) Mitchell and Carson (1989): strategic bias (need: analysis of outlier, tests for bimodal distribution; tests of subsamples) Free-riding => underestimation of WTP (minimized by introducing the 5/11/12 of potential exclusion from the risk

Embedding Problems

Observed firstly by Kahneman and Knetsch (1984): to clean up lakes in Muskoka & all lake in Ontario. Produced by careless questionnaie design. Reflected that different levels of provision of the good had not been clearly specified to respondents. Suggestion: increasing 5/11/12 information&context.

Embedding Problems

How much information/context: no exogenous criterion.

Hoevenagel and van der Linden (1993): significantly different WTP values (as economic theory predicts)

CV responses cannot be context free => the size & nature of the choice set.

Randall (1991):

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market prices: conditional (depend on institutions, supply-demand conditions and expectations about both).

Warm Glow Effects

Panels suggestion: people on support one/two charitable organizations to the tune $10 to $20 per year; 99,9% charities =>no support from any individual. CVM: for minor public goods or a public good with large numbers of substitutes => zero WTP. Donation =>> WTP to avoid guilt/embarrasment or to buy warm 5/11/12

Some Framing Issues

Valuation question should be framed in terms of WTP, not WTA (no logical reason) Precautionary principle (methods of risk assessment) => Risk of irreversible or catasthrophic environmental effects (ex. Safe minimum standard)
Tversky and Kahneman (1982): in terms of 5/11/12 lives saved or in terms of lives lost

Some Framing Issues

Embedding problems

MAFF (1992) -> value benefit 2 ESAs: the South Downs and Somerset Level and Moors (perfect no substitute for another) Sites of Special Scientific Interest (SSSIs) or low flow allevation (LFA) in rivers (perfect subtitute for each other)

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Modify national resouce accounts by applying values of environmental

Other Issues
The items of concern to psychologists, economists, statisticans. Psychologists:
1. 2.

Covariation misestimation Perceptions of environmental hazards Lack of awareness

3. 4.

The effect of information on CV 5/11/12 estimates, in terms of:

Other Issues
Economists: 1) Paradigm in which people are assumed to be able to articulate and express values.

The Concerns: strategic response, etc Treatment: proper incentives, referendum models, etc. Theoretical base: demand analysis, etc. Tests of success: sensible answer

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CV and the Law

Environmental damage in English law: criminal law (e.g. under the Wildlife and Countryside Act 1981, and other Act) & tort law.

Compensation -> loss of value -> the market value of the lost resources+transaction cost.

Non-pecuniary losses (e.g. in relation to health effects) -> arbitrary. 5/11/12

Thank You
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