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A mixed approach to payment certainty calibration in discrete choice welfare estimation

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This article provides further empirical evidence of payment uncertainty in dichotomous choice (DC) Contingent Valuation (CV) and proposes an alternative way of certainty calibration, moving away from conventional recoding of uncertain responses. In an international CV application, the main sources of payment uncertainty are identified related to imperfect knowledge and information about the public good involved, future supply levels, income constraints, price levels and the survey instrument. Together these sources of uncertainty are responsible for a third of the error variance in the estimated discrete choice model. Accounting for the heterogeneity induced by payment uncertainty in the welfare estimation procedure with the help of a mixed probit model yields a significantly lower welfare measure albeit at the expense of estimation precision.

Document Type: Research Article


Affiliations: Department of Environmental Economics,Institute for Environmental Studies, Faculty of Earth and Life Sciences, VU University Amsterdam, De Boelelaan 1087, 1081 HVAmsterdam, The Netherlands

Publication date: July 1, 2011

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