Research on the Validity of Nonmarket Values

1. Research on the Validity of Nonmarket Values Patricia A. Champ U.S. Forest Service Rocky Mountain Research Station pchamp@fs.fed.us http://www.fs.fed.us/rm/value/

2. Outline • What is “nonmarket valuation”? • What is validity? • Research on validity of nonmarket values

3. Nonmarket Valuation • Values (usually measured in monetary terms) for goods that are not traded in markets….clean air, hiking trails on public land, endangered species, Taroko National Park • Why would we want to know about the value of such goods? • Management decisions involve tradeoffs • Natural Resource Damage Assessment • Benefits of a resource compared to the cost of providing that resource

4. Approaches to nonmarket valuation • Revealed preference approaches…take clues from market values to infer the value of the nonmarket good • Travel cost method (value of visiting Taroko National Park) • Hedonic price model (value of living near Taroko National Park) • Averting behaviors (value of avoiding consumption of polluted water)

5. Approaches to nonmarket valuation • Stated preference approaches • Contingent valuation method (what are you willing to pay for improved air quality in Taiwan?) • Choice experiments (break public goods down into a bundles of attributes, vary the attributes and ask how much willing to pay)

6. What about nonmarket valuation in Taiwan? • Lu (1987) air quality and noise reduction • Liu (1990) and Wu and Tsai (1993) water quality improvements • Chen and Wen (1993) forest recreation site • Lu, Bishop and Welsh (1996) improvement in air quality in Taipei • Alberini, Cropper, Fu, Krupnick, Liu, Shaw and Harrington (1996) avoidance of an episode of illness related to air pollution

7. Validity • Issue…it has been asserted by some that hypothetical questions elicit hypothetical responses and such data are meaningless. • Do nonmarket values measure what they are supposed to measure (Hicksian surplus…a measure derived from economic theory)? • Are nonmarket values related to other values as economic theory would predict? For example, are individuals with higher incomes willing to pay more for a public good?

8. Validity • Nonmarket valuation approaches work well when individuals are familiar with the goods. For example, hiking trails and other recreational goods. We call these “use values.” • Nonmarket valuation approaches are more questionable for valuing unfamiliar goods. For example, global climate change, endangered species. We call these “nonuse values.”

9. My research • Focus on contingent valuation • Survey based approach • Focus largely on nonuse values • Ask individuals what they would be willing to pay for a public good IF they had an opportunity to actually do so • Experiments compare what individuals say they will pay in the hypothetical payment setting to what individuals actually pay

10. Experiments • Removing roads on the North Rim of the Grand Canyon (“wilderness designation”). • Purchasing electricity that is generated from wind turbines rather than from coal. • Purchasing radio collars for whooping cranes in an effort to introduce a new flock of the most endangered crane species.

11. Experiments (continued) • Anglers purchasing increased streamflows to improve habitat for trout. • Students paying for rehabilitation of small birds and mammals (choice experiment).

12. General result • Individuals say they will pay more when the payment is hypothetical compared to the actual payment situation

13. The Question…. • Does everyone lie when asked about making hypothetical payments? Is the error random? • Or …. Is there an identifiable group of respondents who say they will pay in a hypothetical situation but would not in an actual payment situation? • If we can identify the individuals who say yes but would not pay when asked to do so, we can provide more “valid” measures

14. The Grand Canyon Study The good: • Removal of old logging roads on the North Rim of the Grand Canyon (Grand Canyon National Park in Southwest United States) so the area can become designated “wilderness” • Very few people visit the North Rim of the Grand Canyon. All the tourist attractions are on the South Rim.

16. The Grand Canyon Study • Two independent samples • One asked hypothetical question • One asked to actually make a donation • Survey administered via the mail

17. Hypothetical Payment Question Would you be willing to pay $ (dollar amount) to provide food and supplies for volunteer crews? Your $ (dollar amount) would lead to the removal of (number of feet) feet of road from the North Rim of the Grand Canyon within the next two years. (CIRCLE ONE NUMBER) 1. Yes 2. No

18. Actual Payment Question Would you be willing to pay $ (dollar amount) to provide food and supplies for volunteer crews? Your $ (dollar amount) would lead to the removal of (number of feet) feet of road from the North Rim of the Grand Canyon within the next two years. (CIRCLE ONE NUMBER) 1. Yes 2. No IF YOU DECIDED TO PAY FOR THE ROAD REMOVAL PROGRAM, PLEASE WRITE A CHECK TO THE “GRAND CANYON NATIONAL PARK SERVICE” FOR THE AMOUNT YOU SAID YOU ARE WILLING TO PAY AND SEND THE CHECK WHEN YOU RETURN THE TWO QUESTIONNAIRES (PART 1 AND PART 2). WE WILL FORWARD ALL MONEY TO THE PARK SERVICE AT GRAND CANYON NATIONAL PARK FOR THE ROAD REMOVAL PROGRAM AND THEY WILL SEND YOU A THANK YOU NOTE TO ACKNOWLEDGE THEY RECEIVED YOUR PAYMENT.

20. Issues • How can we identify the individuals who say yes in the hypothetical payment situation but would not actually donate? • Ask them directly how certain they are about their response to the hypothetical payment question.

21. Follow-up certainty question Yes respondents to the contingent donation question were asked: In part 1, you said “yes” to paying $ (dollar amount) for the road removal program. On a scale of 1 to 10, where 1 means ‘very uncertain’ and 10 means ‘very certain’, how certain are you that you would send a check for at least $ (dollar amount) if you were asked to actually pay? (CIRCLE ONE NUMBER) 1 2 3 4 5 6 7 8 9 10 Very Very Uncertain Certain

22. Result • Many of the survey respondents say they are less than “very certain” • Find that individuals who say yes to the hypothetical question and are very certain (circled ’10’ on the certainty scale) are like individuals who made actual donations • Same attitudes • Same demographic characteristics • This was a very limited study

23. Wind generated electricity • Alternative to coal generated electricity • Less polluting • Wind is a renewable resource • Wind costs more than coal because of high costs of wind turbines

24. Wind Generated Electricity • Low wind turbines in the midwestern United States • Locate turbines on farms

27. Result • Individuals who circle 8, 9, or 10 on certainty scale have same demographic characteristics and attitudes as individuals who actually paid for wind generated electricity. • Mean willingness to pay estimates similar if we re-code individuals who circled 1-7 as a “no” response to the willingness to pay question.

28. Wind generated electricity

29. Whooping cranes were once found in 35 states, but are now the most endangered crane species Survey participants were asked about making a donation to buy radio transmitters necessary for this program Radio collars for whooping cranes

30. Scientists are working to establish a new flock of whooping cranes, separate from the other There are currently 36 birds in the flock The program will continue until there are 125 birds

31. Survey participants were asked about making a donation to buy radio transmitters necessary for this program

32. Results – Percent of Respondents answering Yes to the Donation Question

33. Response to Certainty Question

34. Instream flows • This survey is currently in the field. We have preliminary results. • Replication of a actual/hypothetical payment study done in 1990.

35. Instream flows • Donate money to purchase water rights. Water is left in streams rather than diverted and streamflow increases. This improves the habitat for trout. • There were/are some badly de-watered streams in the area where we did the study.

36. VERY Preliminary results. Estimated Mean Willingness to Pay

37. Rehabilitating small mammals and birds • Still in design phase of this study. • Choice experiment. • Attributes include the type of animal (small mammal or bird), cost of rehabilitation • Includes hypothetical and cash payment treatments. • Include some debriefing questions about how certain they are about hypothetical payment responses.

38. What have we learned? • People who say no in a hypothetical payment situation would also say no in an actual payment situation. • Some people who say yes in the hypothetical situation would also say yesin an actual payment situation. • Some people who say yes in the hypothetical situation would say no in the actual payment situation (these are the troublemakers).

39. What have we learned? • Many (~80 % in wind and crane studies) individuals can respond to a hypothetical payment question as they would an actual payment question. • Evidence of validity on several dimensions. • Some people have a problem with these questions. • Why? • What can we do to alleviate uncertainty?

40. Interested in learning about nonmarket valuation? A Primer on Nonmarket Valuation (2003) Edited by Champ, Boyle and Brown. (www.springeronline.com)