Valuation 11: Benefit Transfer and Meta-Analysis

1. Valuation 11: Benefit Transfer and Meta-Analysis • Why benefit transfer? • Different types of benefit transfer • Value transfer • Function transfer • Validity and sources of error • Examples

2. Last weeks we looked at • Various methods to estimate the value of environmental goods and services not traded on markets • Also, some empirical examples were shown • It turned out that it is actually very hard to reliably estimate prices – one needs many assumptions, good data, and smart statistics, and even then all sorts of things may go wrong

3. $ Policy Site Study Site What is benefit transfer? • Benefit transfer uses economic information captured at one place and time to make inferences about the economic value of environmental goods and services at another place and time • Benefit transfer involves economic values that may be either positive (benefits) or negative (costs)

4. Why benefit transfer? • Valuation is hard • As a result, applied valuation studies are expensive • A small hedonic pricing study, for instance, costs about a year of a PhD student – that is, after the data have been collected and digitised • Ditto for travel costs • A contingent valuation study is more expensive • Monetary values are also hard needed • Wouldn't it, therefore, be nice if we could take the estimated values of case 1 and apply them to case 2?

5. History • Environmental benefit transfer came into being only once the non-market literature itself grew large enough to allow comprehensive synthesis and cross-study comparison • In 1973, the U.S. Water Resources Council began publishing unit day estimates for recreation activities relates to water projects • In 1980, the U.S. Forest Service began publishing Resources Planning Act values for recreation (per person per day) • First synthesis study mid to late 1980s • Today, applied to issues involving values for recreation, water quality, fishing, air quality, wetlands, biodiversity

6. Types of BT Value Transfer Function Transfer Meta-Analysis Function Single point transfer Measure of central tendency Single point transfer adm. approved Benefit/ Demand Function Adapt function to policy site Use estimate at policy site Use tailored estimate at policy site

7. The basis for any benefit transfer analysis • The basis is a formal literature review • The original research studies are screened for • relevance • how well they correspond to the policy context • the quality of research • what kind of information is provided • Advantages include a much larger sample of data, different analytical techniques, and different analysts • The main disadvantage is that one typically only has access to published results, which are always incomplete

8. Value transfer: Point estimates • Point estimate transfer typically uses a single measure • Example: The U.S. Army Corps of Engineers was considering the removal of four dams on the Lower Snake River from its confluence with the Columbia River • One of the benefits would be the restoration of spawning habitat for native salmon populations (by about 47,500 fish) • The agency was interested in the passive use value based on per household annual WTP • The literature search found four studies that provided values for salmon population

10. Other value transfer • The measure of central tendency entails using a mean, median or other measures of central tendency based on all or a subset of original research outcomes • Same example as above; great disparity between average marginal passive use value ($40,620) and median value ($3,197) • Administratively approved estimate transfer is the simplest approach • Estimates are derived from empirical evidence in the literature, expert judgment, and political screening • Problems: Criteria for political screening are unknown, selection might be biased and only updated every so often

11. Function transfer • Value transfer requires a strong similarity between the study site and the policy site is required • Function transfers are generally considered to perform better than value transfers • Unlike value transfers, they may be tailored to fit some of the characteristics of the policy site • Function transfers entails the application of a statistical function that relates the summary statistics of original research to the specifics of the study site • There are two types of function transfers • Demand/Benefit function transfer • Meta-regression analysis

12. Demand/benefit function transfer • For benefit function transfer additional information is required • We need a function that models the statistical relationship between the summary measures of interest and characteristics of the original site • This function is then adjusted to specific characteristics of the policy site

13. Example • Case study by VandenBerg, Poe and Powell (2001) estimates the benefits of improving groundwater quality used for drinking to a very safe level in 12 towns in New York, Massachusetts, and Pennsylvania • The authors use a contingent valuation survey with a payment card question format • To perform the benefit function transfer all of the survey data except for one town are pooled and a WTP equation is estimated

14. OLS regression, dependent variable is mean WTP/HH/year, n=667

15. Validity of benefit transfer • A number of studies performed the following test: Estimate the value of something at two sites, and predict the value of the one site from the observations of the other • Resources or activities include • Sport fishing (distance, harvest, quality) • Recreation (costs, size, substitutes, population, age) • Rafting (flow, costs, intensity, reason for visit, home, income, sex, age, education) • Water quality (costs, size, depth, accessibility, quality, use, income) • Water quality (bid, use, education, age, user)

17. Sources of error • Generalisation error • When estimates from study sites are adapted to represent different policy sites • The error is inversely related to the degree of correspondence between the sites • Measurement error • Occurs when researcher’s decision affect the accuracy of the transferability of values • Methodological choices, non-reporting of study characteristics • Publication selection error • There is a preference for publishing statistically significant results that conform theoretical expectations • Authorship effect

18. Meta-regression analysis • A drawback of the demand function transfer is the assumption that the statistical relationship between the dependent and independent variables are the same for both study as well as policy site • Also, demand function transfer relies mostly on a single study • Meta-regression analysis summarises and syntheses outcomes from several studies • Meta-analysis not only provides a rigorous synthesis of the literature, it is also able to explain the variation found across empirical studies and to identify outlier studies, knowledge gaps, and priors for further analysis • Meta-analysis is a technique that originates in medical science

19. Meta-regression analysis (2) • Some of the variation in value estimates may be due to identifiable characteristics among the different studies themselves • valuation method, survey mode, geographic location, time etc. • These characteristics are not explanatory variables in the original studies as they are constant • Advantage of the method: it does not prejudge research findings on the basis of the original study‘s quality (input) , while it avoids a differential subjective weighting of studies in the interpretation of findings (output side) • However, the publication selection error still applies

20. Example: Meta-regression analysis • Brouwer, Langford, Bateman and Turner (1999) is one of the early applications of meta-regression analysis • Analysis covers 30 studies of the WTP per person for wetland preservation in temperate climate zones in developed economies in North America and Europe • In total, 103 data points as some studies reported more than one observation (split sample) • Wetlands were made comparable by looking at their types and functions: flood control, water supply, water purification, and nature/recreation • Each observation was associated with one or more functions

21. Wetlands/Brouwer • Additional explanatory variables included • payment vehicle (tax or other) • elicitation format (open-ended or other) • value type (use value, non-use value or both) • country (USA or Canada, Europe) • Quality was measured by response rate, but as an explanatory variable • All studies are CVM studies • In the regression analysis wetland size and income were excluded due to data availability

22. Regression results GLS model specification *** significant at 0.001; ** significant at 0.01; * significant at 0.05; R2 0.38

23. Wetlands/Brouwer (2) • On average, people are willing to pay $93/person/year for wetland preservation • Note that the median is only $51 • Taxes attract higher contributions • Open ended questions lead to smaller answers • North Americans are willing to pay more • Higher response rates imply lower values • Less differences between functionality of wetlands

24. Conclusion • Benefit transfer can perform no better than the quality of original studies • The underlying questions of accuracy and appropriateness of non-market methods are not solved in benefit transfer • However, some type of benefit estimates are subject to less controversy • Benefit transfers are defensible as long as they are based on organised research agenda and seek to expand knowledge • There‘s a great deal of pragmatism in policy-decision making – not all decisions require the same level of accuracy