Disparity between hypothetical and actual willingness to pay in a biodiversity

conservation context.

Dr. Michael Christie

Institute of Rural SciencesUniversity of Wales Aberystwyth

2

Overview

• Overview of CV criterion validity tests

• Case study: CV study of the value of Red Kite conservation in Wales

• Conclusions

3

Biodiversity valuation

• Over the past 20 years or so, there have been numerous studies that have attempted to value biodiversity, for an overview, see– Nunes and van der Bergh (2001);– OECD (2001)

• But how reliable are the findings from such studies?

4

Are WTP values elicited in contingent valuation studies valid ?• Does the study follow NOAA guidelines?

• Undertake validity tests• Content validity: Does the survey accurately reflect

the good?

• Construct validity: Model WTP responses against respondent characteristics.

• Criterion validity: Compare hypothetical WTP values with actual WTP values.

5

Table 1: Summary of the main findings of criterion validation experiments

Author Construct (Sampling frame) Hypothetical (H) versus Real (R)Frykblom, 1997 Swedish National Atlas (Students) HOE (161 SEK) = HDC (141 SEK)

HOE (161 SEK) > RDC (94 SEK) 1

HDC (141 SEK) > RDC (94 SEK) 1

Johannesson, 1997 Box of chocolate (Executives) HOE (133 SEK) > RV (81 SEK)

Blumenschein etal., 1997

UVEX sunglasses (Students) HV ($11.97) > RV ($1.02) 1

Neill et al., 1994 Experiment 1: Picture (Students).

Experiment 2: Map painting(Students)

HOE ($37.04) > RV ($9.49) 1

HOE ($40) = HVA ($31)HVA ($31) > RVA ($10) 1

HOE ($40) > RVA ($10) 1

Cummings et al.,1995

Juicer (Church-goers)

Chocolates (students)

Calculator (students)

Within-subjects: HDC (41%) > RDC (16%) 1

Between-subjects: HDC (41%) > RDC (11%) 1

Within-subjects: HDC (42%) > RDC (4%) 1

Between-subjects: HDC (42%) > RDC (8%) 1

Between-subjects: HDC (21%) > RDC (8%) 1

Loomis et al., 1996 Art print (University staff) HOE(no reminder)($42.34) > ROE ($11.63) 1

Johannesson et al.,1997

Boxes of chocolate (Executives) HOE (89 SEK) = RV (87 SEK) 3

Smith andMansfield, 1998

Telephone-mail-telephoneinterview (previous respondents)

HWTA = RWTA 2

Macmillan et al.(pending)

Donations to the Isle of Eigg Trust(general public)

HDC (realism) (£3.41) = RDC (£3.71) 2

HDC (neutral CV) (£6.21) = RDC (£3.71) 2

6

Criterion validity tests

• Generally, Hypothetical WTP > Actual WTP

• Mostly based on laboratory experiments.

• Very few address environmental goods.

• A truly rigorous criteron test would use:– Field tests– An environmental good

7

Research Aims:

• Using the case study of Red Kite conservation in Wales, the research will aim to :

– Test H0: HWTP = AWTP

• Since empirical (lab) studies suggest : HWTP > AWTP

– We will also aim to identify reasons for any disparity between hypothetical and actual WTP. Therefore, we will compare:

• The size of bids between treatments• Stated intentions to pay and actual payments

8

9

Red Kites in Wales

• The Red Kite used to be common in Wales.

• But following 400 year persecution, only 6 Kites left in Wales in 1900.

• Recent government-funded effort has re-established Kite populations.

10

Red Kites in Wales

• However, government funding stopped in 1997, and the ‘Welsh Kite Trust’ charity was formed to continue conservation efforts.

• Objectives of WKT:– research Kite’s requirements– nest protection– raise public awareness of Kites– provide information about Kites

• However, limited funds meant that the plight of the Kite is not now secure!

11

Experimental Design

• Two treatments– Hypothetical WTP: to simulate CV studies

– Actual WTP: actual cash donations to WKT

• Comparisons between treatments:– Bid levels

• positive bids only

• positive + zero bids

– Stated ‘intentions’ to pay with actual payment

12

Comparison of hypothetical and actual WTP for Kite conservation

Donation (positive and genuine zero bids)

Donation(positive bids only)

Treatment Hypothetical donation

Actual donation

Hypothetical donation

Actualdonation

Mean WTP 4.35 1.28 5.06 3.94

Median WTP 2.5 0 5 2

SD 5.37 2.92 5.47 3.99

n 93 80 80 26

T-test t = 4.571P = 0.000

t = 0.962p = 0.338

Mann-Whitney U M-W U = 1481.5P = 0.000

M-W U = 792.5p = 0.06

13

Comparison of hypothetical and actual WTP for Kite conservation

• HWTP(pos+zero) > AWTP(pos+zero)

• HWTPpos = AWTPpos

• This suggests that:– actual bid levels were similar between treatments,

– but there were more zero bids in the actual treatment compared to hypothetical treatment.

14

Stated intention to pay versus actual payment made between treatments

Hypothetical treatment Actual treatment

Response Intention to pay(HI)

Hypothetical donation

(HD)

Intention to pay(AI)

Actualdonation

(AD)

Yes, would pay(%)

67.3 79.6 56.8 25.5

Maybe pay(%)

12.2 21.6

No, wouldn't pay(%)

20.4 20.4 21.6 74.5

N 98 98 102 102

Chi-square: Probability:

2 = 0.031p = 0.859

2 = 57.19p = 0.000

15

Stated intention to pay versus actual payment made between treatments

• HI = AI : No difference in % intending to pay between treatments

• HD ≠ AD : Difference in % stating an amount between treatments

• HI = HD : No difference in % stating an intention to pay and stating a hypothetical amount.

• AI ≠ AD : Difference in % stating an intention to pay and stating an actual amount.

16

Summary of key results

• Hypothetical WTP was 3 times greater that actual WTP: consistent with other criterion validity experiments

• However, – The value of bids were consistent between

treatments– People over-stated intention to pay in

hypothetical treatment.

17

Why did respondents over-stated intention to pay in hypothetical treatment?

• Design issues in this experiment relating to how people could make actual donations?

OR• Inherent problem in CV that stimulates more

people to express a WTP amount that they would in a real situation?– ‘Warm glow’ effect– ‘Cheap talk’ aims to help make respondents more

aware of implications of stating a WTP amount, but may need more emphasis on initially determining whether people would actually pay at all!

18

What constraints or limitations would you expect to face regarding the use of preference and attitude information

for actual policy formulation or implementation?

• Reliability: although much effort has been undertaken to improve reliability, criterion validity test consistently show over-estimation.

• Policy makers, however, do appear to be embracing the results from valuations (albeit with caution).

19

Thank you for your interest

Christie M (2007) An examination of the disparity between hypothetical and actual willingness to pay for Red Kite

conservation using the contingent valuation method. Canadian Journal of Agricultural Economics 55, 159-169.

20

Tobit model of Hypothetical and Real WTP for Red Kite conservation

Variable Hypo Actual Description

Everseen 3.67***(1.14)

5.28***(1.42)

Dummy for whether the respondent has ever seen a Kite: 1 = yes, 0 = no

LiveWales -0.38(1.13)

-1.64(1.25)

Dummy for whether the respondent lives in Wales: 1 = yes, 0 = no.

Gender -0.08(1.15)

-0.21(1.26)

Gender of respondent: Male = 1, Female = 0

Income 3.89-05

(5.05-05)8.21-06

(6.09-05)Income of respondent

Member 3.95***(1.16)

5.36***(1.36)

Dummy for membership of Environmental organisation: 1 = yes, 0 = no.

Constant 0.01(1.44)

-5.20***(1.71

LL function -257.27 -91.94

N 93 80

LM test for tobit 30.87 4.63

ANOVA base fit measure 0.079 0.388