Umeå Economic Studies, Department of Economics, Umeå University
No 723:
Examining the income-effect in contingent valuation -The importance of making the right choices
Thomas Broberg ()
Abstract: This paper focuses on three important issues in estimating
the relationship between WTP and income using contingent valuation: 1) the
choice of income measure; 2) the modelling choice; and 3) the social
context. Addressing the first two issues, a sensitivity analysis is
performed. The results show that the estimated income-elasticity of WTP is
fairly sensitive to different income measures and modelling assumptions and
varies between 0.07 and 0.49 for the specific models estimated. The main
conclusion drawn from the analysis is that inclusion of control variables
for household characteristics is important for finding a significant
income-effect, when the household income measure is used. No significant
difference is found between gross or net income. The results further
indicate that the relevant income measure may not only be the income level
per se, but also the income level relative to others. The latter result is
based on an experimental valuation question, conditioning the respondents
on hypothetical changes in their absolute and relative income. The
conclusion is that the social context read into the valuation situation
influences the responses and, therefore, the estimated welfare measure.
Keywords: contingent valuation; income-effect; income-elasticity of WTP; income measure; social context; relative income; multiple bounded; payment card.; (follow links to similar papers)
JEL-Codes: C81; Q20; Q26; Q28; (follow links to similar papers)
23 pages, November 16, 2007
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