A Semi-parametric Estimator of Willingness-to-Pay Applied to Dichotomous Choice Contingent Valuation Data.

The use of dichotomous choice questions (Are you willing to pay $x?) has been advocated as superior to open ended questions (What would you be willing to pay?) in contingent valuation studies of non-market goods. A supplementary dichotomous choice question, raising or lowering the bid price depending on the initial response, gives increased precision. However, a problem with these methods is that identifying the mean willingness to pay (WTP) is more complex, and often conditional on making a distributional assumption. This paper will present a semi-parametric method for estimating WTP without invoking any such assumptions, using the interval inherent in the double bounded format, and based on estimating the underlying hazard function for the distribution of WTP. An advantage of the approach over other non-parametric methods is that it allows one to include respondent characteristics as determinants of the individual decisions, and does so within a computationally straightforward framework. Copyright 2000 by Blackwell Publishers Ltd/University of Adelaide and Flinders University of South Australia