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Sixth Interim Report WESTERN REGIONAL RESEARCH PUBLICATION W-133 Benefits & Costs Transfer in Natural Resource Planning Sixth Interim Report September, 1993 Compiled by John C. Bergstrom Department of Agricultural and Applied Economics University of Georgia 208 Conner Hall Athens, GA 30602-7509 Benefits and Costs Transfer in Natural Resource Planning CONTENTS Natural Resource Valuation Case Studies John R. Boyce and Daniel W. A Market Test of the Contingent Valuation Method: The McCollum Case of Bison Hunting Permits in Alaska Gregory L. Poe and Richard C. Information, Risk Perceptions, and Contingent Values for Bishop Groundwater Protection Edgar L. Michalson An Estimate of the Economic Value of Selected Columbia and Snake River Anadromous Fisheries, 1938- 1990 Priya Shyamsundar and Randall A. Does Contingent Valuation Work in Non-Market Economies Kramer Donald J. Epp and Sharon I. Gripp Test-Retest Reliability of Contingent Valuation Estimates for an Unfamiliar Policy Choice: Valuation of Tropical Rain Forest Preservation Se-Hyun Choi, Dean F. Schreiner, Benefit-Cost Analysis of a Trout Fishery in Southeastern David M. Leslie, Jr., and Jack Oklahoma Harper Douglas M. Larson and John B. Toward Measuring Use and Nonuse Values from Related Loomis Market Behavior: Some Preliminary Results Thomas C. Brown Measuring Nonuse Value: A Comparison of Recent Contingent Valuation Studies Charles E. Meier and Alan Randall The Hedonic Demand Model: Comparative Statics and Prospects for Estimation Catherine L. Kling An Assessment of the Empirical Magnitude of Option Values for Environmental Goods LeRoy Hansen and Dannette Woo Harry Goes to be with Tom and Dick: A Source of Bias in Estimates of Resource Demand Jeffrey Englin and Trudy Ann Comparing Observed and Multiple-Scenario Contingent Cameron Behavior: A Panel Analysis Utilizing Poisson Regression Techniques The Contingent Valuation Method and Discrete Choice Questions Kevin J. Boyle, F. Reed Johnson, Valuing Public Goods: Discrete Versus Continuous Daniel W. McCollum, William H. Contingent-Valuation Responses Desvousges, Richard W. Dunford, and Sara P. Hudson Thomas P. Holmes and Randall A. A Contingent Valuation Test of the Prominence Hypothesis Kramer Barbara J. Kanninen Bias in Discrete Response Cantingent Valuation Michael P. Welsh and Richard C. Multiple Bounded Discrete Choice Models Bishop Gregory L. Poe, Eric K. Lossin, and A Convolutions Approach to Measuring the Differences in Michael P. Welsh Simulated Distributions: Application to Dichotomous Choice Contingent Valuation Richard G. Walsh and John R. Intellectual Capital and the Transfer Process McKean Robert P. Berrens Some Problems with Deriving Demand Curves from Measure of Use Variables in Referendum Contingent Valuation Models John Loomis, Brian Roach, Frank Reservoir Recreation Demand and Benefits Transfers: Ward and Richard Ready Preliminary Results George R. Parsons and Mary Jo Benefits Transfer in a Random Utility Model of Recreation Kealy John C. Bergstrom RPA Assessment of Outdoor Recreation: Current Applications and Future Directions FORWARD The W-133 Regional Research Project entitled "Benefits and Costs Transfer in Natural Resource Planning" was recently rechartered by the U.S. Department of Agriculture, Cooperative State Research Service. The focus of the W-133 Project is the economic valuation of environmental resources and the application of economic values to facilitate environmental and natural resource decision-making. Researchers in over 25 states across the United States are involved in the W-133 Project through Land-Grant University Experiment Station appointments. One of the strengths of the W-133 Project is that it has also attracted much interest and participation from researchers from a variety of public and private colleges and universities, federal resource management agencies, and state resource management agencies. The active and widespread participation in the W-133 Project is reflected in the topics and authorship of the research papers presented in this report. The specific objectives of the W-133 Project are to: 1) provide site specific use and nonuse values of natural resources for public policy analysis, and 2) develop protocols for transferring value estimates to unstudied sites. Research under these two specific objectives is targeted by W- 133 participants at four resource areas: water based recreation, groundwater quality, wetlands, and recreational fisheries. The papers presented in this report represent major progress towards addressing these four problem areas and meeting the specific W-133 regional research objectives. The first set of papers present environmental resource valuation case studies. These case studies demonstrate and assess techniques for valuing non-marketed resources in different policy and management situations. The second set of papers address several general topics related to resource valuation theory and modeling. These topics include use values, nonuse values, and demand model specification and estimation. The third set of papers focus specifically on the contingent valuation method. The primary concern discussed in these papers is the proper application of discrete choice contingent valuation questions. The fourth set of papers present and discuss issues related to the transfer of benefit estimates in the policy and management arena. The papers in this section provide insight into conceptual and empirical problems which must be faced when attempting to use benefits transfer to assess environmental and natural resource policy and management. John C. Bergstrom The University of Georgia September, 1993 A Market Test of the Contingent Valuation Method: The Case of Bison Hunting Permits in Alaska John R. Boyce Department of Economics University of Alaska Fairbanks Fairbanks, Alaska Daniel W. McCollurn U.S. Forest Service Rocky Mountain Forest and Range Experiment Station Fort Collins, Colorado Introduction The most important advances in economics have resulted fiom testable hypotheses regarding how people behave. These hypotheses have been meticulously tested against observations of actual behavior. In contrast, non-market valuation techniques such as the contingent valuation method (CVM) are based on survey responses of how people say they would hypothetically behave if the hypothetical market existed. These techniques rely on stated intentions of behavior, not on actual observations of behavior. Furthermore, the information is typically gathered from individuals who have incentives for affecting the results. Thus, in spite of two decades of research in this area, many economists remain highly skeptical of non-market valuation techniques for estimating economic value. The two main types of issues that arise in relation to the use of CVM are its validity and its reliability. Validity is broadly defined as "the degree to which it measures the theoretical construct under investigation" (Mitchell & Carson 1989, p. 190). Reliability is concerned with how accurate the measure is. Our primary concern in this paper is with validity. In particular, we are concerned with what Mitchell and Carson term "criterion validity." Essentially, the test is whether or not CVM estimates of value are comparable to estimates of value that are obtained in situations where responses are based on actual behavior. Mitchell and Carson term such tests as "hypothetical-simulated-markets." Several such tests have appeared in the literature. Bohm's (1972) study of the value of closed circuit television programming was the first construction of such a test. Bohm concluded that responses to hypothetical questions resulted in "irresponsible" responses. Bishop and Heberlein (1979) tested the validity of CVM surveys by sending negotiable checks to hunters having drawn a goose permit in the Horicon zone of central Wisconsin. The willingness to accept (WTA) estimates obtained fiom this simulated market were compared with CVM responses to both WTA and willingness to pay (WTP) surveys. They concluded that "contingent values could easily be in error by 50% or more" (Bishop, Heberlein, and Kealy, 1983, p. 620). Bishop and Heberlein followed this with two, more exhaustive studies in 1983 and 1984 involving special early season deer hunting permits in the Sandhill Wildlife Demonstration area (Bishop, Heberlein, Welsh, and Baurngartner 1984; Bishop and Heberlein 1985, 1986; Bishop, Heberlein, McCollum, and Welsh 1988) . These studies used a simulated market for both WTA and WTP. In addition, they examined the effect of various market forms, including an incentive compatible.fifth price auction (to sell four permits) in the 1983 study. They concluded that "contingent valuation is accurate enough, at least for items like hunting permits, to be useful for policy analysis" (Bishop, Heberlein, McCollum, and Welsh 1988, p. 8-3). Another study, by Dickie, Fisher, and Gerking (1987), conducted an experiment in which CVM was compared with actual behavior for valuing strawberries which were being sold door to door. Several studies have also extended the test to areas where existence value is being measured. Siep and Strand (1991) compared CVM results with actual expenditure data collected on people's contributions to environmental groups. Duffield and Patterson (1991) examined contribution rates for in-stream improvements in Montana. Siep and Strand and Duffield and Patterson found that non-zero bids were much lower for actual transactions than for CVM. There have also been several laboratory experiments such as the 'SOA' experiment
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