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ECOLOGICAL ECONOMICS ELSEVIER
Ecological Economics 18 (1996) 243-253
Analysis
A comparison of stated preference methods for environmental valuation Peter C. Boxall a,*, Wiktor L. Adamowicz b, Joffre Swait c, Michael Williams d, Jordan Louviere e Canadian Forest Sert, ice, 5320 122 Street, Edmonton, AB, Canada b University of Alberta, Edmonton, AB T6H-3S5, Canada c Universit), of Florida, Gainest,ille, FL, USA Intelligent Marketing Systems, Edmonton, AB, Canada e University of Sydney, Sydney, Australia
Received 27 September 1995; accepted 4 March 1996
Abstract
This paper presents an empirical comparison of contingent valuation (CVM) and choice experiments which are used to value environmental quality changes. Both of these methods require individuals to state their preferences for environmental qualities. However, choice experiments differ from CVM in that environmental attributes are varied in an experimental design which requires respondents to make repeated choices between bundles of attributes. The empirical application involved the effect of environmental quality changes arising from forest management practices on recreational moose hunting values. Significant differences were found between the values derived from the two methods. However, detailed examination of the implied choice behaviour suggested that respondents ignored substitute recreation areas in the CVM question. Restricting the choice experiment model to consider only the one site where quality was varied, resulted in welfare estimates similar to the CVM model. This highlights the importance of substitutes in environmental valuation and suggests that choice experiments may be more appropriate than CVM in some cases. Keywords: Environmental valuation; Contingent valuation; Choice experiment model; Recreational hunting; Moose
1. Introduction
For approximately 30 years contingent valuation (CVM) methods have been employed by economists to value environmental goods and services. CVM has achieved prominence in this work despite controversy over its ability to accurately measure economic
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values (e.g., Diamond and Hausman, 1994; Hanemann, 1994). However, CVM is only part of a class of preference elicitation methods called 'stated preference' (SP). Other types of SP approaches capable of eliciting environmental preferences have not been widely used in environmental valuation. These other SP methods are the domain of human decision research, marketing, and transportation research, even though support for their use in economic analysis was formalized by McFadden (1986). This paper describes and compares CVM with an alternative SP
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method in an exploratory attempt to improve methods for environmental valuation. One of the first comparative applications of an alternative SP approach was by Adamowicz et al. (1994). They used a designed SP experiment and a parallel revealed preference (RP) study to assess the effects of water resource developments on recreational fishing values. Their results illustrated the usefulness of an alternative SP design called c h o i c e e x p e r i m e n t s and they utilized both methods in a joint SP-RP analysis. Both SP and RP datasets were found to be generated by similar preference structures once error variance differences were incorporated. This joint analysis suggested that the 'hypothetical' SP technique and the 'actual behaviour' RP method produced similar representations of choice behaviour. This paper describes a second SP choice experiment which was used for valuing environmental improvements. The study differs from the earlier work (Adamowicz et al., 1994) in that a parallel CVM analysis was conducted. Since choice experiments are a relatively new concept in environmental economics, the method is described in detail in this paper and its potential advantages in relation to the more traditional CVM are discussed. The focus, however, is an empirical examination of CVM and SP experimental choice analysis of a specific environmental quality improvement. Values derived from the two methods are estimated and the choice experiment model is used to explain differences between the values, and to illustrate potential problems with the CVM approach.
2. Stated preference approaches to environmental valuation SP methods involve the elicitation of responses to predefined alternatives in the form of ratings, rankings or choice. Thus, examining consumer choices in a discrete choice or referendum CVM study falls under the category of SP. t However, choice experi-
Similarly, open-ended CV methods can be considered a very specific form of rating or ranking of a predefined set of alternatives (i.e., the situation before and after an environmentalquality change).
ments, another SP method, involve a more experimental and involved analysis of choice behaviour. The method has its origin in conjoint analysis, which is a method used to represent individual judgements of multi-attribute stimuli (Batsell and Louviere, 1991). Conjoint analysis is a well known technique applied in marketing for over 20 years, but has recently been employed in geography, transportation, and economics (Louviere, 1991). The application of these alternate SP techniques to recreation and environmental economics is limited (Louviere and Timmermans, 1990; MacKenzie, 1993). Choice experiments have some advantages over CVM methods. For example, CVM typically involves describing precise changes in environmental goods or services through various information provision instruments. Respondents are required to answer a question which involves paying for the improved good or service. A problem with this approach is its reliance on the accuracy of the information, and that any errors in the information discovered after the fact cannot be changed. The choice experiment approach, however, relies on the representation of a choice situation (rather than the specific change in the good or service) using an array of attributes. Thus, it relies less on the accuracy and completeness of any particular description of the good or service, but more on the accuracy and completeness of the characteristics and features used to describe the situation. Therefore, rather than being questioned about a single event in detail, as in a CVM analysis, subjects are questioned about a sample of events drawn from the universe of possible events of that type (Louviere, 1994). The experimental aspect of choice experiments is also an advantage. Using attributes and levels of specific choice situations, experimental design procedures are used to make 'packages' of attributes that reflect different states of the environment. Individuals are asked to choose their preferred alternative from a 'choice set' made up of a set of different packages. Thus, the choice reflects the tradeoffs that each individual makes between the attributes of the situation. When a price or cost factor is included as an attribute in a package, it is possible to estimate economic values associated with the other attributes. Choice experiments are attractive for environmental valuation because they involve model structures
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(McFadden, 1974; Ben-Akiva and Lerman, 1989) which are also used in referendum CVM models (Mitchell and Carson, 1989) and in discrete choice travel cost models (Bockstael et al., 1991). This type of analysis is based on random utility theory, which describes discrete choices in a utility maximizing framework. Each alternative, i, in the choice set has an associated utility level for each individual represented by: (1)
~.:t'i-+-~. i
This utility is comprised of an objective or deterministic component (v i) and a random error component ( ~ i). In the economics literature this function is also known as a conditional indirect utility function since it is conditional on the choice of the alternative i. Selection of one object (consisting of a "package' of attributes) over another implies that the utility ( U ) of that object is greater than the utility of the other (Uj). The probability of choosing alternative i is: Tr( i) = P r { v i + e i>_ v i + ej; v j ~ C}
(2)
where C is the choice set. Assuming that the error terms are Gumbel-distributed with scale parameter Ix, the probability of choosing alternative i is: 'rr(i) -
exp,', y . exp ¢'' .i ~
(3)
C
This formulation can be estimated using the conditional logit model (McFadden, 1974). Note that the scale factor, Ix, is typically assumed to equal 1 (Ben-Akiva and Lerman, 1985). The random utility model also provides the theoretical basis for referendum CVM methods. In this method an individual is asked to choose between accepting a particular environmental improvement and a reduction in income (bid amount or payment), or no environmental change with no loss in income. In other words, there are two alternatives in the choice set. Random utility theory can be used to represent this choice in a binary choice model where the individual must choose between two alternatives: an improved state, i, and the status quo, j. Utilizing utility functions for two alternatives from
(1), the probabilities of an individual choosing alternative i or j are: ~(i)
= Pr(%.-
~-i g t ) -
vi),
"rr(j) = P r ( % - e i
