Environmental Economics

Demand Revealing Mechanisms for Contingent Valuation Validity Tests: Experimental Approach Using Appropriate Populations

  • Abstract
    A critical issue in environmental policy and valuation is whether hypothetical contingent valuation (CV) techniques can provide an unbiased measure of `true` social willingness to pay for public goods. Although "simulated market" experiments, in which participants have the opportunity to purchase and sell in voluntary markets constructed by the researcher, have provided a reasonable criterion for validity tests for private and quasi-private goods, extending this approach to public goods validity tests is problematic. Theoretical economic arguments and a large body of experimental economics research provides convincing evidence that free riding prevents demand revelation for actual public goods. As such, it is unclear whether the hypothetical bias reported in previous public goods validity tests (where hypothetical values are compared to actual payments) is due solely to `upward` bias associated with the CV method itself, or is also a function of mechanism bias associated with using actual public good collection mechanisms that do not induce people to contribute their true value. This research has two primary objectives. The first objective is to use laboratory experiments to develop a better public goods auction mechanism that can be used as a criterion for public goods validity tests, thus enabling an accurate measure of hypothetical bias in public goods valuation. The second objective will be to provide a more realistic test of the single shot provision point mechanism in field settings with more `appropriate` populations of the type usually solicited in CV research, a more realistic commodity, and with realistic stakes of a magnitude similar to those reported in CV research. The intent of this second effort will be to evaluate mechanism effects on hypothetical as well as actual payments. This research will develop a robust mechanism for better collecting funds for public goods in a practical single shot situation. This mechanism will be directly relevant to laboratory and real world settings for testing and calibrating CV. It will also provide a better collection mechanism for land trusts, green electricity, and other public programs relying on individual contributions.
  • Metadata
    Principal Investigators:
    Poe, Gregory
    Schulze, William
    Technical Liaison:
    Research Organization:
    Cornell University
    Funding Agency/Program:
    Grant Year:
    Project Period:
    October, 1997 to October, 1998
    Cost to Funding Agency:
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