Random error in willingness to pay measurement: A multiple indicators, latent variable approach to the reliability of contingent values

Bradley S. Jorgensen, Geoffrey J. Syme, Leigh M. Smith, Brian J. Bishop

Research output: Contribution to journalReview ArticleResearchpeer-review

Abstract

The reliability of measurement refers to unsystematic error in observed responses. Investigations of the prevalence of random error in stated estimates of willingness to pay (WTP) are important to an understanding of why tests of validity in CV can fail. However, published reliability studies have tended to adopt empirical methods that have practical and conceptual limitations when applied to WTP responses. This contention is supported in a review of contingent valuation reliability studies that demonstrate important limitations of existing approaches to WTP reliability. It is argued that empirical assessments of the reliability of contingent values may be better dealt with by using multiple indicators to measure the latent WTP distribution. This latent variable approach is demonstrated with data obtained from a WTP study for stormwater pollution abatement. Attitude variables were employed as a way of assessing the reliability of open-ended WTP (with benchmarked payment cards) for stormwater pollution abatement. The results indicated that participants' decisions to pay were reliably measured, but not the magnitude of the WTP bids. This finding highlights the need to better discern what is actually being measured in WTP studies.

Original languageEnglish
Pages (from-to)41-59
Number of pages19
JournalJournal of Economic Psychology
Volume25
Issue number1
DOIs
Publication statusPublished - 1 Feb 2004

Keywords

  • Contingent valuation
  • Reliability
  • Validity
  • Willingness to pay

Cite this

Jorgensen, Bradley S. ; Syme, Geoffrey J. ; Smith, Leigh M. ; Bishop, Brian J. / Random error in willingness to pay measurement : A multiple indicators, latent variable approach to the reliability of contingent values. In: Journal of Economic Psychology. 2004 ; Vol. 25, No. 1. pp. 41-59.
@article{65f552b70e0c466e92f281e834769e8a,
title = "Random error in willingness to pay measurement: A multiple indicators, latent variable approach to the reliability of contingent values",
abstract = "The reliability of measurement refers to unsystematic error in observed responses. Investigations of the prevalence of random error in stated estimates of willingness to pay (WTP) are important to an understanding of why tests of validity in CV can fail. However, published reliability studies have tended to adopt empirical methods that have practical and conceptual limitations when applied to WTP responses. This contention is supported in a review of contingent valuation reliability studies that demonstrate important limitations of existing approaches to WTP reliability. It is argued that empirical assessments of the reliability of contingent values may be better dealt with by using multiple indicators to measure the latent WTP distribution. This latent variable approach is demonstrated with data obtained from a WTP study for stormwater pollution abatement. Attitude variables were employed as a way of assessing the reliability of open-ended WTP (with benchmarked payment cards) for stormwater pollution abatement. The results indicated that participants' decisions to pay were reliably measured, but not the magnitude of the WTP bids. This finding highlights the need to better discern what is actually being measured in WTP studies.",
keywords = "Contingent valuation, Reliability, Validity, Willingness to pay",
author = "Jorgensen, {Bradley S.} and Syme, {Geoffrey J.} and Smith, {Leigh M.} and Bishop, {Brian J.}",
year = "2004",
month = "2",
day = "1",
doi = "10.1016/S0167-4870(02)00167-8",
language = "English",
volume = "25",
pages = "41--59",
journal = "Journal of Economic Psychology",
issn = "0167-4870",
publisher = "Elsevier",
number = "1",

}

Random error in willingness to pay measurement : A multiple indicators, latent variable approach to the reliability of contingent values. / Jorgensen, Bradley S.; Syme, Geoffrey J.; Smith, Leigh M.; Bishop, Brian J.

In: Journal of Economic Psychology, Vol. 25, No. 1, 01.02.2004, p. 41-59.

Research output: Contribution to journalReview ArticleResearchpeer-review

TY - JOUR

T1 - Random error in willingness to pay measurement

T2 - A multiple indicators, latent variable approach to the reliability of contingent values

AU - Jorgensen, Bradley S.

AU - Syme, Geoffrey J.

AU - Smith, Leigh M.

AU - Bishop, Brian J.

PY - 2004/2/1

Y1 - 2004/2/1

N2 - The reliability of measurement refers to unsystematic error in observed responses. Investigations of the prevalence of random error in stated estimates of willingness to pay (WTP) are important to an understanding of why tests of validity in CV can fail. However, published reliability studies have tended to adopt empirical methods that have practical and conceptual limitations when applied to WTP responses. This contention is supported in a review of contingent valuation reliability studies that demonstrate important limitations of existing approaches to WTP reliability. It is argued that empirical assessments of the reliability of contingent values may be better dealt with by using multiple indicators to measure the latent WTP distribution. This latent variable approach is demonstrated with data obtained from a WTP study for stormwater pollution abatement. Attitude variables were employed as a way of assessing the reliability of open-ended WTP (with benchmarked payment cards) for stormwater pollution abatement. The results indicated that participants' decisions to pay were reliably measured, but not the magnitude of the WTP bids. This finding highlights the need to better discern what is actually being measured in WTP studies.

AB - The reliability of measurement refers to unsystematic error in observed responses. Investigations of the prevalence of random error in stated estimates of willingness to pay (WTP) are important to an understanding of why tests of validity in CV can fail. However, published reliability studies have tended to adopt empirical methods that have practical and conceptual limitations when applied to WTP responses. This contention is supported in a review of contingent valuation reliability studies that demonstrate important limitations of existing approaches to WTP reliability. It is argued that empirical assessments of the reliability of contingent values may be better dealt with by using multiple indicators to measure the latent WTP distribution. This latent variable approach is demonstrated with data obtained from a WTP study for stormwater pollution abatement. Attitude variables were employed as a way of assessing the reliability of open-ended WTP (with benchmarked payment cards) for stormwater pollution abatement. The results indicated that participants' decisions to pay were reliably measured, but not the magnitude of the WTP bids. This finding highlights the need to better discern what is actually being measured in WTP studies.

KW - Contingent valuation

KW - Reliability

KW - Validity

KW - Willingness to pay

UR - http://www.scopus.com/inward/record.url?scp=0346268949&partnerID=8YFLogxK

U2 - 10.1016/S0167-4870(02)00167-8

DO - 10.1016/S0167-4870(02)00167-8

M3 - Review Article

VL - 25

SP - 41

EP - 59

JO - Journal of Economic Psychology

JF - Journal of Economic Psychology

SN - 0167-4870

IS - 1

ER -