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A Note on Nonlinearity Bias and Dichotomous Choice CVM: Implications for Aggregate Benefits Estimation

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  • Souter, R.A.
  • Bowker, J.M.

Abstract

It is a generally known statistical fact that the mean of a nonlinear function of a set of random variables is not equivalent to the function evaluated at the means of the variables. However, in dichotomous choice contingent valuation studies a common practice is to calculate an overall mean (or median) by integrating over offer space (numerically or analytically) an estimated logit or probit function in which sample mean values for the concomitant variables are used. We demonstrate this procedure to be incorrect and we statistically test the procedure against the correct method for nonlinear models. Using data resulting in a well-behaved logit model, we reject the hypothesis of congruence between the two means. Such a finding should be considered in future single response dichotomous choice CVM studies, particularly when aggregation is of interest.

Suggested Citation

  • Souter, R.A. & Bowker, J.M., 1996. "A Note on Nonlinearity Bias and Dichotomous Choice CVM: Implications for Aggregate Benefits Estimation," Agricultural and Resource Economics Review, Cambridge University Press, vol. 25(1), pages 54-59, April.
    • Handle: RePEc:cup:agrerw:v:25:y:1996:i:01:p:54-59_00
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    Cited by:

    1. Chhandita Das & Christopher M. Anderson & Stephen K. Swallow, 2009. "Estimating Distributions of Willingness to Pay for Heterogeneous Populations," Southern Economic Journal, John Wiley & Sons, vol. 75(3), pages 593-610, January.
    2. Kline, Jeffrey D. & Alig, Ralph J. & Johnson, Rebecca L., 2000. "Forest owner incentives to protect riparian habitat," Ecological Economics, Elsevier, vol. 33(1), pages 29-43, April.
    3. Richard T. Carson, 2011. "Contingent Valuation," Books, Edward Elgar Publishing, number 2489.
    4. Bergstrom, John C. & Teasley, R. Jeff & Cordell, H. Ken & Souter, Ray A. & English, Donald B.K., 1996. "Effects Of Reservoir Aquatic Plant Management On Recreational Expenditures And Regional Economic Activity," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 28(2), pages 1-14, December.
    5. Jenkins, Dylan H. & Sullivan, Jay & Amacher, Gregory S. & Nicholas, Niki S. & Reaves, Dixie W., 2002. "Valuing high altitude spruce-fir forest improvements: importance of forest condition and recreation activity," Journal of Forest Economics, Elsevier, vol. 8(1), pages 77-99.
    6. English, Donald B.K., 2000. "A Simple Procedure for Generating Confidence Intervals in Tourist Spending Profiles and Resulting Economic Impacts," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 30(1), pages 1-16.
    7. Cho, Seong-Hoon & Newman, David H. & Bowker, J.M., 2005. "Measuring rural homeowners' willingness to pay for land conservation easements," Forest Policy and Economics, Elsevier, vol. 7(5), pages 757-770, August.

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