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Utility in Willingness to Pay Space: A Tool to Address Confounding Random Scale Effects in Destination Choice to the Alps

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  • Riccardo Scarpa
  • Mara Thiene
  • Kenneth Train

Abstract

We compare two approaches for estimating the distribution of consumers' willingness to pay (WTP) in discrete choice models. The usual procedure is to estimate the distribution of the utility coefficients and then derive the distribution of WTP, which is the ratio of coefficients. The alternative is to estimate the distribution of WTP directly. We apply both approaches to data on site choice in the Alps. We find that the alternative approach fits the data better, reduces the incidence of exceedingly large estimated WTP values, and provides the analyst with greater control in specifying and testing the distribution of WTP. Copyright 2008, Oxford University Press.

Suggested Citation

  • Riccardo Scarpa & Mara Thiene & Kenneth Train, 2008. "Utility in Willingness to Pay Space: A Tool to Address Confounding Random Scale Effects in Destination Choice to the Alps," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(4), pages 994-1010.
    • Handle: RePEc:oup:ajagec:v:90:y:2008:i:4:p:994-1010
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    File URL: http://hdl.handle.net/10.1111/j.1467-8276.2008.01155.x
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