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Importance of Functional Form in the Estimation of Welfare (The)

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  • Kling, Catherine L.

Abstract

Researchers have recognized the central role that the choice of functional form has on estimates of consumer surplus. The purpose of this paper is to quantify the magnitude of errors which might arise from the use of incorrect functional forms. It describes a simulation experiment where estimated consumer surplus, based on simulated data sets, is compared with consumer surplus computed directly from the simulated data. The errors resulting from the use of mismatching functional forms range from approximately 4 percent to 107 percent.

Suggested Citation

  • Kling, Catherine L., 1989. "Importance of Functional Form in the Estimation of Welfare (The)," Staff General Research Papers Archive 1596, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:1596
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    References listed on IDEAS

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    1. Kling, Catherine L., 1988. "Comparing welfare estimates of environmental quality changes from recreation demand models," Journal of Environmental Economics and Management, Elsevier, vol. 15(3), pages 331-340, September.
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    Cited by:

    1. Torres, Cati & Hanley, Nick & Riera, Antoni, 2011. "How wrong can you be? Implications of incorrect utility function specification for welfare measurement in choice experiments," Journal of Environmental Economics and Management, Elsevier, vol. 62(1), pages 111-121, July.
    2. Pattiz, Brian David, 2009. "Count regression models for recreation demand: an application to Clear Lake," ISU General Staff Papers 200901010800002092, Iowa State University, Department of Economics.
    3. Catalina M. Torres & Sergio Colombo & Nick Hanley, 2014. "Incorrectly accounting for preference heterogeneity in choice experiments: what are the implications for welfare measurement?," DEA Working Papers 65, Universitat de les Illes Balears, Departament d'Economía Aplicada.
    4. Chotikapanich, Duangkamon & Griffiths, William E., 1998. "Carnarvon Gorge: a comment on the sensitivity of consumer surplus estimation," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 42(3), pages 1-13.
    5. Silvia Ferrini & Carlo Fezzi, 2012. "Generalized Additive Models for Nonmarket Valuation via Revealed or Stated Preference Methods," Land Economics, University of Wisconsin Press, vol. 88(4), pages 782-802.
    6. repec:sss:wpaper:201407 is not listed on IDEAS
    7. Crooker, John R., 2007. "Nonparametric Bounds on Welfare with Measurement Error in Prices: Techniques for Non-Market Resource Valuation," Agricultural and Resource Economics Review, Cambridge University Press, vol. 36(2), pages 239-252, October.
    8. Crooker, John & Kling, Catherine L., 2000. "Nonparametric Bounds on Welfare Measures: A New Tool for Nonmarket Valuation," Journal of Environmental Economics and Management, Elsevier, vol. 39(2), pages 145-161, March.
    9. Phaneuf, Daniel James, 1997. "Generalized corner solution models in recreation demand," ISU General Staff Papers 1997010108000013022, Iowa State University, Department of Economics.
    10. John Crooker & Joseph Herriges, 2004. "Parametric and Semi-Nonparametric Estimation of Willingness-to-Pay in the Dichotomous Choice Contingent Valuation Framework," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 27(4), pages 451-480, April.
    11. Søren B. Olsen & Cathrine U. Jensen & Toke E. Panduro, 2020. "Modelling Strategies for Discontinuous Distance Decay in Willingness to Pay for Ecosystem Services," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 75(2), pages 351-386, February.
    12. Chan, Nathan & Wichman, Casey, 2018. "Valuing Nonmarket Impacts of Climate Change: From Reduced Form to Welfare," RFF Working Paper Series 18-06, Resources for the Future.
    13. Catalina M. Torres Figuerola & Nick Hanley & Antoni Riera Font, 2008. "The implications of incorrect utility function specification for welfare measurement in choice experiments," CRE Working Papers (Documents de treball del CRE) 2008/6, Centre de Recerca Econòmica (UIB ·"Sa Nostra").
    14. Catalina M. Torres Figuerola & Nick Hanley & Sergio Colombo, 2011. "Incorrectly accounting for taste heterogeneity in choice experiments: Does it really matter for welfare measurement?," CRE Working Papers (Documents de treball del CRE) 2011/1, Centre de Recerca Econòmica (UIB ·"Sa Nostra").
    15. C. Woo & J. Zarnikau & E. Kollman, 2012. "Exact welfare measurement for double-log demand with partial adjustment," Empirical Economics, Springer, vol. 42(1), pages 171-180, February.

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