ELICITATION AND TRUNCATION EFFECTS IN CONTINGENT VALUATION STUDIES

The contingent valuation method (CVM) uses surveys of expressed preferences to evaluate willingness to pay for (generally) non-market, environmental goods. This approach gives the method theoretical applicability to an extensive range of use and passive-use values associated with such goods. However, recent years have seen the method come under sustained empirical and theoretical attack by critics who claim that the expressed preference statements given by respondents to CVM questions are subject to a variety of biases to the extent that ''true'' valuations cannot be inferred. This debate was reviewed and assessed in the recent report of the US, NOAA ''blue-ribbon'' panel which gave cautious approval to the method subject to adherence to a rigorous testing protocol. This paper reports findings from the first UK CVM study to generally conform to those guidelines. The major objective of the research reported on here is the analysis of the effects of altering the method of eliciting willingness to pay (WTP) responses. Three WTP elicitation methods are employed: open-ended questions (where the respondent is free to give any answer); dichotomous choice questions (requiring a yes/no response regarding a set WTP bid level); and iterative bidding questions (where a respondent is free to move up or down from a given WTP starting point). Results indicate that respondents experience significant uncertainty in answering open-ended questions and may exhibit free-riding or strategic overbidding tendencies (although this is less certain). When answering dichotomous choice questions respondents seem to experience much less uncertainty although the suggestion that bid levels affect responses cannot be ruled out, and it is clear that respondents behave somewhat differently to dichotomous choice as opposed to open-ended formats. The iterative bidding approach appears to provide a halfway house with respondents exhibiting certain of the characteristics of both the other formats. We concluded that the level of uncertainty induced by open-ended formats is a major concern, and that further research into the microeconomic motivations of individuals responding to iterative bidding and dichotomous choice CV surveys is high priority. A further aim of the analysis was to test for changes in estimated mean WTP induced by the application of different forms of truncation across all elicitation methods. Recommendations are made on appropriate truncation strategies for each elicitation method.