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A Comparison of Direct Methods for Valuing Environmental Policies

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It has been speculated that deregulation of the electric industry in New Hampshire and other states throughout the country may lead to a degradation in air quality levels in the northeastern United States and other regions. This study examines means of determining how one aspect of air quality change--visibility--affects consumer surplus and the regional economy, and provides a direct comparison between two of the primary methods of direct valuation, the contingent valuation method (CVM) and conjoint analysis (CA).

Objectives:
(1) To compare and contrast two frequently used methods of valuation of nonmarket commodities such as visibility (the contingent valuation method and conjoint analysis) to provide insight into which (if either) might be the more appropriate technique to address the problem at hand; (2) To derive estimates of the impacts of visibility changes in the White Mountains region of New Hampshire on visitors to the region; and (3) To use these estimates to determine part of the potential economic impact of deregulation of the electric industry in New Hampshire.

Approach:
A theoretical model is constmcted drawing and expanding upon recent research in the field to construct a setting where CA and CVM can be directly compared. This model is then applied in a case study in the White Mountains of New Hampshire to estimate the impacts of visibility degradation on the consumer surplus of users of the area's recreational resources. By testing the two methods in the same area with the same survey tools and sampling pool, direct comparisons between the techniques can be made.

Expected Results:
First, the project will provide additional information on the usefulness of two major approaches for direct valuation of non-market goods, contingent valuation and conjoint analysis. The second major contribution of this study is the policy relevant information on visibility valuation which will be obtained. VisibiJity conditions have been declining in many Class I airsheds in recent years and may degrade further with deregulation of the electric industry. Information related to the potential economic impact of these changes in visibility can be used in examining the cost savings which may result from deregulation.

Metadata

EPA/NSF ID:
R825824
Principal Investigators:
Halstead, John M.
Stevens, Thomas H.
Hill, L. Bruce
Technical Liaison:
Research Organization:
New Hampshire, University of
Massachusetts, University of
Appalachian Mountain Club
Funding Agency/Program:
EPA/ORD/Valuation
Grant Year:
1997
Project Period:
October 1, 1997 to September 30, 1999
Cost to Funding Agency:
$159,071
Project Status Reports:
      In 1998:

      Progress Summary/Accomplishments: In the first year of the project, a computer-based survey was developed and pre-tested, and subsequently administered on a face-to-face basis. A computer program (Win Haze) was purchased to generate images of the White Mountains which allowed researchers to control for the precise visual ranges and air quality with which respondents were confronted.

      Visitor surveys in Pinkham Notch, NH over the course of spring, summer, and fall of 1998 have been completed and have yielded between 250 and 300 useable observations. Preliminary results indicate that there may be subtle differences in the responses to those surveys using the contingent valuation method (CVM) as compared to the conjoint analysis (CA) method. Ongoing analysis of consumer surplus estimates generated using the two techniques will generate comparable estimates so that more conclusive results can be produced. Ancillary data on travel costs have also been collected and collated.

      Comparison of the survey results with previous visual valuation surveys indicates that the presence of clouds in the valuation photographs may be a confounding influence. Specifically, it is not clear whether respondents are bidding on differences in air quality/visibility or some other motivating factor. Further research and publication on this issue will ensue.

      Publications/Presentations: Harper, W., Halstead, J.M., T.H. Stevens, and L. Bruce Hill. 1998. "An Experiment in Perception: Can CVM Respondents Really Discern the Change in Environmental Quality We Ask Them To?" (Abstract) Agricultural and Resource Economics Review. 27(2).

      Hill, L.B., W. Harper, J.M. Halstead, and J. Carlson. "Human Perceptions of Regional Haze in the Great Gulf Wilderness Class-I Airshed, New Hampshire." Paper accepted for presentation at Conference on Wilderness Science in a Time of Change, Missoula Montana, May 1999.

      Harper, W., J.M. Halstead, T.H. Stevens, and L.B. Hill. "An Experiment in Perception: Can CVM Respondents Really Discern the Change in Environmental Quality We Ask Them To?" Paper presented at the Northeastern Agricultural and Resource Economics Annual Meetings. Ithaca, New York. June 21-23, 1998.

      Harper, W., J.M. Halstead, and L.B. Hill. "Valuing Changes in the Visual Range in the White Mountain National Forest." Paper presented at the Tenth Annual Northeastern Recreation Research Symposium. Boulton Landing, New York. April 5-7, 1998.

      In addition, researchers associated with the project (Hill and Harper) were interweaved as part of a feature story by New Hampshire Public Radio.

      Future Activities: As noted, analysis of data conducted at Pinkham Notch will continue to provide information on differences in consumer surplus (if any) generated by the two valuation techniques. This research will result in a dissertation, several papers presented at professional meetings, and several journal articles.

      In addition, the survey will be conducted at several new locations in 1999. Sites which are in the White Mountains but which should yield a more diverse sample (e.g. the overlook on the Kancamagus Highway) will be surveyed. The University of Massachusetts will conduct "off-site" research--far removed from the mountains--to determine if proximity affects results. These additional survey efforts will not only provide additional information in comparing CVM and CA, but will provide a more diverse sample population so that inferences may be drawn on the value of changes in visibility/air quality in the region.

      In 1999:

      Objective(s) of the Research Project:

      The objectives of this project are to: (1) compare and contrast two frequently used methods of valuation on nonmarket commodities such as visibility (the contingent valuation methods and conjoint analysis) to provide insight into which (if either) might be the more appropriate technique to address the problem at hand; (2) derive estimates of the impacts of visibility changes in the White Mountains region of New Hampshire on visitors to the region; and (3) use these estimates to determine part of the potential economic impact of deregulation of the electric industry in New Hampshire.

      Progress Summary/Accomplishments:

      In the second year of the project, the computer-based survey developed in the first year was administered on a face-to-face basis to collect more data in the White Mountains.

      Although preliminary results indicated that there may be subtle differences in the responses to those surveys using the contingent valuation method (CVM) as compared to the conjoint analysis (CA) method, subsequent analysis has shown that the two techniques yield essentially similar results. However, analysis of data has shown that respondents are essentially unwilling to make the tradeoffs proposed in the survey between reduced air quality and reduced monthly electric bills. This was true both for onsite and offsite face-to-face surveys and a mail survey. Thus, the willingness-to-accept-compensation approach was probably not appropriate for this particular vehicle, as it did not provide large enough bids to elicit tradeoffs.

      A no-cost extension has been granted to continue the project through September 30, 2000. The current year's activities will construct a different bid procedure (willingness to pay) to be incorporated with the survey, which will be otherwise unchanged. This survey then will be administered to the general public through a mail instrument, and in face-to-face surveys in Pinkham Notch in the White Mountains and in Acadia National Park. It is anticipated that willingness-to-pay estimates will be much higher than the previous willingness-to-accept estimates. Finally, the two mail surveys, the offsite face-to-face survey, and three onsite surveys will be pooled to conduct a meta-analysis and to examine the question of CA versus CVM further.

      Publications/Presentations:

      Hill LB, Harper W, Halstead JM, Carlson J, Stevens TH. Visibility conditions, human perceptions and valuation of visibility in a Class I Wilderness airshed, White Mountain National Forest, New Hampshire. In: Proceedings of Wilderness Science in a Time of Change. Ogden, Utah: USDA Forest Service, Rocky Mountain Research Station.

      Harper W, Halstead JM, Stevens TH, Hill LB. A conjoint analysis of visibility in the White Mountains. Presented at the Northeastern Agricultural and Resource Economics Association Meeting, Morgantown, WV, June 26–28, 1999.

      Harper W, Halstead JM, Stevens TH, Hill LB. Choosing methods for direct valuation of non-market goods: a comparative analysis of the contingent valuation model and conjoint analysis. Presented at the Annual Meeting of the American Agricultural Economics Association, Nashville, TN, August 8–11, 1999.

      Harper W, Halstead JM, Stevens TH, Hill LB. Valuation of visibility: a contingent valuation study in the White Mountain National Forest. Presented at the Annual Meeting of the Eastern Economics Association, Boston, MA, March 13, 1999.

      Harper W, Halstead JM, Hill LB, Stevens TH. An experiment in perception: Do clouds get in the way? J Environ Management (submitted for publication).

      Future Activities:

      As noted, analysis of data conducted at Pinkham Notch and in western Massachusetts will continue to provide information on differences in consumer surplus (if any) generated by the two valuation techniques. This research will result in a dissertation, a Master's thesis, several papers presented at professional meetings, and several journal articles.

      In addition, as noted, the survey will be conducted at several new locations in 2000. These additional survey efforts will provide additional information in comparing CVM and CA, as well as a more diverse sample population so that inferences may be drawn on the value of changes in visibility/air quality in the region.

      Supplemental Keywords: conjoint analysis, contingent valuation, visibility.

Project Reports:
Final
Objective: It has been speculated that deregulation of the electric industry in New Hampshire and other states throughout the country may lead to a degradation in air quality levels in the northeastern United States and other regions. This study examines means of determining how one aspect of air quality change?visibility?affects consumer surplus and the regional economy, and provides a direct comparison between two of the primary methods of direct valuation, the contingent valuation method (CVM) and conjoint analysis (CA).

The objectives of the study were to: (1) compare and contrast two frequently used methods of valuation of nonmarket commodities such as visibility (the CVM and CA) to provide insight into which (if either) might be the more appropriate technique to address the problem at hand; (2) derive estimates of the impacts of visibility changes in the White Mountains region of New Hampshire on visitors to the region; and (3) use these estimates to determine part of the potential economic impact of deregulation of the electric industry in New Hampshire.

Case Study Methods: A case study of visibility in the Great Gulf Wilderness in New Hampshire was undertaken during 1999?2000. Visibility at the study area, which is about one-quarter mile northeast of the Mt. Washington summit, is commonly impaired by regional haze that is largely a product of fossil fuel energy production ( Hill, et al., 2000). Four surveys were used to measure the value of visibility in the region:

  • Onsite by a trained interviewer using a laptop computer to present respondents with computer-modeled images derived from the WinHaze Visual Air Quality Program. This program allowed us to hold weather conditions constant while changing visibility only.
  • Offsite to individuals residing in the Northampton/Amherst area in western Massachusetts (about a 3- to 4-hour drive from the study site).
  • Mail survey of a random sample of 1,000 New England residents.
  • Mail survey of a random sample of residents of New Hampshire, Vermont, and Maine.

A split sampling approach was employed throughout. In each of the intercept surveys, one-half of the respondents received a CVM question that asked for their Willingness to Accept reduced visibility in exchange for lower electricity bills. The other respondents were asked to rate, on a scale of 1 to 10, the status quo and a scenario with less visibility and lower monthly electricity bills. The first mail survey was modeled after the intercept surveys, except that it was possible to confront respondents with multiple scenarios of visibility degradation in eliciting Willingness to Accept measures via the electric bill vehicle. The second mail survey switched elicitation procedures and sought to estimate respondents' Willingness to Pay (using the CVM) to avoid degradation of visibility.

Conjoint Analysis:

  • How would you rate the situation in photograph A on a scale of 0 to 10, with 0 being totally unacceptable and 10 indicating that you would definitely be willing to accept this level of visibility along with no change in your monthly electric bill?
  • How would you rate the situation in photograph B on a scale of 0 to 10, with 0 being totally unacceptable and 10 indicating that you would definitely be willing to accept this level of visibility along with a $x decrease in your monthly electric bill?

Contingent Valuation (Willingness to Accept): Would you be willing to accept this new level of visibility (indicated by picture B) in the White Mountain National Forest if your monthly electric bill were reduced by $x?

Contingent Valuation (Willingness to Pay): Would you be willing to pay $x per month more for electricity to avoid this new level of visibility (indicated by picture B) in the White Mountain National Forest?

In all cases, picture A?which represented the base scenario or status quo?described the average visibility level at the site during the summer months. Picture B represented one of four visual range reductions. The electric bill reduction was 20 percent of the respondent's total monthly bill in the personal survey and one-fourth, one-third, or one-half of the monthly bill for the first mail survey respondents (20 percent is the average savings expected from deregulation), while respondents to the second mail survey were confronted with bids ranging from $10 to $50 per month (these values were chosen based on the initial year surveys).

Double-wave mailings with postcard followups were used in each mail survey. Response rates were approximately 36 percent for the Willingness to Accept survey and 39 percent for the Willingness to Pay survey. These response rates are disappointingly low and raise the issue of nonresponse bias.

Summary/Accomplishments: Median Willingness to Accept estimates are provided in Table 1. Regarding the objectives of this research, the findings that emerge from this study can be summarized as follows. First, the CVM and CA models can produce very different results. In this study, the difference seems to be a result of the criterion used to define a "yes" response in the conjoint format. Twenty percent of conjoint respondents were "willing to accept" the tradeoffs presented in this study when a "yes" response was defined as B>A; 9 percent of conjoint respondents were "willing to accept" if the criteria is B>A; and only about 3 percent indicated that they would definitely accept (B=10 and B?A). Results from the Willingness to Pay CVM survey also suggest that median Willingness to Pay value estimates are very sensitive to whether or not respondent uncertainty is incorporated in the analysis. We therefore believe that future studies should include tests for sensitivity to the valuation question format and to respondent uncertainty.
Table 1. Visibility value estimates: median Willingness to Accept per montha
Model 1
(B>A)
Model 2
(B>A)
Average Respondent
$924
$1,006
NH Resident, No Visits Planned
$36
$17
Average Respondent, No Visits Planned
$154
$162
Average Respondent, Conjoint Model
$2,790
b
Average Respondent, CVM Model
$331
b
a Values rounded to nearest dollar.
b
Conjoint dummy variable not different from zero.
As noted above, we believe that conjoint responses rating B>A are conceptually consistent with "yes" responses in the traditional CVM. Our empirical estimates suggest no difference between conjoint and CVM in this case. However, the problem of hypothetical bias suggests that "yes" responses should be defined by B>A. When this was done, resulting estimates derived from the conjoint format were much different from those derived via CVM.

Regarding the second (policy-related) objective, most respondents were not willing to accept cheaper electricity in exchange for reduced visibility over the range examined in this study. In fact, the estimated economic value of visibility suggests that compensation for improved visibility via lower priced electricity is simply not feasible; the necessary compensation is likely to be greater than the average respondent's actual electricity bill. If respondents are well informed, we might therefore infer that deregulation will not result in a substantial increase in pollution as a result of greater household demand for the cheapest source of electricity.

Other results of interest to researchers in the stated preference area include:

  • Effects of location appear to be more complex than previously imagined. When asked for Willingness to Accept, respondents living nearby valued visibility less than those living further away, ceteris paribus. Location was not a statistically significant factor in the Willingness to Pay models. Those planning future visits were much less likely to accept reduced visibility and were more likely to choose Willingness to Pay to avoid reduced visibility.
  • Median value estimates differed dramatically depending on whether a Willingness to Accept or Willingness to Pay format was employed. Although this result was expected, the magnitude of the difference was not.
  • No differences were associated with whether the valuation question was conducted by mail or in person. Perhaps the National Oceanic and Atmospheric Administration (NOAA) guidelines requiring personal interviews should continue to be reevaluated.
  • Despite survey pre-tests and careful wording of the valuation question, many respondents valued air pollution in general. Consequently, the value of visibility may be overestimated. A CA that includes several attributes of pollution, including visibility, might clarify this issue, but the problem of sensitivity of this method to the definition of "yes" responses is likely to remain an issue.
References:

Elkstrand E, Loomis J. Estimated Willingness to Pay for protecting critical habitat for threatened and endangered fish with respondent uncertainty. In: Englin J, compiler. Tenth Interim Report, W-133 Benefits and Costs Transfer in Natural Resource Planning, University of Reno, Reno, NV, 1997.

Harper WJ. A comparison of direct methods for valuing environmental amenities: a case study of the White Mountain National Forest. Ph.D. Dissertation, University of New Hampshire, 2000.

Hill LB, Harper WJ, Halstead JM, Stevens TH, Porras I, Kimball K. Visitor perceptions and valuation of visibility in the Great Gulf Wilderness, New Hampshire. In: Proceedings: Wilderness Science in a Time of Change. Ogden, UT, U.S. Department of Agriculture Forest Service, Rocky Mountain Research Station, 2000.

Stevens TH, Belkner R, Dennis D, Kittredge D, Willis C. Comparison of contingent valuation and conjoint analysis in ecosystem management. Ecological Economics 2000;32(1):63-74.

Wang H. Treatment of "don't know" responses in contingent valuation surveys: a random valuation model. Journal of Environmental Economics and Management 1997;32(2):219-232.

Publications and Presentations: Total Count: 17

TypeCitationJournal Searches
Dissertation/ThesisHarper WJ. A comparison of direct methods for valuing environmental amenities: a case study of the White Mountain National Forest. Unpublished Ph.D. Dissertation, Department of Economics, University of New Hampshire, Durham, NH. not available
Dissertation/ThesisPorras I. Off-site value of visibility: New Hampshire's White Mountains case study. Unpublished M.S. Thesis, Department of Resource Economics, University of Massachusetts, Amherst, MA, 1999. not available
Journal ArticleHarper W, Halstead JM, Stevens TH, Hill LB. An experiment in perception: can CVM respondents really discern the change in environmental quality we ask them to? Agricultural and Resource Economics Review 1998;27(2). not available
Journal ArticleHarper WJ, Halstead JM, Stevens TH, Hill LB. Choosing methods for direct valuation of non-market goods: a comparative analysis of the contingent valuation model and conjoint analysis. American Journal of Agricultural Economics 1999;81(5):1313. not available
Journal ArticleHarper WJ, Halstead JM, Hill LB, Stevens TH. Valuation of visibility: a conjoint analysis study in the White Mountain National Forest. Agricultural and Resource Economics Review 1999;28(2):234. not available
PaperHalstead JM, Stevens TH, Harper WJ, Walker TL, Hill LB. The value of visibility: is that your final answer? Working paper, Department of Resource Economics and Development, University of New Hampshire. not available
PresentationHarper W, Halstead JM, Stevens TH, Hill LB. A conjoint analysis of visibility in the White Mountains. Presented at the Northeastern Agricultural and Resource Economics Association Meeting, Morgantown, WV, June 26-28, 1999. not available
PresentationHarper W, Halstead JM, Stevens TH, Hill LB. An experiment in perception: can CVM respondents really discern the change in environmental quality we ask them to? Presented at the Northeastern Agricultural and Resource Economics Annual Meeting, Ithaca, NY, June 21-23, 1998. not available
PresentationHarper W, Halstead JM, Stevens TH, Hill LB. Choosing methods for direct valuation of non-market goods: a comparative analysis of the contingent valuation model and conjoint analysis. Presented at the Annual Meeting of the American Agricultural Economics Association, Nashville, TN, August 8-11, 1999. not available
PresentationHalstead JM, Harper WJ, Hill LB. Degraded visibility and visitor behavior: the case of New Hampshire's White Mountain National Forest. Prepared for presentation at the Northeast Recreation Research Meeting, Bolton Landing, NY, April 1-5, 2000. not available
PresentationHalstead JM, Harper WJ, Hill LB. The effects of degraded visibility on visitor behavior: the case of New Hampshire's White Mountain National Forest. Presented at the Mid-Continent Regional Science Association Meeting, Milwaukee, WI, June 1-3, 2000. not available
PresentationStevens TH, Halstead JM, Harper WJ, Porras I, Hill LB, Walker TL, Willis C. The value of visibility: a comparison of stated preference methods. Presented at the U.S. EPA National Center for Environmental Economics and National Center for Environmental Research Conference. Stated Preference: What do we know? Where do we go? Washington, DC, October 12-13, 2000. not available
PresentationStevens TH, Porras I, Halstead JM, Harper WJ, Hill LB, Willis C. The value of visibility: an application in the Great Gulf Wilderness area. Presented at the Annual Meeting of the American Agricultural Economics Association, Tampa, FL, July 30-August 2, 2000. not available
PresentationHarper W, Halstead JM, Stevens TH, Hill LB. Valuation of visibility: a contingent valuation study in the White Mountain National Forest. Presented at the Annual Meeting of the Eastern Economics Association, Boston, MA, March 13, 1999. not available
PresentationStevens TH, Porras I, Halstead JM, Harper WJ, Hill LB, Willis C. Valuing visibility in northeastern wilderness areas. Presented at the W-133 Regional Research Project Meeting, Honolulu, HI, February 2000. not available
ProceedingsHalstead JM, Harper WJ, Hill LB. Degraded visibility and visitor behavior: the case of New Hampshire's White Mountain National Forest. In: Proceedings of the 2000 Northeast Recreation Research Meeting, U.S. Department of Agriculture Forest Service, 2000. not available
ProceedingsHill LB, Harper W, Halstead JM, Carlson J, Stevens TH. Visibility conditions, human perceptions and valuation of visibility in a Class I Wilderness airshed, White Mountain National Forest, New Hampshire. In: Proceedings of Wilderness Science in a Time of Change. Ogden, Utah: USDA Forest Service, Rocky Mountain Research Station. not available

Supplemental Keywords: air quality, valuation, benefits, conjoint analysis, contingent valuation, visibility

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