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Estimation of Varying Parameters Model in Contingent Valuation : Case Study in aWetland Conservation

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Title: Estimation of Varying Parameters Model in Contingent Valuation : Case Study in aWetland Conservation
Authors: Suwa, Tatsuo Browse this author
Keywords: Contingent Valuation, Income Effect, Varying Parameters Model
Issue Date: Jul-2004
Publisher: Faculty of Economics, Hokkaido University
Journal Title: Economic journal of Hokkaido University
Volume: 33
Start Page: 191
End Page: 204
Abstract: Many contingent valuation (CV) studies have been implemented to estimate willingness to pay (WTP) for a non-market good over the last two decades. Most of these studies are based on a linear in income model which is introduced to CV study by Hanemann (1984) due to a convenience of calculation. This paper compares a linear in income model which denotes constant marginal utility and a varying parameters model (VPM) with inconstant marginal utility, using data from a questionnaire about wetland conservation in the Hokkaido area. The estimation results show that a VPM fits better than the linear in income model. The results suggest that the higher income group has lower marginal utility of income Thus, this paper derives an implication, which asserts the necessity of considering decreasing marginal utility of income that is neglected in Hanemann's basic model. Moreover, the estimation results demonstrate that income level affects not the value of marginal utility of environmental quality, but the value of marginal utility of income. Accordngly, differences in each household's WTP seem to be caused mainly by the dispersion of income level. (JEL C35, Q26, )
Type: bulletin (article)
Appears in Collections:Economic Journal of Hokkaido University > Vol. 33

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