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A Simple Method for Bounding Willingness to Pay Using a Probit or Logit Model

By Timothy C. Haab and Kenneth E. Mcconnell


The purpose of this note is to present a workable model of referendum responses that imposes upper and lower bounds on willingness to pay, and can be estimated by canned programs such as SAS or LIMDEP without further programming work. The framework described here allows the researcher to incorporate bounds on willingness to pay using ordinary logit or probit models. The model takes the focus off of finessing the distribution of willingness to pay and instead allows the researcher to focus on the information contained in the referendum responses. In contrast to some of the more complicated models, the model has a simple closed form solution for median willingness to pay and subsequently for covariate effects on median willingness to pay. Recent research provides strong support for modeling discrete responses to contingent valuation questions with reasonable bounds on willingness to pay. While the model of utility differences with linear utility function and additive error is intuitively appealing, it typically implies that willingness to pay lies between plus and minus infinity. Yet in most cases willingness to pa

Publisher: Unpublished
Year: 1997
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