Identifying the True Willingness-To-Pay of Bayesian Respondents in a Dichotomous Choice Contingent Valuation Methodology

Abstract

This paper develops a respondent model of Bayesian updating for a double-bound dichotomous choice (DB-DC) contingent valuation methodology. We demonstrate by way of data simulations that current DB-DC identifications of true willingness-to-pay (WTP) may often fail given this respondent Bayesian updating context. Further simulations demonstrate that a simple extension of current DB-DC identifications derived explicitly from our Bayesian updating behavioral model can correct for much of the WTP bias. Additional results provide some caution to viewing respondents as acting strategically toward the second bid. Finally, an empirical application confirms the simulation outcomes.Bayesian updating, contingent valuation, double-bound dichotomous choice, strategic behavior, willingness-to-pay