-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
1/44
1
Valuing the Unmeasurable:
non-market valuation using
conjoint analysis
Sahan Dissanayake
Agricultural and Consumer Economics
University of Illinois
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
2/44
2
Outline
Introduction My Background Two questions Why non-market valuation?
Stated preference vs revealed preference Stated Preference Why conjoint analysis?
History Pros and Cons
Applications of CJ My Research Project Conclusions Questions A few words on applying to US graduate programs
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
3/44
3
My Background
University of Illinois
Department of Agricultural andConsumer Economics
Located in Urbana-Champaign, Illinois Surrounded by corn fields
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
4/44
4
My Background
My research interests
Mathematical Programming for ReserveDesign
GE Modeling of Environmental Tax
Non-Market Valuation using ConjointAnalysis
Intersections of Civil Conflict, FoodSecurity and Economic Development
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
5/44
5
The Pinnawala Elephant Orphanage is in the process of beingexpanded. Fifty acres of additional land will be purchased,expanding the carrying capacity by 100 elephants. In addition 20rare plant species will be planted.
The expansion will require an increase in the entrance fee. Thecurrent entrance fee is Rs. 100.00
How much of an increase in the entrance fee are you willing topay to support the expansion?
Two Questions
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
6/44
6
Two Questions
Option A Option B
50 acres ofpaddy landwill be
purchased and converted to
use by Pinnawala
50 acres offorest land will be
purchased and converted to
use by Pinnawala
Capacity increases by 100
elephants
Capacity increases by 75
elephants
20 species of rare plants will be
planted
10 species of rare plants will be
planted
The entrance fee will increase by
Rs. 50.00
The entrance fee will increase by
Rs. 25.00
The Pinnawala Elephant Orphanage is in theprocess of being expanded. Which option wouldyou choose?
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
7/44
7
Why non-market valuation?
Imperfect and Incomplete Markets
The market does not capture the full value of
goods and services The Sinharaja National Forest is worth more
than the land and the timber
The value of the biosphere is estimated to be
US$16
-54
trillion per year*(Global GNP is ~ US$18 trillion per year)
*Costanza et. al. 1997
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
8/44
8
Why non-market valuation?
We obtain utility from goods that are notdirectly purchased in the market
The existence of elephants
Carbon sequestration in the Amazon
The utility can be negative
Air pollution
Fertilizer runoff
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
9/44
9
For market goods prices are public and the demand or the
goods varies among individuals
For nonmarket goods levels are public and shared while the
marginal values vary
Policy makers need to consider both themarket and non-market values when makingdecisions.
Why non-market valuation?
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
10/44
10
Stated vs Revealed Preference
Revealed Preference
Use existing markettransactions to reveal
the preference for nonmarket goods
Examples
Hedonic Analysis
Travel Cost
Revealed preferencemethods require
a link between the
market good and thenon-market good
enough variation in theprices to useeconometric estimationtechniques
Stated Preference
Gathers responses fromsurveys conducted toestimate WTP or WTAfor non market goods
Examples
Contingent Valuation
Conjoint Analysis
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
11/44
11
A Brief History ofSP Methods
L. L. Thurstons work in the 1920s built on priorwork by psycologists.
Economists started using surveys by the 1940s tounderstand consumer purchases.
Davis (1960) was the first occurrence when statedpreference surveys were used to value outdoor
recreation.
Lancaster (1966) laid the economic foundations formethods to value attributes of goods.
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
12/44
12
Advantages and Disadvantages ofSP
SP Valuation methods rely on peoples ability to ordertheir preferences.
Ranking is less confrontational than pricing
SP methods can accommodate New goods
Limit the choice set
Introduce hypothetical scenarios
Downside concerns about validity since the decision making
context is hypothetical.
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
13/44
13
Stated Preference Question Types
SP valuations rely on answers to carefully wordedsurvey question
Answers Monetary amounts
Choices
Ratings
Answers are scaled following an appropriatemode of preference to yield a measure value.
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
14/44
14
Stated Preference Question Types
Binary choice questions are attractive
Less cognitive burden on the respondent
Only require comparison oftwo items at
a time (unlike ranking, rating, andmultinomial choice which requirecomparison amongst three or moreitems)
Respondents only need to make an
ordinal judgment (no need to calculate aWTP)
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
15/44
15
Validity of stated preference valuation
Validity of the measure
Does the estimated value measure thetheoretical objective.
Does the mean WTP match the populationsmean Hicksian surplus?
The validity can be assessed by comparing it
with a direct measure Most time NMV is used when behavior is not
directly observable
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
16/44
16
Conjoint Analysis
Based on Lancasters (1966) consumer theory
consumers derive utility not from goods themselves butrather from the attributes or characteristics that thegoods possess.
The stated preference equivalent for hedonicmethod.
Historically
Conjoint measurement: mathematical psychology
Conjoint analysis: marketing research
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
17/44
17
ASample CJ Survey
A sample survey fromJan et. al (2000)
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
18/44
18
ASample CJ Survey
A sample survey from Baarsma (2003)
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
19/44
19
Conjoint Analysis
Geographic and temporal scope of the change Single or multiple sites, instantaneous or not... Who benefits, passive uses, relevant behavior...
Most important attributes that influence decisions Number of attributes Levels of each attribute Use focus groups and pre-tests
Experimental Design ChoicesFull factorial designs
Fractional factorial designsOrthogonal designsRandomized designsCompletely Randomized designs
Data collection methods
Mail SurveyPersonal interviewsTelephone interviewsOnline surveys
Steps in conducting CJ survey1. Characterize the decision problem
2. Identify and describe the attributes
3. Develop an experimental design4. Develop the questionnaire
5. Collect data
6. Estimate model
7. Interpret results for policy analysis ordecision support
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
20/44
20
Examples ofStated Preference
Clem Tisdell and Ranjith Bandara - VisitorsReaction to Pinnawala Elephant Orphanage
in Sri Lanka: A Survey
The mean WTP estimates, calculated on themaximum WTP amount, is Rs. 409.39.
local WTP Rs. 55.09 (current Rs. 25.00)
foreign WTP Rs. 738.39 (current Rs. 200.00)
Your Responses?
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
21/44
21
Examples ofStated Preference
Clem Tisdell and Ranjith Bandara Comparison of rural and urban attitudes to
the conservation of Asian elephants
They use a contingent valuation survey
Urban WTP is higher than rural WTP
Urban WTP loss to farmers > 0
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
22/44
22
Examples ofStated Preference
Jeevika Weerahewa Perceptions of Social Climate inCalculating Poverty
A conjoint analysis survey of social climate
attributes - access to health, access to education, risk to lifeand property, and income
Levels - good, moderate, and bad
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
23/44
23
Examples of Conjoint Analysis
Milon and Scrogin (2006) study the preferencesforrestoring the Florida Greater Evergladeswetland ecosystem using a split-sample designbased on ecological characterization
They find structural characterization subsample favors
restoration more than the functional subsample
socioeconomic and attitudinal factors effect theWTP
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
24/44
24
Examples of Conjoint Analysis
Morrison et al. (1999) study the effect of includingthe loss of agricultural employment when calculatingthe WTP for Macquarie Marshes, New Zealand
They find WTP for an additional species is $4 (1997 AU$)
WTP for an irrigation-related job is $0.13
Inclusion of employment in the choice models loweredthe overall willingness to pay for environmental
improvements by 20% - 30%
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
25/44
25
Examples of Conjoint Analysis
Beenstock et. al. (1998) conduct a survey ofhouseholds attitudes to electricity outagesand find status quo effects
loss aversion
They suggest an empirical approach forremoving response biases from conjointanalyses
They compares the results with a CV considerable response resistance in the case
of CV (over50% gave 0 as the response)
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
26/44
26
Examples of Conjoint Analysis
Neuman and Neuman (2008) analyzethe loss aversion in discrete choiceexperiment involving the quality ofmaternity wards in three hospitals inIsrael.
They find loss aversion for four of fiveattributes
Not found for travel time
Isreal is fairly small
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
27/44
27
Examples of Conjoint Analysis
Teisl et. al. (1996) analyze the severalpotential management programs forAtlantic salmon in the Penobscot Riverfishery across multiple angler groups.
They find that preferences are
driven by the size of the resulting fish stock
less by whether the fishery was natural
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
28/44
28
Examples of Conjoint Analysis
Jan et. al. (2000) study a SouthAustralian communities preferences forpublic hospital services.
They were unable to estimate WTP butfind that
Improvements in complication rates arepositively associated
Waiting times and parking arenegatively associated
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
29/44
29
Examples of Conjoint Analysis
Baarsma (2003) study WTP to save the IJmeernature reserve in Netherlands which is partly beingdeveloped into a city.
She finds Respondents are willing to contribute between1.31
and 2.15 to maintaining the nature reserve with a10% increase in recreation
This is equivalent to0.675 million for Amsterdam.
Ranking, rating and choice give inconsistent estimates
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
30/44
30
My Project
Understanding the preferences forbird habitat restoration.
Loss aversion (Behavioral economics)
Analyze the impact of specifying theopportunity cost in terms of foregonespecies
Size/Number effects Study the preferences over saving a large
number of individuals from a few speciesversus
many species with few individuals fromeach species.
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
31/44
31
Common Pitfalls
Characterize the WTP clearly
WTP for individuals or household
Payments are one time or monthly or annually
Payment vehicle needs to be identified Sample size
Response rate should be considered
Not including a status quo option
Recently the literature suggests using a status quo option Taking the final results as all encompassing
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
32/44
32
Conclusion
Conjoint Analysis is rapidly growing as a wayto elicit nonmarket valuations.
Preferred to CV since the respondent is not
required to monetize a good or service. Experiment design and analysis is complex
(than CV).
Not limited to environmental goods/services.
If you have ideas to discuss or questionsabout CA e-mail me [email protected]
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
33/44
33
Reference Texts
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
34/44
34
Last Example
Heaven and Hell lI1991, Alkyd and Oil on canvas
Collection of Carmen Lomas Garza
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
35/44
35
Last Example
Branas-Garza et. al. (2009) analyze lossaversion with respect to the role ofheaven and hell in religious behaviorusing 35,000 subjects.
They find the effect of the carrot (heaven) is more
than three times as large as the effect ofthe stick (hell)
in the presence of infinitum rewards or
punishment, rewards (carrots) are moreeffective than punishment (stick) inencouraging religious practice
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
36/44
36
Thank you forlistening Questions?
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
37/44
37
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
38/44
38
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
39/44
39
Applying to US Graduate Programs
Dont be afraid to e-mail prospective advisers
Starting a conversation early can helpidentifying funding and suitable universities
Many faculty will respond But make sure your research interests match
and dont e-mail randomly
Spend time on your personal statement Emphasize the research you have done
Mention the advanced text books you used
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
40/44
40
Applying to US Graduate Programs
When choosing schools, apply to
a broad range of schools
programs that have had prior students from
Peradeniya programs that your faculty attended
programs where your research interests match
Spend time on your personal statement Emphasize the research you have done
Mention the advanced text books you used
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
41/44
41
Validity of stated preference valuation
Validity of the measure
Does the estimated value measure thetheoretical objective.
Does the mean WTP from CV match thepopulations mean Hicksian surplus?
The validity can be assessed by comparing it
with a direct measure Most time NMV is used when behavior is not
directly observable
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
42/44
42
Validity of stated preference valuation
Three forms of validity Criterion validity
Compare the SP measure with another measure(criterion) that is closer to the theoretical construct
Construct validity
Test if the SP measure relates to other measures aspredicted by theory. (changes with income, travel cost)
Content validity Tests the quality of the survey instrument that was
used.
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
43/44
43
My Background
Education
BA in Computer Science and Economics
MA (2010) in Applied Mathematics
PhD (2011?) in Applied Economics Research
Mathematical Programming for Reserve Design
GE Modeling of Environmental Tax
Non-Market Valuation using Conjoint Analysis Civil Conflict, Food Security and Poverty
-
8/3/2019 Valuing the Unmeasurable Cj Presentation Verf
44/44
44
Conjoint Analysis
Geographic and temporal scope of the change Single or multiple sites, instantaneous or not... Who benefits, passive uses, relevant behavior...
Most important attributes that influence decisions Number of attributes Levels of each attribute Use focus groups and pre-tests
Experimental Design ChoicesFull factorial designsFractional factorial designsOrthogonal designsRandomized designsCompletely Randomized designs
Data collection methods
Mail SurveyPersonal interviewsTelephone interviewsOnline surveys
Steps in conducting CJ survey1. Characterize the decision problem
2. Identify and describe the attributes
3. Develop an experimental design4. Develop the questionnaire
5. Collect data
6. Estimate model
7. Interpret results for policy analysis or
decision support