A Non-Parametric Approach to the Estimation of Welfare Measures in Discrete Response Valuation Studies

Abstract

ronmental goods. The idea of asking the individual to accept or reject a given price for an environmental good-rather than asking him/her to state his/her reservation price exactly-was introduced in the literature by Bishop and Heberlein (1979). Hanemann (1984) showed how this particular technique of preference revelation could be integrated into economic theory by using the Random Utility Maximization (RUM) model. A salient feature of the studies published to date is the use of a specific parametric statistical model to derive descriptive measures like mean or median Willingness to Pay (WTP) from the discrete response valuation experiment. The purpose of this article is to introduce a non-parametric estimator suitable for discrete response valuation experiments. There are two significant advantages of the approach suggested here; first, no distribution assumption is necessary and, second, it is very simple to use-in fact, the computations can be done on the back of an envelope. The paper is structured as follows: Section II outlines three different (parametric) approaches suggested in the literature, i.e., Bishop and Heberlein (1979), Hanemann (1984), and Cameron (1988). Section III introduces the non-parametric estimator and gives a brief description of the data used to illustrate the methods. Section IV compares the estimators, followed by concluding remarks.