Estimating the Bene ® ts of Agri-e nvironmentalPolicy: Econometric Issues in Open-ended Contingent Valuation Studies

This paper reports on an open-ended Contingent Valuation Me thod study of the conse rvation bene ® ts of Environmentally Sensitive Areas (ESAs) in Scotland. The ESA scheme is a central component of agri-environmental policy in the UK, and an interesting policy que stion conce rns the extent of non-marke t bene ® ts gene rated by such ESAs. The econometric issue s we raise in this pape r revolve around bid curves. Bid curve s are e stimated in open-ended Contingent Valuation Me thod (CVM) studies for three reasons. The se are: (1) as a test of theoretical validity; (2) as a test of discriminant validity; and (3) as a means of benefits transfer. Within the ® rst and last of the se aims, the partial relationship between willingness to pay (WTP) and independent variables such as income is of interest. The re are seve ral econometric issues involved in estimating

such relationships, First, the selection process implicit in obtaining positive WTP bids should be explicitly mode lled. Se cond, many CVM surveys suffer from item non-response with respect to `sensitive ’ questions such as the respondent’s income ; these non-response s may be non-random in nature. Finally, it is possible to dis-aggregate the effect of marginal changes in, say, income on WTP into two elements, namely: an effect

on the probability that the individual will be willing to pay some thing; and secondly, an effect on how much they are willing to pay.